Farouk Gumel -  Importance of Commodity Exchange
                     Importance of 
Commodity Exchange
Farouk Gumel, Nigeria
Farouk gumel  -  A Commodity Exchange or  
Comex is  a  regulated market  a l lowing the 
purchase and sale of  contracts  backed by 
commodit ies such as  go ld,  s i lver ,  crude 
o i l ,  and so on.  Such an exchange serves 
as the centra l  locat ion for  t rading the 
commodit ies.  Some of  the major  
commodity exchanges in  the wor ld  are 
Chicago Mercant i le  Exchange (CME),  
Chicago Board of  Trade (CBOT),  Carbon 
Trade Exchange (CTX) ,  New York 
Mercant i le  Exchange (NYMEX),  London 
Metals  Exchange (LME),  Tokyo Commodity 
Exchange (TOCOM) and more.
In its simplistic form, the purpose of exchanges is to provide a centralized marketplace 
where producers can sell their commodities to those who want to use them for processing 
or consumption. In its simplistic form, exchanges connect buyers to sellers. The sales could 
be for products that exist today or those that would be produced at a “future date”. For the 
“future” transaction, the exchange enables the farmer to lock in the price and offtake of 
his/her crop months before harvest. 
Commodity exchanges operate on a contract 
basis, such as spot prices, forward prices, 
future contracts as well as options on futures 
contracts. These contracts offer farmers 
stability and consistency of prices for their 
produce while protecting them against drops 
in prices. Spot prices mean today’s 
transaction. Future or forward 
prices/contracts mean the transaction terms 
are agreed today but actual execution 
(payment and delivery) is made at a future 
date. 
Commodity exchanges mostly trade in primary 
products rather than manufactured products. This 
means in continents like Africa where primary 
production thrives, the existence of Commodity 
Exchanges will be a critical link between the 
producers and processors (both within and outside 
the continent). It is important to note that most of 
the commodities traded on the main international 
exchanges, such as Coffee, wheat, maize, sugar, 
oil, and cocoa, are products that are prevalent on 
the African continent. It, therefore, makes sense for 
this trade, or at least part of it, to be executed 
within the continent. 
Where Would We Be Without Commodity Exchanges? 
Without commodity exchanges, it would be difficult—if not impossible—to establish a standardized price for a commodity. Those in the 
commodity industry would be personally responsible for finding individual buyers and sellers (local and foreign). Prices would be 
determined by access. There would be a higher possibility of defaults and bankruptcy as there would be no platform that vets the 
transactional parties. 
Benefi ts  o f  Commodity  Exchanges  for  Afr ica?
• To Farmers/Producers
• Engender  per fect  knowledge of  the agr icu l tura l  
produce markets
• Br ing about  proper  pr ice d iscovery  leading to  the 
proper  pr ic ing o f  agro -produce  
• Reduce the cost  o f  farming operat ions  and 
improve qual i ty  o f  agro -produce through the 
adopt ion o f  best  pract ice procedures
• Reduce or  e l iminate pr ice d iff erent ia ls  in  adjacent  
markets
• Improve aggregat ion (bu lk ing)  of  commodity  
vo lumes
• Eff ect ively  mobi l i ze agr icu l tura l  produce f rom 
surp lus  to  defi ci t  areas
• Minimize waste in  agr icu l tura l  produce market ing 
and consumpt ion
• Improve output  and post -harvest  
handl ing of  agr icu l tura l  crops for  better  
pr ic ing
• Improve income and standard of  l iv ing.
• Standardize weights  and measures for  
commodity  trading to  fac i l i tate uni form 
pr ic ing
• El iminate the need for  farmers  to  se l l  
produce at  harvest  per iod when the pr ice 
is  poorest
• Provide a  hedging fac i l i ty  as  an 
instrument against  fa l l ing produce pr ice
• Improve access  to  loans as  farming wi l l  
become more lucrat ive
To the African Economy
• Arrest rural-urban drift
• Create employment and generate wealth
• Improve Internally Generated Revenue and its 
collection as commodity markets will become more 
organized
• Increase the supply of raw materials for agro-
processing companies
• Encourage research into the processing of African 
agro-produce
• Increase the earnings of operators such as banks, 
insurance companies, investment fund managers, 
transporters, warehouse operators, etc
• Attract Direct Foreign Investment in agro-related 
economic sectors
• Provide access to world markets for African 
agricultural produce
• Improve the contribution of the agricultural sector 
to national GDP
Farouk Gumel, an Executive Director at TGI Group, a pan African conglomerate says Africa is the 
dominant producer for many agricultural commodities so it’s imperative to have an organized and efficient 
commodities market to spur growth and competitiveness. Farouk Gumel states having control of a sizable chunk of the 
commodity ecosystem will assist in moderating consumer prices, promote the attractiveness of agribusiness, foster 
financial inclusion and improve industrial output and profitability as well as government revenue. It will also enhance 
the wellbeing of the farming community and help reduce rural-urban drift.
Farouk Gumel concludes that the journey for many developed nations to 
prosperity started with having a vibrant and balanced commodity exchange 
that encourages production through the provision of offtake assurance. The 
same could happen in Africa if such commodity exchanges are embraced. 
Farouk Gumel
Group Executive Director and Head of Agri-
Businesses for Tropical General Investment 
(TGI) Group.
THANK YOU!!