Commodities Exchange

Project Coordinated by: 
Kenya

Vibrant agricultural commodity exchanges greatly enhance the performance of agricultural sectors and contribute to overall economic development of countries. There are specific conditions that are required in markets for agricultural commodity exchanges to develop and flourish.  The absence or short-lived nature of many of these conditions explains why commodity exchanges for staple grains have remained stunted in sub-Saharan Africa despite strong interest in their development by the Governments, International Community and by most elements of the private sector.

In the East African Community Region, the smallholder farmers/producershave been facing several challenges related to inefficiencies as they adjust to the liberalized market place. The inefficiencies are mainly brought about by lack of a transparent and efficient market place where producers are exploited by middlemen. Due to this inefficiency, most of the small scale farmers/producers face several constraints and challenges of which the five key ones revolve around the following:
i.    High production and marketing costs, leading to low profitability and a disincentive to produce for the market;
ii.    Constrained access to credit, especially for small-scale farmers;
iii.    Limited availability of profitable new farm technologies to adopt and use sustainably;
iv.    Price volatility; and
v.    Poor market access and competitiveness conditions

The absence of a transparent and efficient structured trading system necessitated the need for the establishment of the Commodities Exchanges in the three member states; Kenya, Rwanda and Uganda. The success of functioning commodities exchanges in the region will enhance farmers’ ability to produce agricultural produce in the quantity and quality required for domestic and international market. In addition, the exchanges will materially impact on the livelihoods of millions of smallholder producers and other actors in both agricultural and non-agricultural commodity value chains and lead to the development of agricultural led industrialization.

It is important to note that an efficient marketing system for key agricultural commodities in the region will have a significant economic impact in terms of improving the regional export competitiveness of commodities and also in stimulating domestic value addition and processing and other post-harvest activities. The marketing system will enable all actors to participate in a “level playing field” and facilitate producers achieve its goals of financial inclusion and support to less advantaged actors in the economy, particularly small-scale farmers and traders largely operating in the informal economy.

Kenya, Rwanda and Uganda are expected to establish National Commodities Exchanges and provide the necessary environment for the traders/producers to exchange commodities. This will involve harmonizing the legal instruments for commodities exchange in the three countries, harmonizing standards for commodities to be traded, identification of cooperatives/societies that will participate in the exchange and building their capacities. A Joint Technical Committee (JTC) with representation from the three member states was formed to harmonize to implement the above key issues.

The successful establishment of National Commodities Exchanges and provision of required trading environment in the three member states will provide a platform for exchanges among producers, traders, manufacturers and middlemen. The key players in the exchange will include: the Government, farmers/aggregators/producers, traders, exporters, Non-Governmental Organizations (NGOs), clearing banks and the regulators. Each of the players will play a key role in the establishment and running of the exchange.

Achievements

  1. Uganda and Kenya initiated the process of developing their Legal and Regulatory Frameworks for Commodities Exchange. It is anticipated that the legal frameworks will be finalized by December 2015. The two member states are benchmarking with the framework developed by Rwanda.
  2. Uganda has already enacted a Warehouse Receipt System (WHRS) Act while Kenya and Rwanda have submitted their WHRS bills to parliament for enactment. For Kenya the bill has gone through the first reading and consultations are ongoing before the second reading.
  3. Partner States’  standards experts are harmonizing the interpretation of standards of 18 commonly traded commodities. The harmonization will facilitate easy trading of commodities among the member states.

Pending work

  1. Partner States are expected to conduct Capacity Gap Analysis of Associations/Cooperatives. Once the gaps are identified, member states will address them to enable Associations/Cooperatives to participate fully in the exchange.
  2. Partner States are to individually conduct mapping of capacity gaps. The mapping will also include Infrastructure (e.g warehouses).