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Ethiopia's high-tech commodity exchange

Currently trading is done in person at the ECX headquarters, but an online trading system is planned for 2010 (ECX)
Currently trading is done in person at the ECX headquarters, but an online trading system is planned for 2010
ECX

Traded for centuries on the backs of camels, donkeys and mules, Ethiopian coffee was the first to reach foreign markets over 500 years ago. In modern times, Ethiopian coffee has struggled in global trade, with complaints of inconsistent quality, but the last 12 months have seen a dramatic shift in its fortunes. Launched in April 2008, the Ethiopian Commodity Exchange (ECX) has revolutionised coffee sales, handling transactions worth some US$240 million since December 2008, amounting to over 160,000 tons of coffee beans. Initially focussed on 'spot' transactions, for immediate sale and delivery of beans, the Exchange is now moving towards trade in coffee futures, and is also starting to market speciality coffees, in response to local pressure.

Transparent technology

The founding principles of the ECX are a guarantee of quality, quantity and prompt delivery. Deals are done through a system of money and commodity transfer which, so far, has proved extremely reliable for both buyers and sellers. According to the founder and CEO of the Exchange, Dr Eleni Gabre-Madhin, the computer-based trading system is so reliable that not a single day of trade was lost, nor a single default occurred in either payment or delivery in the opening year of trade. Transparency is key, with real time crop price information displayed on a network of digital display boards in 29 regional centres, and on the ECX website.

The Exchange has established 14 warehouses in the country's commercial hubs, where growers can take their beans to be weighed, graded and stored (ECX)
The Exchange has established 14 warehouses in the country's commercial hubs, where growers can take their beans to be weighed, graded and stored
ECX

While the ECX hosts trade in a number of crops, including maize, wheat, haricot beans and sesame, coffee has been its main focus so far. Some 450 private traders have now joined as members of the Exchange, which operates from its headquarters in Addis Ababa. In order to offer the necessary guarantees, the Exchange has established 14 warehouses in the country's commercial hubs, where growers can take their beans to be weighed, graded and stored. Receipts from the warehouses are then taken to be traded at the ECX. In a recent attempt to increase trade volumes, private warehouses are also being accredited by the Exchange, if they are able to meet its standards.

To ensure that payments are made and received, buyers using the Exchange are required to transfer funds to a specific account. Once a deal is done, the Exchange instructs its bank to debit the buyer's account and credit the seller, a process that takes just two hours. But the ECX system also enables growers to borrow money using their deposited crop as collateral; seven commercial banks are now offering credit of up to 70 percent of the value of a warehouse receipt, giving farmers the chance to invest in future production at the right time of the season.

Future trading

Currently, ECX warehouse procedures have been able to guarantee an international standard of commercial grade coffee. A new development, however, involves refining the system to allow coffee beans to be sorted according to their precise origins, and therefore to be marketed as speciality coffee. A network of regional laboratories has been established, and 37 coffee graders have been accredited by the internationally recognised Coffee Quality Institute, following training by the Exchange. The Ethiopian government has also given its backing, drafting legislation to recognise international and national certification agencies for agricultural produce, including organic coffee.

The Exchange is now moving towards trade in coffee futures, and is also starting to market speciality coffees (ECX)
The Exchange is now moving towards trade in coffee futures, and is also starting to market speciality coffees
ECX

Two further developments planned for 2010 are the development of online trading and trading in coffee futures. Unlike normal futures trading, however, where money, rather than actual volumes of crop, typically changes hands, the ECX is planning to introduce 'compulsory delivery' futures contracts. Deliveries will take place at a future time after the time of sale, such as 3, 6 or 12 months, but the price will be fixed when the sale is made. This allows better planning and reduced storage costs for buyers, while enabling sellers to be sure of their income.

In November 2009, the Exchange invited tenders for installation of an online trading system. Currently trading is done in person at the ECX headquarters, but with most coffee buyers coming from Europe, the Middle East and Japan, an online system will save considerable time and expense. Farmers are also excited by the prospect; many have enrolled on computer training courses, in order to take advantage of the system once it is launched. An estimated 850,000 small farmers have already become involved in the ECX system, around 12 per cent of the national total. Following the example of the Kenyan Agricultural Commodity Exchange and others, the ECX is also planning to make price information available by SMS messaging and automated voice response systems.

Date published: January 2010

 

Have your say

ECX NEW ERA ETHIOPIAN DEVELOPMENT (posted by: Nesro MOhammed)

It's an absolutely brilliant initiative and something that s... (posted by: Wilhelm)

Very nice. ECX is still in its infancy but in 5 years will p... (posted by: Daniel)

 

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