An ACE way to play the market...

By Georgina Smith

As the doors swing open at the Nathenje warehouse, the maize harvest is neatly stacked up in white bags and rested on clean wooden logs. It's a very different spectacle to last year, when a few bags of maize were stashed in the corner of the dilapidated building, weevil-infestedand testament to yet another post-harvest loss. The refurbishment of the old warehouse and the brand new one built next door is part of an ambitious expansion plan by the Agricultural Commodity Exchange (ACE),which started trading in 2006, to roll-outreceipt certified warehouses across the country.

Outside, farmers gather to share their experiences of playing the commodity market for the first time. "If I didn't have my maize here, I would have sold it to a vendor for a much lower price - around MK40 (US$0.12)," said Nivson Stock, one of four farmers to deposit his maize. "The best thing was I got 70 percent of the value of the maize," he said. With grain accounted for in quality and quantity by ACE, banks will lend 70 percent of thevalue - MK248,500 (US$755)in Stock's case - against thedeposited asset.

Farmer Nivson Stock Depositied 7.1Mt At The Nathenje Warehouse This Year

 Mr Nivison Stock Deposited 7.01 MT at Nathenje Warehouse

Built In May 2012, The Nathenje Warehouse Has A Total Capacity Of 500Mt.    Nathenje Warehouse                                                                                             

 

Without this initial finance, Stock admits that school fees would have gone unpaid; the field would remain un-ploughed and he would have to turn down labour preparations for next season. It's true that maize prices could drop while Stock's maize is still in the warehouse, and he will lose money. But, he adds,"ACE keeps me up to date with the prices in town." And given the glut of maize on the market after harvest, holding onto it until leaner periodsis more likely to pay off.

Sure enough, it has. Stock has just secured a contract with the World Food Programme for7.1Mt of maize at MK77(US$0.23) per Kg, compared with MK50 (US$ 16) per Kg when he deposited the grain in the warehouse, and made a profit ofMK114,877 (US$350) after warehouse fees and storage costs. He can either re-invest in the next season, or purchase more maize and deposit it. Although ACE's priority remains encouraging farmers to deposit their own maize, this double-profit element is an exciting new development pioneered by the Exchange, allowing farmers to become savvy traders.

Sowing the seeds of trust

Yet despite its successes, Nathenje warehouse is only filled to a fraction of its capacity.  Just 120kmaway, the Kafulu warehouse -another of three warehouses constructed and managed by ACE - is by contrast full. Kafulu Farmer's Association (KAFA) has about 1,000 farmers who deposited in the warehouse, with others clamouring for space. Speculation has begun on the reasons for the Kafulu success versus the relatively small deposits at Nathenje.

As the average farmer has between 2-3 acres to farm, it is key that farmers bulk their deposits, so building trust among local communities is essential. Peter Tamani, warehouse manager at Nathenje, made this point:  "Farmers welcomed the concept but they don't see the value of the system yet. They don't get along - they think one person will run off with the money. Now we are looking at increasing sensitisation, so farmers can see with their own eyes that this is real," he said.

Putting the future of farmers first

It is ACE's aim that eventually, the warehouses will be self-sustaining, and plans for ten new warehouses are already underway.For that reason, charges are applied for storage, fumigation and staffing costs and the Exchange takes a commission for handling, buying and selling transactions. Although costs and charges have been explained and apparently understood by farmers who have deposited their maize, it remains to be seen how the wider community will react once they are applied.

There is no doubt that ACE's warehouse receipt system has come a long way. From three receipts on maize last year, 80 have been traded this year. ACE has also offered additional services to boost production, providing seed and fertilisers for example, the cost of which will be deducted from the farmer's profit when the commodity is sold.  The challenge will be sustaining awareness and trust.Kristian Schach Moller, ACE's Principal Advisor, admits that communication with the farmers has been a challenge. "Do they really understand the costs? When we deduct MK13,000(US$39) from their overall earnings will they understand?," he asks.

Schach Molleris certainly optimistic."We have three rural sites in operation and I'm really happy that we're already exceeding 5,000Mt. My vision is to have the warehouse receipt as the way to trade grain in Malawi," he said. "We have a long way to go, but I expect us to be at 20,000Mt next year," he added. Eventually, farmer associations will manage their own warehouses, putting the success of the entiresystem in their own hands - from sowing to trading.