By Geena Paul
Can commodity exchanges change the fate of farmers in any country? This is a question which has been discussed world over by governments, analysts, traders and farmers for years. In fact, the answer to this query depends on which country you are talking about.

In a recent attempt to prop up the pathetic condition of Ethiopian farmers, the country launched its first commodity exchange. When it was launched, the priority was to raise food production by creating a safe, transparent agriculture market and ensure that the farmers gets due returns for their produce.

However, if you take the case of India, the experiment of commodity exchanges was a disaster. Nobody in the agriculture sector can say that commodity exchanges helped substantially to change the fortunes of farmers in India. They still live in the same way in the country without knowing much about commodity exchanges or Futures trading.

In India, you have MCX, NCDEX and several other commodity exchanges, but if you ask farmers they have no knowledge of all these and they still sell their produce to the same old traders they are used to.

So, the dream of commodity exchanges changing the plight of farmers is till a mirage in India. In this scenario, will the new exchange in Ethiopia, a country of chronic food shortages and malnutrition, help farmers there?

According to media reports, the idea to create a commodity exchange was hatched by a former senior economist at the World Bank, Eleni Gabre-Madhin, who was born in Ethiopia and educated in the US.

In an interview to a news agency recently, Gabre-Madhin said the Ethiopian government began to consider a commodity exchange after the food crisis in 2002-2003; a bumper crop and price collapse in 2002 were followed by drought that threatened 14 million people with starvation the next year.

In the bumper harvest, prices fell so low that farmers could not repay their loans, despite abundant production. The next year, not enough food was produced to feed the population. This led the government to think about the market: Why don’t people store grain from year to year? Why can’t the market deliver in bad times and save in good times?

However, almost similar conditions exist in India but the government here failed to do much to improve the plight of farmers through exchanges.

Like Ethiopia, in India also its traditional markets are small because of narrow networks of trust among buyers and sellers. Most farmers trade within 12 km of their farms and only with people they know.

After the arrival of exchanges also, the situation in India has not changed much. So, analysts are sceptical about the impact of exchanges in Ethiopia.

Ethiopia Commodity Exchange began operating in April, creating transparency and predictability in the national market and connecting Ethiopian commodities to international markets.

The US Agency for International Development provided $1 million to launch the exchange.

The exchange provides warehousing, a reliable payment system, real-time market information, and quality control. Producers sell directly to the exchange, which assures payment within 24 hours.

The exchange has assumed the grading task and guarantees the quality, so a distant buyer can be confident of what he is purchasing.

The Ethiopian exchange is linked to commodity markets around the world, making it possible for a trader in India, for instance, to buy Futures of the prized Ethiopian lentils.

As for Ethiopia’s major export, coffee, 461 coffee suppliers have obtained one-year memberships on the new commodity exchange.

The exchange will disseminate New York prices on its trading floor, and will feed its prices to the New York market.

Nearly half of Ethiopia’s rural households are net buyers of food. Poor people buy food as well as sell food, which means that markets matter a lot, even at this low level of income.

The scene in India is no different. And, the exchanges miserably failed to do much in the country which has great potential for commodities.

So, if Ethiopia succeeds in its experiment with commodity exchanges, India also can take a leaf out of that and learn from that experiment.

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