Nigeria’s nascent commodity exchange system currently accounts for the significant portion of uncertainties in commodity marketing from producers to end users which includes multinational manufacturing companies and even individuals, as an unstructured market implies adequate planning cannot be done, particularly for futuristic (and investment) purposes.
As agricultural value chain and commerce experts tell BusinessDay, a private sector driven commodity exchange system is expected to eliminate many problems in the sector, where post-harvest losses are as high as 40 per cent for some commodities.
It also frequently experiences gluts in the market for different commodities, leading to price instability, and in cases when prices crash, there is very little income for farmers. Invariably, it is discouraging for potential investors who do not consider the Nigerian sphere viable enough on account of its volatility and uncertainties.
A commodity exchange system brings transparency in prices, ability to plan, capacity to borrow more easily from financial institutions and ability to provide farming production estimates.
“That is the only way the farmer will get value for his or her produce. A commodity exchange is the vehicle that the farmer needs to get real value for his or her produce,” says Kabriru Ibrahim, president, All Farmers Association of Nigeria (AFAN) in a phone interview.
The Economic Growth and Recovery Plan (EGRP) states the government’s intention to re-vitalise the Nigerian Commodity Exchange (NCX) to fast-track exports, improve inventory management and storage capacity at the national level.
“The six Commodity Boards of Cocoa, Groundnut, Cotton, Palm Produce, Rubber and Grains were a great innovation in ensuring product quality, price stability and development of the production areas before they were scrapped in the 1980’s in the wake of trade liberalization and some inefficiencies in the Boards,” Frans Ojielu, global financial advisor, ICMG Commodities told BusinessDay in an emailed note.
“With the renewed focus on agricultural production, marketing support is inevitable to reduce post-harvest losses (sometimes up to 40% ), provide markets and liquidity to farmers, assist in quality enforcement and stimulate agricultural production and processing. These marketing support companies will ramp up production, increase export and generate employment,” Ojielu added.
Experts and stakeholders tell BusinessDay that more private sector driven commodity exchange companies/systems are required to meet the demands of a more than 190 million population, which also substantially feeds into the West and Sub-Saharan Africa markets. Boosting agricultural capacity through commodity exchanges in the country will also see the sector’s contribution to GDP increasing in tandem with increased productivity.
Bello Abubakar, president, Maize Association of Nigeria, told BusinessDay by phone, that “It is good commodity exchange is driven by the private sector; sorry to say but it is the government that is causing the problem.”
Emmanuel Ijewere, vice president of the Nigerian AgriBusiness Group (NABG) also expressed the view that “Commodity exchange is a private sector business, the reason why Nigerian stock exchange market has survived is because it is not run by the government yet it is regulated by the government (security and exchange commission).In the same manner, government can put in place a regulatory body and let people set up commodity exchanges.”
A notable example in Africa is the Ethiopia Commodity Exchange (ECX) which has been described as one of the driving factors of improvements in the country’s agricultural markets. The ECX is set up as a private company owned by a partnership of the markets actors, members of the exchange and the Ethiopian government.
In the same vein, Muda Yusuf, director general, Lagos Chamber of Commerce and Industry (LCCI), also told BusinessDay that setting up a commodity exchange system in Nigeria “should be private sector driven but the government may have to support the development of the structure.”
“And I think we should go and copy the models that are already working, such as Ethiopia. For most of these things, when going into a new terrain such as commodity exchange, best thing is to look at existing models working elsewhere in Africa and replicate same here, but government should have its own input because we are talking about agriculture” Yusuf said.
Abubakar believes a fully structured commodity exchange system will make an impact “because we will have a centre where our commodities will be centralized or commercialized. The prices will be determined by the stakeholders; from the buyers and sellers side. There will be controlled (market-driven) pricing and all other companies or processors of the board will be represented.”
Ojielu also noted that the involvement of the private sector in the commodity exchange will lead to the accentuation of the value chain of production, processing, marketing and establishment of businesses that will make agribusiness business attractive to the teeming young, educated and energetic population in the country.
In Nigeria, private-sector led commodity exchange is already being tried out, and players include AFEX Commodity exchange which offers access to organized commodity trading, financing opportunities, and hedging opportunities which allows for price discovery, investment into improved inputs, mitigation of risk, and trade efficiencies.
There is also the Abuja Security and Exchange Commission (ASCE) which is primarily involved with the trading of commodities such as maize, sorghum and millet, as opposed to trading in securities such as bonds and company stock. However, the two are presently inadequate to meet Nigeria’s large market size and its demands.
CALEB OJEWALE & BUNMI BAILEY
