Leveraging Commodity Exchange as Loss Reduction Strategy for Farmers

• 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.