Coronavirus shows Africa needs more trade in agricultural products
Across the continent, the pandemic has caused significant shocks to agricultural production as the economic, logistical and human costs of the pandemic have prevented farmers and other value chain actors from accessing needed inputs.
During the crisis, there were several national and international initiatives, including the United Nations Food Systems Summit (UNFSS), aimed at pushing for action to prevent food insecurity and transform the African food system. A key aspect of these proposals is to build resilience to the current shock, which could be followed by even larger shocks in the future.
One promising proposition is to build a ‘confidence economy’ for African food systems, based on efficient commodity exchanges that can reduce risks to the sector, unlock finance for key players in the food value chain and offer greater resilience to the main players.
Currently, Africa is developing faster than any continent in setting up commodity exchanges to facilitate asset class diversification, price discovery and market transparency. Africa has around 14 commodity exchanges, 13 of which negotiate agricultural contracts. However, only a few are functional for raising capital solve farmers’ financing problems through innovative financing instruments, while enabling market access, price discovery and financial inclusion for farmers and other value chain actors.
Trade in commodities in Africa should begin with a first step in establishing ancillary infrastructure. Providing storage and logistics networks can enable smallholder farmers to access credit, agricultural inputs and a fair and efficient market system. As Nigeria’s premier private sector commodity exchange, AFEX has deployed a viable commodity exchange model for Africa by building and utilizing Nigeria’s largest supply chain infrastructure to deliver efficient business services as well as innovative products that unlock finance for more than 260,000 farmers and other stakeholders in eight valuable products. Chains.
This essentially involves the aggregation of farmers into clusters and the creation of financial products that can be listed and traded on the stock exchange, including futures and spot contracts. When farmers can sell futures, they can access the funds needed to scale and innovate. These contracts also have implications for market access, as well as increases in productivity, all of which help build the resilience of the food system.
Food systems continue to depend on collaboration among stakeholders to thrive. To promote sustainable and inclusive value chains, value must be shared at all levels with each actor deriving value from their participation. Failure to engage actors to function more inclusive and efficiently leads to food systems unable to meet our food needs.
Commodity exchanges provide the infrastructure for fairer and more transparent trade by offering platforms that can be used as a shared resource for participants in the commodity value chain. Commodity exchanges in Africa can therefore support a transparent and fair market system that facilitates trade, encourages investment and adequately rewards producers, thus leading to more resilient food systems.