IT in Banking

Online commodities trading platform gives farmers more control

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TonnUp director Stephen Krüger and chief operations officer Brett Riley.
TonnUp director Stephen Krüger and chief operations officer Brett Riley.

TonnUp, an online commodities trading platform, was born out of a need to address some of the frustrations and challenges farmers face in the agricultural commodities market.

So said maize producer and TonnUp director Stephen Krüger, speaking at the official launch of what he described as the “first electronic platform for farmers that takes into consideration the whole value chain”.

On Wednesday, Krüger and his team, which includes COO Brett Riley, unveiledthe online commodities trading platform for farmers during a virtual media briefing.

Krüger explained the launch was the culmination of a long process that began in 2015. “[We realised] there was a good time and good opportunity calling for another commodities market to get established in the South African context, since we’re, up to yesterday, only dependent on the JSE Safex in that regard.”

Safex, or the South African Futures Exchange, is the futures exchange subsidiary of the Johannesburg Stock Exchange (JSE). It consists of two divisions: a financial markets division for trading of equity derivatives and an agricultural markets division for trading of agricultural derivatives.

According to a company description, TonnUp aims to shake up the local commodities market by helping farmers market and sell their agricultural products within a structured and transparent environment.

In addition, it will bring together buyers and sellers in a way that allows farmers to get maximum value for their products, buyers to make more informed buying decisions, and the market to be more transparent and efficient.

Said Krüger: “It [TonnUp] brings farmers to an electronic platform where they can submit their products, where they can better manage the pricing and sale going forward. It gives them much more control, and with that, it gives them marketing opportunities at a fraction of the market’s costs.”

He noted the marketing costs on a ton of wheat, maize, soil or any other agri-commodity have become very expensive, making it unaffordable for farmers.

“We looked at the costing structure, what it costs a farmer to market a ton of his product. The saving is not merely for the farmers…doing business on TonnUp should be affordable not just for the producers but also for the millers, processors and the buyers, and eventually the end-user of our products.”

Riley added: “TonnUp is the result of having listened to an uncomfortable market for a long time. There’s a big value-chain in the agricultural sector and very often, the producer draws the short end of the stick and isn’t as valued as we believe he should be.

“After listening to a lot of the angst and discomfort in the market, we believe there is an opportunity to put forward a formal platform where a producer can offer their product to the market, or where a buyer can put a notification out into the market for what they are looking for.

“We’re a platform to allow for the engagement of market participants; we are not here to take on establishments like the JSE. The JSE offers a very different product offering and a different contract base.

“We are not here to take on their market whatsoever; if anything, we believe that a robust spot or cash market actually supports the futures market and vice-versa.”

Using TonnUp, farmers will consult with their brokers or silo owners to offer their commodities on the platform at their desired price point. Buyers – like millers and processors − will be able to bid on these consignments, whether there is already stock on offer or not, at all registered delivery points. They can also bid for a preferred delivery location from where they can receive their product, if their bid is successful.

Krüger explained: “South Africa’s current grain market is between 14 million and16 million tons, and less than 25% of that is traded in a formal market. This means that potentially, 75% of the grain crop is available to be traded on a formal platform, with full pricing and location transparency. Our value proposition is to bring together buyers and sellers, and to create a spot market where everybody gets a fair deal.”

According to TonnUp, it aims to remove delayed payments witnessed in cash markets, through a ‘trade plus 2’ (T+2) working day settlement cycle.

While silo owners will continue to guarantee the quality and quantity of the physical stock on the storage certificates, TonnUp facilitates the cash flow process so that sellers receive their payments and buyers receive their stock quickly and efficiently.

While TonnUp’s initial focus will be grain, it plans to expand rapidly into other commodities, including soya, sorghum, oil cake and fertiliser.

“Ultimately, we’re using agritech to empower farmers to manage their own products at a fraction of the current cost, and from anywhere at any time,” Krüger concluded.

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