African Trade Ministers Visit Kansas City Board of Trade

AGOA Forum attendees see firsthand the importance of commodity exchanges

By Charles W. Corey

Kansas City, Missouri - African government officials attending the ninth annual U.S.-Sub-Saharan Africa Trade and Economic Cooperation Forum - better known as the AGOA Forum - visited the Kansas City Board of Trade August 5. The board trades more than 10 billion bushels of hard red winter wheat annually and sets the benchmark price worldwide for that key commodity, which is the primary ingredient for bread in many countries.

In an interview with America.gov, Deborah J. Bollman, assistant vice president for marketing at the board, said the visit represents a "wonderful opportunity to have African visitors here ... to be exposed to how we run a futures and options exchange in the heart of America for the bread wheat" that is grown in America's heartland.

Bollman said Nigeria, Egypt and Jordan are some of the exchange's biggest customers. Last year, Nigeria alone imported some $80 billion of U.S. wheat, making wheat imports the second-largest business sector in that country behind petroleum.

It is at the Kansas City Board of Trade in Kansas City, Missouri, Bollman said, "where price discovery is established ... all based on supply and demand," where the true value of the product - hard red winter wheat - is determined in a transparent, open marketplace.

Wheat is traded on the exchange in bushels. Each bushel contains 35.23 liters of wheat. Forty-two percent of all wheat produced in the United States is hard red winter wheat.

Bernardo Vimpi, a Kansas City Board of Trade intern who is Angolan and attending a local college, said the board plays an important role. "You have to have organizations like the K.C. Board of Trade that are willing to do such a tremendous job in helping to determine the price worldwide," and structure the orderly handling, pricing and sale of such commodities.

While at the exchange, the government ministers viewed a video presentation and then walked onto the open trading floor to witness wheat being traded.

Wheat is traded at the board of trade in what are called trading pits, tiered areas where colorfully attired traders stand and trade the wheat either electronically on laptop devices or verbally by what they call "open outcry," where they shout buy and sell orders to each other in a frenzy or gesture with sign language. The traders wear brightly colored jackets so they can be easily spotted from afar and identified by their companies, fellow traders and exchange officials.

This system allows transparent price setting for red hard winter wheat, providing some price predictability so large baking companies and buyers of the commodity can lock in prices for wheat that is milled into flour for bread and pastries.

The Kansas City Board of Trade was organized in 1856 by a group of Kansas City merchants. Initially, it served a function similar to that of a chamber of commerce. Located on the northern border between Kansas and Missouri and at the junction of two rivers, Kansas City is situated in one of the most productive wheat-growing regions of the world. Original members of the board met on the banks of the Missouri River to develop a more organized method of buying and selling grain.

Alfred Mahamadu Braimah, director of private sector investment for the Economic Community of West African States (ECOWAS) Commission, spoke with America.gov following his tour of the board. He called his visit "a major eye opener."

"I think one of the main challenges we have in West Africa is making farming into a business, and embedded into that, the challenge is having a regulatory type of exchange where the forces of supply and demand can be brought into place to determine price."

"That [type of exchange] would bring transparency to the whole pricing process and ... will also enable farmers to forecast way ahead of time what kind of revenues they are going to get and therefore what kind of cost structures they need to be profitable."

Braimah said the private sector is truly the pivot point and platform for economic efficiency. "Government cannot do that all alone. What government can do is to provide the enabling environment."

"The broad bulk of the people - especially within the ECOWAS area - will fall within the private sector group ... more than 70 percent of the population. The only way that you can address all the issues of poverty and all the issues of food security, etc., [is] to create a platform for this large, massive population" that will continue to move the region toward greater economic development.

Braimah said what he saw at the Kansas City Board of Trade "reinforces the thinking process within the ECOWAS Commission that we will need a commodity exchange for our own agricultural products," to allow for the mobility of those products across the region and to allow farmers to see pricing in a transparent way that minimizes opportunities for fraud by intermediate agents. Fifteen West African states are members of the ECOWAS Commission.

Following their tour of the board, the ministers heard a presentation from a group of America's land-grant universities, which were established in the 19th century to help teach agriculture, science and engineering. The theme of the presentation was that the American farmer has been successful because he or she works not alone but within a broad network of partners, from the universities and extension services to the U.S. Department of Agriculture. Commodity markets like the Kansas City Board of Trade function as part of that network.

The ninth annual AGOA Forum held sessions in Washington before moving to Kansas City for two days of meetings August 5 and 6.

Source: U.S. Department of State