The Ethiopia Commodity Exchange (ECEX)

The Ethiopia Commodity Exchange (ECEX) Eleni Gabre-Madhin August 23, 2007

There is nothing as powerful as an idea whose time has come Victor Hugo

ECEX…An idea whose time has come
As Ethiopia is poised to transform its agrarian economy, so too must Ethiopia’s marketing system take the country into the new Millennium.
It is time to enter the modern age of globally connected trading systems, relying on technology and know how, while tailored to Ethiopia’s realities and conditions.
It is time to forge a new partnership between the private and the public in the new arena created by market liberalization.

The Vision
The vision driving the Ethiopia Commodity Exchange (ECEX) is to revolutionize Ethiopian agriculture through a dynamic, efficient, and orderly marketing system that serves all.

Current grain market structure SMALLHLDR (SS) STATE FARM (SF) COMMERCIAL (CF) CONSUMERS: DOMESTIC RETAILERS WHOLESALERS (DEFICIT) BROKERS WHOLESALERS (SURPLUS) RURAL ASSEMBLERS COOPS EGTE EXPORTERS PROCESSORS FOOD AID AGENCIES

Structure with Exchange SMALLHOLDERS STATE FARM COMMERCIAL (CF): CONSUMERS: DOMESTIC RETAILERS WHOLESALERS (DEFICIT) COMMODITY EXCHANGE WITH MEMBER-BROKERS WHOLESALERS (SURPLUS) ASSEMBLERS COOPS EXPORTERS PROCESSORS FOOD AID AGENCIES EGTE

Why Ethiopia gains
Commercialization of smallholder agriculture is core pillar of poverty reduction strategy
Need to capitalize on gains of recent rapid economic growth (past 3 years)
Large domestic market, 2 nd largest maize producer in Africa
Rapid export growth in key commodities
 A better functioning domestic market is key to sustaining and scaling up growth

Impact on smallholder livelihoods?
Power and participation : Farmers are better able to negotiate prices given market transparency
Quality : Farmers are able to get market premium for value added to the product (post-harvest handling)
Market access : Farmers are not restricted or captive to local market, can access national market
Risk management : Farmers can lock in prices through futures contracts
Planning : Farmers can use futures prices for planting decisions

The What : Substance

ECEX…An Ethiopian Exchange for Ethiopia
A marketplace for all
Integrity (product, transaction, actors)
Efficiency
Transparency
Risk management

Integrated ECEX activities
Membership management
Trading system
Contracts
Price information transmission
Arbitration to resolve disputes
Market surveillance
Risk management
Grading and certification
Warehousing and receipts
Clearing and settlement (Financial, Physical)

Design Options of ECEX (1) One exchange, one warehouse, one grading center (2) One exchange, several warehouses/ grading centers (3) One exchange with satellite exchanges and warehouses/grading centers

Design of ECEX
A single national multi-commodity exchange based in Addis Ababa
Operation of a trading platform using combination of open outcry (floor) and electronic trading platform
A network of 10 ECEX warehouses in surplus areas
A network of 20 ECEX remote access terminal centers
200 Market Information Points (Rural Electronic Price Tickers) at district level
Internal clearing and settlement system with partner clearing banks

The ECEX Edge… Integration COMMODITY EXCHANGE COMMISSION Laws and Regulations Market Information Remote Access Arbitration Tribunal Trading System Data center Exchange Warehouses Grade certification Warehouse receipt Exchange Clearing Banks Clearing and Settlement National Exchange Actors Association EXCHANGE MEMBERS

Trading mechanism Buyer instructs broker to post bid Farmer, cooperative, or trader brings product to Exchange-operated warehouse The warehouse draws samples and issues a Product Certificate and Warehouse Receipt Seller instructs broker to post offer ECEX Trading Floor Order Matching
Market information transmission
Clearing and settlement
Market surveillance
Risk management
Member database
Disaster recovery
Data center
ECEX Back Office Buyer deposits funds into settlement account in Exchange partner bank

Beyond agriculture: From a sack of grain to a sack of money PRODUCT Finance Information Technology Legal Infrastructure Warehouses=Banks Power the system Self-regulatory Electronic trade

ECEX Sites

Market Information
At woreda level, electronic information transmission to the local market (200 sites)
Prices will be transmitted of prices on ECEX Addis Ababa trading floor in real time
Prices of other markets (off Exchange) will also be transmitted
Turning the model around: the market goes the last mile

Creating new opportunities: spillover impacts for economy
More technology, better designed
means improved access to the market
mobile telephony
satellite radio
other technologies
Banking: New financial products tailored to small market players
Services: Transport, logistics, certification, insurance, academic
Role of self-regulation by trade associations

Trajectory from here on
ECEX site
Trading system development in progress
Contract design in progress
Proclamations to establish ECEX and Exchange Authority with Council of Ministers
Active training and communications campaign
Membership drive to start
Starting Bell by Millennium Harvest 2000 (December 2007)

The Winds of Change are Here - Can Ethiopia Do It?
Necessary political will
Commitment by all actors
Catalyst for change
A winning value proposition to…. Empower farmers’ choices, grow our agriculture, and transform Ethiopia

The future awaits… YICHALAL !!

The Ethiopia Commodity Exchange (ECEX)

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