AGRICULTURE-ETHIOPIA: Changing Mindset Over Markets

• Omer Redi Ahmed interviews ELENI GABRE-MADHIN, chief executive officer of the Ethiopia Commodity Exchange (addis ababa)
• Friday, August 28, 2009
• Inter Press Service

Eleni Gabre-Madhin, a former senior economist at the World Bank and author of a book on market reforms and structural transformation in Africa, was one of many disturbed observers.

She put her doctorate in economics and 15 years of experience in agricultural markets in Africa to use in founding the Ethiopia Commodity Exchange (ECX).

The exchange is intended to grant smallholder farmers information about and access to national - even international markets - enabling them to negotiate better returns for their produce, and confidently make planting decisions based on futures prices.

She spoke to IPS in Addis Ababa; excerpts of the interview follow.

IPS: Through the Ethiopia Commodity Exchange, you want to turn Ethiopia - the biggest recipient of food aid in the world - into a regional food basket. Do you think hunger and famine are just about poor marketing systems?

Eleni Gabre-Madhin: It is not just about poor marketing systems. But I think when we talk about hunger and famine the often neglected piece is marketing. We often immediately think of production as a major element. While that is true, the other element is distribution.

We have many instances - the most famous I think being the 1984 famine - where we didn't realise until several years later that there were pockets of surplus in Ethiopia.

The same story was repeated in 2003 when there were places in Ethiopia with such a surplus that prices have collapsed by 80 percent in parts of Arsi and Bale (major wheat and maize producing areas in southwest Ethiopia) and yet a few months later there was an emergency food aid appeal for 14 million people in the eastern and northern parts of the country.

So we have distribution problems. If we can distribute what we have, I think we are further along in reaching food security.

It is not by coincidence that the World Food Programme (WFP) now sources a big part of its relief and food aid operations with local procurement. It is increasing the share of its food aid from local procurement.

If the WFP can buy it from one part of Ethiopia and distribute in another, or buy from Ethiopia and distribute in Kenya, then we can do the same as a marketing system.

ECX is the channel for this and even WFP is now buying through ECX.

IPS: But how does this work for the people at the bottom: when big institutions like the WFP or private exporters or local traders buy through ECX, it is just from suppliers on the ECX trading floor. These are not actually the producers, these are not the farmers. Do your farmers themselves transact through the Exchange?

EG: ECX is not exclusive to any particular party. The very first transaction in the case of maize was made by farmers.

Currently 12 to 14 percent of the members are farmers. The farmers are represented either by their own cooperative unions or some form of collective groups, because it is very difficult for a small-scale farmer to have the means to be at the exchange.

In our case, because land is so fragmented, it is a must to group farmers in the trading. To come to the market with two or three bags at a time, a farmer has no market power and it is costly per bag to travel long distance to sell the product.

Farmers can be members in two ways: either they become members as individuals and through cooperatives, or they can be clients of the members. Right now, we have 496 members and those members have about 2,000 clients.

IPS: This number is a small figure compared to the number of farmers in Ethiopia.

EG: Absolutely. The path ahead of us is to get more clients and members and more institutional engagement. In relation to coffee, we are much further along. With other commodities, we are pushing further for more engagement.

IPS: You are planning to expand the reach of the ECX across Ethiopia by installing about 200 price tickers around the country in the next two years. Considering the high illiteracy rate among farmers and their very limited knowledge about what the system is, how is that going to be any help to them?

EG: I have never found illiteracy to be a problem when people are trying to make money, because we all find a means to accommodate our constraints in our own interests. So if you tell a farmer that there is a way that the product he and his family have worked for several months to produce can earn more to reward his time and effort, he will figure it out.

IPS: You are also considering expanding to other African markets. Can you explain?

EG: I think the potential is there. There are many economies in Africa that don't have sufficient volume to support a national exchange. If you look at East Africa, Ethiopia's production of maize is twice the total volume of Uganda, Tanzania and Kenya combined. So it would make more sense for these countries to engage with our platform because they are structurally deficit countries for maize and Ethiopia has a structural surplus.

So it would make sense for us to try to link because whenever Kenyans have deficit, they buy it from South Africa or Argentina while we have surplus right next door. This is something that I have had a personal vision of for the last two decades.

IPS: Where do you see the ECX in 20 years?

EG: Our vision is to become a global commodity market of choice for Arabica coffee and sesame.

We believe ECX has the potential to be like Kuala Lumpur for rubber or DaLian Commodity Exchange in China for soya bean or the South African Exchange for maize.

Both Arabica coffee and sesame are commodities in which Ethiopia has dominance, and it can become a hub for Africa. Ethiopia is the second or third-largest sesame producer. There is no organised global market for sesame. So ECX can become a reference for these commodities.

IPS: What are the major challenges you face in realising your vision?

EG: The major challenge is the mindset of the public. We are seriously challenged in trying to change the marketing system that people have been using for millennia.

The poor state of the infrastructure in the telecom and finance sectors are two other serious and big challenges.

In addition to the change resistant attitude among the public, finding the right balance between the public and private sectors is another challenge.

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service

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