4 June 2018

Kenya: Set Up Commodities Exchange to Rein in Cartels, Says Mbaru

Kenya needs to set up a commodities exchange to enable farmers discover the true price of their crops and avoid being short-changed by unscrupulous traders, investment banker Jimnah Mbaru has said.

The exchange would also show how cereals in Kenya are priced relative to similar commodities in neighbouring countries, where the country has occasionally imported for its food needs.

Mr Mbaru told the Business Daily in an interview that the exchange would further cut down on corruption because the cartels would be priced out by the market.

They would be unable to buy farmers' maize, for example, at a throwaway price and then sell it to others, including the National Cereals and Produce Board (NCPB) for a higher price. Farmers would have direct access to the exchange.

"What Kenya needs is to set up the commodities exchange to ensure farmers get the true value of their produce.

"The market would remove the corruption in the grain sector because everything would be well documented," said Mr Mbaru, who has just retired as a director of the Nairobi Securities Exchange.

Short-circuit the system

He said cereals or other crops from the neighbouring countries would arrive at the commodities exchange priced in a manner that reflects the transport and insurance costs (and other incidental costs) and would not be able to short-circuit the trading system to the detriment of local producers.

Last December, the NCPB was buying maize from local farmers at Sh3,200 per 90-kilogramme bag with millers paying a minimum of Sh3,000, but at the regional level the price was Sh2,500.

It sometimes happens that by the time the local farmers reach the NCPB, importers may have filled the existing quota and the grower cannot sell and therefore resorts to selling to profiteers or millers.

With the pricing differing, said Mr Mbaru, it is difficult to tell the true price of the commodity since the elements involved in the pricing are far from transparent.

Transparency is a hallmark of such an exchange, he said.

Lately, there have been reports that some farmers were paid for maize, yet it is unclear as to whether they actually delivered the commodity or whether they own the acreage they purport to have planted to qualify to deliver their harvest to the NCPB.

Kenya

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