Leonela Santana-Boado, Co-ordinator, Commodity Exchanges, Special Unit on Commodity , UNCTAD

1. 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

2. 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.

3. Potential benefits for developing countries  Market creation Stimulating regional inte- gration & South-South trade Price discovery  Price risk management Infrastructure enhancement •  Market access • Facilitate provision of • finance Price transparency  Reduced counterparty risk Quality assurance/upgrade 3

4. 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.

5. OECD Exchange Non-OECD Exchange Nearly half of world’s leading commodity exchanges are in the developing world 5

6. Exchange-traded commodity derivatives - Developing Asia leading the charge Latin America Africa Developed Asia Europe Developing Asia North America 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 6

7. PRINCIPAL CONTRACTS OF THE MAJOR COMMODITY EXCHANGES (2008)

8. Exchange Main grains Traded rice, corn, soyabeans Dalian Commodity Exchange (DCE, China) corn, soyabeans Chicago Mercantile Exchange wheat, rice (CME, US) wheat Zhengzhou Commodity Exchange (ZCE, China) cereals (maize) Multi Commodity Exchange (MCX, India) wheat, barley New York Board of Trade (NYBOT, US) rice National Commodity & Derivatives Exchange (NCDEX, India) corn, soyabeans Tokyo Grain Exchange red beans (TGE, Japan) wheat, corns Euronext.LIFFE (EU) wheat Kansas City Board of Trade (KCBT, US) wheat, barley Winnipeg Commodity Exchange (WCE, Canada) maize, wheat, JSE/SAFEX soyabeans (South Africa) corn, soyabeans Brazilian Mercantile & Futures Exchange (BM&F, Brazil) wheat, corn, Minneapolis Grain Exchange soyabeans (MGEX, US) MAIN GRAINS TRADED IN THE MAJOR COMMODITY EXCHANGES IN THE WORLD

9. 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.

10. Critical development challenge: Smallholder commodity producers "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."— • Barriers to rural development: • 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 10

11. The emerging commodity exchange: The need for a new breed • 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. "Almost all absurdity of conduct arises from the imitation of those we cannot resemble." — Samuel Johnson, The Rambler, #135 11

12. 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 12

13. Obstacles • Absent or degraded infrastructure • Information and Communications • Transportation and logistics • Lack of awareness • New concepts • New practices • New mindset • Weaknesses in legal-regulatory framework • Legal environment • Regulatory architecture • Absence of intermediaries • Aggregation • Information • Education and training 13

14. Bolsa de Mercadorias & Futuros, Brazil (BM&F) Context • 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 Key achievements • 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 • Hedging and price discovery are prominent • The BM&F subsidiary, “Brazilian Commodity Exchange” has integrated national cash markets and enables financing and export promotion possibilities for agro-participants Relevance to smallholders • BM&F mechanisms used by Government to support smallholders schemes e.g. auctions to support government procurement; channeling finance to smallholders and providing a secondary market 14

15. Dalian Commodity Exchange, China (DCE) Context • Established during economic reform period as Government looked to build market institutions • The exchange as a mechanism to support moves towards framework for market pricing and market opening Key achievement • Creating high levels of liquidity for key agro-commodities e.g. generated significant trading volumes in strategic commodities; enhanced market functioning; adapted to emerging dynamics in important markets - liberalisation, GMO Development impacts • 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 Relevance to smallholders • 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 15

16. EXCHANGES IN AFRICA: • The SAFEX Agricultural Products Division of the JSE Exchange, South Africa isthe continent’sonly commodity futures exchange. OTHER EXCHANGES IN AFRICA • MACE (Malawi); The Malawi Agricultural Commodity Exchange • KACE (Kenya); The KenyaAgricultural 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)

17. The way forward Cooperation among existing Exchanges Dialogue (Ios, donors, stakeholders) Learning ECX Domestic/Regional Linkages Association

18. ECX edge is integration! #1. Clear Objective #2. Enabling Policy & Good Infrastructure #3. Market Support #4. Good Systems #5. Rules and Surveillance #6. Correct Contracts #7. Constant Education #8. Committed Staff #9. Adaptable & Relevant: spot to futures open outcry to electronic #10. ADD VALUE

19. 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 19