Farouk gumel - Importance of Commodity Exchange

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Farouk gumel - A Commodity Exchange or Comex is a
regulated market allowing the purchase and sale
of contracts backed by commodities such as gold,
silver, crude oil, and so on. Such an exchange
serves as the central location for trading the
commodities. Some of the major commodity
exchanges in the world are Chicago Mercantile
Exchange (CME), Chicago Board of Trade (CBOT),
Carbon Trade Exchange (CTX), New York Mercantile
Exchange (NYMEX), London Metals Exchange (LME),
Tokyo Commodity Exchange (TOCOM) and more.
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In its simplistic form, the purpose of exchanges
is to provide a centralized marketplace where
producers can sell their commodities to those who
want to use them for processing or consumption.
In its simplistic form, exchanges connect buyers
to sellers. The sales could be for products that
exist today or those that would be produced at a
future date. For the future transaction, the
exchange enables the farmer to lock in the price
and offtake of his/her crop months before
harvest.
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Commodity exchanges mostly trade in primary
products rather than manufactured products. This
means in continents like Africa where primary
production thrives, the existence of Commodity
Exchanges will be a critical link between the
producers and processors (both within and outside
the continent). It is important to note that most
of the commodities traded on the main
international exchanges, such as Coffee, wheat,
maize, sugar, oil, and cocoa, are products that
are prevalent on the African continent. It,
therefore, makes sense for this trade, or at
least part of it, to be executed within the
continent.
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Where Would We Be Without Commodity Exchanges?
Without commodity exchanges, it would be
difficultif not impossibleto establish a
standardized price for a commodity. Those in the
commodity industry would be personally
responsible for finding individual buyers and
sellers (local and foreign). Prices would be
determined by access. There would be a higher
possibility of defaults and bankruptcy as there
would be no platform that vets the transactional
parties.
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• Benefits of Commodity Exchanges for Africa?
• To Farmers/Producers
• Engender perfect knowledge of the agricultural
  produce markets
• Bring about proper price discovery leading to the
  proper pricing of agro-produce
• Reduce the cost of farming operations and improve
  quality of agro-produce through the adoption of
  best practice procedures
• Reduce or eliminate price differentials in
  adjacent markets
• Improve aggregation (bulking) of commodity
  volumes
• Effectively mobilize agricultural produce from
  surplus to deficit areas
• Minimize waste in agricultural produce marketing
  and consumption

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• Improve output and post-harvest handling of
  agricultural crops for better pricing
• Improve income and standard of living.
• Standardize weights and measures for commodity
  trading to facilitate uniform pricing
• Eliminate the need for farmers to sell produce at
  harvest period when the price is poorest
• Provide a hedging facility as an instrument
  against falling produce price
• Improve access to loans as farming will become
  more lucrative

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• To the African Economy
• Arrest rural-urban drift
• Create employment and generate wealth
• Improve Internally Generated Revenue and its
  collection as commodity markets will become more
  organized
• Increase the supply of raw materials for
  agro-processing companies
• Encourage research into the processing of African
  agro-produce
• Increase the earnings of operators such as banks,
  insurance companies, investment fund managers,
  transporters, warehouse operators, etc
• Attract Direct Foreign Investment in agro-related
  economic sectors
• Provide access to world markets for African
  agricultural produce
• Improve the contribution of the agricultural
  sector to national GDP

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Farouk Gumel, an Executive Director at TGI Group,
a pan African conglomerate says Africa is the
dominant producer for many agricultural
commodities so its imperative to have an
organized and efficient commodities market to
spur growth and competitiveness. Farouk Gumel
states having control of a sizable chunk of the
commodity ecosystem will assist in moderating
consumer prices, promote the attractiveness of
agribusiness, foster financial inclusion and
improve industrial output and profitability as
well as government revenue. It will also enhance
the wellbeing of the farming community and help
reduce rural-urban drift.
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Farouk Gumel concludes that the journey for many
developed nations to prosperity started with
having a vibrant and balanced commodity exchange
that encourages production through the provision
of offtake assurance. The same could happen in
Africa if such commodity exchanges are embraced.

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