- Plans to open the first-ever commodity exchange in Africa are underway in Ethiopia. The exchange will trade in six commodities: coffee, sesame, haricot beans, teff, wheat and maize.
The Ethiopia Commodity Exchange (ECX), as it is officially known, will provide a marketplace where buyers and sellers can come together to trade and be assured of quality, delivery and payment. The exchange includes a trading floor in Addis Ababa, six warehouse delivery locations, and 20 electronic price tickers in major market towns.
Launched by the Ethiopian Prime Minister Meles Zenawi at a ceremony on 4 April, ECX is billed to begin ooperations on 15 April.
Agricultural markets in Ethiopia have long been plagued by high transaction costs and excessive risk. With only one third of output reaching the market, commodity buyers and sellers tend to trade only with those they know, to avoid the possibility of being cheated or default.
Small-scale farmers - who produce 95 percent of Ethiopia’s output - come to market with little information. Often, their local market is the only market they know, leaving them at the mercy of the local merchants, unable to negotiate better prices. If farmers in a particular region are especially productive, the local market is glutted and their prices drop precipitously.
But Mr Zenawi expects the exchange to “revolutionalize the country's backward and inefficient marketing system.”
ECX is designed to provide a reliable system for handling, grading, and storing agricultural products. It will be able to match offers and bids for commodity transactions, with a risk-free payment and goods delivery system to settle transactions.
The exchange will create a transparent trading environment through many ways including aggressive market data dissemination to all market actors, clearly defined rules of trading, warehousing, payments, delivery and business.
Ethiopian economist Eleni Zaude Gabre-Madhin has been a driving force behind the development of the exchange. As a researcher for the International Food Policy Research Institute (IFPRI), she studied agricultural markets in her native country for several years. She was struck by the fact that Ethiopia can have a bumper harvest one year and severe shortages the next, or surpluses in one region and famine in another.
In a survey of grain traders in 2002, Gabre-Madhin found that the infrastructure and services required for grain markets to function effectively was lacking. Traders frequently did not have access to credit, market information, transport, contract enforcement and other vital resources.
In 2004, Gabre-Madhin relocated to the capital Addis Ababa where she led an IFPRI program to support the Ethiopian government in its efforts to improve market and agricultural policies. She also coordinated an advisory body that developed the plans for the exchange.
"We have been consulting with producers and traders to solve the chronic problems faced by the market. We have conducted research to set up a commodity exchange market that will bring a grass-roots level change in the marketing system," said Addisu Legesse, Deputy Prime Minister and Minister of Agriculture and Rural Development, who supported efforts to launch the exchange.
As the third most populous country in Africa, Ethiopia represents a significant and growing market. Ethiopia’s production of maize places it as the second largest producer of that crop in Africa. The country’s total cereal production has reached 14 million tons, recently surpassing South Africa, home to the only other viable commodity exchange in Africa.
“When farmers can sell their crops on the open market and get a fair price, they will have much more incentive to be productive, and Ethiopia will be much less prone to food crises,” said Gabre-Madhin, who will serve as CEO of the new exchange. “ECX will allow farmers and traders to link to the global economy, propelling Ethiopian agriculture forward to a whole new level.”
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