A Functioning Commodities Exchange Could Help Address Food Insecurity

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A Functioning Commodities Exchange Could Help Address Food Insecurity

AO
Abimbola OtepolaJuly 04, 2022

Economies around the world have experienced huge volatility in commodity prices following several factors since the global pandemic and the recent Russia’s invasion of Ukraine in February as the two countries play a significant role in global agricultural markets. Recently, Ukraine’s agriculture minister told Reuters that the war will likely create a global wheat shortage for “at least three seasons”, pushing prices sky high.

While inflation in food commodities has experienced globally, African economies have been particularly exposed.

Overdependence on imports threatens food prices

In 2020, African countries imported agricultural products worth US$4 billion from Russia, roughly 90% of which was wheat, and 6% sunflower oil. Russia is also a key producer of fertiliser. As such, when Nigeria-bound vessels stocked with potash, a key ingredient in fertiliser production, become trapped in the Black Sea region, it is a problem for the country.

The grim reality laid bare by the conflict is that Nigeria (one of the highest food importers in the African region) must limit its exposure to sudden global disruptions. Not only does Nigeria's overdependence on Russia and Ukraine threaten food prices in the area, but it also impacts the livelihood of farmers.

Agriculture is hugely important to Nigeria and accounts for about 24 percent of the country’s GDP, smallholder farmers comprising over 80 per cent of all Nigerian farmers. Strong agricultural trade infrastructure that can help to boost productivity at a national level should also enable efficient trade within regional and global systems. And this is where the markets come into play.

Although agricultural commodity markets are still developing in Africa, they can positively affect every part of the food value chain. They can help equalise infrastructure for efficient trade on the continent, from production to supply chains.

Commodity exchanges help unlock finance and level the playing field

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Commodity exchanges provide a critical link to unlocking finance for various commodity value chains within the African context. They can help smallholder farmers access finance and advisory services, enabling them to produce and trade more. As the world strives toward gender equality and empowerment of all women and girls.

It is comforting knowing that women farmers, who are disproportionately affected by the ongoing conflict because they are five times less likely to own land than men and lack the financial resources to invest in farming supplies and services, can increase their yields with the help of a commodity exchange.

At AFEX, we enable farmers to participate in market opportunities through our unique platform WorkBench. It allows farmer transactions with our network of warehouses as well as access input loans to purchase items such as fertilisers - a key component to help increase yields. A well-functioning commodities exchange on the continent will encourage multiple actors to enter the local ecosystem, reducing dependencies on one channel for trade.

Ditch the status quo

As global trade interactions become more standardised, adequately priced, and legitimate, Nigerian farmers will be less dependent on Wheat imports from Russia or Ukraine.

As many governments speak of the need to strengthen food security and become self-sufficient in the face of threats to supply chains, Africa's food systems remain far from this ideal. Agricultural commodity exchanges on the continent can support a move towards improved productivity on a national level, where comparative advantage for the production of the commodity exists.

Rather than continuing with the status quo, African commodity exchanges can play an essential role in helping the continent feed itself in and out of periods of crisis.

How you can help

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At AFEX, we are committed to fight for greater food security for Africans. Young changemakers can support our mission by registering for our Code Cash Crop Hackathon. Registration is open here. https://africaexchange.com/ccc3

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