The Commodity Exchange in Zimbabwe (Comez) was finally launched last Friday after two years of planning.
The launch brought along high expectations from stakeholders in the agriculture sector especially smallholder and communal farmers that have for years suffered from unscrupulous middlemen.
Comez is expected to play a key role in unlocking funding for agriculture and facilitate the orderly trading of commodities in the country. On the offing in Comez are spot markets, where the payment as well as delivery is immediate while there is also a futures market.
Futures markets are markets where contracts are traded for delivery at a future date.
This is an agreement between two parties to buy or sell an asset at a certain time in the future for a certain price.
For agricultural commodities, trading will be on the basis of warehouse receipts issued by the exchange operated or approved warehouses which guarantee the quality and quantity of products.
Prince Kuipa, a representative from Zimbabwe Farmers Union, said the commodity exchange market empowers the farmers to make informed marketing decisions.
He however said there was still need to address the challenge of poor storage, road network and quality of produce amongst the smallholder farmers.
Kuipa noted that delays in payment by the Grain Marketing Board over the years had militated against the efforts of smallholder farmers to develop.
“Going forward there will be need for policy consistency, a legal and regulatory framework especially on the operations of Warehouse Receipt System,” said Kuipa.
The warehouse receipts system, also known as inventory credits, can facilitate credit for inventory or products held in storage.
These receipts, sometimes known as warrants, when backed by legal provisions that guarantee quality, provide a secure system whereby stored agricultural commodities can serve as collateral, be sold, traded or used for delivery against financial instruments including futures contracts.
These receipts are documents that state the ownership of a specific quantity of products with specific characteristics and stored in a specific warehouse.
Officially launching Comez, Acting President John Nkomo called on government and private sector to join hands in uplifting the agriculture sector.
In a speech read on his behalf by Minister of State in the President’s Office Didymus Mutasa, Nkomo said, “In the face of dire challenges of food security, locally, regionally and internationally our country can definitely not afford the luxury of missing the opportunity to set up and provide a sustainable marketing platform. The initiative to set up a commodity exchange will go a long way to effectively stimulate increased productivity”.
Nkomo challenged communal and smallholder farmers to move away from subsistence agriculture to large scale commercial farming.
He said the launch of the market came at an opportune time when the country’s agricultural sector had been yearning for a practical solution to a number of challenges that have adversely affected its growth and development.
CBZ economist and Bankers Association of Zimbabwe representative Ngonidzashe Murota said financial institutions would play a critical role in the successful operation of the exchange.
He said banks would be critical in executing inter-broker settlements and ensure that strict timelines are adhered to.
“Streamlining of clearing and settlement system is necessary for the success of Comez,” said Murota.
“Comez must appoint a competent collateral management company as part of a bankable warehouse system that will protect the interests of banks and offer professional indemnity whereby they will reimburse the full amount of the loan in the event of a loss or damage in the commodity.”
He said there would also be need to improve warehouse security and also reinforce agriculture-based organisations such as the Zimbabwe Farmers Union and Commercial Farmers’ Union among others.
Comez interim chairman Wilson Nyabonda said the setting up of the market was in response to calls by farmers for a framework that would safeguard their livelihoods.
“This is the dawn of a new era,” said Nyabonda. “We are starting with grains and cereals but will expand to cover other commodities within the shortest possible time.”
Industry and Commerce Minister Welshman Ncube said the new market would not only be a stimulus to the agriculture sector but to the economy in general.
“As government we look forward to the
commencement in real life of the exchange and hope that by the time we get to the 2011 harvest the commodities will be fully traded on the market,” said Ncube.
He said the strength of Comez lay in the fact that primary stakeholders where the drivers in ideas and implementation.
Ncube said the market would create a transparent, open and accessible commodities market where both seller and buyer are able to participate knowing fully well the prices of goods and their availability.
He said the country would be in a better position to determine the quantity of commodities the country would have at any given time. Ncube said there would be no conflict of interest between Comez and Agricultural Marketing Authority as the latter was a regulatory body that would not interfere with the operations of the former.