KABANDA CHULU, Lusaka
PANGAEA Securities and Musika have partnered to develop an innovative financing mechanism to increase liquidity in the Zambian agriculture sector.
The initiative dubbed as the Grain Fund will be a special purpose vehicle anticipated to be listed on the Lusaka Stock Exchange (LuSE) by end of 2016.
The financing mechanism is expected to attract local and international investors, including the Zambian pension and insurance funds, to participate in the countryâ€™s agricultural markets.
It is expected that players in the agricultural commodities trading sector will be able to access finance through the fund by using Zambia Agriculture Commodity Exchange (ZAMACE) warehouse receipts as security against their borrowing.
According to a joint statement issued yesterday, majority of Zambian crops are harvested by smallholder and commercial farmers within the space of a few months a year.
â€œIt is important that there is enough money in the agriculture sector during this time to allow the effective participation of a large number of private buyers, which in turn leads to competition in the market and fairer prices for farmers, traders and processors alike.
â€œOn the Zambian market, accessing such high levels of cash from traditional financial institutions can be a challenge and the high cost of borrowing is passed on to market players, adding to the cost of Zambian commodities in both the domestic and regional markets,â€ the statement states.
It stated that players in the agricultural commodities trading sector will be able to access finance through the fund by using Zambia Agriculture Commodity Exchange (ZAMACE) warehouse receipts as security against their borrowing.
A warehouse receipt is a document of title issued by a storage operator certified by ZAMACE for grain of specific quality and quantity deposited in the certified warehouse that can be used as collateral for financing.
It stated that if commodity buyers are able to access higher levels of lower cost finance through the Grain Fund, they will be incentivised to utilise the warehouse receipting system in order to create the securities required to access the fund.
â€œThis, in turn, will stimulate the development of the certified storage industry [and increase competition in storage costs], and encourage wider utilisation of the ZAMACE agricultural commodities exchange and its spot and futures trading opportunities.
â€œThese structured market â€˜reformsâ€™ will increase price discovery, transparency and security of trade for all market participants,â€ it stated.
KABANDA CHULU, Lusaka