Agricultural Commodity Exchange Links Farmers to Markets

Abstract of a presentation given at the recent ABIVCD working group meeting

The Agricultural Commodity Exchange for Africa (ACE) is an exchange platform that links farmers to markets. It has 10 years of trading experience and works with private sector and development partners to deliver agricultural marketing and financial services to producers, producer organisations and micro, small and medium enterprises that define the rural economy of Malawi. ACE provides structured trade services to those working in the industry of agriculture focusing on market information, trade facilitation and the warehouse receipt system (WRS), which offers access to collateral finance and access to secure storage.

The Chitumba model

Since late 2015, ACE has been developing and implementing the “Chithumba” model. Chithumba refers to a unique package of agricultural services that are offered to smallholder farmers in order to strengthen the market-system for the agricultural value chain in question — currently soya and groundnuts. To this end, the Chithumba model includes three core components:

  1. Increased access to high-quality agricultural assets (inputs, etc.) on loan. Producers are expected to repay for the agricultural assets in grain at the end of the season using the ACE Warehouse Receipt System (WRS). The repayment commodity is sold on auction using the ACE platform, more specifically the Offer Volume Only (OVO) auction mechanism, and the suppliers of the agricultural assets are subsequently paid through the ACE settlement process. Thus, the inputs are procured at the beginning of the agricultural season (October) but the payment to suppliers is done after harvest and repayment (July).
  2. Increased agricultural production: All producers who enrol in the Chithumba model are automatically receiving training on good agricultural practices (GAP). In addition to the main training days, field visits are organised during the production season and customised agronomic extension SMSs are delivered using the ACE messaging system.
  3. Increased producers’ access to a formal market: Chithumba is not a traditional contract farming system, as there is no known buyer at the onset of the season and producers are free to choose how to market their commodity once they have repaid their loan. However, participating producers receive training on ACE marketing services. They receive SMSs with market prices and trade opportunities and are experiencing the warehouse receipt system and trade facilitation services and their potential benefits through the repayment of the loan.

High levels of repayment

Over the last two agricultural seasons, the Chithumba model experienced high levels of repayment and great satisfaction of the 7,300 farmers it has provided its services to. In this context, there are opportunities for a scaling-up of the model and to diversify the range of products offered to farmers. There are also challenges in terms of the financing and sustainability of the model, gaining the long-term trust and commitment of farmers (vis-à-vis free donor-funded input handouts), high volatility of market prices affecting repayment volumes and attractiveness as well as difficulties to engage with input suppliers in taking more long-term ownership in the model.

The GIZ KULIMA More Income and Employment in Rural Areas of Malawi (MIERA) programme has been supporting ACE since 2015 through technical assistance, a development advisor and an integrated expert and more recently through grant funding to implement its Rural Services and Outreach Strategy.

More specifically, KULIMA MIERA supports Chithumba by providing technical assistance to 1) develop and implement Chithumba´s new implementation/training strategy and 2) assess and mitigate the risks of the model. Additionally, Chithumba farmers participate in KULIMA MIERA Farmer Business Schools and the newly developed FO Training and Coaching Cycle.