- Leveraging Commodity Exchange as Loss Reduction Strategy for Farmers
Over the years, smallholder farmers have been experiencing a disorganised market system where they have to sell their products for lower than the market price. This is because fragmentation can lead to farmers being exploited.
Owing to the lack of awareness from farmers, various intermediaries have taken advantage of the disorganised marketing arrangement to exploit farmers.
As a result of the monopolistic nature of such arrangements, the intermediary can enjoy being the only purchaser a farmer has contact with for his produce.
This lack of competition means that a farmer has no choice but to take whatever price is offered. Sometimes, the amount offered to such a farmer for his produce maybe as low as 30 per cent of the on-going market price.
To address this problem, experts say a commodity exchange system offers a more stable, ethical trading platforms whereby farmers can benefit from fairer transactions and learn how to make wiser marketing and investment decisions.
They contend that organised and regulated commodity exchanges can therefore provide revolutionary changes to the way smallholder farmers market their produce.
A commodity exchange is highly efficient platforms for buyers and sellers to meet primarily to manage their price risks better. It is also a system that helps to improve the marketing of their physical products. It makes the economy more inclusive, boosting the links between agriculture and finance, and making the commodity sector more efficient and competitive.
Experts also say the exchange helps to disseminate market price and other information which farmers will not otherwise have access to. This, according to them, will help to stem the tide of post-harvest losses which the Nigerian Stored Products Research Institute estimated to be at $8.9bn (About N2.71trn based on the N305 to a dollar official exchange rate of the Central Bank of Nigeria).
Experts add that once farmers know what the market price is, they can enjoy fairer negotiations with purchasers and can make more informed judgements on what to invest in the future and how to market it. A commodity exchange also facilitates a free and open auction system that helps farmers sell their goods close to the market price, or even above it.
This, according to experts, is another feature that can help farmers make more informed decisions on their future farming activities such as what to invest in and how to diversify their sources of income. This is because the execution of trade between buyers and sellers leads to assessment of fair value of a particular commodity that is immediately disseminated on the trading terminal.
The price information accessible to the farmers determines the extent to which traders/processors increase price to them. Since one of the objectives of commodity exchange is to make available these prices as far as possible, it is very likely to benefit the farmers.
Also, due to the time lag between planning and production, the market-determined price information disseminated by the exchange would be crucial for their production decisions. Some of the agricultural produce being traded on the Nigeria Commodity Exchange are maize, sesame seed, gum arabic, sorghum, cocoa, palm produce, and soyabeans among others.
The Managing Director, New Nigeria Commodity Marketing Company, Mr. Abubakar Musa, says farmers can reduce post harvest losses when they take advantage of the trading opportunities in the commodity exchange. He says already, NNCMC has entered into an agreement with the Nigeria Commodity Exchange to improve marketing of agricultural produce in Nigeria.
This, he says, will enable farmers reduce losses usually caused by price fluctuation. Apart from being able to trade their produce on the exchange, adding that farmers can use the trading platform of the exchange to discover better competitive prices for their produce.
The Managing Director, Nigeria Commodity Exchange, Zaheera Baba-Ari, says that the exchange has been repositioned to a manner where agricultural produce brought to the exchange will not stay more than a week before being sold.
She says, “The basic reasons why commodity exchange are established are to provide market for your commodities and to provide you with storage. Because you find out that the basic problem of most farmers all over the world is storage, market and finance and with the exchange the way it has been developed, we take care of the marketing, we are into warehousing.
“We also ensure that farmers have money to do other things and go back to the farms. We do that through the warehouse receipting system.
“You use your commodities, you don’t have to sell them at harvest time, you use them as collateral, you go to the bank and then you get some money to be able to do some other things and when it’s time for you to sell, you come back take your commodities which have been well preserved and sell it on the Exchange.”
She adds that with the trading platform provided by the commodity exchange, the business of farming will become lucrative.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
Nigeria Takes Bold Step to Energize Oil Sector: Plans to Revoke Dormant Exploration Leases
The Nigerian Upstream Petroleum and Regulatory Commission (NUPRC) has announced that the Federal Government is considering revoking inactive oil exploration leases granted to companies unable to conduct exploration activities.
Gbenga Komolafe, CEO of NUPRC, conveyed that only companies demonstrating robust technical and financial capabilities would retain their leases under the guidelines of the Petroleum Industry Act (PIA).
“Based on PIA, the commission is focused on delivering value for the nation, so only firms that are technically and financially viable will keep their leases,” affirmed Komolafe in a statement to Reuters.
He outlined that the commission plans to review existing leases, and the allocation of new leases will be contingent upon specific terms and conditions.
Current data from NUPRC reveals that over 60% of prospecting licenses, comprising 53 exploration leases issued since 2003, have expired. Of these, 33 licenses, including four entangled in contract disputes, have not been renewed.
While automatic revocation has not been exercised, the regulator signals a departure from allowing companies to indefinitely retain leases without meaningful exploration activities.
The enactment of the PIA in 2021 empowers the regulator to assess the technical and financial capabilities of companies holding oil exploration leases.
The Nigerian oil and gas sector has faced challenges, witnessing dwindling investments as major players exit onshore and shallow water assets due to security concerns, infrastructure sabotage, and legal disputes in the Niger Delta.
The proposed move aims to incentivize active exploration, addressing the sector’s stagnation and fostering renewed investor confidence.
Nigeria Eyes Oil Production Surpassing OPEC Quota Amidst Positive Projections and Global Collaborations
In a strategic move to exceed the OPEC-imposed oil production quotas, Nigeria, led by the Minister of State for Petroleum Resources (Oil), Senator Heineken Lokpobiri, is on a trajectory to outperform expectations.
The recent 36th OPEC and non-OPEC ministerial meeting projected Nigeria’s oil production quota at 1.5 million barrels per day (bpd) in 2024.
However, Lokpobiri revealed in a Twitter post that Nigeria currently produces 1.5 million bpd for crude and 300,000 bpd for condensate.
Addressing concerns about Nigeria’s ability to meet these targets, Lokpobiri assured, “What we are producing is much more than what is projected in the 2024 budget estimate.”
Despite discrepancies between OPEC’s projections and Nigeria’s budget estimates, the minister expressed confidence that the country would surpass the outlined targets.
Furthermore, to fortify Nigeria’s position in the global energy landscape, Lokpobiri engaged in a pivotal meeting with Baker Hughes Chairman, Lorenzo Simonelli, on the sidelines of the ongoing 28th United Nations Climate Change Conference (COP28).
Baker Hughes, a global energy technology company, expressed keen interest in sustaining and enhancing its investment in Nigeria’s oil and gas industry. Simonelli emphasized the company’s commitment to contributing to Nigeria’s energy transformation agenda and collaborating on sustainable energy practices.
Lokpobiri commended Baker Hughes for its longstanding partnership with Nigeria and affirmed the government’s commitment to creating an enabling environment for investments in the refinery sector.
The meeting set the stage for a promising collaboration that aligns with Nigeria’s objectives and contributes to global sustainable energy goals.
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