Ethiopian Commodity Exchange: To Assure Pure Monopoly?

It has been over six years since the ECX missed its target and moved towards a monopoly-like market structure. The first commodity exchange was established in the country in April 2008, with a capital investment of Birr 194 million. At the time of its establishment, many hoped that it would take little time to transform from an era of weak agricultural marketing to one of efficient exchange.

Ethiopians now need to find a name for the new market system. Sure, the pure monopoly is getting closer to the Ethiopian agriculture marketing system, but it is indeed true that the market is becoming increasingly skewed to favors the Ethiopian government.

August 10/2010 , late  Prime Minister Meles Zenawi clearly stated that all agricultural products would be traded on the floor of the Ethiopian Commodity Exchange (ECX) in the coming years(2011/12). At that time Prime Minister Meles Zenawi bluntly declared, during discussions with traders and their associations, that because the ECX system is modern and reliable, all agricultural commodities must now be traded based on ECX’s “state- of the-art”.

It has been over six years since the ECX missed its target and moved towards a monopoly-like market structure. The first commodity exchange was established in the country in April 2008, with a capital investment of Birr 194 million. At the time of its establishment, many hoped that it would take little time to transform from an era of weak agricultural marketing to one of efficient exchange. As Ethiopia’s agriculture is largely characterized by subsistence farming, in which production is intended for both household consumption and market purposes, it was expected that creating efficient market structures would greatly support poor farmers.

Yet it seems that all such dreams about the market are currently evaporating. In December 2008, the ECX began coffee trading without the requisite organizational preparation and thorough study of the coffee market structures. Amazingly, within the first month, the coffee market began to deteriorate; only 23 percent of total coffee supplies were traded. This phenomenon, accompanied by the global economic crisis, significantly affected the country’s foreign earnings. Coffee traders still complain of the structure, capacity and quality of the services provided by the ECX.

As if that were not enough, October 2010 Guna Trading House PLC, owned by Ethiopia’s ruling party, announced its plan to become one of the nation’s biggest coffee exporters. Although Guna only began coffee export operations in April 2009, it is now becoming the dominant market player. This has also raised concerns among coffee traders who fear they may be forced out of the industry as a result of Guna’s political backings. And the anxieties over speciality coffee are still widespread among traders and scholars.

Grievances surrounding the performance of the ECX have not been settled. However, the government has already decided to impose this control mechanism on agricultural trading. It appears that no single commodity will ever remain out of government hands. But this begs a question of ECX Director including the former Dr Eleni Zaude Gabre-Medhin: to where have the market expertise and promises of a competitive market fled?  Until an answer is provided, the “status quo” will be maintained

Tesfaye Alemneh
Guest Writer