New African commodities exchanges aim to help producers

Two new African commodity exchanges, one already launched and another due within a year, aim to boost producers' returns and give small farmers access to credit.

The Agricultural Commodity Exchange for Africa (ACE), launched six months ago for spot and forward trade in agricultural commodities in Malawi, Zambia and South Africa, has so far seen trade worth $3 million.

The Pan African Commodities Platform has a more ambitious project to launch a commodities exchange in every African country from a hub in Botswana, and aims for a delayed start in November 2007 or April 2008.

India's fast-growing Multi-Commodity Exchange (MCX) is also looking at opportunities in Africa, Joint Managing Director Lamon Rutton said on May 16.

"Small producers are marginalised (a) by small volumes and (b) by a lack of information," ACE Chief Executive Ian Goggin said on the sidelines of an international commodity exchanges conference in Istanbul, Turkey.

Advances in technology have made these new exchanges possible. Goggin's exchange is looking into sending market information by mobile phone while electronic exchanges are cheaper than conventional market places. "Technology has made it infinitely more accessible and viable for these exchanges to establish themselves ... today you can basically do it on a desktop and you can communicate and handle a very high workload," said Pan African Commodities Platform CEO Anthony Adendorff.

That exchange, which expects to invest $28 million in the first three years, will start in Botswana, Egypt, Uganda, Nigeria and Zambia. Energy, minerals and agricultural commodities will be traded on spot and derivative markets.

Both African projects aim to bring producers directly to the market, boosting their prices. Future contracts also provide a kind of insurance to allow small farmers better access to credit, which in turn can boost productivity. "We regard (the exchanges) as an essential part of this whole strategy of improving access to credit for farmers through hedging," said Alexander Sarris, director of the U.N. Food and Agriculture Organization's Trade and Markets Division.

Some African officials at the Istanbul conference were cautious about the pan-African plan, and are focused instead on national projects, for example in Senegal where a futures market for cereals and fruit is expected to in 2008, according to Fatou Gaye Sarr, an agriculture ministry director.

Goggin says ACE, indirectly funded by USAID, has already affected quality by establishing four different tradable types of maize in Malawi instead of the one standard used before. It also creates markets that previously did not exist as products usually discarded in one country, such as maize bran, can now be sold to another where there is a use for it. They will also encourage donors to buy through the exchange.

Goggin says such exchange can develop quickly, citing growth of volumes in Zimbabwe's agricultural exchange ZIMACE from $1 million at its launch in the mid-1990s to almost $700 million in 2001 before government controls undermined it.

But experts say harmonising regulation is the biggest challenge for an international market. "That is the main obstacle, all the other issues can be addressed at very short notice. It's harmonising regulation that is the important one," Adendorff said.

Reuters