Significance and perspectives for development of commodity exchange trade in agricultural products

Abstract

Exchanges are intermediaries in the trade of commodities, financial instruments that have commodities in their base or credit instruments that are secured by commodities. Commodity exchanges have gained in importance in recent decades. Commodity exchanges have evolved from the place where the physical purchase and sale of goods takes place to trade in commodity derivatives where standardized contracts−futures and options−are traded. The role of commodity exchanges in the development of the agribusiness sector has changed significantly from the initial stage of development when in the beginning the main role was to ensure efficient and transparent exchange of commodities, until the early 1970s when instruments were developed to enable risk management in the agribusiness sector. The largest volume of tradе on modern commodity exchanges is realized in standardized derivative contracts. Financial derivatives are one of the most successful financial innovations, with the volume of turnover increasing significantly. Within this chapter, special attention is paid to the analysis of the situation in the field of commodity exchange trading in the Western Balkan region. According to the results of the analysis, developed agricultural commodity exchange trade is not available to the farmers in these countries, nor are business risk management instruments available to participants in countries with developed commodity exchange systems. Analyses have shown that the sole commodity exchange with a significant volume of trade in the countries of the Western Balkans is the Novi Sad commodity exchange, trading on the spot and non‒standardized term market. In terms of the directions of development of regional commodity trade, the experience so far shows that high trading volume is a paramount for well‒developed commodity exchange. Therefore, the path to the development of commodity exchange trading is the establishment of a regional commodity exchange that would be a place of trade for all of the Western Balkan’s countries. By establishing a regional commodity exchange, participants in the agricultural sector would have the opportunity to securely and transparently trade and manage the price risk that have a pronounced volatility in recent years.