Building a Fair Commodities Exchange in Nigeria


Monday, April 01, 2019/04:15 PM / AFEX Nigeria

In the article “A definitional Guide to understanding commodities exchanges,” AFEX defines a commodities exchange to be “an open and regulated market where people can trade in standardized futures contracts. This means, in simple terms, that they get into agreements to buy or sell specific quantities of raw materials or other primary products at a specific price for delivery on a future (specified) date.” It is a concise definition that summarizes the basic functions of an exchange, however, AFEX Commodities Exchange Limited – Nigeria’s first private sector commodities exchange – can be said to extend itself beyond the simple boundaries of that definition. Over the course of the five years since its inception, AFEX has provided an extensive range of solutions that cover the steps from production to transaction for agricultural commodities.


A couple of the solutions that AFEX currently provides include input financing, outreach activities, extension services, training and capacity building, storage facilities, and monitoring and evaluation activities. AFEX chose to operationalize its business by deploying an inclusive strategy that works to unlock value to the smallholder farmer. This complicates AFEX’s offerings: broadening the extent of services that it provides as an exchange. Still, AFEX’s growth is not much different from thriving commodities exchanges around the world. Most exchanges start out with a goal of organizing the market and providing infrastructure for efficient transactions in the market. The exchange builds the infrastructure in order to offer up its platform as a shared resource for key groups of people to participate in. Three groups are especially relevant in this regard:

  • Producers that produce and sell commodities and also seek to access financial opportunities.
  • Buyers or processors that are seeking an efficient way to buy commodities for use while also being able to access solutions like structured trade finance.
  • Investors and financiers who want to expand their portfolios; create alternative asset classes to balance their portfolios and their risk, and can consider agriculture backed assets to gain exposure.


The intersection of these three key groups is where an exchange rises and the role of the exchange is to intermediate among the groups. In developed markets or economies, exchanges are able to focus on trading around derivatives and do not get involved in physical settlements. This is possible due to the growth in the supply chain and the physical parts of the chain being handled by members of the exchange. Where this occurs, the exchange can focus on providing liquidity and a risk sharing infrastructure, and then managing default risk and providing price transparency.


The Nigerian market is far from developed leaving AFEX with the vital task of organizing the market in order to ensure that transactions are settled efficiently and seamlessly with trust embedded at every level. The exchange works to ensure that the buyer gets value from his purchases and the farmer gets a fair share of proceeds from what he has produced with the produce being traded transparently. AFEX therefore works to manage the entire process so that maize that is produced in Soba, Kaduna State (producer side) is able to make its way to a processing company all the way in Apapa, Lagos State (buyer side) at the time and quality requested.


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Involved in this seemingly simple transaction are a lot of processes like the need to pay the farmer within a day of the completion of the transaction regardless of whether or not he has a bank account. Making settlements with cash evidently becomes harder with scale – AFEX which has over 40 operations across the country would not settle all farmers and workers in cash – leading to financial inclusion being required as a service. Therefore, in addition to the solutions already listed above, AFEX also provides a service of financial inclusion that enables producers receive payments, make transfers, save from earnings, and access credit.


The exchange also creates value by unlocking investment for agriculture. When finance and investment flow in the direction of the farm, producers are able to see returns up to 3 – 4 times what they would have made without access to adequate inputs at the right time. From these returns, producers can repay their loans and still have enough commodities left over to trade through the exchange’s platform.


With the solutions that AFEX provides through its products and services, it remains one of the most impactful exchanges on the African continent transforming the agricultural sector in Nigeria and creating inroads in attracting investment to it. The exchange’s activities are creating shared value for all players involved, and to echo the sentiments of the Country Manager, Ayodeji Balogun, “In Africa, if you really want to add value, if you want to be food secure, and if you really want to have an agro-led industrialization that will trend for several decades, it is pertinent that we build exchanges that will be neutral, price transparent and have a fair and equitable way to share value across players involved in the value chain.”

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4.      AFEX Nigeria: New Year Goals For The Commodities Market January 30, 2019

5.      A Definitional Guide to Understanding Commodities Exchanges January 30, 2019

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7.      AFEX, Binkabi and STERLNBANK Announce Integration Partnership Streamlining the Agri-Financing Process November 14, 2018

Proshare Nigeria Pvt. Ltd.

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