Grain millers welcome commodity exchange

25 Nov, 2016 - 00:11 0 Views

The ManicaPost

Players in the grain processing sector have welcomed Government idea to set up a grain commodity exchange as enshrined in its two-year Interim Poverty Reduction Strategy Paper (2016-2018) as they project this will not only yield competitive pricing and improved quality of the commodity in the market but also attract investment into local agricultural production.

A commodity exchange is an entity or a trading place that determines and enforces rules and procedures for the trading of commodities and related investment such as commodity stocks.

It gives regulations to trading of commodities which minimize risks of underpayment of the particular items; controls market forces and attract investment into the bourse.

These have been successful in countries such as Ethiopia, Uganda, South Africa and India, with trading reaching US$1,4 billion in Ethiopia in 2014 and Government plans to set up the country’s first commodity exchange before 2018 as a way of formally liberalising while ensuring transparency and strict regulation in the grains market.

Currently the grain market is heavily reliant on the state’s grain purchasing entity, Grain Marketing Board (GMB) as the buyer of first choice at a time the parastatal was inadequately resourced to purchase the country’s entire grain output.

This has led to massive market segmentation in terms of pricing of the commodity owing to the emergence of a parallel market for grain whilst short changing buyers (millers) with substandard quality in the absence of an official regulator to determine grade value.

In an interview with Post Business this Tuesday, Grain Millers Association president Mr Tafadzwa Musarara said the introduction of a grain commodity exchange is a timely initiative at a crucial point when the country was expecting to boost grain output with the commencement of Command Agriculture expected to stimulate competitive grain pricing following input subsidies from government.

Farmers normally factor high pricing of farming inputs as a major cost driver of grain in the country.

“The commodity exchange will bring fairness to the market thus it will bring competitiveness as farmers will be rewarded for their efforts and buyers will be charged what is worth their money. Currently in the local market we are paying for the quantities and not the quality of grain,” adding that despite depleting grain supply from the local market as a result of low production, this was affecting local product competitiveness as both the cost and quality were unpalatable compared to grain imported outside.

“You should appreciate that the majority of our maize and wheat that we are milling locally is being imported from countries that are already running on their respective commodity exchange especially South Africa so we have seen the benefits that it has bought to their grain market which are competitive prices, quality products and notable investment into agriculture,” said Mr Musarara.

Countries with a vibrant commodity exchange such as South Africa and Ethiopia enjoy substantial amount of investment through latest agricultural technologies which ensures efficiency in their production value chains cost effectively.

Currently a tonne of maize in the local market is being charged at US$ 390 whilst grain from South Africa depending on the season cost an average of US$ 180.

Observers note that a commodity exchange will also help communal farming communities who produce a significant proportion of the country’s total grain but due to limited resources they suffer losses through decaying of their produce as they do not have sufficient and quality storage facilities to keep their commodity whilst they struggle to access markets.

“A critical component of having a commodity exchange is that by liberalizing the market it opens new business lines such as investment in storage facilities or warehouses registered to the commodity institution and that will provide sufficient storage of grain such that as trading of stocks progresses throughout the course of the year, grain is kept safe and maintains its graded quality,” said Mr Charles Dhewa, an agronomist in agricultural markets with eMkambo, a physical and web based knowledge platform for agriculture markets and products.

However Mr Musarara bemoans low production as the country’s biggest challenge owing to depressed investment in agriculture support infrastructure such as irrigation, research and affordable inputs.

“Local supply of grain is very depressed and we need to have instruments such as this one (commodity exchange) to attract capital. Huge investment is needed to ensure efficiency and increase output through acquiring latest technology in agriculture which will improve our competitiveness. Our biggest challenge is low production. In 2000, we produced about 1.8 tonnes of maize per hectare but currently we are doing 800 kilograms per hectare,” he said.

Analysts have however noted that liberalizing the grain market to external players means high cost structures for local production will have to be addressed in order to remain competitive at an international level.

The high cost electricity, labour and water for irrigation has rendered the country’s grain as the world’s most expensive maize which is a major deterrent of international investors to the envisaged commodity exchange.

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