The JSE is at the forefront of assisting with the roll-out of derivatives contracts on Zambian agricultural commodities


The JSE, Lusaka Stock Exchange (LuSE) and Zambia Agricultural Commodities Exchange (ZAMACE) are launching derivatives contracts on Zambian agricultural products.

The target date to introduce these new derivative products will be the second quarter of 2015. This follows the Zambian government’s signing of an executive order recently to approve the initiative.

ZAMACE will oversee a warehouse receipt system, and the Statutory Instrument (or executive order) 59 of November 2014 will enable the three organisations to launch deliverable derivatives contracts for white maize, wheat and soya beans, with approved delivery points in Zambia. The target date to licence warehouses, in accordance with the Agricultural Credits Act (ACA), is also the second quarter of 2015.

‘The JSE is delighted that as a result of the foresight of the Zambian government and industry participants we are now able to plan the launch of the contracts,’ says Chris Sturgess: Director Commodity Derivatives at the JSE.

‘We began the partnership with ZAMACE in 2011 to offer Zambian market participants price risk management tools via physically settled grain contracts. We are a step closer to extend the liquidity of the JSE’s grain derivative market into Zambia, working very closely with the local commodity exchange that will be responsible for providing the spot market,’ he says.

In 2013, the South African Reserve Bank approved the JSE’s request to offer trade in Zambian grain – traded and cleared in US dollars – to non-residents and qualifying South African and Common Monetary Area corporates. This was in collaboration with ZAMACE, with the Bank of Zambia also extending its support.

The offering is expected to enhance the price discovery and price risk management of Zambian agricultural commodities. The grain derivative contracts allow investors and traders access to an established trading platform. They also give market participants reduced basis risk, while considering local supply and demand when hedging their price risk.


‘The opportunity for the LuSE to partner with both ZAMACE and the JSE is a dream come true’


Executive director of ZAMACE Jacob Mwale says that through issuing SI 59 and appointing ZAMACE as the authorised agency of the ACA, Zambia can establish certified storage and issue warehouse receipts. ‘ZAMACE recognises the responsibilities it has been assigned and will be ready to deliver on them by the start of the agricultural marketing season in 2015. We look forward to working with our partners to execute a successful warehouse receipting initiative and enhance the commodities market as a result.’

Brian Tembo, CEO of LuSE, says: ‘The opportunity for the LuSE to partner with both ZAMACE and the JSE to further develop the transparency of the grains market in Zambia is a dream come true. The government was instrumental, and continues to be, in the development of the capital market in Zambia.

‘It is only right that, as the LuSE, we roll up our sleeves and get involved in bringing the competencies and systems, which we have developed over the last two decades, to develop another sector, which is key to our expansion.’ Tembo was also head of ZAMACE for many years. ‘There are great synergies in the exchange business and in working with these two participants I believe we will be able to evolve our grains industry for the better,’ he says.

Musika, a non-profit company that stimulates private-sector investment in the agricultural market, has been influential in developing the partnership, and has committed to support the introduction of the warehouse receipts system.

Rob Munro, Musika’s director of strategy, says: ‘Musika welcomes the progressive move by the Ministry of Agriculture and Livestock to initiate these market reforms, and looks forward to working with all stakeholders to advance transparency, price discovery and security in the Zambian commodities market, which will benefit all market players, including smallholder producers.’

The JSE has worked closely with LuSE, ZAMACE and local market participants to finalise the standardised contract specifications, including the terms for physical delivery after completing a contract.

By Louise Brougham-Cook
Image: Gallo/GettyImages