Ethiopian Commodity Exchange is big business not a charitable organization

Reading time 5 min.

Can commodity markets succeed in Africa? The success of the Ethiopia Commodity Exchange (ECX) answers that question with a resounding “yes.”
Eleni Gabre-Madhin, the founder and CEO of the ECX, told the Seventh Biennial U.S.-Africa Business Summit that the commodity exchange trades more than $300 million in coffee annually, along with four other key commodities; improves agriculture, trade and food security; and returns value to Ethiopian farmers.

Appearing October 1 on the first agricultural plenary panel in the summit’s history, Gabre-Madhin said restoring this value chain is the core mission of the commodity exchange, which is a domestic marketing system aimed at bringing value back to the producer. And she sees ECX as a working model that can be applied to other African markets.

To illustrate her point, she told a short story: “On my last trip to Washington, I was looking at a label of … a specialty coffee blend in the supermarket, and it was described on the label as a coffee with exotic citrus and floral notes,” something she said most small farmers in Ethiopia know nothing about.

“Our market in our country does not sell that coffee in any way denoted as having citrus notes, and yet those citrus notes were not acquired anywhere in the chain except at the origin of the chain in the very soil of our country and in the very trees and plants that produce that coffee. So our challenge as a marketing system and as a commodity exchange in Ethiopia is how to capture that value from the end of the chain, from the consumers … and how to bring that back to the beginning of that chain” so farmers can get a share of it.

The vision of the ECX, she said, “is to revolutionize Ethiopian agriculture and transform the economy through a dynamic, efficient and transparent marketing system that serves all and essentially turns commodity into assets.”

If a commodity such as coffee can be “securitized” by being graded and turned into an asset in a transparent manner, then that commodity becomes an asset, and every warehouse where that commodity is deposited is a bank.

Gabre-Madhin said the business side of the ECX is about farmers, traders and exporters, “but it is fundamentally about taking something that is highly heterogeneous and unstandardized and turning it into an asset that is fungible and liquid and can be turned into a financing mechanism for farmers to finance their agriculture and grow their businesses. At the end of the day, farmers are businessmen and -women,” she said.

Big business

How does this affect the Ethiopian economy? According to Gabre-Madhin, ECX improves the country’s export competitiveness, and it enhances local agriculture because the supply is reliable, quality is certain and delivery is guaranteed. Ultimately, she said, it brings better food to market, increases farm income and enhances food security for all.

ECX is a commodity business — a big business — and not a charitable organization. While there is much talk in Africa about stock markets, commodity trade is much bigger. “In Ethiopia, the five commodities that we are trading this year have a market value … of $1.7 billion,” she said.

Allied industries such as transport, logistics, packaging, financing, banking, insurance and telecom also benefit from this commodity trade, she explained, so such trade is a “catalyst for growth in a number of other sectors in the economy if we can get the commodity market right.”

Reviewing the first 16 months of trading at ECX, Gabre-Madhin said, “We started trading in April 2008 and, to date, we have 450 private members of the exchange. We have been trading in five commodities: maize, wheat, beans, sesame and coffee.”

A national payment system has been set up in partnership with seven commercial banks, handling some 150,000 tons of commodities in 14 warehouses around the country. Thousands of trades have been executed, up to $5 million a day, she told her audience of business executives, entrepreneurs and government officials.

Pricing and trading data are displayed in real time on 19 electronic display sites around the country and on the Web site for international coverage.

ECX, a system that works

“The key in all of this is that we have not had a single day of trading-system interruption due to a system failure, we have not had a single transaction default, we have not had a single payment default, and we have not had a single delivery default. So, effectively, we have a system that works and demonstrates that a state-of-the-art trading system can be set up in a developing country.”

Some 12 percent of small farmers in Ethiopia — about 850,000 farmers — have become involved in the exchange, which has had a “very dramatic impact” in the first year of operation. “We have seen our Web site internationally getting hits from 77 a day in the early months … up to 1,000 hits a day” now, and have established data feeds to Bloomberg. ECX, she added, is the second most heavily accessed Africa exchange site on Reuters behind the South African exchange.

The ECX is changing attitudes and hopes across Ethiopia, according to Gabre-Madhin, who said Ethiopian small farmers with little education are now taking computer classes so they will be ready to start trading their crops electronically when that option becomes available.

In the future, she said, ECX will launch more commodities, more services, more warehouses and more rural price-display boards, and seek more members. She noted that ECX will soon offer futures trading and specialty-coffee trading platforms and broadcast prices instantly using SMS (Short Message Service) and interactive voice response.

The three-day business summit, organized by the Corporate Council on Africa, drew at least four African heads of state and 1,500 investors and businesspeople, who attended more than 50 specialized sessions focusing on U.S.-Africa business relations. The previous summit was held in 2007 in Cape Town, South Africa.

Africa News Report  Africa News Report is a specialist information dossier dedicated to providing news information and analysis from a diplomatic and political perspective. Topics covered include some of the most pressing health, economic, political and social issues. Besides bringing its multi-facetted news, views and analysis to the fore, Africa News Report seeks to highlight the United States' policies and positions on diverse issues affecting the African continent.
Support Follow Afrik-News on Google News