A structure conduct performance analysis of the Zimbabwe agricultural commodity exchange
Muchopa, Chiedza L.
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Farmers, agribusiness leaders and government policy makers in Sub-Saharan Africa are grappling with the difficult question of how to restructure their agricultural input and output marketing systems in order to expand the role of the private sector, focus public activities on core functions and improve access by smallholders. In Zimbabwe the concept of an agricultural commodity exchange came about with the government policy of structural adjustment and led commercial farmers to set up ZIMACE to provide a mechanism for price discovery and coordinating the exchange of agricultural commodities. Given the expanding volume of agricultural commodities traded through ZIMACE, ZIMACE is now a major player in domestic, regional and international markets. The most significant development is that smallholder farmers are now basing their prices on ZIMACE. A growing hypothesis is that if smallholders use ZIMACE as a price discovery mechanism then they will not be cheated into accepting low prices compared with if they bargain individually with traders. However, there is a lack of information on the efficiency and effectiveness of ZIMACE in carrying out marketing functions and the potential benefits to smallholders, especially in marginal areas. This study reviews literature on the mechanisms for discovering agricultural prices, mechanisms for coordinating exchange of agricultural commodities, and agricultural commodity exchanges in Africa. The study also reviews empirical methods for analysing agricultural commodity markets and develops a conceptual framework for analysing the structure, conduct and performance of ZIMACE. The conceptual framework is used to analyse basic conditions, contestability of the market and pricing efficiency. The study found that ZIMACE is organised as an exchange. Although there is high market concentration, ZIMACE is a contestable market. Because of contestability participants engage in price and non-price competitive behaviour and because of market competition there is spatial pricing efficiency and correlation of the ZIMA CE market with other markets. Granger causality tests indicate that ZIMA CE is a price leader in terms of price discovery and performs well in the transmission of price information. The study recommends that the Government enact legislation to enforce grain handlers including GMB to submit price information which should be made public. In addition, grain commodity brokers are recommended to improve transparency in the price discovery process by not engaging in unethical business practices. Smallholder farmers are recommended to engage the services of brokers and consolidate their produce in different areas to obtain better access to ZIMACE. Finally it is recommended that ZIMACE supports the development of infrastructure facilities to effectively link production centres with market centres and improve market knowledge by providing accurate and timely public market information to all farming sectors.