HomeOpinion & AnalysisColumnistsComment: Let market forces determine commodity prices

Comment: Let market forces determine commodity prices

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Latest Press reports indicate that almost a year after being launched, the Commodities Exchange of Zimbabwe is yet to start trading.

The reason given is that funding is yet to be secured to get this vital exchange going. We wonder why there is still insistence on putting this exchange under government’s ambit. A viable exchange would be one which is run by the private sector.

We go back to the closure of Zimace, the first private commodities exchange in the country and one that was efficiently run. That is where world economies are going, private enterprise.

The prevailing thinking by government at the time Zimace was closed was that it was interfering with the operations of the Grain Marketing Board (GMB), which by statute was the sole body that was supposed to deal in agricultural commodities. That ought not to be the view.

As a gentle reminder, institutions such as the GMB were part of a myriad of such that were formed during Unilateral Declaration of Independence (UDI) as a means of circumventing sanctions on the UDI government. Zimbabwe was then a closed economy, almost economically isolated from the rest of the world.

What also made the GMB viable then was that the government of that day had a quota system, where it was compulsory for farmers to deliver specific quantities of produce for the GMB at a price stipulated by the GMB. It was excess produce that could find its way elsewhere, but still, as the sole legal purchaser of agricultural products, the GMB remained largely the sole market.

We shall not delve into the distortions and inefficiencies caused by such State involvement, but suffice to say outside abnormal situations as prevailed during UDI, their purpose become questionable. Granted, government is still concerned about maintaining strategic grain reserves and no one can fault it.

However, the GMB can remain the facility, the holding of strategic reserves, but the rest of agricultural marketing should be left to the free markets, and a private commodity exchange is central to this if government is at all serious about boosting agriculture.

It should allow market forces to determine the price of agricultural products by letting buyers and sellers have their own platform to determine prices.

Instead of being seen as a threat, a private exchange should be seen as complementing the efforts of the GMB. If government then feels that market force prices are below what it perceives to be fair prices, it can always buy the produce itself, taking the role of purchaser of last resort.

The rich European nations play a similar role by providing their farmers with subsidies. But the truth is we are not there yet. Even though the GMB has in some instances offered higher prices for products, it hasn’t paid the farmers. Now what good is that?

There have also been many instances where private players offer more than the GMB. Already, although there isn’t a formal private exchange for agricultural products, the market exists.

One only has to see the myriad of advertisements in our national newspapers where buyers are looking for sellers of agricultural produce and vice versa.

Many of the deals are concluded outside the GMB. The differences in prices offered by the purchasers already shows demand and supply rules at work.

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