Ethiopian commodity marketing system attracts interest

Kenya is one of three countries that are eyeing software developed by the Ethiopian Commodity Exchange (ECX) to market and sell agricultural products through an internet portal. The others are Zimbabwe and Tanzania who believe the tool that can improve farmer’s earnings. This was announced by ECX chief executive Dr Eleni Gadri-Madhini said at the seventh African Fine Coffee Conference and Exhibition held in Mombasa last week.

The software serves farmers, traders, processors, exporters and consumers. It provides a secure and reliable system of handling, grading, and storing commodities, matching offers and bids for commodity transactions, and a risk-free payment and goods delivery system. Once adopted, farmers will have increased access to market information and be able to trade coffee directly.

Farmers in most of the coffee producing countries use agents to access the markets. For instance, Kenya is using the central auction system conducted weekly. This is a market where coffee is bought by licensed dealers through competitive bidding. The direct sale, commonly referred to as the “Second Window” requires a marketing agent to negotiate with a buyer outside the country and a sale contract registered with the Board. The two systems leave the farmer with little information on the dynamics of the market, which according to Etienne Delbar, a stakeholder in the industry, leads to a decline in the performance of the sector in many parts of Africa. ECX system is the first of its kind in Africa, which once adopted by African coffee producers will increase the global market share that stands at 10 per cent to more than twice, experts said.

One of the key successes of the ECX was to kick brokers out of the marketing chain. And although they opposed the $24 million project when it was started 18 months ago, according to Ms Gadri-Madhini, those who reinvented themselves are today some of the main beneficiaries. “The brokers had taken advantage of the insufficiencies that existed in the marketing chain but have since adjusted the way they do business,” she said.

And farmers, she said, were now able to access international markets directly and are no longer restricted to local markets as the ECX provides them the scope of forward contracting. By involving themselves in commodity forwards trading, farmers in Ethiopia are now able to manage risks and as the system ensures market transparency in its transactions, they get the advantage of price negotiations, she added.

Farmers, cooperatives or traders bring in coffee to the exchange operated centre. The exchange assesses the quality and issues an Electronic Warehouse Receipt on the basis of the quality and weight. Buyers deposit pre-trade funds in settlement accounts in Exchange partner Bank. At the ECX trading floor, buyers post bids and sellers post offer, which are then matched. ECX back-office helps in order reconciliation and clearing and settlement. It also provides market information, market surveillance and risk management.

via Githua Kihara and Gitonga Marete of Business Daily (Nairobi) on, 16 Feb 2010