Commodity exchanges are cornerstones of trade and finance. When the model is deployed effectively, they contribute to economic growth and development. Through trading activities, commodity exchanges are able to promote fair prices, open markets, and equitable distribution of wealth across commodity value chains. In agriculture specifically, they can offer significant benefits to smallholder farmers who are typically excluded from high-value agriculture market chains, even as they also hold a lot of benefits for processors and other stakeholders.

Due to the vital nature of commodity trade in national and regional economies, several strategies or models are often explored to drive up efficiency and incentivize players. Players in commodity markets run the gamut from regulators and market operators to brokers and investors, however, we will be focusing on two key models that have been explored to contribute to sustainable growth and success of the commodities market in Africa: commodity boards and commodity exchanges.

Commodity Boards: Promoting Commodity Development

Commodity boards are institutions set up by the government to maintain and control the efficient organization of commodities. They work in oversight and regulatory capacities across the agriculture value chain, leveraging research and experience to ensure fair, organized prices of farmer crops, improve the quality of commodities, stabilize producer prices, and overall contribute to the growth of commodities export. Commodity boards oversee specific commodities, and they are responsible for regulating production, pricing, and marketing activities related to the specific commodity.

Within the commodity ecosystem, challenges across price fluctuations, poor crop quality, lack of research and innovation, poor policy coordination, and limited farmer support hinder the growth of resilient, stable markets. Commodity boards exist to bridge that gap. In their regulatory capacity, they set production quotas, quality standards, and price controls, and in turn, this contributes to price stability and predictability which is essential for farmers, processors, suppliers, and even consumers to thrive.

Commodity boards are not new concepts. Across the world, governments set up boards to oversee specific commodities with goals defined by the specific needs of the markets they represent. These needs could cut across guiding production, export, and minimum stable pricing of different commodities.

In Nigeria, commodity boards date back to 1977, with the establishment of the Commodity Boards Act that witnessed the creation of 6 boards catering to Cocoa, Groundnut, Cotton, Palm, Rubber, and Grains. The purpose of these boards was to drive production to meet domestic requirements, and then oversee exports; conform with stipulated grades and quality standards; as well as promote research and development to drive the growth of these commodities. They were scrapped in the late 1980s as part of the Structural Adjustment Programme (SAP) that aimed to liberalize the economy and reduce government intervention. However, there have been calls for their revival in recent years to address some of the challenges facing the agricultural sector.

Commodity Exchanges: Fostering Efficiency and Price Discovery

As we mentioned earlier, commodity exchanges are an essential aspect of trade and have existed for thousands of years. Fundamentally, they are marketplaces that facilitate the trade of standardized commodities. Exchanges are Licensed by regulatory bodies like the Securities and Exchange Commission. Commodity exchanges provide a centralized environment for buying and selling commodities and operate an open and transparent platform that allows for efficient price discovery, fair trade, and risk management.

Commodity exchanges are crucial aspects of the commodity value chain, particularly within the African context, as they help smallholder farming communities in disconnected rural areas unlock finance to boost productivity and ultimately trade more; they foster healthy market competition as well as price discovery based on supply and demand dynamics. Also, they can provide access to data and analysis, allowing market participants to make informed investment and consumption choices.

A Balanced Approach for Sustainable Commodities Market Growth.

As commodity markets grow and evolve, the imperative for sustainability in terms of practices and access to resources becomes clearer. In the quest for sustainable market growth, commodities exchanges that promote market-led competition, fairness, transparency, and liquidity are the obvious path to strengthening trade. Commodity exchanges put transactions in Africa on par with what is happening across the world, establishing a functional, organized trade regime both for intra-Africa trade, with the AfCFTA, and for world trade.

By leveraging the strengths of commodity exchanges, policymakers, market participants, and regulatory authorities can create a dynamic ecosystem that promotes fairness, stability, and innovation, which is key to ensuring the resilience of commodity markets.