Agriculture Commodity Exchange Development in Paraguay
Project Development Objective (PDO)
The objective of this technical assistance project is to contribute to the financial inclusion of family farmers by supporting the establishment of an agriculture commodity exchange in Paraguay. The exchange will allow farmers to use exchange contracts as collateral for loans and better demonstrate their future cash flows and ability to repay loans. In addition, the exchange will assist farmers in managing price risks and avoiding drops in income.
Background
Because of a high level of informality in the agricultural sector, Paraguayan farmers endure high transaction costs, delays in payments, poor risk management, weak quality control, and thus, a lack of standardized products. An agriculture commodities exchange could help formalize the agriculture sector, while also mitigating several challenges involving the lack of access to credit, formal financial services, pricing, and standardized contracts. Given Paraguay’s agriculture competitiveness and export potential, a well-functioning exchange could deepen capital markets, enable investments in agribusiness, and increase access to finance for farmers.
To support the development of a commodities exchange, Paraguay needs an up-to-date and effective legal, regulatory, and supervisory framework, as well as operating regulations and procedures to support the oversight and enforcement responsibilities of the commodities trading regulator.
Activities
The project will support the following technical activities:
1. Legal and regulatory framework
Assisting in the drafting of regulations for the development of a cash and derivatives market and organizing stakeholders’ consultation with market participants to elicit feedback, garner support, and establish understanding for the proposed regulation of the market.
2. Supervisory capacity building
Assisting in the drafting of a regulatory rulebook to govern the operations of the agriculture commodity exchange, including a clear set of rules governing market participants and potential entrants, and coordinating capacity-building workshops for staff of the Ministry of Industry and Commerce to enhance understanding of new requirements and procedures.
3. Roadmap of reforms
Assisting in the development of a strategy and road map to move from only a cash market to a market that trades in derivatives. Proposals for incentives to trade at the exchange will include, for example, government-provided incentives for agribusinesses traded through the exchange. Recommendations on the exact role of the Ministry of Industry and Commerce staff in connection with cash market transactions and the National Securities Commission for future development of the derivatives market will be provided.
Expected Outcomes
The main expected outcomes of the project are as follows:
1. Increased access to credit and formal financial services for farmers
2. Development of an enabling regulatory framework for the establishment of the Agriculture
Commodity Exchange (cash market)
3. Establishment and operation of the Agriculture Commodity Exchange (cash market)