RICH HARVEST - JSE MAGAZINE

RICH HARVEST

New commodities contracts could help boost regional agricultural development

RICH HARVEST

The JSE has reached a milestone via a partner-ship with Zambia that may lead to great trading opportunities of white maize, bread milling wheat and soya beans in Southern Africa. The partnership between the Zambian Commodity Exchange (ZAMACE) and the JSE is expected to provide an efficient price risk management platform from which to grow the grain markets of both Zambia and SA. The arrangement will afford the former the opportunity to become a global supplier of core commodities.

‘We are very excited about this development. It has been a great journey. I believe it’s a game-changer for Zambia, as it will open up opportunities for price risk management and financing of grain,’ says Chris Sturgess, the JSE’s Director of Commodities. ‘It’ll also provide another source of supply for South Africa, which has been in the grips of a severe drought.’

The JSE signed a co-operation agreement with ZAMACE that will act as a licensing authority for warehouses. ZAMACE will approve warehouses in terms of the Agricultural Credit Act in Zambia and serve as a partner to promote futures contracts in the Zambian community.

Sturgess hopes the arrangement will be up and running by the first quarter of this year. For the JSE, it is a rewarding culmination of years of work.

‘We’ve been working on this for over three years,’ he says. ‘We required a lot of policy changes to accommodate trading in dollars. We got Reserve Bank approval for the JSE to trade and settle in US dollars, and then got the necessary support from the Zambian entities.’

A big boost for Zambia will be access to the financing of grain. ‘In South Africa, we take for granted that all the major banks will finance grain on receipts. If banks have access to a futures contract in Zambia, this could take off there too.’ Sturgess says the Reserve Bank has been key in putting systems in place, and that he was very encouraged by the strong support for free-market principles shown by Zambian Minister of Agriculture and Livestock, Given Lubinda.

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‘I believe it’s a game-changer for Zambia, as it will open up opportunities’

‘We’ve been greeted with support from across the board. Much credit should go to the Reserve Bank, which saw an opportunity for South Africa to add value to the region and trade in dollars.’ He adds that the Zambians will benefit in that they would have the ability to manage price risk, not only in the short term but on a three-month or six-month-out contract.

‘It would also assist in planning. Zambian producers will be able to see whether they need to plant more of a specific commodity or switch to another where there is greater demand.’

Growth in the Zambian maize industry could also help SA, which has been battling with a shortage of the crop due to the recent drought. ‘There’s been a huge run on white maize prices, driven by the fear that a large part of the Free State and North West provinces may not be able to plant. The planting window is narrowing very quickly. If the Zambians commit to planting more white maize, this could help South Africa,’ says Sturgess.

‘The important thing is that we are able to further develop the regional markets. Zambia has the potential to move from being a 4 or 5 million ton to a 10 million ton-producing nation, with capacity similar to South Africa. If we can encourage growth in the region, it will benefit everyone in the region in the long run. Zambia has 60% of uncultivated, arable land available to produce commodities, so there is huge potential.’

The main hedging months will be March, May, July, September and December, while the standardised contract is to be based on the size of the underlying physical crop. The process will be transparent and scrupulously controlled, with electronic warehouse receipts. Warehouse operators will also guarantee the quality and quantity of the product, while a dedicated surveillance team will ensure orderly market conduct.

By Kim Cloete
Image: Gallo/GettyImages