Commodities exchange will boost agriculture, mining

One crippling aspect of running an industry in Nigeria is the challenge of sourcing raw materials. A materials engineer, Dr. Patrick Irabor, while addressing a forum on Nigeria's ceramics resources several years ago, identified the dearth of suppliers of quality raw materials as one of the factors that led to the collapse of the nation's ceramics industry in the 1980s whereas the natural resources for the production of industrial feed abound locally.

 In his view, most manufacturers would not wish to be saddled with the business of sourcing feedstock. They would rather patronise dependable spots where graded raw materials could be conveniently and consistently sourced. Manufacturers would be happier concentrating on the business of production while miners and ore processors would do the supplying, according to the specific grades required by the industries.

The foreign exchange challenges currently facing local manufacturing concerns could rev a resolve to look inwards and source materials locally. For example, the geosciences community has consistently campaigned against the importation of barytes and bentonitic clays in the oil industry; but the government has not maintained a resolve because local miners and processors can hardly meet the needs of the oil industry, not only in terms of quantity but in quality and consistency.

This need can be addressed through the presence of viable commodities exchange in the country not only for mining products but also for agricultural commodities. No one wants to plough where he is not sure to reap and this has been the bane of Nigeria's agriculture and solid minerals sectors since the excision of the marketing boards of yesteryear. Is it possible to achieve the expected economic proceeds from the revamp of the agricultural sector without the establishment of structures that facilitate the distribution of goods, risks and profits? A viable commodities exchange is one of such essentials. Production is not an end in itself. According to Wiki sources, a commodities exchange is a market where various commodities and derivative products are traded. Most commodity markets across the world trade in agricultural products and other raw materials and contracts based on them.

These contracts can include spot prices, forwards, futures and options on futures. Commodities exchange usually trades future contracts on commodities, such as trading contracts to receive something, say corn in a certain month. A farmer raising corn can sell a future contract on his corn, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a breakfast cereal producer buys the contract now and guarantees the price will not go up when it is delivered. This protects the farmer from price drops and the buyer from price rise.

Speculators and investors also buy and sell the future contracts in attempts to make profit and provide liquidity to the system. Available statistics show that about 25 per cent of grains and up to 50 per cent of fruits and vegetable produced in the country waste as post-harvest losses. The exchange, through its linkages, will channel products to areas of need, including industries, thereby reducing post-harvest losses. The import of a commodities exchange and how it will benefit the solid minerals subsector was well captured in the provisions of the botched 2002 National Assembly bill for the establishment of a Solid Minerals Development Commission sponsored by Uzoka. He had said,

"The Commission shall operate Joint Venture arrangement with the Organised Private Sector, local or international, to establish a private sector-led world-class Solid Minerals Commodities Exchange to pave the way for the entrance of big-time operators into Nigeria's solid minerals sector in promoting quality control as well as deriving benefits for the nation, which include membership of well-established international commodities exchanges.

" Farming, mining and all primary production businesses are highly risky and are even pointless where markets have not been discovered. Many became disenchanted with farming in previous times, not just because they had no capital, seeds or fertilizers, but because there were no organised and ready outlets to pay them for their labours, while they concentrate on farming. A commodities exchange will, therefore, be the welcome relief and the real incentive for agriculture entrepreneurs.

The crude oil market, which is already highly developed, with predetermined international pricing systems, is still the only source of revenue the country can count on for now. Oftentimes, goods are exported without real or internationally accepted grading and pricing standards that the buyers will respect.