The following blog post explores how Commodity Exchanges can transform the lives of farmers and reduce food insecurity.

The Russia-Ukraine conflict and soaring inflation rates have created a surge in global commodity prices that has left many African countries struggling to address shortages in essential commodities.

Nigeria, Egypt, Kenya, Sudan, Algeria, and South Africa are some of the many African countries that rely on imports of wheat, maize, and fertilizer to feed their growing populations. But the surge in commodity prices threatens food insecurity in these countries and the continent. The price of wheat alone is expected to increase by more than 40 percent in 2022, according to the World Bank.

The supply chain disruptions have raised questions about what African countries are doing to help farmers maintain their livelihoods and reduce food insecurity.

According to the FAO, in Nigeria alone, more than 70 percent of the population engages in Agriculture, mainly at the subsistence level. Some analysts have pointed to the potential of commodity exchanges to transform the lives of African farmers. Commodity exchanges allow buyers and sellers to trade commodities under a fair, transparent, and standardized process.

One of the most successful exchanges in Africa is the AFEX Exchange, which ranked third in the Financial Times’s list of Africa’s fastest-growing companies and recently expanded its operations to Kenya.

“Over 45% of AFEX farmers are food secure or have enough food to sustain them for the entire year,” said AFEX CEO, Ayodeji Balogun, in an interview with CNBC Africa. “Compared with baseline data, only 15% of farmers in Nigeria are food secure.” In 2021, the total number of registered farmers in the government’s database was 5.7 million.

Here are five ways that commodity exchanges can transform the lives of farmers:

• Access to Finance

Access to finance is critical for African farmers as they need money to purchase seeds and fertilizer. Commodity exchanges can solve this problem through loan programs or through a warehouse receipt system. AFEX has launched a $1 million loan program that allows 5000 farmers in Kenya to take out loans to purchase commodities.

The exchange is also helping farmers get better access to finance through its Workbench Platform. The platform allows farmers to use the receipts of the inventory they hold at an AFEX warehouse as collateral to borrow money from banks.

• Better prices

Commodity exchanges allow farmers to access a larger group of buyers and sellers on a regular basis, which leads to better prices for crops. Many farmers struggle to find a market for the goods they produce, which means they are forced to rely on middlemen who charge inflated prices.

One of the functions of a functioning commodities exchange is to establish a standardized price for commodities.

• Access to storage for smallholder farmers

Nigeria loses N3.5 trillion to post-harvest loss each year because it lacks proper storage facilities, according to agritech firm Farmcrowdy. Another report by SBM Intel says 47% of farmers have zero access to any kind of storage facilities during harvest.

The absence of storage facilities forces many farmers to store their produce in their homes, which causes the crops to spoil and drives up production costs. AFEX has built a network of more than 100 warehouses across 23 states - the largest in the country. Under AFEX’s warehouse system, farmers can store grains for up to seven months.

• Access to a larger market

Commodity exchanges use their platforms to give farmers access to several buyers of their crops. These platforms allow farmers to get precise market information about the market for their crops. Timely access to information also allows farmers to plan ahead, raise their prices when best suited, and make more money.

How you can help

At AFEX, we are committed to fighting for greater food security for Africans. Changemakers can support our mission by registering on our trading platform - ComX - which enables financing for various value chain activities while allowing investors to make a decent at per or above market return.