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 – textiles and sugar. In terms of potential, the agriculture sector of Pakistan not only produces for the domestic population but has surplus production for exports.

Despite having enormous potential, the agriculture sector has played a limited role in Pakistan’s economy due to some inherent problems. One of the stumbling blocks to progress is the lack of documentation from production to retail sales. Moreover, small farmers find it difficult to acquire credit due to the non-availability of acceptable collaterals resulting in either borrowing funds from non-banking sources for the purchase of inputs or to sell the commodities at low prices to the middlemen to meet urgent financial needs, which deprives them of earning a fair profit.

To overcome the above-mentioned impediments, the Government of Pakistan (GoP) led by the Securities & Exchange Commission of Pakistan (SECP) in collaboration with the relevant institutions conceived and implemented the Electronic Warehouse Receipt (EWR) System. The system aims at developing a robust market for the indigenous agricultural commodities for ushering economic growth and alleviating poverty.

The EWR provides three options to the farmers:

  1. Safekeeping of commodities to avoid post-harvest losses and initial price decline
  2. Trading of EWR at PMEX platform to efficiently dispose of the produce at a fair price
  3. Using EWR as collateral for borrowing from the formal banking system at competitive interest rate, avoiding distress selling and earning a fair return on their produce.

The introduction of EWR system is expected to revolutionize the agriculture landscape of the country and yield a myriad of benefits to the key stakeholders of the agriculture value chain.

It will help the GoP to document the agricultural sector and realize the ultimate objective of achieving food security. The added advantage will be the expansion of tax net. Other significant benefits include standardization of commodities through grading, and reduction in post-harvest losses. Moreover, the country will earn additional foreign exchange by exporting the saved quantities.

Similarly, it would encourage investment in high-quality warehouses and their management systems throughout the country, thereby creating investment and employment opportunities.

Finally, the trading of EWR at PMEX will create a vibrant, unified national market for agricultural commodities. The Exchange is confident that creation of a Pan-Pakistan market will help in revitalizing the agricultural sector of the country.

Pakistan’s first Collateral Management Company (CMC) has commenced operations and started the accreditation of the warehouses in the country. The accredited warehouses have also started issuing EWRs. PMEX has successfully integrated its system with CMC to offer an end-to-end trading facility for EWRs. It is anticipated that once the issuance of EWRs attains a substantial level, trading of EWRs will start at PMEX.

Moving forward, PMEX plans to integrate the EWR trading platform with the Global Commodity Trading Platform (GCTP), which is expected to be operational in the first quarter of 2022. Connecting GCTP to CMC/EWR system seamlessly would enable CMC participants to offer their produce to local as well as international buyers.

PMEX is confident that such integration will enhance the marketplace for local producers by allowing them to sell their products to local as well as global customers.

Posted on January 20, 2022 in Uncategorized

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