Tucci Ivowi, Ghana Commodity Exchange : “We still need to do much awareness creation”

For Tucci Ivowi, Deputy Chief Executive Officer of the Ghana Commodity Exchange (GCX), one needs to go step by step  to ensure success. But the ambition is there. The GCX starts off with a couple of staple commodities, such as maize and soya, and should go up to metals and minerals. As for transactions, it is done today on a spot basis but later on involve forwards and futures. Members go today physically to the GCX in Accra but will, in time, be able to do their transaction electronically. Hence, the key word is awareness  of how far a tool such as the GCX can take the farmer and agriculture in Ghana.

The Ghana Commodity Exchange is a bit more than 6 months old. How did everything start ?

The Ghana Commodity Exchange (GCX) started operations in November 2018, but the idea itself is not new at all. It has been discussed by various governments since early 2000, when the first feasibility study was commissioned. This initial study was carried out by the Securities and Exchange Commission, working with the Ministry of Finance and few other development partners; and from that government to the next, the idea of a commodity exchange has circulated.

Between 2015 and 2017, the project team worked on the design of the Exchange, taking into account the local context (regulatory environment, market actors and the viability of the various commodity value chains). The current management team, led by the CEO Dr. Kadri Alfah, was set up at the beginning of 2018 and received the mandate from the new government to get the Exchange up and running by the end of the year.

The decision was taken to test the market in April, before official operations commenced.  GCX commenced trading through a reserve auction mechanism in April 2018. These pilot trades were really helpful in acting as a proof of concept because it allowed us to give market actors, both buyers and sellers, the experience of trading on our platform. This was especially important because it showed the simplicity of the system and how it would work once it came into being, moving the idea from a theoretical concept to one that had tangible benefits to offer. 

“The simplicity of the system”

With determination and hard work, the Ghana Commodity Exchange was inaugurated on the 6th of November 2018, under the Ministry of Finance with the support of the President of the Republic and various other Ministries, notably the Ministry of Food and Agriculture and Trade and Industry. The first trade was done by a farmer who sold 200 bags of his maize and received his payment within 24 hours with a prompt text message from his bank.

How do you select your products ?

We decided to start with agricultural commodities because agriculture is a huge priority in the country. We chose staple food security crops in order to tackle challenges in these value chains, such as post-harvest losses, storage issues and pricing to farmers. We started with maize in November and added soya bean in April, with plans in motion to add sorghum, sesame and rice in the coming months.

In the medium term, we plan to incorporate cash crops including cashew, shea nuts and coffee. And in the longer term, we are looking at metals and minerals.

For the time being, we issue spot contracts, which is where you buy the product for immediate delivery. There is a plan to phase in forwards and futures once the spot market and its associated infrastructure have been well established.

What is the connection with world future markets, like Chicago for maize ?

Pricing is different for every commodity. There are some commodities which are only benchmarked on global prices such as coffee and cocoa. A commodity like maize, however, a largely subsistence product, is driven by local prices, which has its own seasonal trends too.

The Exchange publishes local and international prices. Since we are selling graded commodity, we publish graded prices, providing price information to all our members at the close of trade daily via SMS and to the general public through our website.

When you say local, is it just Ghana or West Africa ?

This refers to the Ghana market. Regarding markets, the next milestone will be to trade within the region, being the economic community of West African states (ECOWAS).

“Buyers and sellers meet to trade”

On a very practical level, I am a grower of maize and I want to sell on the Exchange. How do I go about doing that?

You would first sign up as a member of the Exchange which is regulated by the Securities & Exchange Commission. Once you are a member, you can come and physically deposit your maize in one of GCX’s warehouses. We currently have six warehouses for maize that we are operating, in the middle and northern belts of the country, with plans to operate at least 10 more before the end of the year.

When you deposit your grain in our warehouse, we weigh, test and grade the commodity to determine its quality.

Provided you are fine with the assessment of your grain, you are given an electronic warehouse receipt.

Whenever you are ready to sell, either yourself or someone you have nominated as a floor representative, can come to the GCX trading floor physically, during trading hours. (Soon, our system will be activated for you to be able to trade remotely from wherever you are).

The system is structured to ensure fair and transparent price discovery so the entire trade is anonymous. The way it works is that you come into the (electronic) system and place an asking price on your product. A buyer will then come in and put in his offer price. When there is a match, the trade is made. You go home and within 24 hours, you receive the money in your bank account. As a buyer, you have up to 10 days to collect the commodity in the warehouse.

The Exchange provides the platform for buyers and sellers to meet to trade, and as a counterparty we guarantee the quality and the quantity of the commodity as well as the prompt payment.

What other benefits does trading through GCX offer ?

We’ve mentioned transparency in price discovery, fair prices, prompt settlement. There is also contract management cutting out defaults from buyers who don’t honour payments and sellers who may pass on poor quality produce.

One of the main benefits in trading with GCX is the significant decrease in post-harvest losses due to the good storage conditions we employ; at less than 1%, it compares favourably to the estimated 40% post-harvest losses prevailing when the right conditions aren’t met.  This means regardless even of prices, sellers get more simply for the full quantity they produce. We also have insurance on our warehouses and commodities, as well as performance bonds. This means that should anything adverse happen, the quantity and quality of your commodity is preserved by the Exchange which will make good on every warehouse receipt.

Another objective of the Exchange is to contribute to the increase of financial inclusion for smallholder farmers as well as for farmers to receive fair prices for their goods, in a bid to help improve their livelihoods and those of their communities.

“100 000 farmers represented”

So, are farmers the main player on the market ?

Smallholder farmers’ wellbeing is a linchpin of the Exchange. We have a category of membership known as associate members to allow farmers who wish to trade for themselves do so. It is important to integrate them fully into the structured trading system the Exchange has brought to the market.

As far as membership goes, we have about 120 members so far, about 30 of which are brokers, meaning they trade for themselves or on behalf of others; currently brokers (including traditional aggregators) are representing over 100 000 farmers. Our members also include small and medium sized traders, as well as several large processors and institutional organisations.

We experience a large number of walk-ins. In April, we had about 300 walk-ins, most of them came in to enquire how to sign up as members.

Do producers usually give good quality? Do you have difficulties finding the quality that your standards require ?

That is a good question because our standards are very high. We work with the Ghana Standards Authority to grade commodities and we make sure that our minimum quality is the GSA quality standard. We grade according to local and international standards. Generally, one can find good quality grains and crops in Ghana. When they aren’t brought to us in the best quality, we offer supplementary services such as cleaning and drying of the commodities.

Who are the buyers ?

We have buyers from across the commodity value chain; from farmers to small and medium-sized traders to processors and manufacturers.

What is the gap today ?

Awareness. Since this is a new operation, we still need to do much awareness creation . As part of our comprehensive communications plan we will soon launch a campaign on Farm Radio that will enable us to reach to our key demographic.

In terms of volumes, how much did you trade last month ?

In April, 2,720 minibags of 50kg of farmers’ maize and was traded from amongst the six warehouses.

What about transport of goods ?

We currently don’t handle transportation; goods are collected from the GCX delivery centres by the buyer.

You mentioned it was a spot market and it could evolve towards a future market. Is it feasible if Accra is not a financial spot ?

Futures markets basically require high levels of liquidity. Once an established spot market is in place where market participation is high and there is local and regional confidence, the market can offer commodities requiring such risk management solutions on futures contracts. A mid-way step is the forward contracts which will be in place on the Exchange within the next 12 months. Many potential buyers already buy certain commodities in the local market on forwards or futures; our phased approach is set purposefully to allow the market to work and grow organically, as people also get used to the system.