Commodity exchanges in Africa: A solution to challenges smallholder farmers face?

Project Active since Firms and Farms

Many African smallholder farmers complain, often loudly, about what in Ghana some farmers call the lack of “marketing” – by which they mean the lack of consistent output markets for their food crops.   In Sub-Saharan Africa output markets for food crops remain fragmented, and often involve individual traders going to farms to collect relatively small amounts of the crop and sending this on trucks to the main markets in the cities.

There has recently been a great surge in interest in commodity exchanges all across Africa. With the associated warehouse receipt systems, modern grading systems and the hope for sophisticated financial instruments down the road, such exchanges evoke the image of the introduction of modernity to traditional agriculture. Many African governments have hailed this as being of great benefit to poor farmers in Africa. There have been announcements the past year from Cameroon for such an exchange, and the East African Exchange (EAX) formed plans in 2013 for a regional exchange, announced by President Paul Kagame of Rwanda. Nigeria has also made such pronouncements (by both President Goodluck Jonathan and businessman Tony Elemulu, an investor in the EAX project).

The Ethiopian Commodities exchange (ECX) opened some 8 years ago, trading in both food crops and the main cash crop coffee. This has been regarded as a big success by many, with visiting African presidents making their pronouncements during photo opportunities on the trading floor of the exchange after official visits to Ethiopia. The ECX has been a big motivator for African nations to form their own exchanges.

There have however been a large number of commodity exchanges tried over the past decades, many resulting in failure or little growth and activity.   There is also a great debate as to how much of an impact the exchanges which have survived have had on smallholder farmers. The Ethiopian Commodity Exchange itself has its own share of critics, internally and externally.

The Ghana government has recently decided to establish a commodities exchange and warehouse receipt system to improve the welfare of farmers. Eleni LLC, a company formed by the former CEO of ECX, is helping the Ghana government in this effort. Private investors, from among the elite Ghanaian financial institutions have signed on as shareholders. The top national private warehouse operators are also involved in expanding the warehouse capacity in the country. All of this represents a very hopeful and exciting development. The commodities under consideration for the Ghanaian exchange include maize, paddy rice, palm oil, soy and groundnuts. The governing legislation has been drafted, the Ghana Standards Authority has been charged to handle the grading, the project team is in place to start the exchange, and numerous stake holder meetings have been held.

Will the Ghana effort be a success or a failure? What will be the impact on farmers – will it help, hurt or have no impact whatsoever? There is a need for impartial observers to measure and record the impact of the exchange if it is formed. The lessons from this project should to be documented to aid in the processes underway in other African nations.