Futures Commodity Market in Morocco, how can it help improve the agricultural sector?

Futures Commodity Market in Morocco, how can it help improve the agricultural sector?

The Market Capital Authority in Morocco has done a study to launch a Commodity Exchange market, looking forward to prepare the financial and the legal framework to develop this project, after assessing its success potential.

A Commodity Exchange is a market in which multiple buyers and sellers trade commodity-linked contracts on the basis of rules and procedures laid down by the exchange. Such exchanges typically act as a platform for trade in futures contracts which are a legally binding agreement that gives the investor the right to buy or sell an underlying commodity at a fixed price on a future date.

A handful of African Countries have set up commodity exchange markets in an effort to develop the agricultural sector and improve food security. South Africa remains the best to trade in commodities in Africa, and is ranked 14th internationally.

Agriculture in Morocco represents 14% of the National GDP, and remains an important source of revenues for most Moroccans. Setting up a commodity exchange will help Morocco improve the agricultural sector that performed poorly these late years mainly because of the climate change.

By implementing a Commodity Exchange, the farmers will have access to real time pricing information, so the profits and productivity will be improved, and exports can also be boosted. As an example, exports of coffee increased to $797 m in 2011/2012 from $529m in 2007/2008, a 51 per cent increase. Price discovery is inevitably one of the best advantages of a Commodity exchange. Furthermore, the actors can manage their risk. They can sell in the contract expiring close to the harvest date, to lock in the current price. This will also increase the awareness about quality standards and the value it fetches.

Another important point that is mandatory for the best implementation of the commodity exchange is the “warehouse receipts”, which are documents providing proof of ownership of commodities stored in warehouses.  They aim to guarantee the quality and quantity of stocks which can facilitate the confidence in transactions. These contracts may also help farmers and traders to obtain loans from commercial banks.

For a better working commodities exchange, several actors should contribute in order to improve the liquidity. The exchange also has to attract different actors (agricultural actors, hedgers, speculators) by diversifying the services provided. For example, the exchange can propose derivatives instruments where the underlying traded product references to a foreign underlying, but the instrument itself is settled in another currency at a fixed rate. This will be an opportunity for investors seeking an easy access to the international commodity market with a contract traded in local currency. This can also be an opportunity for individuals looking for a strategy to reduce the risk associated with adverse or unexpected weather conditions, via the Weather derivatives.

All things considered, the Market Capital Authority in Morocco (CDVM) has to prepare a legislation that consistently addresses agricultural, financial, trade and legal policies in order to make this challenging project a real success and eventually a regional hub for trading commodities in North Africa.

Hicham CHALLAKH, Analyst, Infomineo.

Sources :

  • CDVM
  • SAFEX
  • CFTC
  • Ministère de l’Agriculture