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April 15, 2008

Ethiopia opens commodity exchange

Ethiopia opens a commodity exchange this week. The exchange will trade in six commodities: coffee, sesame, haricot beans, teff, wheat and maize.

The Ethiopia Commodity Exchange (ECX) 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.

"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.

ECX was launched by Prime Minister Meles Zenawi at a ceremony on April 4. It will begin operations on April 15.

“When farmers can sell their crops on the open market and get a fair price, they will have much more incentive to be productive, andEthiopia 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.”

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.

Prime Minister Zenawi said that 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 agricultural 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 market data dissemination to all market actors, clearly defined rules of trading, warehousing, payments, delivery and business conduct, and an internal dispute settlement mechanism.

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.

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.

Africa Science News Service

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