Ethiopia launches a commodity exchange to encourage local crop trade

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Ethiopia opens a commodity exchange this week, the first of its kind in Africa, to offer buyers and sellers of mainly African traditional crops a chance to access a bigger marketplace for their produce, a food policy think tank said on Monday.

The International Food Policy Institute (IFPI) said the Ethiopian commodity exchange would trade in six commodities — coffee, sesame, haricot beans, teff, wheat and maize.

The Ethiopian 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.

Ethiopian Prime Minister Meles Zenawi launched the ECX at a ceremony 4 April and it is set to formally begin operations Tuesday.

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.

Small-scale farmers, who produce 95 per cent 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.

Prime Minister Zenawi said he expects that the exchange will “revolutionalize the country’s backward and inefficient marketing system.”

ECX is designed to provide a reliable system for handling, grading and storing a gricultural products.

Traders 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 aggressive ma rket data dissemination to all market actors, clearly defined rules of trading, w arehousing, payments, delivery and business conduct, and an internal dispute set t lement mechanism.

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), sh e 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.

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