UNCTAD

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• UNCTADs Actions to Improve the Functioning of
  Agricultural Commodity Markets
• - All ACP Agricultural Commodities Programme
• UNCTAD, Special Unit on Commodities
• UNCTAD Virtual Institute Presentation
• Geneva, October 2011

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Structure of the Presentation

• I. Overview of the AAACP
• II. UNCTADs thematic working areas under the
  AAACP and main achievements
• Market Information Service
• Agricultural Commodity Finance
• Commodity Exchanges
• Market Access Sustainability Claims Portal
• III. Post-AAACP The way forward

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Overview of the AAACP General Information

• Funding institution European Union
• Budget 45 million euros (15 million earmarked
  for cotton)
• Term Five years (Sep. 2007 Dec. 2011)
• Overall objective To improve incomes and
  livelihoods for ACP producers of traditional and
  other agricultural commodities, and to reduce
  income vulnerability at both producer and macro
  levels.
• Implementing organizations UNCTAD, FAO, ITC,
  World Bank, CFC

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Overview of the AAACP Innovative Approaches

• Utilize the expertise of five international
  organizations already active in the area of
  agricultural commodity development and promote
  collaboration among IOs to jointly implement the
  AAACP
• A participatory process involving main commodity
  value chain stakeholders to develop commodity
  strategies
• A commodity value chain approach for sectoral
  diagnosis and strategy development.

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UNCTADs Thematic Working Areas under the AAACP

• 1. Market Information Service
• Infocomm http//www.unctad.info/infocomm
• Infoshare  http//infoshare.unctad.org
• 2. Agricultural Commodity Finance (e.g. warehouse
  receipt system)
• 3. Commodity Exchanges
• 4. Market Access Sustainability Claims Portal
• http//www.unctad.org/scp

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Market Information Service
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Role of Market Information Service

• Reduce asymmetry in access to key commodity
  information and encourage more efficient
  arbitrage
• Enable farmers to negotiate better prices, and
  contribute to improve the fairness of market
  price formation and equitable distribution of
  trade benefits
• Enable policy makers to judge the performance of
  agricultural commodity markets, detect any
  marketing inefficiencies along the supply-chain
  and to make better policy decisions
• Enhance food security by stimulating
  intra-regional trade and response to dramatic
  food shortages.

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Market Information Service INFOCOMM
http//www.unctad.info/infocomm

• INFOCOMM is a multilingual electronic portal on
  information and factors influencing commodity
  markets. It is organized under 10 headings
  ranging from product characteristics and crop
  value to export markets and prices. It also
  includes links to major product organizations,
  international research groups and universities.
• INFOCOMM aims to provide accessible, reliable and
  updated commodity market information, in
  particular in response to the scarcity of
  commodity information in low-income commodity
  producing countries.

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Market Information Service INFOSHARE
http//infoshare.unctad.org

• Infoshare is a tailor-made information database
  conceived to adapt to the national commodity
  supply chains and to the local telecommunications
  set-up. It enables partners to collect, analyse
  and disseminate information on prices, costs,
  quantities sold, quality standards, and so on.

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Main Achievements under AAACP - INFOCOMM

• Officially launched in August 2011
• Portal was transferred to a new web platform and
  upgraded with a new design
• Portal is adapted for a wider audience,
  especially producers and policy makers in ACP
  countries
• A special focus is given to the agricultural
  commodities which are of great interest of ACP
  countries10 additional commodity profiles
  important for the economic development of AAACP
  countries were added to INFOCOMM.

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Main Achievements under AAACP - INFOSHARE

• Pilot project for the cocoa and coffee sectors
  launched in Cameroon in collaboration with the
  National Cocoa and Coffee Board (NCCB)
• Developed INFOSHARE system in other countries and
  regions (Caribbean and Pacific) by drawing
  lessons learned in the implementation of
  INFOSHARE in Cameroon
• Strengthened the capacities of beneficiaries of
  INFOSHARE to understand, analyze and use
  commodity market information in order to improve
  the efficiency of their operations.

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Agricultural Commodity Finance
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Agricultural Commodity Finance Rationale

• Impact of the liberalization of agricultural
  sectors 1980s and 1990s
• Withdrawal of government from many agricultural
  marketing functions and drastic reduction of the
  financial resources
• Agricultural value chain operators, in particular
  les small producers and SMEs are facing many
  challenges in access to agricultural finance
• Emerging trends in International Trade since
  1990s
• With increasing competition among sellers, there
  is trend toward unsecured transactions based on
  open account terms
• The globalization of supply chains and the
  integration of SMEs and small producers into
  these chains provide new opportunities for the
  development of alternative financing tools.

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Structured Finance vs. Traditional Finance

• Transaction based
• Looking to the flow of the goods
• Focus on borrowers perfomance capacity
• Possible lower financing costs even with high
  country risk
• Innovative loan security (commodities or future
  proceeds)

• Balance-sheet based
• Looking to the flow of funds
• Focus on borrowers creditworthiness
• Financing costs closely linked with country risk
• Traditional loan security (savings, physical
  assets, third party guarantee)

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UNCTADs Working Approach on Agricultural
Commodity Finance under the AAACP
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Main Achievements under AAACP

• Supported the development of structured
  commodity financing tools to improve small
  producers and SMEs finance in ACP countries
• Warehouse receipt financing and inventory credit
  (or warrantage)
• Factoring/receivable discounting

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A warehouse receipts financing scheme(public
warehouse)
5.Signs sales contract
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Benefits of Warehouse Receipt Systems

• Availability of eligible collateral
• Possibility of access to credit with lower
  interest rates
• Lack of credit track records for small farmers is
  no longer a major constraint
• Reduce distress sales and potentially contribute
  to smoothing seasonal price movements
• WRS provides a mechanism for delivery against
  exchange contracts.

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Warrantage scheme
Magasin of PO
2.Issue Receipts
1.Deposit goods
4.Provides credits
Microfinance Institution
Producer or small group
8.Transfers receipt takes goods in the presence
of MFI
3.Lodge receipts with MFI
5.Negotiate sales contract in consultation with
MFI
7. MFI transfers receipts
6. Payment to the account of PO
Trader
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Main Achievements under AAACP-WRS/Warrantage

• Best practice sharing and capacity building on
  WRS/warrantage
• Review of Warehouse Receipt System and Inventory
  Credit Initiatives in Eastern Southern Africa,
  and a sub-regional capacity building workshop in
  2009 in Lusaka
• Review of Experiences in Warehouse Receipt
  Systems and Warrantage for the Financing of
  Agriculture in West Africa, and a sub-regional
  capacity building workshop in 2010 in Accra.
• 2. Developing WRS/warrantage for a specific
  agricultural commodity in a country
• Gum Arabic in Mali
• Coffee cocoa in Cameroon.

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Factoring/Receivable Discounting

• US definition on factoring
• " a continuing arrangement between a
  factoring concern and the seller of goods or
  services on open account, pursuant to which the
  factor performs the following services with
  respect to the accounts receivable"
• Purchases all accounts receivable for immediate
  cash
• Maintains the ledgers and performs other
  book-keeping duties
• Collects the accounts receivable
• Assumes losses which may arise from the
  customers non-payment.

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Domestic factoring flowchart

1. Seller submits the request to the Factor.
2. Factor considers Buyers creditworthiness and
   approves financing limit. Factor and Seller sign
   factoring agreement.
3. Seller delivers the goods to Buyer and issues the
   invoices.
4. Seller assigns the invoices to Factor and informs
   Factor of any special payment arrangements.
5. Factor finances the value of the invoices at the
   previously agreed rate.
6. Factor collects receivables at the end of the
   credit period.
7. Factor remits to Seller the balance in excess of
   the finance cost.

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Key points on Factoring

• Short-term, working capital financing
• Serve SMEs with large number of transactions
• Finances only post-invoice contractual
  obligations
• Factor needs confidence that Buyer accepts goods
• There needs to be absence of continuing
  obligations by Seller after delivery of goods

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Main Achievements under AAACP - Factoring

• Caribbean Regional Capacity Building
  Workshop on Factoring/Receivable Discounting in
  November 2009 in Barbados
• Main findings of the workshop
• Factoring/receivable discounting can be
  potentially a financing instrument to improve
  agribusiness finance in the Caribbean.
• Main challenges to be addressed the capacity of
  local financial institution to design and develop
  the appropriate product market conditions the
  education of potential clients (producers and
  SMEs), the establishment of credit information of
  buyers.
• Concerted efforts are required from development
  banks, farmers and SMEs, policy-makers, regional
  bank and institution and development partners.

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Commodity Exchanges
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Commodity Exchanges Definition

• A market in which multiple buyers and sellers
  trade commodities, and/or commodity -linked
  contracts on the basis of rules and procedures
  laid down by the exchange.
• This includes Spot trade for immediate
  delivery of the commodity, forward contracts,
  warehouse receipts trading, commodity-based
  futures and options contracts, and trade
  facilitation services.

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Role of Commodity Exchanges in developing
countries

• Price discovery
• Price risk management
• Investment venue
• Facilitation of physical trade
• Facilitation of financing
• Market development.

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Some important points

• Exchanges are versatile instruments, capable of
  upgrading commodity sector performance in a range
  of situations and addressing emerging challenges
  as they arise.
• The extent to which the exchange can enhance the
  development of underlying commodity sectors in
  large part depend on the services offered and the
  strategic priorities pursued by the exchange.
• The exchange is not a panacea, and depends on an
  appropriate regulatory environment and other
  complimentary policies and mechanisms.
• In general, exchange services are relevant for
  smallholders, in particular in the areas of price
  information and physical market services.

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Requisites for the creation of Commodity
Exchanges in ACP countries

• Commodity traded must be easy to compare, with
  grades widely accepted by commercial parties
• Local market prices must be sufficiently volatile
  to create large price movements
• Need the building blocks of trade facilitation -
  good roads, transport companies, weigh bridges,
  warehousing, collateral management services,
  communications
• Minimal government intervention on pricing
• Strong commercial interest on all sides of the
  trade - producers, consumers, traders, banks,
  speculators
• Large numbers of physical buyers sellers and
  high volumes of physical trade
• Physical buyers sellers are doing enough
  business with each other that they have high
  levels of credit risk
• Potential users of the exchange are using the
  exchange price as the reference for physical
  trading.

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Main Achievements under AAACP - ESA

• The Establishment of the African Commodity
  Exchange Forum (ACEF) in February 2010 in Addis
  Ababa,
• as the outcome of an ESA regional capacity
  building workshop on Improving the Functioning
  of Commodity Markets in Eastern and Southern
  Africa through Warehouse Receipt Systems and
  Market-based Interventions held in 2009 in
  Lusaka.
• Overall objective of the ACEF
• To foster the establishment and growth of
  commodity exchanges in Africa.
• Specific objectives of the ACEF
• Promote mutual learning and knowledge sharing
• Enhance capacity building
• Engage in policy advocacy.

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Main Achievements under AAACP - Caribbean

• Assisted in the upgrade of the existing commodity
  exchange in the Dominican Republic (Bolsagro)
  from a manual to an electronic platform
• Promoted greater participation by farmers in
  Bolsagro by hosting a multi-stakeholder workshop
• Raised awareness in the Caribbean regarding
  commodity exchanges as tools to increase
  marketing efficiency
• Established a road map for the creation of
  electronic linkages between commodity exchanges
  in the region.

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Sustainability Claims Portal
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What are Sustainability Claims ?

• Sustainability Claims are defined as
  distinctive symbols or labels borne by products
  which authenticate that the products life cycle
  (from the production phase to the consumer),
  complies with sustainable agricultural practices
  and socially responsible principles
• Sustainability Claims include
• organic standards
• fair-trade standards
• environmental/ecological standards
• geographical indications.

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Sustainability Claims Portal Definition

• A web based information tool to
• Enhance accountability, increase transparency on
  trade in agricultural commodities marketed under
  sustainability claims/labels
• Define requirements for organic production,
  fair-trade, environmental and social
  accountability schemes.
• It Provides ACP producers and EU consumers
  with
• a central access point to existing sustainability
  schemes
• a clear presentation of relevant minimum
  requirements to small producers and cooperatives
  which may be different from current sectoral
  standards
• provide objective and broad advice on
  sustainability schemes available to ACP producers
  and the potential benefits and constraints of
  participating in certification schemes.

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Main Achievements under AAACP

• Developed and launched the online Sustainability
  Claims Portal with following information
  uploaded
• Information on sustainability claims
• Certifier requirements
• Contact details for sustainability label
  providers
• General information on sustainability issues
• Other useful documents for users.
• 2. The portal is available in English and
  French.
• 3. Enhanced awareness on certification standards
  through capacity-building workshops and portal
  launches in the Pacific (March 2010), the
  Caribbean (February 2011) and the West Africa
  (May 2011).

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Post-AAACP The Way Forward (1)

• To continue follow-up activities under the four
  components of UNCTADs work
• MIS Further promotion of the INFOCOMM at the
  national level Support the development of
  additional national market information systems,
  based on INFOSHARE technology.
• Finance Build on the existing achievements
  and continue to provide technical assistance for
  the implementation of follow-up activities.
• Commodity Exchanges Continue to support
  commodity exchanges development in ACP countries
  through direct technical assistance and advice,
  and awareness raising.
• SCP Improve the portal based on the
  feedbacks received from capacity building
  workshops and provide more information specific
  to the region and by commodity.

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Post-AAACP The Way Forward (2)

• By drawing the experience gained from the AAACP
  to further enhance the cooperation and synergies
  with other four IOs in future activities of
  UNCTAD
• To enhance the research work on commodity market
  information, agricultural commodity finance,
  commodity exchanges and standards and market
  access, based on the field information obtained
  through the implementation of the AAACP.
• At the request of commodity-dependent developing
  countries, to provide tailored technical
  assistance under the four thematic working areas
  of SUC.

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For more information on
UNCTADs work under AAACPhttp//www.unctad.info
/en/Special-Unit-on-Commodities/Events-and-Meeting
s/All-EU-ACP-For Technical CooperationMr.
Samuel Gayi, Head, Special Unit on
Commoditiessamuel.gayi_at_unctad.org
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• Thank you

www.unctad.org