Muluken Alemayehu (name changed upon request) is successful compared to the difficulties other farmers face in his neighborhood, up north more than 500 KM of the capital. He owns a sizable land in what is otherwise a fertile land in Humera where he produces sesame, which is amongst the most exported items of the country.
He is not only a farmer but an exporter who has built a profitable business network, with a market reaching as far as Israel.
“When I started farming, I couldn’t even afford to support my daily expenses. But it was at a time when disarmed militants joined the farming sector. With their support, I started to export commodities to Sudan where I earned enough money to export elsewhere and began to see farming, not just as a way to be self-sufficient, but make enough money to dream beyond my circumstances”, he told AP.
He is rare among African farmers who struggle to simply get by.
“During the time, I export 75 percent commodities legally; paying taxes on the checkpoint in the border, but the rest 25 percent used to be smuggled, which has been a norm in the area,” he said.
The only way of farmers earning money via the status quo ended in 2008 when the Ethiopian Commodity Exchange (ECX) was established. Only selected exporters and the forefront entrepreneurs saw the vision of the government agency, taking advantage of their board membership status with a fee of 50,000 Birr, which was a large sum then.
But Muluken and many saw little benefit in such membership of cheese and wine and lots of talks, but little action in their view.
“Ever since ECX became our reality, I, like many of my friends are struggling to cover my expenses, let alone making a profit, as it makes the price of sesame unpredictable and we remain to look beyond the end of the month in terms of the money we earn that varies by the month which is not good for someone like me,” he complains. “I am planning to shift to cattle farming business instead where it has little hustle but much dividends.
The forefront membership seat buyers and prominent exporters hoped that their market chain will be shortened, the export capacity will loom and all the unnecessary spending, as well as the traditional method that used to pulls them back, would be off the road. Making this a reality had not been easy though.
ECX has played a vital role in modernizing the end-to-end service for commodity warehousing, quality control, trading, clearing, and market data dissemination. Before its launch, Ethiopia’s agriculture sector was scrappy and ached from high transaction costs, equally high contract default rates, a lack of quality standards, and an unreliable commodity supply.
It has boosted the commercialization of major agricultural commodities, such as grains, pulses, and coffee. In its 12 years of operation, the exchange’s capacity of handling larger volumes of agricultural commodities showed a drastic rise, growing from 138,000 tons to 784,000 last fiscal year.
ECX also improved the export standard of agricultural commodities. Prior to its inception, shipments used to be missed, while commodities had not been graded whether they up to the standard or go with the demand in the international market.
In fact, one of the core goals of the exchange was to guarantee coffee differentiation and grade commodities based on their areas, types, and quality, while allowing producers of specialty coffee to transact directly with international buyers. It has also avoided sham agreements, saving traders from greedy international buyers that used to refuse to pay for the commodity that they have received.
Despite such successes, however, there have been shortcomings that are yet to be addressed. Although ECX gave farmers power and participation to better able to negotiate a price with market transparency, it is criticized for failing to regularly update producers about the price of traded commodities. This has pushed both commercial and smallholding farmers to illegally smuggle their outputs to neighboring countries.
“The price set by ECX is usually very low compared to what traders in neighboring countries offer. There was a time I got an offer twice the price set by ECX,” says a Commercial Farmer who spoke to FP on the condition of anonymity. “Last year I sold a quintal of sesame for ETB5000 in Sudan and I also exported the same item to Eritrea for ETB 4300-4500 a quintal. At that time, ECX set a price of grade one Sesame seed at ETB 3800 per quintal.”
While the price variation enables brokers and intermediaries to make a fortune in foreign currency, it has affected the competitiveness of the country in the international market. The prerequisite put by authorities to trade selected commodities, including sesame and coffee, on the floor of ECX encouraged producers to smuggle their output to neighboring countries, especially to Sudan.
That being said, traceability is amongst the unaddressed gap left unfilled by the Exchange.
Bench Maji cooperatives coffee growers recently expressed their disappointment over traceability at ECX, which grades commodities based on their quality without taking the area where it grows into consideration. This has impacted the international competitiveness of the country, while frustrating exporters.
“Just because ECX doesn’t have a modern grading system of coffee based on the area where it grows, we are a price taker in the international market with almost no bargaining power. The coffee test differs from place to place. Even in our area, Bench Maji, the taste of coffee differs across villages,” said a Producer of Coffee at Bench Maji.
But for Wondemagegnhu Negera, CEO of ECX, the Exchange is doing what it can.
“We have been giving the best of our self. As we are aiming to be the first and the best commodity market platform in Africa, we are doing all that we can do. About the huge gap in commodity price, we all know that contraband trade is illegal but people choose it because it is lucrative,” Wondemagegnhu told FP.
According to the CEO, ECX doesn’t set a price for commodities but creates a platform for all actors (players) of the trade to come closer and negotiate. But ECX is responsible to maintain the minimum price of every commodity that is already set by the National Bank.
FP learned from Exporters who are working with ECX, that the trading takes time and due to this, exporters fail to deliver the commodity based on their agreement with the international clients, a situation that forced exporters to incur a loss.
“One of our main jobs is to assure the security of the shipment. Along with this, we are also stakeholders in delivering the commodity to the international market on time. But above all the logistics sector takes the lion's share of transporting and delivering” Wondimagen told FP.
Be that as it may, Ermias Eshetu the former CEO of the Ethiopian Commodity Exchange says there are blind spots that ECX couldn’t address. “In my view, the organization needs restructure to address so many problems that are forwarded from actors of the market”, he said.
Getnet Alemu (Ph.D.) a senior professor in Addis Ababa University College of Business and Economics agrees. “From the beginning, when the government establishing the organization, it seems the feasibility study and importance to the actors was not on the mind of the government. I support some of the ideas of the organization. But it created difficulties for the exporters,” he said.
Especially the restriction of exporters selling export standard items on the local market is not a wise idea, according to him.
“Even if promoting export is a great vision, exporters should also be reinforced by all-rounded opportunities. And if ECX was established to shorten the long-chained market process, it also opened another door for illegal trade. Those brokers might be cast out from the network but they created a contraband chain and the smuggling is under their control. Part of the vision should be how to contain that and have it has little effect in the legal trade” says Getnet further reflected.