Wheat trading on MACE to create new payment system

Wheat trading on MACE to create new payment system

  • By Misheel   -   Aug 28,2021
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Head of Policy and Planning Department of the Ministry of Food, Agriculture and Light Industry Ts.Bolorchuluun gave the following interview to talk about wheat trading on the Mongolian Agricultural Commodities Exchange (MACE) this fall.

The ministry has been making necessary preparations in recent months to trade wheat on MACE. What have you done in this area so far?

We started talking about trading wheat through the agricultural exchange earlier this year. As part of the implementation of the “e-Agriculture” goal, which aims to digitalize the agricultural sector, wheat trading on the MACE was initiated and preparations are underway.

We will require the involvement of key stakeholders, including Ministry of Food, Agriculture and Light Industry, Agricultural Exchange, the Agricultural Support Fund (ASF), farmers, flour mills and brokers, for commencing wheat trade on the exchange. These parties have different roles. First of all, we developed a plan and are working to determine the responsibilities and roles of each organization. For instance, the exchange accredited the elevators and warehouses of local branches of ASF and held e-trainings and seminars for the stakeholders on how to trade on the exchange. Last year, ASF delivered wheat to 24 flour mills. At present, 14 warehouses of ASF and flour mills have been accredited.

We also met with farmers and flour producers in person to raise their awareness about the benefits of trading wheat through an exchange. Earlier this month, a pilot trading was held in Zuunburen soum of Selenge Province, with key stakeholder representatives in attendance. A blockchain-based trading and payment system will be used to trade wheat on the exchange.

Can you provide more information on the use of blockchain technology?

With the use of blockchain technology, trading can be organized without any delays or errors. Simply put, the technology is an open system that guarantees high security and safety of information and stores data in devices across the globe. It allows a secure way for individuals to deal directly with each other without an intermediary like a government, bank or other third party.

Regulations related to wheat trade are being developed, right?

Yes. We received requests and recommendations from the stakeholders to develop regulations for trading wheat on the agricultural exchange.

It was noticed that farmers have a misconception that they have to hand over their wheat to the exchange and the exchange delivers it to flour mills. The trading of wheat on the exchange will run based on the free market price system and there will be no interference between farmers and flour mills. In short, informal trade will be formalized, certified, registered, and made transparent through the exchange.

The Financial Regulatory Commission, MACE and brokers will charge a fee for providing trading services. As this trading is commencing for the first time this year, it was agreed that wheat trading will be exempt from fees in addition to being getting brokerage fees set at very low rate, specifically at 0.1 percent.

Since wheat trading on the exchange for the first time, there may be things that need further improvement and development. We will pay attention to this. Countries such as Russia, the USA and Canada set a price for wheat through agricultural exchanges.

Please tell us more about wheat trading process on the stock exchange.

The first step for farmers and flour mills is to create an account with an agricultural brokerage company licensed by the Financial Regulatory Commission. A member of cooperative can place an order to sell through his or her cooperative. In general, it is important to understand that all trades on MACE are conducted through brokerage firms.

We accredited warehouses and laboratories of large flour mills to ensure that exchange trading is as simple as possible, low-cost and free of additional costs. In other words, a farmer will have an opportunity to trade wheat at an accredited warehouse with flour mills that they have been dealing with regularly. The same regulation applies to branch elevators of ASF. It will be possible to store and determine the quality of wheat at one place. This is a comprehensive solution that is being introduced depending on the specifics of the product or raw material.

The quality of wheat will be tested and as soon as it is delivered to a flour mill or warehouse, the sides can enter into a sales and purchase agreement. Of course, parties will draw up a deed of transfer of goods and raw materials and check the quality of wheat. If there are any disputes or violations related to quality or standards, it will be settled by a conclusion of the General Agency of Specialized Inspection in accordance with the procedure approved by the minister of food, agriculture and light industry.

The exchange earns a profit by charging a service fee for providing trading services. However, there will be no fee for wheat trading this year. A broker, on the other hand, charges a 0.1 percent fee for intermediating because it operates separately. For example, if you trade wheat worth 100 million MNT, the broker will charge a fee of only 100,000 MNT.

Will trading on MACE affect the quality of wheat?

We’re aiming to determine the best way to organize this trade based on the specifics of the agricultural production, level of agro-technologies and development of current infrastructure. In this regard, we’ll have no choice but to rely on the capacity of warehouse and laboratory of ASF and flour mills. We will adhere to the existing MNS standards in Mongolia.

There will be no misunderstanding as the seller and buyer will have a shared interpretation of the standards to be followed. In the event of a dispute, the General Agency of Specialized Inspection will finalize the quality assurance. We doubt that there will be many misunderstandings and issues once trading begins as quality assurance will be provided before the trade.

Do you have enough staff to facilitate the trade?

The laboratory technicians of flour mills will start trading wheat on MACE in affiliation of the ASF laboratory. In general, we believe that there we have enough personnel. We are currently organizing training for personnel to receive wheat on behalf of the exchange in an accredited warehouse. A team of scientists from the Mongolian State University of Life Sciences and National Association of Mongolian Agricultural Cooperatives is consulting on matters that need to be taken into consideration when trading wheat on the exchange as well as necessary international standards.

A meeting with more than 200 farmers was recently held. Were farmers supportive of the idea to trade wheat on the exchange?

MACE is a limited liability company and is completely owned by the Ministry of Food, Agriculture and Light Industry. Some farmers misunderstood that the exchange would only charge fees and that the trading would profit just one company. They used to have no understanding of the exchange and its trading process before but that has changed. Currently, wool, cashmere, leather and oilseeds are traded on MACE. We must take full advantage of the exchange. When soum residents collectively sell three tons of cashmere on the exchange, they sell at a different price compared to a herder who sells, let’s say, 10 kilograms of cashmere. The same applies to wheat trade. If farmers trade 1,000 tons together collectively instead of selling in small amounts such as 10 tons, they will be able to sell it for a slightly higher price on the stock exchange. It is very important that the price of wheat is set without interference on the exchange. Fees will increase next year, but not so much.

Some farmers may not know how to trade on the exchange, or find it complicated. Can you comment on this?

MACE is providing sufficient information to stakeholders about blockchain technology. The technology is easy to use. Specialists are working at the agriculture departments of provinces and soums. We’re giving farmers relevant information.

What percentage of the total farmers do you expect to trade on the exchange?

There are more than 1,400 enterprises and individuals engaged in grain farming. About 300,000 tons of wheat must be supplied to flour producers. We estimate that the majority of farmers will participate in exchange trading. 

Can you tell us about the advantages of trading wheat on MACE for farmers, flour producers and the country as a whole?

We see exchange trading as the biggest incentive to providing secure food to the people. The exchange will allow only quality products to be traded. Businesses will be able to sell their products on the exchange at market prices if prices are set based on market principles. Flour mills will have a permanent and reliable supply of good raw materials. Farmers will want to improve the quality of their wheat to be able to sell at a higher price. To do this, it is clear that they will look for opportunities to improve their technology, techniques and equipment.

How successful was the pilot trading in Zuunburen soum?

The pilot trading of wheat was successful. During the ceremony and trading session, farmers were able to get clarification for areas they did not understand well and were given information on everything they need to know about this type of trading of wheat.

Misheel Lkhasuren