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Wednesday, 29 May 2013

Unfinished Business

Zambia Agricultural Commodities Exchange (ZAMACE) Limited recently urged GRZ to implement the Agricultural Credits Act, 2010 to enable rapid development of the commodity exchange. The 2010 Act introduced a legal framework for the operation of the warehouse receipt system in Zambia which is vital for ZAMACE. But for three years the Act has still not been implemented.

A warehouse receipt is a document which proves title to and deposit of a specific quantity and quality of a stored commodity in a specific "certified storage" location. It can be used by the holder to access financing against the deposited commodity from a financial institution. The "certified storage" operator can be any private entity which invests and manages grain storage (charging appropriate storage and handling fees).

It is vital that the Act is operationalised so that our country can  begin to reap the benefits of fully functioning private sector led commodity exchange. What is the point of legislation when things are not being operationalised?

Alongside the usual substantial gains that trade in commodities bring, a fully functioning ZAMACE would contribute towards the development of fair, orderly, and efficient marketing systems, and; moves us towards more efficient and reliable supply chains, thereby helping smallholder Zambian farmers to produce more for the market. This will all contribute towards a growing and competitive domestic agricultural industry and in turn lead to enhancement of Zambia’s export competitiveness.

There many ways in which it does this, but two comes immediately to mind. First, it increases transparency and price discovery. That's critical because for many smallholder farmers, the lack of information on alternative offers certainly prevents them from realising tradable opportunities. Secondly, as ZAMACE grows it should increase the level of trading activity and thereby provide more certainty to farmers at least at the aggregate level. This would partly stem from increased trading opportunities with international buyers who may distribute demand shocks more evenly (the point here being that trading with several people distributes the risks of "bad times" better than trading with a single person), but also through providing a mechanism that facilities efficient and reliable transactions.

Of course that is not to say ZAMACE is a panacea for agriculture growth or ending poverty. Although ZAMACE can contribute towards better long term alignment of supply and demand and provide better regulation of market conduct (through encouraging better trading standards), it will not solve other agricultural challenges we have discussed many times on this Page. So government priority must focus on a dual strategy of tackling the issues I raised in the post “Securing our Food” and supporting private sector initiatives like ZAMACE that provide solutions to market conduct and encourage transparency and price discovery.

The recent removal of subsidies of course is one of those things I have championed for a while and a cardinal step towards a better and more sustainable agriculture. Freeing up such resources may even allow Government to invest in ZAMACE! It is also vital that going forward the Food Reserve Agency (FRA) is encouraged to purchase a larger proportion of agriculture products to meet is "food security goals" through ZAMACE.

Copyright © Zambian Economist 2013

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