Since the late 1990s, many African countries have been trying to establish commodity exchanges where farmers, traders and end users can trade in agricultural commodities, or hedge against price fluctuations in the physical market. For the most part these initiatives have so far little to show in the way of success, but two countries (South Africa and Ethiopia) have established operations of significant scale. South Africa has a very strong and successful exchange, but it was built on a strong commercial farming sector contrasting with the smallholder farming that dominates elsewhere in Sub-Saharan Africa. Ethiopia, by contrast, is a country of smallholder producers, and the Ethiopian Commodity Exchange (ECX) model is being widely promoted around the African continent.
In 2012, I reviewed the situation of ECX for the Common Fund for Commodities, focusing particularly on the performance of the warehouse receipting mechanisms it had established for delivery of commodities against exchange contracts. See Link. ECX had achieved very impressive growth since its establishment in 2008, but unusually, the growth had resulted from Government mandating that three leading cash crops (coffee, sesame and pea beans) be traded exclusively through ECX. At the same time there were some significant issues:
- Despite a large number of grades, the reform had tended to “commoditize” the coffee trade, causing a loss of premiums for quality coffees
- ECX had created additional links in the chain, adding costs
- Evidence could not be obtained as to whether ECX had increased the overall efficiency of the marketing system and/or increased farmers’ share of international prices
In this blog I invite readers’ comments on the case for agricultural commodity exchanges in Sub-Saharan Africa, and their insights into the suitability of different models