A study
commissioned by the Partnership Program between the Netherlands’ Ministry of
Foreign Affairs Government and Wageningen UR has concluded that the Ethiopian
Commodity Exchange cannot meet the demands of the high value markets, such as the
Japanese market and the demand for sustainably and safely produced mainstream
products by major Western retailers. But it does meet the demands of the major
importer, China, and other countries that pay rather low prices.
The
following is an excerpt from the study.
Ethiopian Commodity Exchange: opportunities
but also limitations
Since
the establishment of the ECX, the ECX itself and the subject of specialty
produce has been a much debated and sometimes politically sensitive issue. As
the CEO of the ECX has put it: "specialty coffee has taken ECX by
storm".
In an
interview held with the Chief Executive Officer of the ECX at the end of 2009,
she mentioned that they have realized that the very flexible system of the ECX
does not meet some of the very important needs of the “specialty coffee”
market. This chapter highlights that the ECX currently does not meet some of
the needs of the high value export market neither.
Ethiopia
has made a strategic policy decision to establish the ECX as the exclusive
trading system for several Ethiopian commodities. When looking at the market
for sesame, we conclude that sesame seed traded through the ECX meets the
demands of the world’s biggest importer, China. However, it does not meet the
demand for traceable, safe, pesticide free, socially and environmentally
responsibly grown products. This is the reason why the second largest importer,
Japan, currently does not buy sesame seeds from Ethiopia.
The ECX
has contributed to transparent market prices, quality grades that are
standardized and contracts that are enforced. This is an important achievement
for producers as well as exporters and importers. Yet one of the implications
of the ECX is that buyers and sellers now no longer meet in person to do business.
The consequence can be that there is little scope for producers and clients to
work together on innovation, value adding and niche marketing.
There
are a few cases in which trade does not have to take place through the
Commodity Exchange. This presents opportunities that the ECX currently cannot
offer. The Ethiopian law allows products to be exported directly by a producer
to the international market. Producers who are large enough or producer unions
that are sufficiently organized to attract contracts from foreign importers can
sell outside the ECX. This exception accommodates the requirement of fair trade
standards of direct contracts between producers and buyers and provides the
possibility to meet the other requirements as well. Presently very few
producers or unions qualify for this exemption.
Conclusion
The
Ethiopian Commodity Exchange cannot meet the demands of all end markets,
especially the high value markets such as the second most important market, the
Japanese. Neither does it respond to the requirements of the growing niche
markets, nor the demand for sustainably and safely produced mainstream products
by major Western retailers. It does meet the demands of the major importer, China,
and other countries that pay rather low prices.
The
major obstacles are the absence of a traceability system and that compliance to
social and environmental standards cannot be guaranteed. While it is
technically feasible to adjust ECX procedures, this will require considerable
investments.
The
Ethiopian government may have made the conscious choice of focusing on
low-value markets, because these need relatively few investments. In this case,
having all produce traded through the ECX is a rational choice.
However,
Ethiopia's coffee and sesame sectors have the potential to serve higher-end
markets, as the quality produced is generally high in Ethiopia. Ethiopia also
has several specialty coffee and sesame types. If Ethiopia chooses to exploit
these, the ECX is probably not the most favoured marketing instrument. Although
the Ethiopian government has exempted producers wanting to sell to
international customers from the obligation of selling through the ECX,
additional measures need to be taken to fully profit from the high value
markets.
A
system for tracking and tracing would be one of those measures. Because such
measures are costly, it is recommended that an analysis of the costs and
benefits of the investments is made. The recent WRR report (2010) has advised
Dutch Development Cooperation to focus more on economic infrastructure and
services. The investments that need to be made if Ethiopia is to access the
high value (niche) markets is an example of economic infrastructure the WRR
report mentions.
In
addition, an analysis of alternative trade relations to meet the demands of
markets currently not served by the ECX should also be made. Building strong
chain relationships (for example through contract farming) is part of the
strategy of high value markets. Experiences in other countries have shown that
strong relations between value chain actors are an incentive for the private sector
to invest in smallholder agriculture. This is also in line with the policy note
published jointly by the Dutch Ministry of Foreign Affairs as well as the
Ministry of Agriculture, Food Quality and Fisheries that mentions new forms of
sustainable value chain development and the role that can be played by the
private sector to bring about such change.
---