In my previous post, I discussed the challenges that Nigerian farmers face after harvesting their crops.
This has resulted in a lot of wasted food, which has a negative impact on the country’s food security.
Most post-harvest losses are caused by farmers’ not being able to quickly sell or store their products before they go bad.
Setting up a commodity exchange for agricultural products is one way to help farmers make money from farming, keep food safe, and ensure food security. The commodity exchange will assist in providing the necessary finance and market.
The federal government’s renewed commitment and development focus on agriculture to ensure food security, reduce poverty, and diversify the economy away from oil highlights the fact that agriculture and agribusiness have the potential to lift millions of people out of extreme poverty.
To emphasize Nigeria’s agricultural potential is to state the obvious.
Because most farmers in Nigeria don’t have enough money to start their own businesses, financing is very important for agricultural growth.
Agriculture and agribusiness are very capital-intensive businesses, and it takes a long time to make money back. This means that they need long-term financing.
Commercial banks, on the other hand, have been unable to provide this critical agricultural financing. They see it as high-risk due to the long-term requirement, the farmers’ lack of collateral, and the repayment difficulties.
Therefore, Nigeria requires new ways to finance agriculture.
The capital market can be used to get the long-term funds needed to speed up agricultural growth.
It will also provide a platform for private sector participation in agricultural development.
The capital market offers a wide range of financial instruments and investor categories, which may result in a larger pool of funds than other forms of financing.
A debt instrument is the best way to get money for long-term farming needs.
This commodity market will provide producers and consumers with access to commodity products in a centralized and liquid marketplace.
Commodity derivatives can also be used by market participants to hedge future consumption or production.
It is true that some companies in this sector are already listed with the Nigerian Security and Exchange Commission (SEC). However, the ministry of agriculture needs to set up a commodity exchange that will be used by everyone in the agricultural sector.
For this to work, the ministry and SEC need to work together to make the country’s agribusiness market a vibrant and sustainable one.
To raise capital for farmers, the ministry or any agency it authorizes can issue a ten-year bond in the capital market, with repayment through amortization of principal and interest payments made by farmers.
Furthermore, the accountability and transparency of the capital market can help people use the money they get from bond issuance wisely.
The policies that will govern this proposed commodity exchange must be carefully scripted.
These guidelines must make it difficult for fund beneficiaries to mismanage them.
It must also discourage loan repayment defaults. A few people who don’t pay their debts should not be allowed to make the whole industry look bad and stifle long-term progress.