THE setting up of a vibrant Agricultural Commodity Exchange will be essential for Zimbabwe’s economic recovery as it has the capacity to stimulate the circulation of money, experts have said.
BY KUDZAI CHIMHANGWA
A commodities exchange is an open and organised marketplace where ownership titles to standardised quantities or volumes of certain agricultural commodities are traded by its members.
Securities Exchange Commission of Zimbabwe (SECZ) chief executive Tafadzwa Chinamo said such a trading platform could stimulate more circulation of money in the economy, with benefits for investors and producers.
“This will provide a whole lot more securities that people can invest in, although the exchange is driven by different fundamentals as compared to regular exchanges,” he said.
The calls come at a time when the economy is experiencing an acute liquidity crunch, rapidly sliding into deflation and company closures while more farmers have turned to tobacco for cash.
The Commodity Exchange of Zimbabwe (Comez) was launched over two years ago but stalled due to bureaucracy, lack of co-ordination between various government bodies in the inclusive government and a chronic funding shortage.
As a result maize farmers, for instance, continue to be subjected to inconsistent producer prices below their expectations without any formula as to how such prices are arrived at.
For the producer, a commodity exchange brings transparency in prices, ability to plan, capacity to borrow more easily from financial institutions and ability to provide farming production estimates.
Additionally, small producers can meet with bigger institutional investors via this platform.
“However, this type of exchange does not work where government has control over products. It functions well in a liberal market,” Chinamo said.
Chinamo said this exchange would have to be registered first but the SECZ has not yet received an application in this regard.
Zimbabwe’s commodity exchange was created in 1994, being a product of the Commercial Farmers Union and stock broking firm, Edwards and company.
Seven years later, the project was abandoned after government gave the Grain Marketing Board monopoly over wheat and maize. Wheat flour and maize-meal became controlled products.
However, farmers continue to experience serious challenges over payment for commodities delivered to the GMB forcing many to abandon controlled crops.
Zimbabwe consequently has to import maize and other food crops from neighbouring countries.
Commercial Farmers Union business manager Richard Taylor said as long as there was no secure land tenure or tradable lease agreements, farmers’ access to funding will remain limited as banks will not lend without some form of security.
This development has led to a switch to contract farming.
“Any commodity exchange that is set up should be run by the private sector and monitored by the government department responsible for agriculture. However in today’s environment this is unlikely to work or be as effective as it should be due to a number of factors,” he said.
As more farmers have switched to contract farming, they are obliged to supply a stipulated yield to the contract company at fair price.
“This will negate the farmers’ need for a commodity exchange as prices are set and to some extent negotiated between the contract company and the farmer,” Taylor said.
The traditional small scale producers also have their own logistical issues such as transport, access to market trends and price, quality of product, small parcels or quantities of produce and market access among others.
There are small traders or buyers of produce who travel to these distant areas to purchase farmers’ produce at farm gates.
Prices that are paid to the farmer by these traders for their produce on the whole are way below market related prices on the day.
“For a commodity exchange to work one requires large volumes of the various agricultural commodities. Large scale and medium scale farmers need to access these funds through our banks, small scale farmers need to access finance through micro financiers,” he said.
The exchange could also boost commodity financing.