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Coronavirus shows Africa needs more agricultural commodity exchanges

By Akinyinka Akintunde
Posted on Friday, 8 October 2021 16:40

Photo supplied by AFEX.

Rising food prices and a dwindling supply of staple commodities, partly a result of the Covid-19 pandemic, have laid bare challenges in the agricultural system and exposed the threat to Africa’s growing population of hunger, malnutrition, and poverty.

Across the continent, the pandemic has caused significant shocks to agricultural production as the economics, logistics, and human costs of the pandemic inhibited farmers and other players in the value chain from accessing the required inputs.

Through the crisis, there have been several national and international initiatives, including from the United Nations Food Systems Summit (UNFSS), intended to prompt action to prevent food insecurity and transform Africa’s food system. A key aspect of these propositions is building resilience to the current shock, which could be followed by even greater shocks in the future.

One promising proposition is to build a “trust economy” for Africa’s food systems built on efficient commodities exchanges that can de-risk the sector, unlock finance for major stakeholders in the food value chain and offer greater resilience for key players.

Currently, Africa is growing faster than any continent in setting up commodities exchanges to facilitate diversification of asset classes, price discovery, and market transparency. Africa has about 14 commodities exchanges of which 13 trade agricultural contracts. However, only a few are functional in raising capital to solve the financing issues of farmers through innovative financing instruments, while enabling access to markets, price discovery, and financial inclusion for the farmers and other value chain players.

Supporting infrastructure

Commodities exchanges in Africa should start with a first step of establishing ancillary infrastructure. Providing storage and logistics networks can enable smallholder farmers to gain access to credit, farm inputs, and a fair and efficient market system. As Nigeria’s first private-sector commodities exchange, AFEX has deployed a viable commodities exchange model for Africa by building and utilizing Nigeria’s largest supply chain infrastructure to provide efficient trade services alongside innovative products that unlock financing for over 260,000 farmers and other players in eight commodity value chains.

This essentially involves the aggregation of farmers into clusters and creating financial products that can be listed and traded on the exchange including future and spot contracts. When farmers can sell futures/forwards, they can access the funds needed to scale and innovate. These contracts also have implications for market access, as well as increases in productivity, all of which contributes to building food system resilience.

Food systems remain dependent on collaboration among stakeholders to thrive. To promote sustainable and inclusive value chains, value must be shared across the board with each player deriving value from participating.  Inability to incentivise players to operate in more inclusive and efficient ways leads to food systems that are unable to deliver our food needs.

Commodity exchanges provide the infrastructure for fairer and more transparent trade by offering platforms that can be utilized as a shared resource for commodity value chain participants. Commodity exchanges in Africa can therefore support a transparent and fair market system that facilitates trade, promotes investments and rewards producers adequately, thereby leading to more resilient food systems.

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