Commodity Exchange to benefit farmers

In an exclusive interview with The Zimbabwean a spokesman for Comex said the facility would provide a platform for hedging and price discovery. In line with global trends, most exchanges have adopted an electronic trading platform and the use of the warehouse receipt System (WRS) as the physical storage and delivery mechanism.

He said under Comex farmers could cover the price risk of the agricultural produce by entering into a futures contract which would lock-in the price of the farmers’ produce. “Futures prices give an advance forecast of the likely prices at a future point in time,” he said. “This could be a useful input for the farmer in deciding the cropping pattern. Eliminating the need to use title deeds as security for financing grain production.”

He said the facility would also help depositors sell their grain when market conditions and prices were favourable.

“It will eliminate the issue of delayed payments to farmers. It will also enable processors (millers) to focus on their milling functions while they procure grain through the Exchange. It will also help improve quality and grading of crops in Zimbabwe.”

He said the Commodity Exchange would allow exporters to enter into commitment for delivery at a future point in time and any increase in the price of the underlying commodity in the intervening period could impact on their margins.

“The exporters can, therefore, hedge against an increase in the price at the time of meeting export commitments,” he said. “Manufacturers can also hedge against an increase in the price of raw materials. The Exchange will provide an increased market, market/price transparency, reduced transaction costs, price discovery as well as control risk mitigating through a clearing facility.”

A Commodity Exchange is an organised market place where trade, with or without the physical commodities, is funneled through a single mechanism, allowing for maximum effective competition among buyers and sellers.

Abandoned

The exchange system was abandoned nearly a decade ago when the Grain Marketing Board (GMB) was given a monopoly to buy wheat and maize. GMBs monopoly was removed in 2009 when government liberalised the market to ensure a return to free-market forces, and the resulting competition needed to drive the economy.

A private company, MScEX, said in 2009 that it was on the verge of setting up a commodity exchange and said it had the green light from two commercial banks that had promised to make US$2 million available. Despite the announcement, MScEX never came back to brief the market on progress towards the revival of the exchange. Zimbabwe tried the commodities exchange in the 1990s but the plan was abandoned a decade later.

Under the Zimbabwe Agricultural Commodities Exchange (ZIMACE), a commodity exchange was born in 1994, a brainchild of the Commercial Farmers Union and Edwards and Company, a stock broking firm. The project was abandoned seven years later when GMB was given monopoly over wheat and maize. According to Statutory Instrument 235A of 2001 maize, maize-meal, wheat and wheat-flour became controlled products.

GMBs monopoly was removed in February 2009 when government liberalised the market to ensure competition needed to drive the economy. Finance Minister Tendai Biti told a parliamentary portfolio committee in October that Zimbabwe needed to revive a commodity exchange to eliminate distortion on agricultural pricing.

He said while GMB was buying a ton of maize for US$275, the same ton could be imported from South Africa at US$220. We need as a matter of urgency the restoration of ZIMACE, the restoration of a marketing platform for agriculture, Biti said.