Commodities Exchange to boost small-scale agriculture
Saturday, 15 January 2011 19:05
BY KUDZAI CHIMHANGWA
THE newly-launched Commodities Exchange in Zimbabwe (Comez) is set to
regularise trading of commodities in line with market fundamentals and
increase financing availability for the agricultural sector, observers said
last week.
The development is anticipated to benefit small-scale farmers in the
country.
Comez is an organised market place where trade, with or without the physical
commodities, is funnelled through a single mechanism thereby allowing
effective competition among buyers and sellers.
Speaking at the launch of the commodities exchange on Friday, Commercial
Bank of Zimbabwe economist, Ngonidzaishe Murota said the exchange would
provide a measure of confidence within the country’s banking sector for more
funds to be loaned to farmers.
“The use of inventory as collateral should lead to ease of access to finance
and this also lowers financing costs,” Murota said.
Murota said the banking sector had in the past been reluctant to provide
long- term loans to farmers not only because of their lack of collateral
security but also due to the country’s liquidity crunch.
“A well functioning financial sector will remain an integral component in
the operations of the commodity exchange,” he said adding that banks will
most likely be inclined to accept warehouse receipts as collateral because
they were negotiable and transferable.
In the case of agricultural commodities, trading will be on the basis of
warehouse receipts issued by the exchange operated or approved warehouses
which guarantee quality and quantity of products.
The use of the warehouse receipt system as the physical storage and delivery
mechanism is in line with global trends, also involving the use of an
electronic trading system.
Murota said that besides financing the exchange system, banks would play the
roles of executing inter-broker settlements, ensuring that strict settlement
time-lines are adhered to as well as marketing and information
dissemination.
National chairman of the Grain Millers Association of Zimbabwe, Tafadzwa
Musarara welcomed the introduction of Comez but urged authorities to address
the debilitation of the industry’s operating environment.
“Imports have severely affected the milling industry. From 310 players we
now have only 25 who are still functional plus they are operating at 5%
capacity utilisation,” Musarara said.
He said the influx of South African imported maize meal was choking local
players out of the market as the imports can be sold at cost-recovery prices
owing to South Africa’s recurrent surpluses.
A Zimbabwe Farmers Union representative, Prince Kuipa reiterated the need
for policy consistency in terms of market liberalisation adding that
controls would ‘kill’ the system.
“There is also a need for the adoption of a legal and institutional
environment that is supportive of such a market,” Kuipa said.
The commodities market has come at a time when Zimbabwe expects to gain
economic leverage through the sale of tobacco this coming season.
Comez enables depositors to sell their grain when market conditions and
prices are favourable while eliminating the large number of intermediaries
between the farmer and the market, which had become common practice in
Zimbabwe.