As Horn of Africa Battles Catastrophic Drought Ethiopian Commodity Exchange Boosts Food Security (EXCLUSIVE REPORT)

The Ethiopia Commodity Exchange building in Addis Ababa. CREDIT: M Bociurkiw/HUMNEWSBy a HUMNEWS Correspondent in Addis Ababa

(HN, July 27, 2011) - The small trading room in the Ethiopia Commodity Exchange (ECX) seems a world away from the frenetic buzz of the New York Stock Exchange floor: polite, well-mannered traders and buyers gather in a small circle, surrounded by electronic boards, buying and selling coffee beans and exotic spices - all sealed with a high five.

As one recent visitor noted: "Each high five (or open out-cry as it is known) is another small step in lifting the threat of starvation from the country."

As this region of Africa battles a catastrophic drought that has decimated crops and livestock in several countries, and threatens 12 million people, including in Ethiopia, the exchange plays a demonstrable role in lifting the livelihoods of millions of farmers out of poverty - bringing them from small, traditional circles into a large, sophisticated market linked to the global economy.

Th ECX opens its doors to buyers and sellers each week day to trade the country's most important export - coffee - as well as maize (Ethiopia is the second largest maize producer in Africa), wheat, spices and pea beans.

Already three years in operation as a private-public partnership, the trading numbers - more than $1.5 billion of commodity value had been traded as of June 2011 - and zero payment default status are accomplishments the founders like to boast about. Its membership includes 450 professionals representing about 8,000 clients - from small coffee growers to large cooperatives.

The trading floor of the ECX moments before the commencement of a new session. Credit: M Bociurkiw/HUMNEWSThe ECX was set up by a team led by Eleni Gabre-Madhin, a former World Bank economist and Stanford University graduate, who felt compelled to do something substantive after discovering that at the height of the devastating 1984 famine in Ethiopia - which she terms as "one of the greatest crimes against humanity" when one million people perished in northern regions - there were food surpluses in the fertile regions of the south.

In what she says was a turning point in her life, Gabre-Madhin dropped her high-flying international career of 30 years to return home and build the ECX. It would help bolster food security in Ethiopia by allowing farmers to reach new markets and obtain better prices.

"We are helping to change the image of this country," Gabre-Madhin says. "When farmers can sell their crops on the open market and get a fair price, they will have much more incentive to be productive, and Ethiopia will be much less prone to food crises."

By leveling the playing field for farmers, Gabre-Madhin said the ECX can assist one of the most under-capitalized sectors in the world.

It didn't take long. The first deposit at the ECX was in April 2008 was 324 bags of maize from a rural grain trader.

What's more, many of the people behind the exchange are Ethiopian nationals who have returned from prestigious careers on Wall Street to help re-build the country's shattered economy. Unlike many large institutions in Africa, the CEO and several senior positions are filled by females.

What makes the exchange unique is that its established an end-to-end ecosystem for trading - building  from scratch "non-core" exchange functions such as warehouse delivery centers, grading posts and clearing banks to remote electronic trading centers (modelled around Internet cafes and using VSAT technology) and a secure data system. Observers say this was a crucial step in establishing the exchange as the Ethiopian market is still under-developed. "We found that the piecemeal approach does not work," said Gabre-Madhin.

Solomon Edossa, the Chief Information Officer of the ECX, an Ethiopian national who earned his academic and professional credentials in the US, with such firms as Accenture and EDS, said most aspects of the exchange are homegrown. "When people come here they don't expect to see such things in a developing country," he said.

Dr. Eleni Gabre-Madhin, CEO of the ECX, at the World Economic Forum. Credit: WEF

One ECX member said the exchange has revolutionized the way he conducts business with coffee producers and sellers. "It used to take us more than six days to get the coffee we sold weighed. It was also daunting to settle payments. Now we are able to sell our coffee centrally and within hours, get paid."

The speed with which the ECX established itself was astounding, given that Addis Ababa has a creaking infrastructure: power outages are common and even ATM network blackouts are not uncommon during heavy rains.

Still, the knock-on effect - whether to boost the country's international image or to alleviate poverty - is impressive. By playing a role in establishing the reference prices of traded commodities, the CSX is part of the shift in market dominance towards emerging economies, says Gabre-Madhin. In fact, the US share of commodity exchanges has plummeted by nearly 50 percent in the last decade

As the shift happens, millions of farmers in emerging economies are brought into the market. In Ethiopia's case, they are now able to access real time market prices via the ECX's remote price tickers or via SMS messages on their cell phones. The new access to information shields them from the manipulation of unscrupulous traders and helps them hedge against price volatility.

Said Gabre-Madhin: "In my view there is no region of the world, and no period in history, that farmers have been expected to bear the kind of market risk that Africa's farmers have to bear."

Almost a million farmers are indirectly represented as members on the ECX through farmers' associations and unions.

As it has grown into a prized institution, some memorable anecdotes had emerged from operating in a market like Ethiopia. One ECX warehouse employee had to consult his superiors when he couldn't enter the vehicle plate number of a seller because the farmer had brought his coffee on donkeys.

The story shows, that even today, innovation and flexibility is required to push the country's tradition-bound agriculture sector.

Click here to watch a presentation by ECX Ceo, Dr. Eleni Gabre-Madhin, at a 2007 TED talk.