Recently, Nigerian Commodity Trading Exchange in Collaboration AFEX Commodities Exchange Limited organised a two-day training seminar on Commodity Trading and Risk Management in Abuja, where stakeholders brainstormed on food prices volatility and high transaction cost, LINUS OOTA who was there reports.
Nigerian Commodity Exchange, NCX, was established to provide a practical solution to a number of challenges that have adversely affected the growth and development of the Nigerian agricultural sector, especially the heavy post-harvest losses associated with poor warehousing and the absence of a ready market for the disposal of farm produce at realistic prices.
The NCX is an end-to-end integrated system of decentralised trading, warehousing, quality certification of commodities, clearing, settlement, delivery and market information. It enables agro-commodity merchants, exporters and industrial end users to have access to reduced transaction costs in terms of cost of logistics and aggregation of commodities.
The exchange is very vital as it stimulates the production of surplus commodities to enable farmers and farmers’ cooperatives to bulk their agricultural commodities for trading on the Exchange.
It is a fact that Nigeria is richly endowed with agricultural resources that have been underexploited. Years ago, it was the leading exporter of palm oil and peanuts, and has the prospect to recover these markets and become a major producer of other products that could either be exported or consumed locally to cut food import costs.
To realise the potential of its agricultural resources, Nigeria needs modern and efficient markets in which processors and exporters can access produce and smallholder producers can access fair prices and secure loan finance so they can invest and modernise production.
Also, it is certain that with all the efforts at reviving the agricultural sector, much result will not be achieved without putting in place strategic marketing structures across the value chains as many African farmers face several challenges in marketing their products. This is why the recent commodity trading and risk management seminar is considered timely.
The problems of inaccessible road, lack of infrastructure and lack of standard price measure for the produces thereby making farmers across Nigeria to incur huge loses both financially and in post-harvest losses.
Speaking at a two-day training seminar on Commodity Trading and Risk Management in Abuja organised by a London-based subsidiary, INTL FCStone Ltd, in partnership with AFEX Commodities Exchange Limited AFEX, the Director-General of the Securities and Exchange Commission, SEC, Mr. Mounir Gwarzo said in a bid to boost agriculture and promote commodity exchange in Nigeria, SEC would roll out several initiatives to provide an enabling environment for commodities trading in the country, adding that the Commission was already reviewing the Warehouse Receipt Bill currently before the National Assembly and has assured that it will actively advocate its passage.
He explained that the 10-year capital market master plan which the Market is currently implementing is the blueprint for the growth and development of the market over the next decade, stating commodities exchanges as critical for enabling investment diversification, risk management, price discovery and transactional efficiency and expressed strong belief that to boost Nigeria’s competitiveness, a thriving commodities trading ecosystem must be developed.
Gwarzo further said countries that were part of the study are also emerging countries with the most vibrant commodities markets such as India, Brazil, China, Malaysia and South Africa.
According to him, considering the important role commodities exchanges will play in advancing Nigeria’s economic diversification goals, the capital market community has taken steps to prepare the stage for vibrant commodities exchanges to emerge in the country.
“Normally, farmers who have produce sell them through the exchange, just like people would sell shares. Before them, the produce is inspected and certified as tradable. Sellers and buyers place their products and orders, which they execute in a transparent manner. The future aspect of the exchange takes a price risk management function as it helps farmers to avoid serious losses when prices fall. It also enables farmers to receive a guaranteed price from a purchaser or intermediary and facilitates more effective planning and investment because of greater income predictability,” he said.
Representatives from the Federal Ministry of Agriculture and Rural Development, Engr. Adeoye, who gave the remark, said the ministry has signed a Memorandum of Understanding, MoU, with AFEX on partnership while it is also partnering with the Nigerian Commodities Exchange Commission to develop the commodity market.
“This seminar has come at a right time as agriculture is in for a big business and with the MoU with AFEX, we have solved a major market problem for farmers and we have given them seven of our storage facilities even though they are still asking for the biggest one which we are working on. The government is ready to partner with the private sector that is ready to make agriculture great.
Experts believe that commodity exchange will do well with an economy made up of large commodity producers and many of them are top suppliers worldwide.
They said Nigeria, being one of the largest producers of agro commodities in West Africa, is lagging behind in such market infrastructure, saying Nigeria is a home of a non functioning exchange.
Taking the participants in various training, the senior vice president of ENEA INTL FC Stone limited said the objectives of the training include but was not limited to, enabling the stakeholders describe the developments in operating and trading in commodity markets and exchange, address the need for investment and finance of commodity production while evaluating and identifying the scope to mitigate risk from commodities exposures, participate in hedging strategies more knowledgably, interact with professional advisers to implement appropriate risk management and gain economic and commercial advantage from market participation.
After the training, groups during their meetings agreed that efficient commodity exchange in Nigeria would require adequate infrastructure, effective regulations that are enforced, lower exchange cost, standardisation, clear settlement system, effective data capturing, legislation, control over participation, orderly market, insurance, finance raising capacity, risk management, storage and effective governance structure, saying continuous education is necessary, with an arbitration mechanism put in place with supportive service and phase implementation plan.
Participants also identified six risk factors in agriculture commodity trade in Nigeria which include quantity, price, financing, delivery; delivery quality and credit counterparty, saying that stakeholders would have to look out for this.
At the seminar, stakeholders were taken through several training on modes of trading, exchange-based trading and why many African countries are following the exchange-based route; essential components of an efficient commodity market; commodity risk in Nigeria analysed into financial infrastructure; managing risk and the pivotal role of finance; financing through warehouse receipts and crop finance among many other training in order to improve trading.