Investigating Basis Link as a sustainable solution in the agricultural commodity trading industry

Abstract

Basis trading around the world dates back as far as 10,000 BC when the trading of commodities started. After the deregulation of the Maize Board in 1995, producers were faced with selling their products in the free market environment. This meant that more than one buyer could gain access to agricultural products within certain demographical areas. The extent to which Basis Link will change the current trading of agricultural products is discussed. The study starts by writing about the commencement of global trading in agricultural products. The study narrows down to the trading of agricultural products in South Africa after the deregulation of the Maize Board. The reason why Basis Link was developed in 2013 and why the platform provides a sustainable advantage to both producer and off-taker in the agricultural trading sector is explained. The verdict delivered by the competition tribunal in terms of the anti-competitive nature of "market squeeze" regarding the Competition Act 89 of 1988, is summarised. In a free market environment supply and demand have a direct impact on the price of agricultural commodities. The opportunity commenced with the implementation of the Basis Link online platform in 2013 where the true value of supply and demand could be presented to both producers and off-takers of grain within the silo region of Senwes in a transparent and sustainable manner. Because the Basis Link online trading platform is very new in the marketing environment, historical data is used to illustrate the rapid growth of the system. Tonnages traded since the start of the system as well as premiums illustrate that the market is ripe for a transparent non-bias trading platform that links the producer to the highest bidder in the free market environment at a fraction of the costs of procuring the grain directly from the producers via the silo network of Senwes. The online bidding system and the terms and conditions are discussed in contents of the usage of the system for both producers and off-takers of grain. The empirical research was conducted on the primary users of the Basis Link online bidding system (registered clients). These users represent the demand for agricultural products within the Senwes silo region. Producers of grain can offer their grain on the Basis Link platform; yet without the buying power of the buyers on the system there would be no significant advantage to the producers for using the Basis Link online trading platform. Several very important reasons were identified by the respondents for the Basis Link platform which are determined in the literature study as well as a qualitative study that preceded the quantitative study. The data collected indicates that, although the idea of basis trading in a transparent manner was born out of necessity in 2013, the trading market has developed over time and the need for access to grain with the least percentage of risk in the South African agricultural sector is one of the most important drivers in indicating that Basis Link Online Trading Platform can indeed become a sustainable solution in the agricultural trading industry, not only within the Senwes silo region, but in the entire industry. Recommendations are given on how to expand this opportunity that has been proven to be sustainable to the entire industry.