A private sector driven commodity exchange system is expected to eliminate many problems in the agricultural 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,” said Kabriru Ibrahim, president, All Farmers Association of Nigeria (AFAN).
Frans Ojielu, global financial advisor, ICMG Commodities also recalled that “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.”
“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.
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.
But now, experts and stakeholders opine 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.
Some privately owned commodity exchange companies are already trying to fill the void in Nigeria. It includes 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.