Closing Session: Looking forward:
WHAT ARE THE STAKES FOR AFRICA?
Leonela Santana-Boado,
Co-ordinator, Commodity Exchanges,
Special Unit on Commodity, UNCTAD
ECX-UNDP Knowledge Forum on
“On the Making of a Market: Global Learning from Commodity
Exchange Experiences”, 24 February 2010
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Need for organized markets
With the liberalisation of agricultural trade and
the withdrawal of government support to
agricultural producers outside the OECD, recent
years have seen the rapid creation and growth of
commodity exchanges in developing countries
and countries with economies in transition.
Potential benefits for developing countries
 Market creation
 Market access

Stimulating regional integration & South-South trade
 Facilitate provision of
finance

Price discovery
 Price transparency
 Price risk management
 Reduced counterparty risk

 Quality assurance/upgrade
Infrastructure enhancement
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Options for Africa:
Commodity Futures Exchanges
Over time, virtually all developed country
exchanges moved towards futures trade (a
mechanism for risk transfer), as their
services in physical trade (spot and forward)
became superfluous (most of the exchanges that
were not able to make this change disappeared; the
rare exceptions include the Dutch flower auction
and a cheese exchange in the USA.
0m
BM&F
MGEX
SAFEX/JSE
BMD
WCE
KCBT
C-COM
EuronextLIFFE
NMCE
CME
TGE
NYBOT
MCX
ZCE
NCDEX
SHFE
TOCOM
LME
ICE Futures
DCE
CBOT
NYMEX
Number of commodity futures
and options contracts 2006
Nearly half of world’s leading commodity
exchanges are in the developing world
OECD Exchange
300m
Non-OECD Exchange
250m
200m
150m
100m
50m
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Exchange-traded commodity derivatives Developing Asia leading the charge
Latin
Africa America
100%
Developed Asia
80%
Europe
60%
Developing Asia
40%
20%
0%
2003
North America
2004
2005
2006
Source: UNCTAD
Note: The dataset comprises the world’s leading commodity exchanges, defined as commodity exchanges which trade over 1
million futures and options contracts per annum; CAGR = Compound Annual Growth Rate
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Number of futures & options contracts,
millions
PRINCIPAL CONTRACTS OF THE MAJOR COMMODITY
EXCHANGES (2008)
50
40m
37m
40
28m
30
20m
19m
20
17m
13m
11m
11m
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MAIN GRAINS TRADED IN THE MAJOR
COMMODITY EXCHANGES IN THE WORLD
Exchange
Main grains
Traded
Dalian Commodity Exchange
rice, corn, soyabeans
(DCE, China)
Chicago Mercantile Exchange
(CME, US)
Zhengzhou Commodity Exchange
corn, soyabeans
wheat, rice
wheat
(ZCE, China)
Multi Commodity Exchange
cereals (maize)
(MCX, India)
New York Board of Trade
wheat, barley
(NYBOT, US)
National Commodity & Derivatives Exchange
rice
(NCDEX, India)
Euronext.LIFFE (EU)
corn, soyabeans
red beans
wheat, corns
Kansas City Board of Trade
wheat
Tokyo Grain Exchange
(TGE, Japan)
(KCBT, US)
Winnipeg Commodity Exchange
wheat, barley
(WCE, Canada)
JSE/SAFEX
(South Africa)
Brazilian Mercantile & Futures
maize, wheat,
soyabeans
corn, soyabeans
Exchange (BM&F, Brazil)
Minneapolis Grain Exchange
(MGEX, US)
wheat, corn,
soyabeans
Commodity Exchanges
In the developing world, a commodity exchange may act
in a broader range of ways to stimulate trade in the
commodity sector. This may be through the use of
instruments other than futures, such as the cash or 'spot'
trade for immediate delivery, forward contracts on the
basis of warehouse receipts or the trade of farmers'
repurchase agreements, or 'repos'. Alternatively, it may
be through focusing on facilitative activities rather than
on the trade itself, as in Turkey where exchanges have
served as a centre for registering transactions for tax
purposes.
Critical development challenge:
Smallholder commodity producers
Barriers to rural development:
"75 per cent of the 1.2 billion people
living on less than $1 a day live and
work in rural areas. Moreover, about
half of the world's hungry people are
from smallholder farming communities,
another 20 per cent are rural landless
and about 10 per cent live in
communities whose livelihoods depend
on herding, fishing or forest resources."
—
• Fragmented markets
• Poor infrastructure
• Information assymetries
• Limited access to affordable
credit
• Weak or absent sectoral
support institutions
• Globalising commodity
supply chains with rising
barriers to small producer
participation
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The emerging commodity exchange:
The need for a new breed
" Almost all
absurdity of conduct
arises from the
imitation of those we
cannot resemble."
—
Samuel
Johnson, The Rambler,
#135
• An emerging exchange cannot simply
copy exchange models that have proved
successful in foreign markets under
different market conditions and in
pursuit of different imperatives.
• Instead, the attainment of these
missions requires the development of
new models and the application of new
technologies for building the exchange
as an institution.
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Opportunities
• New offerings
– New contracts and instruments
– New product / service bundles
• New technologies
– Connectivity
– Functionality
– Service enhancement
• New liquidity
– Commercial participants
– Institutional investors
• New partnerships
– Public sector actors
– Private sector actors
– Civil society actors
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Obstacles
• Absent or degraded
infrastructure
– Information and
Communications
– Transportation and logistics
• Lack of awareness
– New concepts
– New practices
– New mindset
• Weaknesses in legalregulatory framework
– Legal environment
– Regulatory architecture
• Absence of intermediaries
– Aggregation
– Information
– Education and training
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Bolsa de Mercadorias & Futuros,
Brazil (BM&F)
Context
Key achievements
• Continuous commodity trading in Brazil since
early 20th century
• The exchange’s room for action squeezed by
varying levels of government intervention
• Agro-liberalisation and deregulation in the
1980s, and increased export orientation
• Providing services that have supported the
commercialization of the agro-economy
e.g. enabling flow of capital into the sector;
enhancing efficiency and transparency of
government support; integrating the domestic
physical market; facilitating export markets
Development impacts
Relevance to smallholders
• Hedging and price discovery are prominent • BM&F mechanisms used by Government to
support smallholders schemes e.g. auctions
• The BM&F subsidiary, “Brazilian
to support government procurement;
Commodity Exchange” has integrated
national cash markets and enables financing channeling finance to smallholders and
providing a secondary market
and export promotion possibilities for agroparticipants
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Dalian Commodity Exchange, China
(DCE)
Context
Key achievement
• Established during economic reform period as • Creating high levels of liquidity for key agroGovernment looked to build market institutions commodities
• The exchange as a mechanism to support
e.g. generated significant trading volumes in
moves towards framework for market pricing
strategic commodities; enhanced market
and market opening
functioning; adapted to emerging dynamics in
important markets - liberalisation, GMO
Development impacts
Relevance to smallholders
• Focused primarily on core price discovery and
price risk management functions
• Important emphasis also on capacity-building
for farmers to use market information
• Financing functionalities are nascent but have
strong growth potential
Major training and capacity-building by
DCE to help smallholders improve cropping
and marketing decisions with market
information
DCE encourages downstream partners to
pass on hedging benefits to smallholders
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EXCHANGES IN AFRICA:
 The SAFEX Agricultural Products Division of the JSE Exchange, South
Africa is the continent’s only commodity futures exchange.
OTHER EXCHANGES IN AFRICA
•
•
•
•
•
MACE (Malawi); The Malawi Agricultural Commodity Exchange
KACE (Kenya); The Kenya Agricultural Commodity Exchange
UCE (Uganda); The Uganda Commodities Exchange
ECEX (Ethiopia); The Ethiopia Commodity Exchange
ZAMACE (Zambia); The Zambia Agricultural Commodity
Exchange
• ASCE, (Nigeria); The Abuja Securities and Commodity Exchange
• ACE (regional, based in Malawi);
• Project in Ghana and Bourse Africa Initiative (Regional)
The way forward
Cooperation among existing Exchanges
Learning
ECX
Dialogue
(Ios, donors,
Domestic/Regional
stakeholders) Association Linkages
ECX edge is integration!
#1.
#2.
#3.
#4.
#5.
#6.
#7.
#8.
#9.
#10.
Clear Objective
Enabling Policy & Good Infrastructure
Market Support
Good Systems
Rules and Surveillance
Correct Contracts
Constant Education
Committed Staff
Adaptable & Relevant: spot to futures
open outcry to electronic
ADD VALUE
Conclusions
Exchanges are versatile instruments, capable of upgrading
commodity sector performance in a range of situations and
addressing emerging challenges as they arise
 In general, exchange services are relevant for smallholders
 however, price risk management is not always an important - or
even relevant service - for smallholders compared with price
information and physical market services
 The exchange is not a panacea, and has depended on an
appropriate regulatory environment and other complimentary
policies and mechanisms
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