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Building Trust and Trade to Lessen Food Shortages

By Michele Learner
July 2009

At the heart of Ethiopia’s bustling capital city, Addis Ababa, there is a development initiative that, at first glance does not look like one. It is definitely not a health clinic or a borehole for clean water. It’s the Ethiopian Commodity Exchange (ECX).

 

In Ethiopia as elsewhere in the developing world, most poor people work as farmers. They cannot grow all the food they need, so they are also purchasers of food. Thus, poor families need a way both to buy and sell food at a fair price.

This is where the ECX comes in. “Markets matter a lot, even at this low level of income,” said ECX chief executive Eleni Gabre-Madhin.

Many parts of Ethiopia are green and fertile, and farmers produce an abundance of food. Yet nearly every year, people in other regions of the country need food aid from the United States and other donors.

The reason? Ethiopia does not have a national trading network or an efficient national food storage and transportation system that gets food from where it is grown to where it is needed.

Trade depends on trust. “Most farmers trade within about eight miles from their farms, and only with people they know,” Gabre-Madhin said. More than two-thirds of farmers report facing defaults on these trades.

“In the past, truck drivers took payment in envelopes filled with cash. It was never certain if or how much of the money would make it back into the hands of the seller,” she said.

Trust is in short supply. As a result, only about one-fourth of Ethiopia’s grain ever comes to the market. ECX is working to build trust by guaranteeing payments, setting quality standards, and supplying up-to-date market information and storage facilities for crops.

Farmers can now sell their crops directly to ECX and are paid within 24 hours of delivery.

ECX, which celebrated its first anniversary in April 2009, is the first commodity exchange of its kind in Africa. It was started with the help of the U.S. Agency for International Development and other donors.

It serves the 10 million small farmers who produce 95 percent of Ethiopia’s crops. ECX handles six commodities: coffee, sesame, haricot beans, teff, wheat, and maize.

“Besides the trading floor in Addis Ababa, ECX also has six warehouses and 20 electronic tickers in major market towns” said Eric Munoz, a policy analyst for Bread for the World Institute who visited the exchange. “The ECX is a sophisticated response to rural poverty. It plays an important role in filling part of these needs.”

“When farmers can sell their crops on the open market and get a fair price, they will have much more incentive to be productive. Thus, Ethiopia will be much less prone to food crises,” said Gabre-Madhin. “ECX allows farmers and traders to link to the global economy, propelling Ethiopian agriculture forward to a whole new level.”

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