PMEX to Revolutionize Trading of Agricultural Commodities
- January 8, 2012
- Posted by: Sobia Ashraf
- Category: News and Events
![placeholder](https://www.pmex.com.pk/staging/wp-content/uploads/2016/06/placeholder-1110x550.gif)
PMEX to Revolutionize Trading of Agricultural Commodities
Agriculture plays a central role in the economy of Pakistan. Over the years, this sector has been instrumental in achieving food security, boosting exports and earning foreign exchange for the country. It provides raw material to two of the large scale manufacturing industries i.e. textiles and sugar. In terms of potential, agriculture sector of Pakistan has the capacity to not only produce for the domestic population but to have surplus production for exports.
Despite enjoying enormous potential, the role of agriculture in Pakistan’s economy has remained limited because of some inherent problems. On one hand, small farmers find it difficult to access credit from banks due to non-availability of acceptable collateral. As a result, they face two problems: 1) borrowing funds from non-banking sources for the purchase of inputs and 2) selling their produce at low prices to the middlemen to meet their urgent financial needs, which deprives them from earning a decent return on their produce. On the other hand, farmers, miners and commodity stockists produce and export a rich variety of agricultural commodities globally. It is often very challenging for them to find international buyers or satisfy their demands due to various by-laws and operational challenges in their respected countries. As a result, they tend to lose their market share against competing countries.
Pakistan Mercantile Exchange (PMEX), fully cognizant of robustness of its electronic trading platform is all set to play its due role in developing domestic as well as international markets for the indigenous agricultural commodities. This initiative is aimed at disrupting the existing system and creating a new ecosystem, which will stimulate growth and boost the competitiveness of Pakistan’s’ agriculture sector. It will empower farmers to optimize their earnings in two ways: 1) sell their produce in the local markets through Electronic Warehouse Receipts (EWR), as well as 2) offer the commodities to global buyers through Global Trading Platform ((GTP).
The Electronic Warehouse Receipts
PMEX is relentlessly working on EWR, an initiative taken by Government of Pakistan (GoP), led by Securities & Exchange Commission of Pakistan (SECP), for establishing a mechanism for the trading of EWR. Against this backdrop, Pakistan’s first Collateral Management Company (CMC) has been formed and is expected to become operational within 2020. The Exchange is in the process of integrating its system with that of CMC for offering an end-to-end trading facility to the farmers.
The CMC has the most important task of accreditation of warehouse, it will approve the warehouses for the storage of commodities and issue electronic warehouse receipts (EWR). This will provide the farmers two options: 1) sell their commodity or trade EWR at PMEX platform or 2) use receipt as collateral for borrowing from financial institutions.
Introduction of trading of EWR will be a game changer in revolutionizing the agriculture landscape of the country. It is expected to yield myriad of benefits for all key stakeholders of the agriculture value chain.
First, introduction of EWR will help farmers to obtain credit from banking system by offering their produce as collateral. Resultantly, they will avoid distress sale and hold their produce till the time prices become attractive, thus improving their profitability.
Second, it would help the Government in documenting the agricultural sector and realize the ultimate objective of ‘achieving food security’; the added advantage will be expansion of the tax net. Other significant benefits will be standardization of commodities through grading and reduction in post-harvest losses. Additional foreign exchange would be earned by exporting the saved quantities.
Third, it would encourage investment in better quality warehouses and their management systems throughout the country thereby creating investment & employment opportunities.
Finally, this mechanism would also play an imperative role for PMEX as trading of EWR at the Exchange’s platform is expected to create a vibrant unified national market for agricultural commodities. The Exchange is confident that such a market for agricultural commodities at a pan-Pakistan level will be a game changer for revitalizing the agricultural sector of the country.
PMEX plans to integrate the EWR trading platform with the Global Trading Platform (GTP) – the first international digital trading platform of its kind which will showcase local commodities to the global market by offering an end-to-end one-window solution. Such an integration will greatly enhance the market place for local producers as they will be able to offer their produce to local as well as global customers.
The Global Trading Platform (GTP)
Keeping in view the challenges faced by local sellers and global buyers, PMEX is also getting ready to introduce GTP – the first international digital trading platform of its kind in South Asia. The GTP will act as commodity procurement and trading platform showcasing a variety of commodities of Pakistan to the overseas buyers by offering an end-to-end one-window solution. The ecosystem of GTP has been designed to bring sellers and buyers closer by providing them a unique opportunity to trade commodities in real time at a regulated platform with utmost convenience.
For this digital platform, PMEX has partnered with HashMove to provide an advanced logistics platform. It will empower the buyers to search, compare, purchase and track their purchases in real time. The buyers will be able to obtain the in-transit insurance for the purchased commodities through this platform. Similarly, the world’s leading company, SGS has been arranged to provide inspection, verification, testing and certification services thereby giving an absolute comfort to the buyers that the commodities delivered will be as per agreed international standards.
The GTP is expected to revolutionize the trading of commodities not only in Pakistan but globally. For the first time in Pakistan, GTP will provide an opportunity to small, medium and large commodity sellers to sell their commodities and get prompt payment without being registered as exporters. In addition, sellers will not face the hassle in preparing any export documentation which will be handled by GTP on behalf of them. Moreover, by listing commodities at GTP, they will sell their product in new markets and attract new buyers from all over the world.
The global buyers will enjoy the advantage of reaching an assorted and verified commodity sellers at GTP. They will not only have the opportunity to purchase commodities with quality certification as per the international standards in small to large volumes but also at competitive prices and delivered the goods at the port of their choice at the click of a button.
The Exchange is actively working on EWR trading platform as well as GTP under the guidance of its Board of Directors and Securities & Exchange Commission of Pakistan (SECP). The management is confident that once these two platforms are unveiled, farmers will be able to acquire credit at better terms, avoid distress selling of their produce, contain post-harvest losses and earn higher return on their produce. On top of all government will be able to sustain food security and earn additional foreign exchange by boosting export of agricultural produce.