Demystifying agricultural commodities trading

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Demystifying agricultural commodities trading

AO
Abimbola OtepolaMarch 21, 2023

Agriculture has been touted as the backbone of Nigeria’s socio-economic development due to its age-long contribution to the country's GDP. As seen in recent reports, the trading business has also undoubtedly boosted economic growth in Nigeria and other sub-Saharan African countries, with Agriculture contributing an average of 24% to the nation’s GDP over a seven-year period (2013 – 2019). Agriculture is currently the largest sector in Nigeria, as it also accounts for job creation and boosts the economy.

Agricultural commodity trading builds an ecosystem within which commodities trading occurs directly or indirectly, affecting the activities and development of the commodities market and the Exchanges. Commodities trading comprises various elements such as Farmers, Commodity exchanges, Merchants, Aggregators, Processors, Commodity market operators and Warehouse operators. Through an organized collaboration between these elements in the agro-commodity ecosystem, companies such as AFEX are able to build value and increase economic growth, food security, job creation, and economic diversification across the continent.

Commodity Exchange accounts for most of the income generated in rural areas. Smallholder farmers are equipped with easy access to merchants and warehouse operators, making trade execution seamlessly easy. However, it is essential to note that the price of commodities can be very volatile or relatively stable depending on the specific asset or currency involved. Market factors, inflation, and financial depression can also impact these fluctuations. According to AFEX’s annual report, possible increases in food inflation, and other inflationary pressures will continue to rise due to the declining production of major grain commodities, thereby reducing the supply level in the domestic market.

Notwithstanding, with a good ecosystem of operators and merchants, commodities traders can provide vital support for a global model of production and consumption in a complex value chain that includes refining, processing, storage, and shipping. This also brings increased food security, self-sufficiency and food safety through well-functioning markets contributing to a diversified GDP.

At AFEX, our Commodities Exchange has contributed to increased productivity and trade execution. We specialize in soft commodities such as Cashew Nuts, Sorghum, Paddy Rice, Ginger, Maize, and Cocoa. Over the past few years, as AFEX built its commodities exchange trading platform, it has enabled effective trade and settlement commodity transactions and increased productivity of smallholder farmers, as such helping them attain healthy, decent, and profitable farming occupations.

Nigeria’s agriculture sector provides livelihoods to households in rural areas, this sector contributes towards ensuring smallholder farmers are adequately protected. With AFEX’s trade execution, farmers can access output markets, thereby reducing waste, ensuring a year-round supply of focus commodities and steady income generation. The Nigerian government is equally committed to introducing effective policies to improve the commodity trading landscape and protect farmers by integrating new agricultural technologies to improve the sector’s efficiency and increase land productivity.

With proper implementation of policies and infrastructure, the future of the Agro Commodity sector poses scalable and sustainable benefits as the Exchange supports securitization and structured trade finance for commodities.

To trade agricultural commodities, it is necessary to have proper knowledge and understanding of the commodities you need to trade at what time and also to be able to diversify your portfolio. AFEX is happy to help with that - we make available daily data on how each commodity is being traded on the Exchange performs and also do periodic live sessions to educate investors. You can visit the ComX by AFEX page to trade and invest in commodities.

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