By JOHN OYUKE
East African governments are mulling the creation of a regional commodity exchange.
The plan, if implemented, will drastically reduce costs of transactions, enhance information flow and improve returns to market participants.
The East African Community and a US-based consultancy Nicolas Berggruen Institute have started discussions to establish the market, expected to create much needed mass and demand in the bloc.
According to EAC Secretary General Richard Sezibera, plans to establish the exchange are key given that one of the principles of the EAC as a private sector-driven and people-centred community is making sure the people of the region gain access to tools of wealth creation.
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He observed that one of the biggest challenges the region faces is a population that is heavily dependent on agriculture – with over 80 per cent of East Africans employed by the agricultural sector.
"Despite this heavy reliance, the sector suffers various challenges ranging from low productivity, lack of infrastructure to get produce to markets and limited value addition to what the region produces," he said.
The EAC Secretary General noted that some of these challenges are in part responsible for the region’s current experience of regular occurrences of supply surplus and hunger at the same time.
"We don’t have a market for foodstuffs. The laws and regulations in EAC should allow for the development of these markets, Sezibera noted adding, "a commodity exchange is one way to address these challenges."
Sezibera spoke after a recent meeting at the EAC secretariat headquarters in Arusha with former Senior US Government official and Nicolas Berggruen Institute Senior Advisor Ms Jendayi Frazer.
He said such a commodity market could help address issues of price manipulation, often a problem in developing countries, increasing farmers’ incomes, and can also help in the development of other innovative financing tools for agriculture in particular and infrastructure in general.
The move at the regional stage comes at a time when similar efforts in Kenya seem to have taken a back seat. Currently, a number of partners led by the National Cereals and Produce Board (NCPB) are leading efforts to set up such a market.
When the former chairman of the NSE, Mr Jimnah Mbaru, was appointed to be the chairman of the NCPB, expectations were high that as a champion of a commodity exchange, the dream would soon be a reality.
However, analysts cite lack of laws as the hurdle Kenya is grappling to join success cases like Ethiopia and South Africa. The Commodities Trading Bill and the Warehouse Bill are yet to be debated in Parliament.
For organisations that have partnered with NCPB to launch a commodity exchange, through first establishing the warehousing receipt system, the experience has been that there is need for farmers to be fully educated and made aware of this initiative because its success depends on their supplies.
According to global standards, the minimum delivery to a commodity exchange is 100 bags of 90 kg packages. This currently applies in Ethiopia, South Africa, Europe and the US.
In the Kenyan case, most farmers are smallholders and may not produce such volumes in one season.
According to Agriculture policy expert James Nyoro, Kenya should have an agriculture marketing policy that will enable the private sector to mop up food crop harvests, store it and negotiate a future price to protect farmers from rock-bottom prices that are paid during the harvest season.
"Policies that empower the private sector to buy produce, store and negotiate prices with farmers for future sale will prevent a scenario common in Kenya when prices of commodities hit rock-bottom during harvest because of high supply," Dr Nyoro, the managing director of global development group Rockefeller Foundation in Africa said.
Ms Frazer expressed her organisation’s delight at EAC’s efforts to establish a commodity market.
She said the Institute was "very proud and "looking forward" to collaborating with the EAC in the venture, adding that she saw EAC as critical in terms of creating the scale to move the region’s economies forward.
It is expected that the proposed regional commodity exchange will be actualised within the overall framework of a Public-Private Partnership arrangement.
It will also ride on the framework of the EAC Food Security Action Plan and the EAC Climate Change Policy agreed to by EAC Heads of State at their last Summit held in April this year.
