17 February 2009

Ghana: Country Can Learn From Ethiopia on Commodity Exchange - Paper

Addis Abeba — Ghana could consider Ethiopian experience of commodity exchange if it wants to solve the problem of post harvest losses of agricultural produce, a Ghanaian newspaper said over the weekend.

The Ghana Business News said Ghana's Private Enterprises Foundation (PEF) was proposing for the establishment of a plan-commodity market-hoped to solve the problem of post harvest losses of agricultural produce that has perennially engulfed the country's agricultural sector.

"The plan dubbed "the agricultural commodity exchange" is to bring producers, buyers and consumers together to trade on a common platform by providing ready market for farm gate products from the agricultural centers," it said in its website published on Saturday.

The paper added that when adopted, Ghana would be the third country in Africa after Kenya and Ethiopia to embark on an aggressive overhaul of its agricultural sector.

Highlighting the Ethiopian experience, the paper pinpointed that "Ethiopia, a country of chronic food shortages and malnutrition, has launched an agriculture commodity exchange in a daring experiment to raise food production by creating a safe and transparent agriculture market."The idea to create a commodity exchange was hatched by a former senior economist at the World Bank, Eleni GabreMadhin, now the Chief of Executive Officer of ECX.

The paper said the Ethiopian government began to consider a commodity exchange after the food crisis in 2002/2003; a bumper crop and price collapse in 2002 were followed by drought that threatened 14 million people with starvation the next year.

"Although Ethiopia is the biggest grain producer in Africa, its traditional markets are small because of narrow networks of trust among buyers and sellers," the paper wrote.

"Most farmers trade within 12 kilometers of their farms and only with people they know," Gabre-Madhin said. She said more than two-thirds of farmers have faced contract defaults, and only 4 per cent have received legal enforcement of contracts.In the traditional trading system, grain changes hands four to five times between producers and consumers. With each change, the grain is put into new sacks. This system enables buyers to know what they are getting in terms of quality and quantity, as the contents are inspected and weighed, but it is vulnerable to price shocks.The Ethiopia Commodity Exchange began operating in April, creating transparency and predictability in the national market and connecting Ethiopian commodities to international markets.The exchange provides warehousing, a reliable payment system, real-time market information, and quality control. Producers sell directly to the exchange, which assures payment within 24 hours.

The Ethiopian exchange is linked to commodity markets around the world, making it possible for a trader in India, for instance, to buy futures of the prized Ethiopian lentils, the paper added.

As for Ethiopia's major export, coffee, 461 coffee suppliers have obtained one year memberships on the new commodity exchange.

The report, however indicated that the exchange is not without its critics. "Some say it will not work as a market institution because government officials occupy six of the 11 seats of the board.

It said the CEO believes that the government's involvement with the exchange will help it learn quickly how markets function.

Another concern has been that the exchange will further increase food prices, which have doubled in the past year. If Ethiopia's food-deficient neighbours can buy Ethiopia's commodities, then there will be less food for the country's already malnourished people, critics say. Gabre-Madhin counters that the exchange is not the panacea for all of Ethiopia's food problems, but it is an important element for a functioning agriculture based economy.

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