Farmers Sceptical About “Complicated” Exchange Market
By Stanley Kwenda
HARARE, Mar 30, 2011 (IPS) – Kindness Paradza has a mission. After he lost
his job as a journalist when the ZANU-PF government closed his newspaper in
2004, he ploughed his life savings into a 2,000 ha farm he received as part
of Zimbabwe’s controversial “land reform programme”.
Since then he has been patiently rotating land use between crops such as
tobacco, wheat and maize. He now hopes to build a business enterprise with
profits from his farm.
The launch of the new commodity exchange could have come as a boon for him,
as he now has more room to negotiate better prices. Previously this space
for negotiation did not exist as the state-owned Grain Marketing Board (GMB)
was the sole buyer of grain.
However, Paradza, like many new farmers, is not celebrating the arrival of
the Commodity Exchange of Zimbabwe (COMEZ).
Although it has been promoted as a mechanism to minimise exploitation of
farmers by agricultural buyers and usher in orderly trading of commodities,
while creating opportunities for farmers to get better prices, Paradza
remains sceptical.
“We don’t know it and, surely, how does something that you don’t know help
you?” Paradza asks rhetorically.
COMEZ is a commodities market; commodities markets across the world trade in
agricultural products such as wheat, barley, sugar, maize and cotton, with
contracts based on them.
These contracts can include futures. A simplified example would be: a maize
farmer can sell a futures contract on her maize, which will not be harvested
for several months, and guarantee the price to be paid at the time of
delivery.
The futures contract is bought with a guarantee that the price will not go
up when it is delivered. This protects the farmer from price drops and the
buyer from price rises. COMEZ will initially trade grains, cereals and oil
seeds.
According to the ministry of industry and commerce, COMEZ is meant to
“provide fair and open prices” for agricultural produce as reflected on the
market.
The minister of industry and commerce, Welshman Ncube, told IPS at the
launch of COMEZ two months ago that it would serve as a mechanism to break
the state monopoly in the grain trade.
“We should create a transparent, open and accessible commodities market
where both buyers and sellers can participate, knowing the prevailing
prices,” Ncube said.
In the last 10 years, the Agricultural Marketing Authority (AMA) determined
the prices of agricultural produce, while GMB was designated as the sole
buyer of grain. AMA is the regulator of grain pricing in Zimbabwe.
Tafadzwa Musarara, president of the Zimbabwe Grain Millers’ Association,
welcomes COMEZ but says it should be organised in line with international
standards for it to work properly.
“It is welcome in the sense that the contracts that farmers will enter into
with grain traders and other buyers will give them bankable papers which
they can use to capitalise their operations, rather than working on a cash
basis as is the case right now,” Musarara told IPS.
“Nevertheless, it is important that we come up with structures that are in
line with international practice in order to attract foreign buyers.”
Most farmers still do not understand what exactly COMEZ does and why it was
established. They would prefer to see how it practically works before
committing any of their produce.
Paradza complains that, “we know that it is not going to work in our favour
because of the commissions that we will be asked to pay at the warehouse,
auctions and traders — just like they do at the Zimbabwe Stock Exchange.
The traders will sell on our behalf and it is those traders who will make
money”.
Alice Machingauta, a Chihota farmer, told IPS while delivering her tobacco
crop that, “I haven’t heard about it but if there are merchants involved
then I don’t want it because the merchants are only there to reap what they
did not sow”.
Grain trader and economist Tinashe Mawarire told IPS that COMEZ suffers from
the fear of the unknown.
“Farmers are used to delivering their produce to GMB and waiting for the
announcement of the price. The advantage with COMEZ is its willing-buyer-
willing-seller arrangement, unlike in the past when everyone was compelled
to sell to GMB only,” Mawarire points out.
“If you are not happy with the price, you don’t sell. It’s as easy as that.”
Analyst Brains Muchemwa cautions that, “farmers need to be educated on how
COMEZ works and how they can get better prices”. (END)