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UNDP's Report: Sustainability of ECX uncertain; mandatory coffee trading an obstacle to contract farming


Note from Wondwossen: The United Nations Development Program (UNDP) has published on March 22, 2012 the final evaluation report on its assistance to Ethiopia in two strategic programs: Economic Growth Corridor and Private Sector Development, which includes UNDP's support for the Ethiopia Commodity Exchange. The evaluation was conducted from November 28 to December 16, 2011 with the objective to assess the progress and achievement of the projects and "the contribution of UNDP’s support towards these, and to propose measures to increase the relevance, effectiveness and efficiency of UNDP’s cooperation in the area of private sector development."

Highlights (paraphrased):
·        UNDP has allocated $1.5 million annually (from July 2008 through June 2013) to cover salaries of the international experts (including the CEO's salary of about $300,000 annually, according to the Ethiopian Weekly, Addis Fortune, June 24, 2012)
·        The adopted approach towards establishing a radically new market system appears to be successful, but its sustainability hasn’t yet been assured
·        The government’s vision of trading coffee through the ECX may have been the reason for the government's eagerness to rapidly establish the ECX
·        Mandatory coffee trading through the ECX constitutes an obstacle to the development of contract farming and should be reviewed
·         The impact of ECX on the livelihood of small holder farmers has been unclear
·         Capacity of the ECXA is not commensurate with the capacity of the ECX which it is supposed to oversee

Below are sections of the report that pertain to the Ethiopia Commodity Exchange project. 
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UNDP’s Enhanced Economic Growth Programme in Ethiopia 2010 - 2011
AN EVALUATION OF TWO OUTCOMES: Economic Growth Corridor & Private Sector Development
Final Report
Jan-Hendrik van Leeuwen and Beyene Tadesse
December, 2011 

UNDP's support for the ECX & ECXA

Launched in April 2008, the Ethiopian Commodity Exchange (ECX) project aims at establishing the first ever state-of-the art, transparent, professionally and independently managed market institution that serves the needs of all market actors and users. It is assumed to have the potential for transforming the Ethiopian agricultural sector and the economy through enhancing the understanding of stakeholders, including policy makers.

The ECX is initially managed by an independent and professional team of internationally recruited “top-caliber” professionals.  An ECX management transition plan calls for transfer of responsibility from the internationally recruited to nationally recruited staff through internal capacity building.

The Ethiopian Commodity Exchange Authority (ECXA) was set up at the same time to be the regulatory agency with the responsibility to regulate the proper functioning of the commodity exchange.  

UNDP has helped recruit and has financially supported an international management team of 9 professionals since July 2008.  This support is scheduled to end in June 2013.  UNDP has allocated $ 1.5 million annually to cover salaries of the international experts.  In addition, UNDP has financed public education activities to raise awareness of the role and functioning of the ECXA, and a two-weeks training workshop for ECXA’s local staff to build their managerial capacity.

The ECX has also been supported by a number of other development partners, chief among them USAID, DfID and the IFC.

Key Findings

1.     At the Institutional level
-  An “out of the box” approach was taken to rapidly introduce a radically new concept, namely by establishing a semi-autonomous agency, staffed with international experts bringing with them their knowledge of best practices.
-  While the adopted approach towards establishing a radically new market system appears to be successful, its sustainability hasn’t yet been assured.
-  The current scenario for the management transfer of ECX may not adequately ensure the sustainability of the new institution.

2.     At the Market systems level
-  ECX has established a base for competitive and transparent price-setting at local, regional and terminal markets.  This could potentially lead to significantly increased export earnings.
-  The establishment of ECX has increased the participation by such actors as banking and micro finance institutions that didn’t play much of role in the market system before.
-  The mandatory aspect of coffee trading is in line with the government’s vision of promoting two types of agricultural production: small holder farming on the one hand, and large-scale commercial farming on the other; it also may have been necessary to rapidly establish the ECX.
-  However, mandatory coffee trading through the ECX constitutes an obstacle to the development of contract farming mechanisms, a potentially important alternative approach towards increasing export revenues from specialty and branded coffees.

3.     At grassroots level
-  The anecdotal evidence obtained indicates that the impact on the livelihood of small holder farmers has been unclear so far.

4.     ECXA
-  The capacity of the ECXA is not commensurate with the capacity of the ECX which it is supposed to oversee.
-  The legal framework for ECXA’s oversight function appears to be weak.
-  Its capacity for awareness raising and providing adequate oversight is limited.

Recommendations

The following is a list of recommended actions that the evaluation team has formulated:

1. the current transition process should be reviewed in favor of a more gradual and sequential process to ensure an effective transfer of technical and management expertise from the international to a local staff, and create a solid and sustainable base for the agency.

2. The policy of mandatory coffee  trading through the ECX should be reviewed and opportunities to promote contract farming in the coffee sector should be explored.

3. Increase capacity building support for the ECXA.

4. A rigorous analysis should be commissioned to assess the impact that the new agency and the new market system has on the livelihood of small holder farmers.
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Download the full report here or leave me a note at poorfarmer@gmail.com for a copy.
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