UNITED NATIONS CONFERENCE ON

TRADE AND DEVELOPMENT

Expert Meeting on the Trade and Development Implications of Financial Services and Commodity Exchanges (Part I)

Item 3: Trade and Development Implications

of Commodity Exchanges

3 September 2007

"The Ethiopian Commodity Exchange (ECEX): Making the market work for all"

by

Dr. Eleni Gabre-Madhin

Program Leader IFPRI / Ethiopian Commodity Exchange (ECEX)

The views expressed are those of the author and do not necessarily reflect the views of the UNCTAD Secretariat, nor do they imply the expression of any opinion whatsoever on the part of the secretariat of UNCTAD concerning the legal status of any country, territory, city or area, or of its authorities or concerning the definition of its frontiers or boundaries.

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The Ethiopia CommodityExchange (ECEX)

...Making the Market Work for All

Eleni Gabre-Madhin

September 3, 2007

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ECEX…An idea whose timehas come

As Ethiopia is poised to transform its agrarianeconomy, so too must Ethiopia’s marketing systemtake the country into the new Millennium.

It is time to enter the modern age of globallyconnected trading systems, relying on technologyand know how, while tailored to Ethiopia’s realitiesand conditions.

It is time to forge a new partnership between theprivate and the public in the new arena created bymarket liberalization.

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The Vision

The vision driving the Ethiopia CommodityExchange (ECEX) is to revolutionizeEthiopian agriculture through a dynamic,efficient, and orderly marketing system thatserves all.

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Current grain market structureSMALLHLDR (SS) STATE FARM (SF) COMMERCIAL (CF)

CONSUMERS: DOMESTIC

RETAILERS

WHOLESALERS (DEFICIT)

BROKERS

WHOLESALERS (SURPLUS)

RURALASSEMBLERS

COOPS EGTE

EXPORTERS

PROCESSORS

FOOD AID AGENCIES

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Structure with ExchangeSMALLHOLDERS 95% STATE FARM COMMERCIAL (CF):

CONSUMERS: DOMESTIC

RETAILERS

WHOLESALERS (DEFICIT)

COMMODITY EXCHANGE WITH MEMBER-BROKERS

WHOLESALERS (SURPLUS)

ASSEMBLERS COOPS

EXPORTERS PROCESSORS FOOD AID AGENCIES

EGTE

8%

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Why Ethiopia gains Commercialization of smallholder agriculture is core

pillar of poverty reduction strategy (currently 28%marketed out of production)

Need to capitalize on gains of recent rapid economicgrowth (9% in past 3 years)

Large domestic market: Population 70 million 2006 Prod’n: 17 million tons (25% higher than SA) 2nd largest maize producer in Africa

Rapid export growth in key commodities A better functioning domestic market is key to

sustaining and scaling up growth

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Impact on smallholderlivelihoods?

Power and participation: Farmers are better ableto negotiate prices given market transparency

Quality: Farmers are able to get market premiumfor value added to the product (post-harvesthandling)

Market access: Farmers are not restricted orcaptive to local market, can access national market

Risk management: Farmers can lock in pricesthrough forward contracting

Planning: Farmers can use futures prices forplanting decisions

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The What:Substance

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ECEX…An EthiopianExchange for Ethiopia

A marketplace for all Integrity (product, transaction, actors) Efficiency Transparency Risk management

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A Hybrid Model: Public-Private

Demutualized structure with separation ofownership, membership, management

State owned (initially) physical entity Member owned permanent trading seats Joint Owner-Member Board National Exchange Actors Association Independent professional management Strong regulatory body reporting to PM

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Integrated Design of ECEX A 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 in major markets 200 Market Information Points (Rural Electronic

Price Tickers) at district level Internal clearing and settlement system with 3

partner Settlement Banks 6 target commodities: maize, wheat, teff, pea bean,

sesame, coffee ($1 billion in physical trade) Spot and futures contracts (on select commodities)

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COMMODITY EXCHANGE AUTHORITY

Laws and Regulations

Market Information

Remote Access

Arbitration Tribunal

Trading System

Data center

Exchange Warehouses

Gradecertification

Warehousereceipt

Exchange Clearing Banks

Clearing andSettlement

NationalExchange ActorsAssociation

EXCHANGEMEMBERS

The ECEX Edge… Integration

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Beyond agriculture: From a sackof grain to a sack of money

Finance InformationTechnology

Legal Infrastructure

Warehouses=Banks Power the system

Self-regulatory

Electronic trade

PRODUCT

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Pushing the frontiers on manyfronts: The Firsts

First time push of 3rd party grade certificationin extensive way into the rural arena

First time reach of market information into therural arena

First time recognition of intermediation- the brokers

First time recognition of self-regulation- the national association and the exchange

o First time major push on financial system:clearing house function

o First time push of ICT into the market:electronic trading

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Creating new opportunities:spillover impacts for economy

More technology, better designedmeans improved access to the market mobile telephony satellite radio other technologies

Banking: New financial products tailored tosmall market players

Services: Transport, logistics, certification,insurance, academic

Role of self-regulation by trade associations

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Trajectory from here on: weare moving fast!

ECEX site Trading system development in

progress Contract design in progress Proclamations to establish ECEX

and Exchange Authority passedin early July 2007

Active training andcommunications campaign

Membership drive to startStarting Bell by MillenniumHarvest 2000 (December 2007)

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The Winds of Change areHere - Can Ethiopia Do It?

Necessary political will Commitment by all actors Catalyst for change

A winning value proposition to….

Empower farmers’ choices, grow ouragriculture, and transform Ethiopia

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The future awaits…

YICHALAL !!