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August 09, 2015

Will the revived Uganda commmodity exchange avoid the problems of the old one?

Grain traders embrace new commodity exchange body is the headline of a story in Uganda's New Vision newspaper.

The Minister of Trade and Cooperatives said,  “I’m glad that Uganda National Commodity Exchange has been put place and will work hand-in-hand with the warehouse receipt system to license and monitor our warehouses. This has been long overdue. You know that the grain industry has been in existence, but almost informally, with everybody dealing in grain or owning a maize mill, without any regulations. Our neighbours are walking in and out buying our commodities without any structure,” she said.

New Vision reports that the UNCE  has been incorporated as the new body responsible for structured trading of grains in the country. It replaces the now-defunct Uganda Commodity Exchange, which had been grappling with an array of operational setbacks and a low capital base since inception in 1998.

How will the new exchange be different from the old defunct one?

A report elsewhere says, ' Unlike the Uganda Commodity Exchange, which was fully owned by government, UNCE is largely a private-sector owned, with government owning just 20 per cent stake through the Uganda Development Corporation.'

Between 30 and 40 per cent of grain produced annually in Uganda is said to be lost due to lack of proper and modern storage facilities, let alone poor, undeveloped and unstructured marketing systems.

While a commodity exchange may be a good thing towards a regulated market, experiences in other countries have shown that it cannot be expected to solve the many problems involved in the supply chain of various commodities. There are many production, post-harvesting handling, marketing and distribution issues that need to be dealt with long before a centralised infrastrcuture like a commodity exchange can provide maximum benefits.

What is the average quality of the commodities to be brought to the exchange for trade? If low, then having a fancy exchange will not make those low quality commodities anymore marketable than they would have been. How good is the road infrastructure to get those commodities from scattered regions of a country to the exchange? If poor, they make get to the exchange when they have already lost a lot of their potential market value, and the transportation costs to the exchange on those poor roads may not be compensated by the prices they will fetch. And so on and so forth.

While a marketing free-for-all does often jeopardise poor rural farmers against visiting buyers in whose hands all the marketing advantages exist (access to information, finance, transportation, storage etc), there has sometimes been a naive belief that a commodity exchange can be a cure-all for the problems that plague a supply chain. Commodity exchanges in other African countries have in some cases failed because many other problems they were hoped they would solve needed to be tackled at earlier points in the supply chain.

 African Agriculture 

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