February 25th, 2010 by Tom Minney
The Ethiopian Commodity Exchange (www.ecx.com.et) was to host a consultative meeting of representatives from different African commodity exchanges this week on 25 February to form the African Commodity Exchanges Association. The CEO of the ECX, Dr Eleni Gabre-Madhin, was reported to have told a press conference in Addis Ababa that Ethiopia could offer to host the secretariat for the association. United States Agency for International Development (www.usaid.gov) sponsored the gathering.
The idea was first brought up at a United Nations Conference on Trade and Development (www.unctad.org) forum in Lusaka in September 2009. Its theme was: “Improving the Functioning of Commodity Markets in Eastern and Southern Africa through Warehouse Receipt Systems and Market-based Interventions.”
The previous day, 24 February, was a daylong “knowledge forum” held with the United Nations Development Programme (www.undp.org). This would involve sharing experience, best practices and challenges of establishing and working with commodity exchanges in Africa.
Participants were to come from Ghana, Nigeria, Uganda, Zambia, Tanzania, Sudan and Zimbabwe. Executives of the National Derivatives and Commodities Exchange of India and the South African Futures Exchange are also expected to take part. ECX has recently hosted groups from Kenya, Zimbabwe, Sudan, Ghana and the Philippines to look at Ethiopia’s experience and see how it helped the market.
Takele Teshome, programme analyst on Food Security and Recovery at the UNDP, reportedly says UNDP is funding the ECX with $1.5 mln a year, since 2008.
Last week on 17 February the ECX launched Direct Specialty Trade (DST), a new platform where producers of specialty coffee can transact directly with international buyers seeking to purchase premium beans on a fully traceable basis. In a press release by the ECX, Dr. Eleni said by coordinating buyers and seller, DST adds value to farmers, who can benefit from greater competition and to buyers, who can discover truly special coffees.
DST also enables trade of certified coffees, such as Organic certified, Fair Trade, RainForest, among others. She said DST is established as a monthly bidding session in which small farmer cooperatives and commercial growers may deposit specialty grade coffees in advance in ECX warehouses A condition for participation in DST is that farmers will receive a minimum of 85% of the final export price, a historic first for Ethiopia’s coffee farmers who normally are believed to receive below 40%, among the lowest share of the final price in the world. DST is an innovative way to enable direct trade that is reliable, fully traceable, transparent, and sustainable.
According to the release, on the first day, 44 lots of specialty coffee that came for the first DST session, their sellers being 35 primary cooperatives and 9 commercial growers, while 27 registered international buyers, representing coffee importers and roasters in North America, Europe, and Japan came to buy the high-quality coffee. The lowest price given was $2.15 dollars while the highest went as high as $4.02, according to Fortune newspaper (www.addisfortune.com).
Dr. Eleni said international buyers pre-register for the DST session and are able to order samples and to participate in a cupping session prior to the bidding: “DST closes the real gap between farmers seeking to benefit from the international market and buyers interested in tracing these coffees to their origin. DST also raises the visibility and profile of all Ethiopian coffee, and thus is a clear win-win for all.”
January 19th, 2010 by Tom Minney
Agricultural private equity fund Agri-Vie (www.agrivie.com) will reach its target of raising $100 million for investment in agricultural projects by February or March, according to an interview with Reuters newsagency on 14 January. It says there is plenty of potential and plans a second fund of up to $300 million.
Earlier in January the fund, launched in March 2008, made 2 investments totalling $10 mln in 2 agricultural projects in Ethiopia and across the region, and it is close to finalizing a $4 mln investment in Tanzania.
Izak Strauss, executive director and chief investment officer, told Reuters they are also considering a second fund: “There is definitely an opportunity to do a second fund substantially larger than the first fund… probably (in the region of) $200 to $300 million.” This could launch in 2013 or 2014.
Agri-Vie, based in Cape Town, focuses on equity investments in a wide range of agribusiness in Sub-Saharan Africa, including processing and distribution. It is backed by the Development Bank of Southern Africa (www.dbsa.org) and private entities including W.K. Kellogg Foundation (www.wkkf.org).
Agriculture in Africa appears set for transformation from unproductive and undeveloped subsistence farming to more commercial farming as investors from Europe, Asia and the Middle East get large tracts of land and launch projects, often to tackle food insecurity in their own countries.
In the interview, Mr Strauss said Agri-Vie plans to invest up to $25 million into five new projects during 2010, including a new $4 million eco-tourism project in Tanzania.
Agri-Vie forecasts fast economic growth in East Africa, which it calls an “investment hotspot”.
He said Agri-Vie this month invested $6.7 million in New Forests Company (www.newforestscompany.com), a UK-based sustainable and socially responsible forestry company with established, rapidly growing plantations and prospects of diversified products for local and regional export markets. It has operations in Uganda as well as Tanzania, Rwanda and Mozambique. East Africa has been a net importer of sawn timber and electrical poles and NFC aims to replace these imports with locally-produced goods. NFC’s overall aim is to “deliver both attractive returns to investors and significant social and environmental benefits”, according to its website.
The company also invested $3.5 million in africaJUICE (www.africajuice.com), run by European and African entrepreneurs and establishing fruit production and processing operations to capture share in European and the Middle Eastern juice markets. The first farm is in Upper Awash in the Oromia region. africaJUICE claims the combination of ideal growing conditions in the area and Ethiopia’s closeness to target markets should help displace European companies’ reliance on importing fruit products from South America.
The company website says: “We plan to establish at least three production locations across Africa by 2014 and become a premier supplier of Fair Trade juice to the European market.”
Strauss said: “Its first operation is in Ethiopia, growing yellow passion fruit, mango and papaya… The first exports will happen from mid-this year.” africaJUICE is making a capital investment of some €12 million to rehabilitate and expand an existing state-owned fruit farm (“Tibila Farm”) to create a high-technology modern tropical fruit plantation and build a new processing facility, operating under Fair Trade principles.
According to africaJUICE’s website: “Our plan is to plant approximately 600 hectares of yellow passion fruit and 600 hectares of other tropical fruits such as mango and papaya over a period of four years. At the same time we will support the development of over 1,200 hectares of outgrowers (contract farmers) to supplement the supply and extend community participation. Our new fruit processing facility will produce pure juices, concentrates and purees which will be transported to market via established export routes.”
David O’Halloran, Director of africaJUICE, told African Capital Markets News: “Having started operations on the ground early in 2009, we are pleased with the progress so far on the new fruit plantings, infrastructure, operating approach and the processing plant and looking forward to juice production from mid-2010 onwards. We have also made substantial progress following our sustainable development philosophy with a number of initiatives underway or already executed and are excited that this new approach to development and investment is progressing well. We are also progressing well on the second and third projects and expect to be considering funding options for those in the coming 12-24 months”.
January 8th, 2010 by Tom Minney
The fast-growing Ethiopian Commodity Exchange (www.ecx.com.et) on 31 December sold 150 full membership seats for a total of Birr 34 million (US$2.7 million). The new members include 69 suppliers, 45 exporters, 24 local traders and 12 cooperatives and commercial farmers, according to Ethiopia’s Fortune newspaper (www.addisfortune.com).
Coffee exporter Muluneh Kaka made the highest bid, offering Birr 3.3 million for a seat.
A full membership seat gives individuals, companies, public enterprises, cooperative unions and commercial farmers the right to transact any commodity through the exchange. The membership seat is permanent and transferable and is the basis for the ECX to function. Whoever is a member, either full or limited, can trade through the ECX.
The seat sale was initially announced in September 2009 at the ECX annual member’s forum and the initial price was set at Birr 50,000, but there were not many takers. Dr Eleni Gabre-Madhin, CEO of the exchange, told the newspaper they decided to make the sale public, instead of selling only to the members, and interest blossomed: “The membership value has significantly increased… This shows us the value businesspeople give to be a member of the ECX. …Participants came with their own presumptive value for becoming a member.”
She said people who bought the seats will have to be trained by ECX and score at least 70% in a certification examination. Results will be known after two weeks and seats awarded to successful buyers.
There are two classifications of traders: full members can trade any commodities they like and limited members can only trade one commodity. In each classification there are trading members who can only trade on their own account and intermediary members who can trade either on their own account or on behalf of clients.
September 29th, 2009 by Tom Minney
Traders on the Ethiopian Commodity Exchange (ECX – www.ecx.com.et) will be able to use their stocks to access bank finance from January 2010. In the scheme, launched in June 2009 and discussed with stakeholders on 24 September, the ECX and the International Finance Corporation (IFC – www.ifc.org), a member of the World Bank Group, aim to introduce Warehouse Receipt financing for producers and traders to get bank loans by pledging receipts for commodities held in ECX warehouses.
Agriculture accounts for about half of Ethiopia’s economy (GDP), 60% of exports, and 80% of jobs, according to the IFC, but farmers and producers have difficulty accessing finance due to the type and level of collateral that banks require. Much of Ethiopia’s development strategy is oriented towards agriculture-led growth.
The ECX is seeking to transform agriculture by standardizing key crops and quality and using technology to distribute prices countrywide. Buyers and sellers trade on an open-outcry floor, and the exchange assures quality, delivery, and payment. By holding all crops in warehouses, ECX gives security by providing a secure and reliable end-to-end system for handling, grading, and storing commodities, matching offers and bids for commodity transactions, and a risk-free payment and goods delivery system to settle transactions, while serving all fairly and efficiently. The ECX receipts guarantee the quality, quantity, and security of produce deposited in its warehouses.
In June, the IFC announced that it would support ECX over the next 2 years to design financial instruments and advocate for any required regulatory and legal changes so that banks can accept warehouse receipts as collateral for loans. IFC and ECX will also work together to increase the capacity of banks to extend loans based on warehouse receipts. IFC is giving technical advisory services and financing.
ECX CEO, Dr. Eleni Z. Gabre-Madhin was quoted by a local paper (Daily Monitor) as saying in September that the plan would help farmers who previously did not have enough collateral, and would also cut the costs and risks of lending for banks and helps them tap into a huge unexploited credit market for short-term trade finance to farmers. Financing could help small producers well at better prices, grow their business and invest in infrastructure, including stores.
She is quoted: “The market is currently severely under-financed, with only 6% of traders able to secure formal trade finance and having to resort to unfavorable traditional moneylenders. Essentially, we are about to turn commodity into asset. We should be thinking that every Warehouse is, in reality, a bank branch.” Alemseged Assefa, Vice Governor of National Bank of Ethiopia, was quoted as saying: “The launching of this system has the potential to be nothing short of a revolution in our finance sector”.
The ECX was established by Proclamation in June 2007 and is authorized to trade in both spot and futures contracts, initially starting with spot contracts for immediate delivery. Live trading was launched on 24 April 2008.