Beruflich Dokumente
Kultur Dokumente
Bement Asayehegn
Dr. Mittal
Executive Summary---------------------------------------------------------------3
Introduction--------------------------------------------------------------------------4
Technical Issues---------------------------------------------------------------------9
Conclusion-----------------------------------------------------------------------------12
Executive Summary
The objective of this research paper is finding the best strategy for overcoming the
challenges of developing a commodity market and a market information system for the
technology. Even though the idea of a commodities market goes back to the 1848,
when 82 grain merchants and farmers established the Chicago Commodity Exchange
built at the junctions of the Illinois River and Lake Michigan, setting up the Ethiopian
commodities market (ECX) was a trying ordeal for a former World Bank senior
economist Eleni Gebre madhin. In this effort, the goal is a design for a Commodities
Exchange Market that uniquely serves an African country and its small farmers, and
comprises of all the elements of the ideal commodities exchange. In planning ECX IT
infrastructure, I have reviewed the option of having the dial-up connection through the
internet Service Provider (ISP), which is monopolized by the Ethiopian government. The
especially, the development of networking technology. The next step is achieving the
goal for information and communications technology (ICT) plan of ECX is to make the
market accessible to the smaller farmer, thereby improving the overall market efficiency
and lowering the transaction costs to all the stakeholders. Some of the obstacles to
solve in the planned ECX Market Information Delivery system include the need to solve
lack up-to- date market information and technical skills for the farmers. Finally, I will
Introduction
My subject for this research is a design for a Commodities Exchange Market that
uniquely serves an African country and its small farmers, and comprises of all the
elements of the ideal commodities exchange. As such, it shall have warehouses around
the country, grading and warehouse receipts, an in-house clearing system, a regulatory
infrastructure and legal framework, and electronic display systems with real time market
information. Even though the idea of a commodities market goes back to the 1848,
when 82 grain merchants and farmers established the Chicago Commodity Exchange
built at the junctions of the Illinois River and Lake Michigan, setting up the Ethiopian
commodities market (ECX) was a trying ordeal for a former World Bank senior
economist. In comparing the two commodity exchanges, there are stark similarities
between the basic players of the trade, the buyer and the sellers. Similarly, the supply
and demand factors of the market persuaded farmers to get the lowest prices when
supply was high and better prices when supply was low. In addition to the Chicago
with growth rate of 250% in the last years between 1990-2000, and the Chinese
Exchange have taken the number two spot from the first known commodity exchange in
futures trading capabilities. Davies (2009) reiterates this point as “the basis of
commodity trading activity is the buying and selling of futures contracts for a whole
range of commodities .” He added, “while the nickel or cocoa producer will use
commodity futures contracts to hedge their future sales, commercial end users will also
market and a market information system for the functioning of this commodity market or
ECX using Information Systems technology. Advances in information technology and
commerce since the advent of the Chicago Commodities Exchange require this
economist, Dr. Eleni Gebre madhin and her team, to bring different sets of skills and
knowledge in order to innovate in the face of the realities of the ancient market in
Ethiopia.
In the last few decades, there have been efforts to liberalize the markets in Africa
through government policy suitable for free markets. This approach has not worked
much subsistence farmers in Ethiopia. Ethiopia is the second most populous country in
Africa, and the fifteenth most populous nation in the world. Out of the total population,
85% of those people live in the rural areas, and most of them are farmers. In order to
change the inefficient and backward nature of the Ethiopian market, a new initiative is
tackle the old marketing system with a more modern commodity exchange system.
According to Eleni, the present system is a very backward system with high transacting
costs and high risks. She noted that, “ a commodity market institution of this kind in
Ethiopia is necessary because it will be an instrument for mitigating the risk in grain
price fluctuations for small farmers that at times reach 80%"( Gebre-madhin, 2007). The
idea of commercializing the small farmer is also supported by the agricultural policy of
Ethiopia, and is included in its Rural development policy. The prime minister of Ethiopia,
Meles Zenawi, stated “The agricultural sector remains our Achilles heel and source of
vulnerability …Nonetheless, we remain convinced that agricultural based development
A commodity market in Ethiopia will have a value added advantage for the small
farmer because those farmers will get better market information. In turn, this will allow
the small farmers to get premium price for their produce. In addition, farmers will not be
restricted to local markets, moreover, they will also be able to sell at the national market
level. Similarly, the commodity market’s vision entails providing a low cost medium for
all trade transactions. In return, it charges pennies per hundred kilogram bag of
commodities for service charge. In return, the stakeholders will get assurance of the
integrity of products that they trade at the exchange. The way the trading works is
through a warehouse receipts system that documents the delivering person, vehicle
information, and grade and weight of the product received. This process where the
traders make the first contact with the exchange guarantees the integrity and
certification of products.
In any commerce related activity, the first criteria for people to engage in this activity
is to buy or to sell. Since most people do not own the means of production, they have to
get almost everything from another source, but they do have the power to get what they
needed provided they can pay for it. The need to have a medium for this activity creates
a market, which also needs people that know where and how to access this market. The
main component of the market system, or the price of commodities, is usually set by
the location, as well as, the capability of the customers to pay. But any market needs
some means to inform the stakeholders about prices if those people are going to trade
there. Some of the traditional means of market information include word of mouth,
In planning ECX IT infrastructure, I have reviewed the option of having the dial-up
connection through the internet Service Provider (ISP), which is monopolized by the
According to information I gathered from the ETC website, this corporation started to
give internet service in 1989, and mobile services in 1991. In addition, ETC has added
the capability to offer several wide area network connectivity options, thereby, enabling
services in any business entity are to some extent a low cost substitute for information
handling labor and has very low substitutability with other traditional inputs such as
capital, production, labor and materials” (Nandi, 2002). Some of the options that ETC
offers for connectivity are: Dial up network; Integrated services Digital Network(ISDN);
Electricity Infrastructure
Electricity is the basis of any meaningful development in any country, especially, the
supply to the country. In its strategy to expand coverage for smaller cities, the
corporation plans to expand electric power distribution to 6000 towns through the year
2012(EEPCo, 2007). In recent months, this corporation has inaugurated one hydro
power project, the Tekezze Project, which will boost the total supply by about 30%.
make the market accessible to the smaller farmer , thereby improving the overall market
efficiency and lowering the transaction costs to all the stakeholders. Consequently, the
selection of the right Market Information System and the design and implementation of
this system are very important tasks for a building a successful system under the ICT
plan.
ECX wants to disseminate market information from its main trading floor in Addis
Ababa to its 200 sites which are situated throughout the country. The information
transmitted from the trading floor will be real –time price information on the
commodities being traded. Additionally, ECX wants to place plasma screens in close
proximity to major rural market locations. Apart from the price ticker displays, ECX
wants to have 20 remote electronic trading centers. These trading centers are going to
be connected through high speed internet and computers, which will enable the farmers
The traditional way farmers get their information is through word of mouth way of
communication. This is normally done through inquires made from people who know
other people who live in major cities, or who have travelled to those cities personally.
The information that farmers get through this method might be too old or lack accuracy.
The other methods are radio and television broadcasts that relay general information on
the price of commodities, and again, the information might not be specific enough for
the farmers. On top of that, the timing of the radio or television broadcast times might be
Technical Issues
they would fare much better using short wave radio, which is an accessible and easy to
use medium. But there are more than four major languages which are commonly
spoken in Ethiopia, and this can create a difficulty for the local farmer in the case of
communities would not know how to operate a computer, and this also puts the usage
of this medium out of their reach. Therefore, ECX would have to train and send people
who can help with the delivery of its Market Information Systems that are transmitted
The information systems at ECX should be able to support all the business
applications and also satisfy the management challenges of the organization. In the
context of aligning strategy and information systems, Prahalad & Krishnan(2002) stated
that “ the goal of the system should be to provide ease of change the business-
component and interface levels and deliver ‘economies of change’”(p.27). The types of
Market Information Systems that ECX could potentially utilize include: Mass Media ;
Mobile Short Message Service; Interactive Voice Response; Plasma Display- based
In order to diseminate market information, ECX can use mass media including radio,
TV, and newspapers. The advantage of using these mediums is the coverage area of
the short wave radio, and the popularity of television and some newspaper respectively.
The disadvantages of using these media are that real time information is not
transmitted.
The second option that ECX should utilize is the Mobile Short Message Service(SMS).
This method of relaying real time information has been used by other commodity
Markets and is effective. To this effect, ECX has actually adopted and implemented.
According to a news report by the African News agency, “the Ethiopian Commodity
Exchange (ECX) has awarded the project for the development of software to introduce
The third option, the IVR system, has been adopted by ECX as per the report above.
The advantages of this system are the simplicity by which a person with a regular
telephone connection can access market information by calling into the voice operated
database system. This is similar to how credit card companies accommodate customers
by using the telephone to pass account information to customers from the companies’
databases or vice versa, without any human contact. Furthermore, the system makes
information available any time of the day, and in more than one language. In this regard,
The fourth option is the plasma display boards for price information. ECX has also
practically adopted this method , and according to Africa News service, “the ECX has
The proposed information systems plan will combine all the above elements with a
varying degree of usage. The main elements of the design are as follows:
Software requirements
The two major software components are: Desktop application and the Voice
Response Unit.This is the data entry point for ECX database administrators input
market Information and capture data. The Voice Response Unit serves as the interface
that connects the data accessing user and the ECX database. Within the database, one
set of data stored is a vocabulary file. Therefore, all user needs to communicate with
the database is a touchtone phone that will enable them to press a menu of their choice.
Conclusion
In order to increase the flow of market information towards the small farmers, and to
increase the efficiency of ECX, there is a need for better information system. Armed
with real time prices of commodities nationally, farmers can negotiate better prices for
their commodities. This negotiating platform has been the mandate of the establishment
of ECX. Furthermore, the right technology platforms and infrastructure has to be built so
farmers and traders get real time information when they need it.
The current state of market information delivery mechanisms to the farmer is very poor,
and in the CEO of ECX’S words, “ the farmer gets less than 10% of the value of its
produce”. In the same token, these conditions have a disastrous effect on the majority
of the population of Ethiopia. In order to solve this problem, ECX will utilize a
methods used are, in order of importance: Interactive Voice Response; Short Message
References
Davies, W. (2009). How commodity trading and commodity markets are changing. Retrieved
Ethiopia:ECX to update communication technology. (29 June, 2009). Africa News. Retrieved
ETC. (2004, February 02). History of ETC: Ethiopian Telecommunication Corporation. Retrieved
2009, fromhttp://www.ted.com/talks/elene_gabre_madhin_on_ethiopian_economics.html
Prahalad, C. K. & Krishnan, M.S. (2002). The dynamic synchronization of strategy and