- Started as an experimental development project in 2008, the Ethiopian commodity exchange has been a great success in helping agricultural products reaching the market and safeguarding trade. Now, Tanzania, Kenya, Zambia and Uganda are considering replicating the model.
In April 2008, Ethiopia's first commodity exchange was established in a country where only a third of the agricultural produce reached the market. With national and foreign funds, the Ethiopia Commodity Exchange (ECX) was created to provide security and visibility for the country's commodity traders.
Jointly owned by its members and the Ethiopian government, ECX now provides a secure, low-cost platform for farmers to trade agricultural goods - such as coffee, sesame, haricot beans, maize - in an otherwise tradition-bound system suffering from unusually high transaction risks and costs.
"The exchange guarantees the integrity of the products traded, quickly and reliably disseminating market price movements to all traders," according to the UN's development agency UNDP, which concludes the ECX project has been a success.
In addition to creating a physical and electronic trading platform and market information system, ECX performs warehouse management and quality certification. It also guarantees payment against delivery, solving any commercial disputes through a fair and professional arbitration system.
The exchange has handled transactions worth US$ 240 million since December 2008, amounting to over 160,000 tons of coffee beans. An estimated 850,000 small-holding farmers - mostly producers of coffee, sesame and other cash crops - are now involved in the ECX system. This amounts to around 12 percent of the national total of farmers.
Having helped to develop a commodity exchange for Ethiopia, UNDP now reports it is looking into the possibility of replicating the experience in other African countries. "Among these, Tanzania, Kenya, Zambia and Uganda are considering replicating, customising and scaling up the ECX model," the UN agency reports.
The UNDP Administrator, Helen Clark, visiting the ECX last year, was thrilled by the model project. "There will be a lot of interest in other developing countries in this kind of exchange," Ms Clark said. "It gives a lot of transparency to the small farmer about what they are going to get. It also helps set standards for what they need to produce in order to command the best price," she added.
The Ethiopian model has already been presented to other African governments and the international donor community. Last month, the African Commodity Exchange Association, which is to foster the growth of commodity exchanges in the rest of the region, was established.
A Commodity Exchange Community of Practice is expected to be launched shortly, helping experts to share experiences on how to establish similar mechanisms in their own countries. Because the road to success of the ECX has been difficult.
In its first year, the Addis exchange faced a number of challenges, including fears that Ethiopia's world-class coffees would be lost, as high and low quality beans were mixed together on the trading floor.
The ECX overcame these challenges with the creation of a classification system that differentiates between different types of coffee beans. In response to local pressures, the exchange has started to market specialty coffee and has even expanded from covering spot transactions for immediate sale and delivery, to include trade in coffee futures.
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