In this interview, the Chief Executive Officer, AFEX Commodities Exchange Limited, Ayodeji Balogun, disclosed efforts made by his company in creating wealthy farmers in Nigeria and boosting investments along various value chains in the last five years, as he speaks on other salient issues in the agricultural sector.
Can you give a brief background of AFEX Commodities Exchange Market?
AFEX has been operating in Nigeria since 2014, and so we have a 5-year history and legacy of being able to provide storage and collateral management for commodities using world-class processes but also top-tier talent that manages the base itself. Over the past 5 years, AFEX has built over 60 warehouses across Nigeria. We pride ourselves on the largest network of commercial storage services and as a licensed commodities exchange and warehouse receipt system operator, we also have the warehouse receipt system and collateral management that gives the market confidence.
Five years into doing business, and building the ancillary infrastructure necessary to support trade and manage risk in the sector, we are now focused on offering up our infrastructure as a service to various players and enabling the larger capital market to tap into the activities in the commodities market with ease. Essentially, we are building a technology-driven capital market infrastructure, which will unlock alternative investment capital to finance tradable low-risk agriculture and other commodity types.
Why is AFEX focusing on agric commodities?
We began our operations with agriculture commodities because it’s a huge and important problem. Farmers live in a vicious poverty cycle primarily because they are financially excluded. They remain cut off from the formal economy, and almost all their assets exist in cash or near cash. This prevents wealth creation, especially, in an inflationary economy, and results in the continued reality of smallholder farmers, who produce over 90 percent of food in Africa, remaining the poorest and most under-served group in Africa’s economy. The commodity exchange model provides the infrastructure for fairer and more transparent trade by offering up its platform as a shared resource for key groups of people to participate in. When a transparent and fair market system that determines what the true value of commodities are, which essentially covers the role of a commodities exchange, it helps to promote investments, it helps with transparency, and it helps with an equitable distribution of value across the system. We, however, fully intend to expand to other commodity value chains keeping an eye on where we can have the most impact alongside the creation of value for all our stakeholders.
What commodities is your focus and why did you choose them?
We focus on Maize, Sorghum, Soybean, Paddy Rice, Cocoa, and Ginger.
What has been the impact of AFEX on farmers’ profitability?
In AFEX’s experience working with farmers across the country over the past five years, when a farmer can access loans and a bundle of products and services (farm input, education, micro-insurance, storage as a service, etc), he increases his income by 400 percent over three years, achieving over $2,000 in savings. When a farmer gets trained on the right agronomic practices and has access to credit for two consecutive seasons, their yield increases by up to 100 percent, and their household savings increases by about 200 percent after covering baseline costs. By the third year, they have enough cash to buy or lease a second plot. They cultivate their primary plot with their savings and then plant the new field based on proceeds from the loans. By the third harvest, their savings typically increase by over 400 percent.
How many Nigerian farmers have so far benefited from this your Commodities Exchange Market?
We have 113,000 farmers directly and over 200,000 farmers indirectly.
With the rise in food prices, what do farmers stand to gain from your commodities exchange market?
Our value proposition to farmers has always been two-fold: access to finance and access to markets, which are two huge problems that smallholder farmers in Nigeria have historically been unable to surmount. By engaging with the Exchange, farmers will be able to gain access to finance in form of inputs like fertilizers, seeds, and crop protection products while also being enabled to access support in terms of extension services that impart knowledge on good agronomic services.
At the end of the season, the farmers can also access larger markets through the Exchange as their products can be aggregated with that of other smallholder farmers and furnish the orders of Exchange clients on the processor side. This process is a transparent one where farmers can get information on prices and determine for themselves when to sell considering that our storage infrastructure also allows the farmer to store their produce in AFEX warehouses which have certain quality parameters that ensure that the grains retain their value.
What do you think the government should do to reduce food prices?
Agriculture planning is always in the mid to long term, and reducing food prices is a matter of ensuring that our supply is able to meet up with the demand for food. We have always advocated for a data-led strategy that will enable us to track these early. Data needs to be available and today it is not available at a scale that we need as a country. When it is, policymakers will need to be able to then make informed decisions around it, and so we need a data-strategy for agriculture in place which will enable adequate planning both for policy at the government level and advocacy and execution for active players in the sector. We also need to amplify dry season farming to ensure that we are expanding our crop output. CBN is already driving this, but more stakeholders need to be involved.
How have your warehouses impacted in tackling post-harvest losses?
We have about 45 warehouses across 15 states in the country and these warehouses are open and provide storage as a service for the farmers meaning that instead of a farmer to rent warehouses or keep his grains in his house, where he will lose 20 – 30 percent of the volume over time, you have a situation where you can bring it into a warehouse and he can pay for the three bags he is storing for 3 months and he stores it. So, it is stored as a service and then takes off the burden and the risk of storage off the farmer.
What is your sustainability plan in keeping your relationship with farmer groups, cooperatives, and communities?
We are staying focused on farmer engagement; using our outreach structure to get more farmers to take advantage of the Exchange’s offerings from input financing to storage and grading services. We don’t see our relationship with the farmers as transactional we see it as a community we are building, and so trust is central to that system, but so is ensuring that they see much-needed value in the bundle of services that we are providing for them and are able to record growth year-on-year.
With the impact of the current economic recession that has occasioned hyperinflation, do you have plans to cushion the effects on farmers under your purview in terms of farm input and transportation of their produce?
We already have a process in place via our outreach structure, which allowed us to profile farmers and include them in our systems after which we disbursed loans in form of inputs and actively provided support for them through the production cycle up to harvest when we are now triggering our repayment structures, but also enabling the farmers to get access to a market for their leftover commodities.