UNCTAD’s Actions to Improve the Functioning
of Agricultural Commodity Markets
- All ACP Agricultural Commodities Programme
UNCTAD, Special Unit on Commodities
UNCTAD Virtual Institute Presentation
Geneva, October 2011
1
Structure of the Presentation
I. Overview of the AAACP
II. UNCTAD’s thematic working areas under the
AAACP and main achievements
• Market Information Service
• Agricultural Commodity Finance
• Commodity Exchanges
• Market Access: Sustainability Claims Portal
III. Post-AAACP: The way forward
2
Overview of the AAACP:
General Information
• Funding institution: European Union
• Budget: 45 million euros (15 million earmarked
for cotton)
• Term: Five years (Sep. 2007 – Dec. 2011)
• Overall objective: To improve incomes and
livelihoods for ACP producers of traditional
and other agricultural commodities, and to
reduce income vulnerability at both producer
and macro levels.
• Implementing organizations: UNCTAD, FAO,
ITC, World Bank, CFC
3
Overview of the AAACP:
Innovative Approaches
• Utilize the expertise of five international
organizations already active in the area of
agricultural commodity development and
promote collaboration among IOs to jointly
implement the AAACP;
• A participatory process involving main
commodity value chain stakeholders to
develop commodity strategies;
• A commodity value chain approach for sectoral
diagnosis and strategy development.
4
UNCTAD’s Thematic Working Areas
under the AAACP
1. Market Information Service
• Infocomm: http://www.unctad.info/infocomm
• Infoshare : http://infoshare.unctad.org
2. Agricultural Commodity Finance (e.g.
warehouse receipt system)
3. Commodity Exchanges
4. Market Access: Sustainability Claims Portal
• http://www.unctad.org/scp
5
Market Information Service
6
Role of Market Information Service
• Reduce asymmetry in access to key commodity
information and encourage more efficient arbitrage;
• Enable farmers to negotiate better prices, and
contribute to improve the fairness of market price
formation and equitable distribution of trade benefits;
• Enable policy makers to judge the performance of
agricultural commodity markets, detect any marketing
inefficiencies along the supply-chain and to make
better policy decisions;
• Enhance food security by stimulating intra-regional
trade and response to dramatic food shortages.
7
Market Information Service: INFOCOMM
http://www.unctad.info/infocomm
• INFOCOMM is a multilingual electronic portal on
information and factors influencing commodity markets.
It is organized under 10 headings ranging from
product characteristics and crop value to export
markets and prices. It also includes links to major
product organizations, international research groups
and universities.
• INFOCOMM aims to provide accessible, reliable and
updated commodity market information, in particular in
response to the scarcity of commodity information in
low-income commodity producing countries.
8
Market Information Service: INFOSHARE
http://infoshare.unctad.org
• Infoshare is a tailor-made information
database conceived to adapt to the national
commodity supply chains and to the local
telecommunications set-up. It enables partners
to collect, analyse and disseminate information
on prices, costs, quantities sold, quality
standards, and so on.
9
Main Achievements under AAACP
- INFOCOMM
• Officially launched in August 2011;
• Portal was transferred to a new web platform and
upgraded with a new design;
• Portal is adapted for a wider audience, especially
producers and policy makers in ACP countries;
• A special focus is given to the agricultural commodities
which are of great interest of ACP countries:10
additional commodity profiles important for the
economic development of AAACP countries were
added to INFOCOMM.
10
Main Achievements under AAACP
- INFOSHARE
• Pilot project for the cocoa and coffee sectors launched
in Cameroon in collaboration with the National Cocoa
and Coffee Board (NCCB);
• Developed INFOSHARE system in other countries and
regions (Caribbean and Pacific) by drawing lessons
learned in the implementation of INFOSHARE in
Cameroon;
• Strengthened the capacities of beneficiaries of
INFOSHARE to understand, analyze and use
commodity market information in order to improve the
efficiency of their operations.
11
Agricultural Commodity Finance
12
Agricultural Commodity Finance: Rationale
Impact of the liberalization of agricultural sectors
1980s and 1990s:
• Withdrawal of government from many agricultural marketing
functions and drastic reduction of the financial resources;
• Agricultural value chain operators, in particular les small
producers and SMEs are facing many challenges in access to
agricultural finance;
Emerging trends in International Trade since 1990s:
• With increasing competition among sellers, there is trend toward
unsecured transactions based on open account terms;
• The globalization of supply chains and the integration of SMEs
and small producers into these chains provide new opportunities
for the development of alternative financing tools.
13
Structured Finance vs. Traditional Finance
• Transaction based
• Looking to the flow of the
goods
• Focus on borrower’s
perfomance capacity
• Possible lower financing
costs even with high
country risk
• Innovative loan security
(commodities or future
proceeds)
• Balance-sheet based
• Looking to the flow of
funds
• Focus on borrower’s
creditworthiness
• Financing costs closely
linked with country risk
• Traditional loan security
(savings, physical assets,
third party guarantee)
14
UNCTAD’s Working Approach on Agricultural
Commodity Finance under the AAACP
To create an enabling
environment for
agricultural commodity
finance
Improving access
to finance by
small producers and SMEs
To develop appropriate
financing mechanisms
for specific commodity
Capacity building on
alternative financing
instruments
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Main Achievements under AAACP
Supported the development of structured
commodity financing tools to improve small
producers and SMEs finance in ACP countries:
• Warehouse receipt financing and inventory
credit (or warrantage);
• Factoring/receivable discounting
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A warehouse receipts financing scheme
(public warehouse)
4. Provide credit
Producer/
PO
3.Lodges receipts with bank
Bank
1. Deposits
goods
Guarantee, insurance
5.Signs
contract
sales
2.Issues receipts
Trader
Warehouse
7. Trader
delivers receipt;
warehouse
makes delivery
Guarantee
agencies
Approves
Warehouse
Government
regulator
6. Reimburses credit; in return, bank transfers receipts
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Benefits of Warehouse Receipt Systems
• Availability of eligible collateral;
• Possibility of access to credit with lower
interest rates;
• Lack of credit track records for small farmers is
no longer a major constraint;
• Reduce distress sales and potentially
contribute to smoothing seasonal price
movements;
• WRS provides a mechanism for delivery
against exchange contracts.
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Warrantage scheme
Magasin of
PO
1.Deposit
goods
2.Issue
Receipts
4.Provides
credits
8.Transfers
receipt &
takes goods
in the
presence of
MFI
Producer
or small
group
5.Negotiate
sales
contract in
consultation
with MFI
3.Lodge receipts
with MFI
Microfinanc
e
Institution
7. MFI transfers
receipts
6. Payment to the
account of PO
Trader
19
Main Achievements under AAACPWRS/Warrantage
1.
Best practice sharing and capacity building on
WRS/warrantage:
•
Review of Warehouse Receipt System and Inventory Credit
Initiatives in Eastern & Southern Africa, and a sub-regional
capacity building workshop in 2009 in Lusaka;
Review of Experiences in Warehouse Receipt Systems and
Warrantage for the Financing of Agriculture in West Africa, and
a sub-regional capacity building workshop in 2010 in Accra.
•
2.
Developing WRS/warrantage for a specific
agricultural commodity in a country:
•
•
Gum Arabic in Mali
Coffee & cocoa in Cameroon.
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Factoring/Receivable Discounting
US definition on factoring
" a continuing arrangement between a factoring concern and
the seller of goods or services on open account, pursuant to
which the factor performs the following services with respect
to the accounts receivable…"
1.
2.
3.
4.
Purchases all accounts receivable for immediate cash;
Maintains the ledgers and performs other book-keeping
duties;
Collects the accounts receivable;
Assumes losses which may arise from the customer’s nonpayment.
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Domestic factoring flowchart
1.
2.
③
Seller
①
② ④
⑤ ⑦
Factor
Buyer
⑥
3.
4.
5.
6.
7.
Seller submits the request to
the Factor.
Factor considers Buyer’s
creditworthiness and
approves financing limit.
Factor and Seller sign
factoring agreement.
Seller delivers the goods to
Buyer and issues the
invoices.
Seller assigns the invoices to
Factor and informs Factor of
any special payment
arrangements.
Factor finances the value of
the invoices at the previously
agreed rate.
Factor collects receivables at
the end of the credit period.
Factor remits to Seller the
balance in excess of the
finance cost.
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Key points on Factoring
• Short-term, working capital financing
• Serve SMEs with large number of transactions
• Finances only post-invoice contractual
obligations
• Factor needs confidence that Buyer accepts
goods
• There needs to be absence of continuing
obligations by Seller after delivery of goods
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Main Achievements under AAACP - Factoring
Caribbean Regional Capacity Building Workshop on
Factoring/Receivable Discounting in November 2009 in
Barbados
Main findings of the workshop:
• Factoring/receivable discounting can be potentially a financing
instrument to improve agribusiness finance in the Caribbean.
• Main challenges to be addressed: the capacity of local financial
institution to design and develop the appropriate product; market
conditions; the education of potential clients (producers and
SMEs), the establishment of credit information of buyers.
• Concerted efforts are required from development banks, farmers
and SMEs, policy-makers, regional bank and institution and
development partners.
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Commodity Exchanges
25
Commodity Exchanges: Definition
“A market in which multiple buyers and
sellers trade commodities, and/or
commodity -linked contracts on the basis
of rules and procedures laid down by the
exchange.”
This includes: Spot trade for immediate delivery of
the commodity, forward contracts, warehouse receipts
trading, commodity-based futures and options
contracts, and trade facilitation services.
26
Role of Commodity Exchanges
in developing countries
•
•
•
•
•
•
Price discovery;
Price risk management;
Investment venue;
Facilitation of physical trade;
Facilitation of financing;
Market development.
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Some important points
• Exchanges are versatile instruments, capable of
upgrading commodity sector performance in a range
of situations and addressing emerging challenges as
they arise.
• The extent to which the exchange can enhance the
development of underlying commodity sectors in large
part depend on the services offered and the strategic
priorities pursued by the exchange.
• The exchange is not a panacea, and depends on an
appropriate regulatory environment and other
complimentary policies and mechanisms.
• In general, exchange services are relevant for
smallholders, in particular in the areas of price
information and physical market services.
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Requisites for the creation of Commodity
Exchanges in ACP countries
• Commodity traded must be easy to compare, with grades widely
accepted by commercial parties;
• Local market prices must be sufficiently volatile to create large
price movements;
• Need the building blocks of trade facilitation - good roads,
transport companies, weigh bridges, warehousing, collateral
management services, communications;
• Minimal government intervention on pricing;
• Strong commercial interest on all sides of the trade - producers,
consumers, traders, banks, & speculators;
• Large numbers of physical buyers & sellers and high volumes of
physical trade;
• Physical buyers & sellers are doing enough business with each
other that they have high levels of credit risk;
• Potential users of the exchange are using the exchange price as
the reference for physical trading.
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Main Achievements under AAACP - ESA
The Establishment of the African Commodity
Exchange Forum (ACEF) in February 2010 in Addis
Ababa,
as the outcome of an ESA regional capacity building workshop
on “Improving the Functioning of Commodity Markets in Eastern
and Southern Africa through Warehouse Receipt Systems and
Market-based Interventions” held in 2009 in Lusaka.
Overall objective of the ACEF:
• To foster the establishment and growth of commodity exchanges
in Africa.
Specific objectives of the ACEF:
• Promote mutual learning and knowledge sharing;
• Enhance capacity building;
• Engage in policy advocacy.
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Main Achievements under AAACP - Caribbean
• Assisted in the upgrade of the existing commodity
exchange in the Dominican Republic (Bolsagro) from a
manual to an electronic platform;
• Promoted greater participation by farmers in Bolsagro
by hosting a multi-stakeholder workshop;
• Raised awareness in the Caribbean regarding
commodity exchanges as tools to increase marketing
efficiency;
• Established a road map for the creation of electronic
linkages between commodity exchanges in the region.
31
Sustainability Claims Portal
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What are Sustainability Claims ?
Sustainability Claims are defined as distinctive
symbols or “labels” borne by products which
authenticate that the product’s life cycle (from the
production phase to the consumer), complies with
sustainable agricultural practices and socially
responsible principles;
•
•
•
•
Sustainability Claims include;
organic standards;
fair-trade standards;
environmental/ecological standards;
geographical indications.
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Sustainability Claims Portal: Definition
A web based information tool to:
• Enhance accountability, increase transparency on trade in
agricultural commodities marketed under sustainability
claims/labels;
• Define requirements for organic production, fair-trade,
environmental and social accountability schemes.
It Provides ACP producers and EU consumers with:
• a central access point to existing sustainability schemes;
• a clear presentation of relevant minimum requirements to small
producers and cooperatives which may be different from current
sectoral standards;
• provide objective and broad advice on sustainability schemes
available to ACP producers and the potential benefits and
constraints of participating in certification schemes.
34
Main Achievements under AAACP
1. Developed and launched the online Sustainability
Claims Portal with following information uploaded:
•
•
•
•
•
Information on sustainability claims;
Certifier requirements;
Contact details for sustainability label providers;
General information on sustainability issues;
Other useful documents for users.
2. The portal is available in English and French.
3. Enhanced awareness on certification standards
through capacity-building workshops and portal
launches in the Pacific (March 2010), the Caribbean
(February 2011) and the West Africa (May 2011).
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Post-AAACP: The Way Forward (1)
• To continue follow-up activities under the four
components of UNCTAD’s work
MIS: Further promotion of the INFOCOMM at the national level;
Support the development of additional national market
information systems, based on INFOSHARE technology.
Finance: Build on the existing achievements and continue to
provide technical assistance for the implementation of follow-up
activities.
Commodity Exchanges: Continue to support commodity
exchanges development in ACP countries through direct technical
assistance and advice, and awareness raising.
SCP: Improve the portal based on the feedbacks received from
capacity building workshops and provide more information
specific to the region and by commodity.
36
Post-AAACP: The Way Forward (2)
• By drawing the experience gained from the AAACP to
further enhance the cooperation and synergies with
other four IOs in future activities of UNCTAD;
• To enhance the research work on commodity market
information, agricultural commodity finance,
commodity exchanges and standards and market
access, based on the field information obtained
through the implementation of the AAACP.
• At the request of commodity-dependent developing
countries, to provide tailored technical assistance
under the four thematic working areas of SUC.
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For more information on UNCTAD’s work under
AAACP:
http://www.unctad.info/en/Special-Unit-onCommodities/Events-and-Meetings/All-EU-ACP-
For Technical Cooperation:
Mr. Samuel Gayi, Head, Special Unit on Commodities
samuel.gayi@unctad.org
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Thank you
www.unctad.org
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