Alpha University College

School of Graduate Studies

MBA Program

Marketing Mix Practices and challenges in Ethiopia Commodity Exchange

with Special Reference to Sesame: the Case of Ethiopia Commodity
Exchange

By:
AbuyeGedefa

August, 2017
Addis Ababa Ethiopia

i
 Alpha University College
School of Graduate Studies
MBA Program

Marketing Mix Practices and Challenges in Ethiopia Commodity Exchange

with Special Reference to Sesame: the Case of Ethiopia Commodity
Exchange

By:
Abuye Gedefa

Advisor: Afework Getachew (PhD)

A Thesis Submitted to School of Graduate Studies of Alpha University

College in Partial Fulfillment of the Requirement for the Award of Degree
of Masters of Business Administration (MBA)

August 2017
Addis Ababa
 DECLARATION

I, the under signed, declare that this thesis is my original work, prepared under the guidance
of AfeworkGetachew (PhD). All source of materials used for the thesis have been duly
acknowledged. I further confirm that the thesis has not been submitted either in part or in full
by any other higher learning institution for the purpose of earning any degree.

_________________________
. _________________________
Name Signature & Date
 ENDORSEMENT

This thesis has been submitted to Alpha University College, School of Graduate Studies for
examination with my approval as a university advisor.

Afework Getachew (PhD)

______________________
Advisor Signature Date

Alpha University College,

Addis Ababa
August, 2017
 ALPHA UNIVERSITY COLLEGE
SCHOOL OF GRADUATE STUDIES

Marketing Mix Practices and challenges in Ethiopia Commodity Exchange

with Special Reference to Sesame: the Case of Ethiopia Commodity
Exchange

By
AbuyeGedefa

Signed bythe Examining Committee:

External Examiner Signature Date

Internal Examiner Signature Date

Advisor Signature Date

Dean of Graduate Program Coordinator Signature Date

 ACKNOWLEDGEMENTS

First and for most, my heartily thanks go to Almighty God, for his kindly provision of
knowledge, wisdom, inspiration and diligence required for the successful completion of this
research and forbringing my dreams into reality.

I am deeply indebted to my advisor Afework Getachew (PhD) whom during this period has
notonly kept me on track, but provided invaluable advice and support.

Also I would like to say thank you Mr. Belayneh Kinde who is owner of Bk business group to
support me by finance.

i
 ABBREVIATION AND ACRONYMS

ACDDCs Agricultural Commodity Dependent Developing Countries

ADLI Agricultural Development Lead Industrialization
AMC Agricultural Marketing Corporation
CBE Commercial Bank of Ethiopia
DFID Department for International Development
ECEA Ethiopian Commodity Exchange Authority
ECX Ethiopia commodity exchange
EGTE Ethiopian Grain Trade Enterprise
EICTDA Ethiopia information and communication technology development agency
EOPEC Ethiopian Oil Seeds and Pulses Export Corporation
EQSA Ethiopian Quality and Standard Authority
ETB Ethiopian Birr
EWR Electronic Warehouse Receipt
GDP Gross Domestic Product
ICAs International commodity agreements
ICT Information and communication technology
IM Intermediary Member
IVR Interactive Voice Response
KACE Kenyan Agricultural Commodity Exchange
LIM Limited Intermediate Members
LTM Limited Trading Members
MoFED Ministry of Finance and Economic Development
SMS Short Messaging Service
TM Trading Member
UCE Uganda Commodity Exchange
UNCTAD United Nations Conference on Trade and Development
ZAMACE Zambia agriculture commodity exchange

ii
 Table of Contents
ACKNOWLEDGEMENTS ....................................................................................................... i
ABBREVIATION AND ACRONYMS ...................................................................................ii
LIST OF TABLES .................................................................................................................... v
LIST OF FIGURE .................................................................................................................... v
ABSTRACT .............................................................................................................................. vi
CHAPTER 1: INTRODUCTION ............................................................................................ 1
1.1. Background of the Study ......................................................................................................... 1
1.2. Statement of the Problem......................................................................................................... 3
1.3. Objective of the Study ............................................................................................................. 6
1.3.1. General Objective ............................................................................................................ 6
1.3.2. Specific Objectives .......................................................................................................... 6
1.4. Significance of the Study ......................................................................................................... 6
1.5. Scope and Limitation of the Study .......................................................................................... 7
1.6. Organization of the Paper ........................................................................................................ 8
CHAPTER 2: REVIEW OF RELATED LITERATURE ..................................................... 9
2.1. Operational Definitions of Key Terms .................................................................................... 9
2.2. How Commodities Exchange Work? .................................................................................... 10
2.2.1. A system that Creates Integrity and Trust...................................................................... 10
2.2.2. A system that generates market information ................................................................. 11
2.2.3. A system linked to warehouse receipts .......................................................................... 11
2.2.4. A system that Increases Market Volume and Liquidity and Reduces Risk ................... 12
2.3. The purpose of commodity exchanges .................................................................................. 12
2.4. Functions and benefits of commodity exchanges .................................................................. 14
2.5. Contribution of Commodity Exchange for Agricultural Development ................................. 15
2.6. Conditions Enabling the Development of a Commodity Exchange ...................................... 15
2.6.1. Physical Infrastructure ................................................................................................... 16
2.6.2. Legal and regulatory infrastructure................................................................................ 16
2.6.3. Commercial and Financial Sectors Development .......................................................... 17
2.7. A Brief Overview of the Ethiopia Commodity Exchange ..................................................... 17
2.8. Operation of the Commodity Exchange in Ethiopia .............................................................. 19
2.8.1. Membership ................................................................................................................... 20
2.8.2. Criteria for membership ................................................................................................. 21
2.8.3. Rights and Duties of Commodity exchange members ................................................... 22
2.8.4. Integrated Physical Delivery Management .................................................................... 22
2.8.5. Trading and Contracts .................................................................................................... 23

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 2.8.6. Clearing and Settlement ................................................................................................. 24
2.8.7. Market Information Dissemination ................................................................................ 24
2.8.8. Risk management ........................................................................................................... 25
2.8.9. Compliance .................................................................................................................... 25
2.9. Empirical Evidence Literature ............................................................................................... 25
CHAPTER 3: RESEARCH METHODOLOGY ................................................................. 29
3.1. Research Strategy and Design ............................................................................................... 29
3.2. Data Type and Source ............................................................................................................ 29
3.3. Population and Sampling Techniques.................................................................................... 29
3.4. Data Collection and Instrument ............................................................................................. 34
3.5. Data Processing and Methods of Data Analysis .................................................................... 35
CHAPTER 4: RESULTS AND DISCUSSION ................................................................... 36
4.1. Result/Finding of the Study ................................................................................................... 37
4.1.1. General Characteristics of the Respondents .................................................................. 37
4.2. Analysis of Finding of the Study ........................................................................................... 39
4.2.1. Responses on Price Related Questionnaires .................................................................. 39
4.2.2. Responses on Product Related Questionnaires .............................................................. 41
4.2.3. Responses on Promotion Related Questionnaires.......................................................... 42
4.2.4. Responses on Place Related Questionnaires .................................................................. 43
4.2.5. Responses on General Question about marketing of sesame related questionnaires ..... 44
4.3. Interpretation and Discussion ................................................................................................ 46
CHAPTER 5: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS................ 50
5.1. Summary ................................................................................................................................ 50
5.2. Conclusion ............................................................................................................................. 51
5.3. Limitation .............................................................................................................................. 53
5.4. Recommendation ................................................................................................................... 53
BIBLIOGRAPHY ................................................................................................................... 55
APPENDICES ............................................................................................................................ i

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 LIST OF TABLES

Table 4.1: Characteristics of the Respondents ......................................................................... 37

Table 4.2: Response on Price ................................................................................................... 40
Table 4.3: Response on Product ............................................................................................... 42
Table 4.4: Response on Promotion .......................................................................................... 43
Table 4.5: Response on Place................................................................................................... 44
Table 4.6: Response on General question about sesame.......................................................... 45

LIST OF FIGURE

Figure 2.1:: Exchange functions and benefits .......................................................................... 14

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 ABSTRACT

The Ethiopian Commodity Exchange was established to revolutionize Ethiopian agriculture

and transform the economy through a dynamic, efficient and transparent marketing system.
Properly regulated and implemented, commodity exchanges can contributesignificantly to the
achievement of a country’s economic and developmental goals and strengthen the bargaining
power of members. Hence, the main objective of the study was to assess the marketing
practice and challenges in Ethiopia Commodity Exchange with special reference to sesame
the case of Ethiopia commodity exchange. This study used both primary and secondary
sources of data. This study employed descriptive type of research and it employed a survey
research strategy to capture the relevant information from the respondent. The target
population of the study was different groups of the sector actors of ECX. The collected data
was analyzed using descriptive statistics. The result of the study indicated that Establishment
of ECX was helpful to removesome malfunctions of the sesame marketing as observed against
the marketing mix elements. The irregularities in the business activities by some of the actors
have undeniably affected the export of the crop. Production, Price, Promotion and place or
distribution of the seedwas managed by different groups who were behind their own interests.
Split in idea has severely damaged the whole member of the group from attaining what they
deserve. All actors are not at an equal of awareness on market situation prevailing in the
world. ECXalso has its own objective set and follow the fulfillment only. What should be done
is, ECXmust look and evaluate its moves with respect to its objective. Some activities should
have beaded to ECX control scope. The existence of too many actors is the reason why price
is not going with external export price. Therefore, ECX may study if it could include the
supplying to its warehousing activity and this may bring down the extra money paid to
brokers which will enable the exporter to act competitively in the international market. With
regard to free market, the government may also revise its policy of control to avoid the
anarchy of price irregularities.

Keywords- Sesame, ECX, Export, Actors, Marketing Mix

vi
 CHAPTER 1: INTRODUCTION
This chapter provides introductory information. It presents background of the study,
statement of the problem, objectives of the study, research questions, significance of the
study, scope and limitations of the study and organization of the paper.

1.1. Background of the Study

Production of agricultural commodities play a major economic role in many developing
countries, especially in the least developed ones (Paul, 2011). Because of commodity
production and trade are the primary means of livelihood for millions of households,
commodity sector development is essential for poverty alleviation and overall economic
development. Faced with both price volatility and high marketing costs, many see commodity
exchanges as an alternative way to manage risks and increase efficiency in a liberalized
market environment (Morgan, 2001).

Agricultural Commodity Dependent Developing Countries (ACDDCs) often depend on

revenue gained from exporting only one or two specific agricultural commodities, so
declining and volatile prices are risky to both individual producers and governments, both of
which face reduction of returns and high risk (Paul, 2011). Volatile and falling agricultural
commodity prices can also aggravate the ratio of debt to exports, undermining debt
sustainability (Department for International Development [DFID], 2004).

Ethiopia is a developing country where agriculture is the backbone of the economy and the
source of livelihood for the 84% of the population (Census, 2007). Nevertheless, the sector is
not well developed and much of the produce is produced by small holder farmers. The
farmers produce food for their household and sale the rest which is left from the house
consumption in the nearby market places. The main agricultural products are Coffee, Teff,
Maize, Wheat, chat and Sesame (Ethiopia Information and Communication Technology
Development Agency [EICTDA], 2010)

The bulk of the country's merchandise export earnings are from the agriculture sector and this
sector accounts about 80-90 percent of the total export while the share of manufactured
products was eleven percent in 2001/02 and 12.5 percent in 2002/03 (Teshale, 2005).

1
Commodity dependent economies are deemed to have lower growth prospects. This happens
as a result of both the unfavorable world demand side and the low-income elasticity of
demand for primary commodity. On the supply side, the combined effects of lower skill and
technology contents of commodity production and its negligible linkages with the rest of the
economy would result in lower growth (Bonaglie and Fukasak, 2003).

Hence, designing an appropriate mechanism to protect declining and volatile agricultural

commodity prices would help to all stakeholders to get the right profit from what they
produce, and enhance both the quality and quantity of exports (Paul, 2011). Among such
methods organized commodity exchange market is the most viable one (Paul, 2011).

Today there are various types of public or private market information and commodity
exchange systems that are backed up using modern ICT to provide information to market
participants. Following the liberalization of the agricultural market in most of sub-Saharan
African countries market information and commodity exchange systems are introduced. Such
as Kenyan commodity exchange, Malawi commodity exchange, Zimbabwe Agricultural
commodity exchange, and Uganda commodity exchange. The establishment of such
institutions makes markets work better for all market actors by providing information on what
commodities to produce, what technologies to apply, when to produce, for whom to sell,
when & at what price to sell, how to find willing buyers, and to plan for the future and make
better decision etc.(Tollens,2006).

The Ethiopia Commodity Exchange (ECX) is a new initiative for Ethiopia and the first of its
kind in Africa (ECX, 2008). The ECX was formed in 2008 to address the problems of market
access and market infrastructure primarily for grain farmers, and subsequently became the
sole body responsible for managing trade in coffee (ECX, 2008).

Most Africa commodity exchanges failed to serve the core institution of a commodity
exchange efficiently to the participants. Solving the problems of commodity exchange is very
important for Africa at large and to Ethiopia specifically.

Despite its establishments, there were not adequate studies that identified the marketing mix
practice and challenges in Ethiopia Commodity Exchange with special reference to sesame in

2
the case of ECX. The previous studies mostly focus on the challenges of ECX and the roles of
ECX to smallholder farmers. Therefore, the main purpose of this study is to assess the
marketing mix practice and challenges in Ethiopia Commodity Exchange with special
reference to sesame in the case of ECX.

1.2. Statement of the Problem

The development of the agricultural market in Ethiopia is based on old traditional methods
(ECX, 2009). It is characterized by insufficient market information, unstable price, poor
quality, lack of trust among trading partners, and uncoordinated markets (Gabre-
Madhin&Goggin, 2005).

ECX which started trading operations in April 2008 is a new initiative for Ethiopia to
revolutionize Ethiopians tradition bound agriculture through creating a new marketplace that
serves all market actors, from farmers to traders, processors, exporters, consumers.

A Commodity Exchange is fundamentally designed to provide service and add value to all
market actors. If markets function as to reward quality, decrease transaction costs of market
participation thus increasing returns to market activity, facilitate quick capital turnaround thus
increasing market volumes, and minimize the risk of market participation.

A well organized and managed commodity exchange market has many benefits. An exchange
reduces transaction costs by facilitating contact between buyers and sellers and enables
centralized grading of products ensuring that contracts are enforceable. It provides mechanism
for price discovery which simplifies transactions with standard contracts and transmits
information about prices and volumes. An exchange provides a mechanism for rising market
liquidity enabling transfer of price risk and creates trust, order, and integrity in the market
(Gabre-Madhin, 2006).

According to Alemu&Gerdien(2010), limited availability of international market information

in terms of prices and production levels, which is reflected in poor linkage / transmission of
price trends with the national market, is expected to be another challenge significantly
affecting the competitiveness of the Ethiopian sesame in the international market and this is

3
expected to make disincentives for sesame exporters to engage in the sesame market through
ECX.

Transaction costs play a key role in the performance of an economy. In Ethiopia, there is
evidently higher transaction cost in commodity market transactions that seriously hampered
market performance. These costs are seen in Ethiopian situation in terms of “the lack of
enough market coordination between buyers and sellers, the lack of trust among market
actors, the lack of market information, the lack of contract enforcement and the lack of grades
and standards” (Alemu&Gerdien, 2010 as cited in Abdurezack, 2010).

The Ethiopia government has been taken different measurement to alleviate the bottleneck of
the export trade but still the Ethiopia export constrained by different problems. like Lack of
export marketing skills and market promotion schemes; inadequate trained manpower in
international marketing intelligence, limited managerial and technical capabilities of the
business sector, insufficient promotional supports, inefficient of clearing houses, transport
organizations, higher prices due to long inland transportation to the ports, high freight rates,
high Port charges, inefficient operations, lack of standardized quality packaging that meets the
importers requirements, lack of storage ( International trade center, 2001).

Commodity pricing is as close as the real world gets to the classical economic concept of a
good’s demand and supply curves intersecting at a particular price and quantity. Many firms,
who use ECX exchange floor, are diminishing every time in numbers. Because pricing of
commodities exchanged here are not as per the law of economics. It has been observed that
while export price is falling, local price is increasing at ECX. What is the reason behind this
paradox? No one wants to operate his business at loss. Coffee and sesame followed this trend
repetitively. As a result of this, weaker exporters with lower capacity to fight the challenge are
evicted from the game.ECX posts the daily bid prices of commodities on its website for the
benefit of any one in the business. Domestic buyers and sellers are affected repeatedly since
external importers of the crop use it to fix their buying price.

A commodity exchanges provide various opportunities to its members. However, still a

commodity exchange in developing countries faced a lot of problems that hinders to operate

4
its functions to the members in a better position. ECX is one of a commodity exchanges that
found in developing countries. Since promoting the product works and accomplishes its goal
of creating a better economic situation for the producers of the product than would exist
without promoting. Hence, the Ethiopian development strategy has been given to promotion
of export, find out the marketing mix practice and challenges within ECX is essential in order
to help the country in sustainable economic growth and to alleviate the poverty of the country.

Production method is not trained to farmers and sesame is produced on a plot of land
continuously. Loss of land fertility to the crop is the cause for sesame quality loss which is
revealed every year. Quality of the product is seen deteriorating. The quality of sesame
brought to ECX is not controlled but rather manipulated by both the supplier and the ECX
quality control staff. The consideration of buyers’ standard for quality is ignored. This results
in reputation loss for the country as a whole. Distribution is a step in the economic process
which brings goods and services from those who make them to those who use them. The
problem of transport charges is the other point everyone talks about. It is not fixed or stable.
Increase and decrease are interchanged phenomenon every time without any cause for the
effect. This affects distribution of the seed adversely.

As the best knowledge of the researcher there were very limited researches has been done
regarding to challenges and opportunity of ECX but there was not study made on marketing
mix practice and challenges in Ethiopia Commodity exchange with special reference to
sesame in case of ECX. Therefore, this study attempts to fill this gap of the ECX Actor and
contributes to the literature on the commodity exchange aspects of projects in Ethiopia.In
order to achieve the intended objective as well as the research problem, the researcher has
formulated the following research questions and attempts to assess thought out the research
course
1. What were the challenges faced by ECX in the ongoing functions of the
organization?
2. What are the ways of price control for the product?
3. Who benefits from the daily market price information posted?
4. Is there any activity to promote the commodity?

5
 5. What is to be done so that ECX can achieve its objectives?
6. What should be done to control transportation charges?

1.3. Objective of the Study

1.3.1. General Objective

The main objective of the study is to assess the Marketing mix practice and challenges in
Ethiopia Commodity exchange with special reference to sesame in case of Ethiopia
commodity exchange.

1.3.2. Specific Objectives

 To identify the challenges faced by ECX in the ongoing functions of the

organization
 To identify the ways of price control for the product
 To identify the actors that benefited from the daily market price information posted
 To check if there is any promotion of the commodity
 To suggest some possible solution for ECX to achieve its objectivesand to solve the
problem.
 To assess who is increase and decrease the transportation cost

1.4. Significance of the Study

The growth of ECX was impressive after its establishment in 2008. Despite this, there was
little attention given to marketing mix practice and challenges in Ethiopia commodity
exchange with special reference to sesame. Hence, the finding of this study may be very
important for the success of lately emerged ECX to solve the challenges of ECX actors and
to give a service in a better position.

This study also may have an importance to the exporter because the challenges are
recognizing and solve by the concerned body.

6
The outcome of the research study enables in solving the problems of companies
participating in the export activity from being evicted out from the market due to
some unknown actions done secretly.

Accordingly, this study assessed the marketing mix practice and challenges of ECX.
Therefore, Policy makers and planners may also get a lesson on the issue and to make a
better decisions regarding ECX.

Lastly, the finding of this study contributes to the literature of the country on the subject and
the output of the study will give information for development practitioners and donors
interested to operate and strengthen ECX. Furthermore, it serves as a reference for other
researchers who are volunteers to undertake further investigation on similar or related topics.

1.5. Scope and Limitation of the Study

The study delimited conceptually, geographically and methodologically. Conceptually, this
study was focused on assessing the marketing mix practice and challenges in Ethiopia
commodity exchange with special reference to sesame in case of ECX.

The study was delimited to only focus on sesame (oil seeds) transaction at ECX. The scope of
the research can be unreachable if other crops are included but the problems are moreof the
same kind. Therefore, the researcher focused on sesame as a representative study to the
matter. The scope of the study though limited to sesame, still the size ofpopulation which is
within the business activity for study was very wide.

Methodologically, this study applied descriptive type of research. In addition, this study
employed cross sectional design. Relevant problems issues studied in the past are limited
since the prevailing types ofobstacles in the business are new which came in to existence
with ECX even though some were as old as the business

Regardless of the fact that the researcher has made all the best to maximize its fruitfulness,
the study subjected to some limitations that originated from its scope. ECX being aninfant
institution, academic resources on issues helpful to the body of this study was very few. So;
the researcher was constrained accessing adequate empirical studies conducted in Ethiopia

7
which directly related to the ECX actors. Furthermore, since this study had employed cross
sectional design, it is difficult to check the change that could be possible through
longitudinal survey

1.6. Organization of the Paper

The paper was organized in five chapters. The first chapter includes background of the
study, statement of the problem, objective of the study, research questions, significance of
the study, scope and limitations of the study, and organization of the research paper. The
second chapter dealt with the review of related literature. The third chapter dealt with
methodology of the study. The fourth chapter includes result and discussion. Finally,
conclusion and recommendation were presented in chapter five.

8
 CHAPTER 2: REVIEW OF RELATED LITERATURE

This chapter provides theoretical foundation for the study. The chapter presents major
concepts such as operational definitions, how commodity exchange work and purposes of
commodity exchange. It also deals with benefit and function of commodity exchange,
contribution of commodity exchange for agricultural development, condition enabling for
the development of commodity exchange. Moreover, the chapter also discusses some
issues operation of ECX andempirical evidence. Finally, conceptual framework of the
study that was developed based on review of literature is presented.

2.1. Operational Definitions of Key Terms

 Commodity: Commodity Product, which is interchangeable with another product of

the same kind.
 A commodity exchange is an institution or system where people who desire to sell can
come and make an offer of product that they want to sell. At the same time, people who
want to buy are also making bids. The exchange as an institution agrees the buyer with the
seller. This matching process results in the market price that becomes recognized to all
(Gebre-Madhin, 2006).
 ECX: - Ethiopia commodity Exchange,
 A broad market platform
 A flexible market platform
 A powerful market solution
 Clearing institution: The Exchange or Clearing House or domestic bank or
Settlement Bank or similar financial institution recognized by the Authority.
 Actors: These are the participants in the market platform as buyer, sellers and
brokers
 Contract: Standardized agreement to purchase or sell a specified commodity,
detailing the amount, grade and price of the commodity and the date on which the
contract will mature and become deliverable for aim of trading on an Exchange.
 Grading: The inspection and assignment of certain quality parameters as specified by
the Exchange for each commodity class.
 Member: Any person recognized as an Exchange Actor by the Authority that fulfills
the requirements of the Exchange.

9
  Membership seat: A permanent, freely transferable, and exclusive right to trade on
the Exchange.
 Spot contract: Exchange traded contract for payment on the same day and physical
delivery within a maximum of 10 working days from the date of transaction.
 Futures: Contracts more regularly used as financial instruments for hedging,
speculation and arbitrage, which may result in the future delivery of commodities.
 Trading floor: A physical trading facility where Floor Representatives make bids and
offers via open outcry or other system provided by the Exchange.

2.2. How Commodities Exchange Work?

According to Gabre-Madhin and Goggin (2005), the key to a successful exchange is to bring
about the needed highest possible concentration of buyers and sellers into a single market
mechanism in an efficient, low-cost, manner. To do so needs that the market operates with
certain basic rules and with certain types of actors. These features or operating modalities are
precisely what distinguish what is known as a commodity exchange from a typical central
wholesale or terminal market.

2.2.1. A system that Creates Integrity and Trust

A commodity exchange operates with a certain set of rules or conventions that are widely
known. These rules concern to four key dimensions of the market: the product, the actors, its
price determination and the contractual relations that bind them. These rules and modalities
together make much needed integrity and trust in the system

Second, an exchange operates a given system of price bidding that is aimed at publicly
displaying buy and sell offers in a low cost and transparent manner. Some exchanges work on
the basis of an “open outcry” system in which market actors in on the exchange floor cry out
their price offers/bids in a public fashion. Instead, an exchange may operate with an actual or
a virtual “bulletin board” on which buy and sell offers are posted openly. The key is that the
price bidding is done publicly rather than privately.

Third, in order to ensure that the rules are followed, exchanges work with membership-based
trading, where membership is founded on the ability to fulfill with the rules of the exchange

10
and to meet certain standards. This ensures that members have a stake in the performance of
the market and thus uphold its trust and integrity.

Fourth, the exchange’s regulations and directives usually make it mandatory for members to
make use of standard contracts developed by the exchange to which they belong. Thus,
members are obligatory to strictly bind to the terms and conditions laid down in the contracts,
to maintain appropriate records of their transactions; and to submit to be bound by the
disciplinary rules of the exchange (Gabre-Madhin and Goggin, 2005).

2.2.2. A system that generates market information

As explained by Gabre-Madhin&Goggin (2005), a core attribute of an exchange, implied

within the four dimensions distinguished above, is that it enhances market transparency
through generating and distributing information. Through its own functioning, the exchange
produces market information about the underlying supply and demand conditions in the
economy. Thus, opposing to popular view, a commodity exchange does notneed an external
market information system as a pre-requisite to its proper operation. An exchange goes the
market information system as it performs its function of price discovery based on the public
posting of buy and sells orders.

When the volumes of trade on the exchange are sufficiently large to justify that price
discovery according to true market fundamentals is occurring, then the distribution of that
information of market prices provides a great service to the market, and the broader economy.
This fact alone is a compelling reason to justify an exchange.

2.2.3. A system linked to warehouse receipts

By storing their products in a reliable warehouse, the farmers can use the warehouse receipt
that is issued as loan collateral and thus access finance without selling their goods. Clearly, a
negotiable warehouse system is highly complementary to the functions of the exchange. The
receipts system goes together with a commodity exchange in that:

Grades and standards are necessary to warehouse operations as well as to a commodity

exchange with standardized contracts;

11
 Price transparency: If receipts indicate a specific grade, this gives price information
that can also be used on the exchange;
Transfer of risk: by selling receipts on the exchange, receipt holders involved in
forward transactions and reduce risk for farmers; and,
Integrity and order: the official enforcement of quality and of the negotiability of the
receipt is important for both the warehouse receipts system and the functioning of the
exchange (Gabre-Madhin and Goggin, 2005).

2.2.4. A system that Increases Market Volume and Liquidity and Reduces Risk

According to Gabre-Madhin&Goggin (2005), a successful commodity exchange provides

transactions for its participants --farmers, processors, food aid agencies, large consumers,
traders,parastatal agencies, and others-- in a low-cost situation. The lowering of costs is
passed on to market player who can then directly advantages from a higher share of the final
price. This in turn generates incentives for raised market volume, and furnishes an incentive
for increased participation in the market.

Additionally, particularly when linked to a negotiable warehouse receipts system, the

increased liquidity as market transactions raise, over time evolving to futures trading, means
that the thinness of markets lessens, and the market can be expected to allow the transfer of
risk from market factors such as farmers to those who are keen to absorb risk, such as
speculators.

2.3. The purpose of commodity exchanges

The purpose of a commodity exchange is to provide an organized marketplace in which

members can freely buy and sell various commodities in which they have an interest/sake.
The exchange itself does not operate for profit. It is just providing the facilities and ground
rules for its members to trade in commodity futures and spots and for non-members also to
trade by dealing through a member broker and paying a brokerage commission (Lerner,
2000).

The purposes served by a commodities exchange depend in part on the nature of the specific
contracts that are traded. Just by centralizing trade in a commodity an exchange can facilitate

12
title transfer, price discovery and market transparency. Transaction costs are decreased
because coordination through a centralized exchange can decrease costs associated with
identifying the market outlets, physically inspecting of the product quality, and finding
purchaser or sellers. By decreasing transactions costs and enhancing information flows an
exchange can improve returns to market agents while reducing short term price variability and
spatial price dispersion. Such contracts command little capacity to address inter annual price
uncertainty. More sophisticated contracts allowing exchange in futures can enable further risk
management, but such contracts require a well-developed exchange and cannot address
maintain spot prices in bounds that might be desired.

Trading contracts for future delivery, commodity exchanges can assist strengthen market
liquidity, increase profit, improve price discovery and facilitate price risk management
(Leuthold, Junkus, and Cordier, 1989). According to Rashidet al. (2010), an exchange can
improve liquidity because a futures contract is a fungible financial instrument which buyers
and sellers are willing to hold and exchange. While futures contracts efficiently remove price
level risk, they do not eliminate the risk. Instead they replace price risk with basis risk, where
the basis is the difference between the spot market and futures market prices. Unexpected
shifts in the basis can result in losses or gains, and the degree of basis risk can highly
influence the effectiveness of the exchange in risk management.

As explained byRashid et al. (2010), providing the services of a commodity exchange is

expensive. The costs include physical investments inwarehousing, operational space and
communications as well as operational costs involved in screening participants and enforcing
contracts. Moreover, an exchange typically must provide clearinghouse services which allow
buying and selling the commodities traded at the stated prices with limited fear of default for
participants. These services disclose the exchange to both working capital costs and risk. For
an exchange to succeed its services must be adequately valued by users that they are willing
to pay fees to cover these costs

According to Rashid et al. (2010), market failures, including inadequacies in physical

infrastructure, asymmetry in information, inadequate supporting legal and financial
institutions can all impede the formation of futures exchanges.

13
2.4. Functions and benefits of commodity exchanges

A well organized and managed commodity exchange market has the following benefits. An
exchange reduces transaction costs by facilitating contact between buyers and sellers and
enables centralized grading of products ensuring that contracts are enforceable. According to
Gabre-Madhin&Goggin (2005), a commodity exchange provides mechanism for price
discovery which simplifies transactions with standard contracts and transmits information
about a volume and prices. An exchange provides a mechanism for increasing market
liquidity, enabling transfer of price risk and creates trust, order, profit and integrity in the
market.

Functions Possible benefits arising

Price Discovery More efficient price

formation

Price risk Management Effective transfer of price

risk

The Commodity Investment Venue Improved investment

Futures Environment

exchange Generates accurate &

Facilitation of Physical trade transparent
Spot reference prices

Facilitation of Financing Enable bank lending and

other methods

Market Development Education and capacity-

building

Figure 2.1:: Exchange functions and benefits

Source: UNCTAD, 2009

A Commodity Exchange is fundamentally designed to provide service and add value to all
market players. It adds value to the market by addressing two types of risk namely contract
performance risk and the risk of contract default on physical delivery or payment. Market risk
is the risk of adverse unforeseen price movements or changes in supply and demand in the
future (Paul, 2011).

14
2.5. Contribution of Commodity Exchange for Agricultural Development

Agricultural commodity futures are market-based instruments for managing risks and they
help in orderly establishment of efficient agricultural commercialization. Future markets are
important to hedge commodity price risks. It also serves as a low cost, highly efficient and
transparent mechanism for discovering prices in the future by providing a forum for
exchanging information about supply and demand conditions. The hedging and price
discovery purposes of future markets promote more efficient production, market storage and
agro-processing operations, and help in the enhancement of overall agricultural marketing
performance (UNCTAD, 2008). The basic purpose of a futures contract is to provide price-
change protection.

Commodity exchange can also play an important role in empowering the farmers, the buyers,
and traders. As a result, they are able to perform efficient agriculture marketing system. This
service provides relevant and timely marketing information and a transparent and competitive
market price discovery mechanism for the buyers and the sellers (Koranchelian, 2005).
Additionally, it can be used as a basis for comparison of the price of a commodity with the
prices within different countries market (Paul, 2011).

2.6. Conditions Enabling the Development of a Commodity Exchange

According to Rashid et al. (2010), there are three broad categories of conditions that allow the
development of a commodities exchange. 1st, the commodities to be traded on the exchange
must have certain physical and market characteristics. Lack of such commodities leaves an
exchange irrelevant in a country. 2nd, given appropriate commodities, the contracts traded in
the exchange must be appropriate to the economic conditions. Failure to properly specify
contracts will make an exchange unattractive to potential users. Lastly, given apt commodity
and contract features, an exchange requires to be supported by a facilitating market and
market and policy environment

As explained by Rashid et al. (2010), commodity exchanges have historically developed

under private initiative, but they require supportive public policies. The main function of an
exchange can be achieved only if a country has adequate infrastructure, a sound

15
macroeconomic and financial environment, efficient flow of information, rule of law and
effective contract enforcement. Additionally, public policy supports commodity exchange
development by refraining from controlling commodity markets and by allowing producer
organizations and other entities to emerge as intermediaries between farmers and exchange.

2.6.1. Physical Infrastructure

Communications and transportation infrastructure is critical to a functioning exchange. First,

trade at a futures exchange requires a communications network that can provide traders with
spot market information in order to estimate the basis. A commodity exchange also requires to
be supported by a reliable system for distribution and transportation, so that delivery location
can be clearly specified in the contract. Furthermore, the transactions costs must be constant
enough for traders to evaluate the spread between the spot and futures contract price.

Infrastructure must not only support the exchange, but it must also connect various spot
markets if the exchange is to function. The physical and communications infrastructure will
ensure information on product quantity, quality, form, and price in all relevant markets is
available across various spot markets. In the non-existence of this information, price
discovery in the spot markets may be erratic and price risk will not be manageable in a futures
exchange. According to Rashid et al. (2010), countries with successful exchanges have far
more developed communications and/or transportation infrastructure than other. Public
investment in both transportation and information infrastructure may be needed for the
development of a successful commodity exchange in countries where they do not exist.

2.6.2. Legal and regulatory infrastructure

A commodity exchange must be supported by appropriate legal infrastructure, particularly (i)

a system of grades and standards, (ii) a reliable system of contract enforcement, and (iii)
governance in spot markets. In most of the African cereals markets such a system of standards
and grades is not likely to evolve without government participation. However, the real
challenge in African markets will not be the development of grades but the enforcement of
contracts that use them (Rashid et al., 2010). The legal system must ensure a regulatory
system and contract enforcement must ensure that warehouses do not issue multiple receipts

16
for a single lot. For futures contracts, player must have confidence that contracts will be
recognized by the legal system and that contract obligations will be enforced.

2.6.3. Commercial and Financial Sectors Development

According to Rashid et al. (2010), a limited financial sector with few commercial agents will
have a reduced capacity to support a futures exchange. For an exchange to function
successfully there must be an adequate number of potential hedgers and speculators in the
economy. These individuals must understand risk-taking and trading and must have financial
capacity. Moreover, an exchange must have access to a clearing house with sufficient capital
to serve as a guarantor of all transactions. These requirements mean a generally well-
functioning financial sector. Available indicators suggest that financial sectors in most
countries in Africa including Ethiopia are either shallow or constrained by repressive
regulations.

2.7. A Brief Overview of the Ethiopia Commodity Exchange

Agriculture is the backbone of Ethiopia’s economy. To make millions of Ethiopians out of
poverty requires a fundamental change in the way agriculture is done. Substance agriculture
economy should be replaced with technology-driven and market-oriented production.

As Ethiopia is ready to transform its agricultural economy, so too must Ethiopia’s marketing
system take the country into the new millennium. It is time to go into the modern age of
globally connected trading systems, depending on technology and knowhow, while adapted to
Ethiopia’s realities and conditions. It is time to create a new partnership between the private
and the public in the new arena created by market liberalization (Mesay, 2007).

The Ethiopian Commodity Exchange is designed to be a marketplace where buyers and sellers
meet to trade, assured of quality, quantity, delivery and payment. It will control a system of
daily clearing and settling of contracts. It will improve market efficiency by operating a
trading system where buyers and sellers use standardized contracts. Market transparency will
be accomplished by distributing market information in real time to all market players (ECX,
2008).

17
The Ethiopia Commodity Exchange (the “Exchange”) is established by the Ethiopia
Commodity Exchange Proclamation No.550/2007 as one of the basic ingredients to transform
the country’s agriculture to market oriented production system.

As per its establishing proclamation, the Exchange is created to accomplish the following
purposes:

To create an efficient, transparent, and orderly marketing system that serves the needs
ofsellers, buyers and intermediaries, and that promotes increased market participation
of Ethiopian small scale producers;
To give a centralized trading mechanism in which offers to sell and bids to buy are
coordinated through a physical trading floor with open outcry bidding or an electronic
order matching system or both;
To provide automated back office operations to record, monitor, and publicly
disseminate information on Exchange transactions;
To offer standardized grade-specific contracts as the basis of Exchange trading;
To perform trading on the basis of product grade certificates and guaranteed
warehouse receipts;
To clear and settle all transactions performed on the Exchange to minimize default
risk;
To provide/render/ a mechanism for dispute resolution through arbitration to the
members
To provide real timely market information to the public;
To perform market surveillance to ensure the integrity of the members and of the
market; and
To prevent the occurrence of contingent risk to the market through implementing risk
management by employing proper management mechanism.

To effectively perform the above purposes, the Exchange is established as a demutualized

corporate entity with clear separation of ownership, membership and management. Thus,
although the Exchange is wholly owned by state of Ethiopia, it has an autonomous and

18
professional management that shall be neither related to the ownership of the Exchange by
government nor to the Membership of the Exchange.

The Exchange has members that have been recognized as Exchange Actors by the Ethiopia
Commodity Exchange Authority and who have the right to trade only for their own account or
either for their own account or the account of clients. At a sale of membership seat in ECX,
any person who fulfills necessary requirements set under the Rules of the Exchange and other
pertinent laws can acquire membership of the Exchange that shall, among other things, confer
a right to trade at the Exchange.

The Ethiopia commodity exchange has a Board of Directors, Chief Executive Officer, who
shall, among other things, organize, direct and administer the Exchange, and the necessary
officers and staff.

The composition of Board of Directors, which oversees the management of the Exchange, is
designed to keep a healthy balance of owner and member interests. Thus, it is composed of 11
members, of whom 6, including the chairperson, are representatives nominated by the owner
and 5 are elected by the members of the Exchange.

The Exchange has created a marketplace, where sellers and buyers come together to trade,
assured of quality, quantity, delivery and payment, by implementing its establishing
proclamation, the rules of the Exchange and other pertinent laws that governs its day to day
operations (ECX newspaper, 2011).

2.8. Operation of the Commodity Exchange in Ethiopia

The Ethiopia Commodity Exchange started live trading on April 24th 2008. ECX provides a
market place where buyers and sellers can come together to trade and be assured of
quality,payment anddelivery. The vision of Ethiopia commodity exchange is to transform the
Ethiopian economy by becoming a global commodity market of choice. Ethiopia commodity
exchange’s mission is to connect all buyers and sellers in reliable, efficient and transparent
market by harnessing innovation and technology, and based up on continuous learning,
fairness, and dedication/commitment/ to excellence. Ethiopia commodity exchange will

19
manage a system of daily clearing and settling of contracts. ECX will enhance market
efficiency by operating a trading system where buyers and sellers use standardized contracts.
Market transparency will be accomplished by disseminating market information in real time
to all market players (ECX, 2008). The exchange is a private-public undertaking with capital
investment from its main promoter, the Ethiopia government, and membership seats privately
owned by trading and intermediary members. The Exchange is jointly regulated by private –
public Board of Directors and managed professionally by an internationally recruited team.

The Ethiopian Commodity Exchange Authority (ECEA) is controlled by the Ministry of

Agriculture and Rural Development. It was established by a capital budget amounting to 194
million US dollar financed by the government and donor agencies and its head office is
located in Addis Ababa. ECX has a board of directors of 11 members, 6 members including
the chairman are appointed by Ministry of Agriculture and Rural Development and the rest
are selected by members (Paul, 2011).

2.8.1. Membership

ECX members are the core actors of the Exchange. Only ECX members can trade on the
exchange which means that nonmembers use the services of a member to conduct trading. A
membership seat is a permanent and transferable right to trade on the Exchange. Members can
be any individual, public enterprise, company or cooperative that meets the membership
requirements.

Owners of membership seats, or Members, are required to follow in the article 4.6 of the
Rules of the Ethiopia commodity Exchange and thus maintain the integrity of the ECX
marketplace. Members are responsible for the transactions they conduct through ECX.
Members are those who use the market regularly and frequently either as producers,
intermediaries, or buyers. As to the composition of members, 99% is from private sector and
12% of the membership is owned by cooperatives representing more than 250,000 farmers
(Gabre-Madhin, 2009). ECX offers two types of membership:

 Full Members, whose membership seat is permanent, freely transferable, and who can
trade in any commodity in the exchange.

20
  Limited Members produced/created/ to accommodate smaller actor, whose
membership seat is limited to one year, to one commodity, and to one position (either
buy only or sell only).

For each type of member, there are two classes of membership:

 Trading Member (TM) trades only his or her own account

 Intermediary Member (IM) trades either on his or her own account or on behalf of
Clients

According to the law of ECX they are eligible for commission of 0.5% up to 2% payments for
the task they perform from their clients of limited trading and trading members respectively.

2.8.2. Criteria for membership

In order to be a member in Ethiopian commodity exchange one has to fulfill requirements. As

to the financial requirements, audited financial statement by an authority-approved auditor,
net worth of 500,000.00 Ethiopian Birr (ETB) and 1,000,000.00 ETB for trading and
intermediate members respectively, capable to pay membership seat price of 50,000.00 ETB
and 5,000.00 ETB annual membership maintenance fee after one year. Furthermore, provision
of refundable security deposit of 200,000 ETB for trading, 300,000 ETB for intermediate,
50,000 ETB for limited trading member and 100,000 ETB for limited intermediary trading
members in ECX Settlement Guarantee Fund for the duration of membership. Limited
member is expected to pay annual fee of 5,000 ETB. The financial requirements are necessary
to ensure that all trade through the ECX can be paid for and that payments are cleared
immediately. Additional requirements include the recognition by the ECX Authority as an
Exchange Actor. ECX members should have a tax registration and maintenance of tax
clearance according to Ethiopian law, where applicable. For different entities like (individual,
cooperative, private limited company, public enterprise) there are different requirements.
Members are necessary to successfully complete an Authority-approved Ethiopia commodity
exchange Certification examination. Lastly, a personal interview with the Exchange, and in
case of Share Company, with all authorized signatories is applied (Paul, 2011).

21
2.8.3. Rights and Duties of Commodity exchange members

Members have the right to transfer their membership, to trade in the Ethiopia commodity
exchange, and participate in the Board of the Commodity Exchange. They are responsible to
pay net payment directly through the market, able to open bank account in a recognized bank
by the Ethiopia commodity exchange, and keep the proclamation, rules and directives of ECX
authority (Paul, 2011).

2.8.4. Integrated Physical Delivery Management

ECX offers an integrated Physical Delivery Management System from the receipt of
commodities on the basis of industry accepted grades and standards for each traded
commodity by type to the ultimate delivery. The commodities are deposited in warehouses
operated by Ethiopia commodity exchange in major surplus regions of the country. The ECX
warehouse is where commodities are sampled, weighed, and graded. The deposited
commodities are stored using global standards of Inventory Management which is based on
first-in-first-out rules/principles/, rotation, and careful environmental control. The Ethiopia
commodity exchange inventory management system guarantees the quality and quantity of
the commodity throughout the pre-determined period of storage. Further, warehouses are
insured at maximum coverage to protect against loss and damage of deposits.

At the warehouse, deposited commodities are issued an electronic goods received note, which
is electronically transmitted to the ECX central depository, where the electronic warehouse
receipt is created and securely maintained. The central depository possesses a central
automated registry of warehouse receipts of the whole depositors, similar to any asset-holding
account, which can be debited in decrements when sales are made on the ECX trading floor.
This system avoids the risk of fake or loss of paper receipts, gives flexibility in selling partial
amounts of the deposited commodity, and raises the efficiency of physical delivery. At sale,
the Ethiopia commodity exchange central depository debits the seller’s account and
automatically transfers title of the commodity to the buyer and issues a delivery notice, on the
basis of which the commodity can be issued to the buyer. Ethiopia commodity exchange
experts regularly conduct surveillance on market trends as well as conduct audit and

22
investigations on market operations to protect the market from manipulation,fraud, excessive
speculation, or other misconduct (Paul, 2011).

2.8.5. Trading and Contracts

ECX offers standardized trading contracts in white and mixed maize, processed and
unprocessed haricot beans, hard and soft wheat,coffee andsesame. The Ethiopia commodity
exchange trading system initially start as a physical trading floor located in Addis Ababa and
now transition to an electronic trading platform over time. The trading floor has been using
“open outcry” price bidding where all interested sellers and buyers verbally negotiate
simultaneously during trading hours. Trading is conducted for each commodity class based on
the grade given for the specific class of commodity by the commodity exchange warehouses
like; Soft Wheat grade 2, White Maize Grade 1, etc. The transaction orders for sales and
purchases are transmitted to ECX members using telephone and recorded on order tickets.
Once an order is performed, meaning a deal is made; the order ticket is electronically entered
and reconciled in the Ethiopia commodity exchange automated back office system to make
sure the existence and validity of the warehouse receipt backing the sale, the availability of
buyer funds in a deposit account, and the validity of the member-client agreement. This
automated reconciliation takes just minutes and is key to giving all market actors/participants/
confidence in the market.

To date ECX undertakes contracts for both spot and future contract trading. The presence of
standardized contracts on the ECX Trading Floor eliminates the costs and risks associated
with contract negotiation. It specifies the grade, payment terms, lot size, price quotation
(currency and unit), dispute settlement, tolerance and other parameters for any commodity.
Thus seller and buyers only have to agree on the quantity and price.

ECX contracts are designed to enable a broad reach of the market to small and large players
alike. The standard lot size of an ECX contract is 50 quintals or 5 tons for all commodities,
tailored to current situations of small truck transport in rural Ethiopia. Ethiopia commodity
exchange contracts are designed to create a national marketplace where all buyers and sellers
meet to determine the national reference price. Thus, all Ethiopia commodity exchange
contracts are quoted as “arrived Addis Ababa” and a location differential is applied (based on

23
the transport tariff from Addis Ababa to the delivery location) at the settlement of the
transaction depending on the actual location of the physical commodity at delivery. Ethiopia
commodity exchange frequently updates the transport differential and makes this information
known in advance (Paul, 2011).

2.8.6. Clearing and Settlement

In order to eliminate risks of contract defaults in the exchange, all payments have been
cleared and settled in the market through Ethiopia commodity exchange internal clearing
house. This means that it takes the role of receiving payments for all transactions from buyers
and transferring these funds to all sellers of the commodities, and receiving all Warehouse
Receipts from all sellers of commodities and transferring them to all buyers.

The Ethiopia commodity exchange Clearing House works closely with the central depository
and with Ethiopia commodity exchange approved settlement banks. Ethiopia commodity
exchangedemands that all members maintain both a pay-in and a pay-out account in these
banks where Ethiopia commodity exchange also maintains a settlement account. At the end of
every trading day, the Ethiopia commodity exchange clearing House calculates the net
obligations of all its active members to determine whether funds need to be transferred from
the members’ pay-in account to the Ethiopia commodity exchange settlement account or vice-
versa to the members’ pay-out account. All pay-in transfers to Ethiopia commodity exchange
are made on the same day as the transaction and all payout transfers are made on the
following morning. Likewise, all transfers of warehouse receipt to the buyer are made by the
central depository the following day after pay-in has been made to the seller (Paul, 2011).

2.8.7. Market Information Dissemination

One of the benefits of Ethiopia commodity exchange in transforming an age old traditional
agricultural marketing is through providing reliable, accurate and timely data on a continuous
basis to all market players. ECX uses the might of modern information and communication
technologies to create access to market information to all its actors including the general
public. The Exchange uses rural based Market Information Tickers, mobile phone Short
Messaging Service (SMS), Interactive Voice Response (IVR) service, Mass media (TV,

24
Radio, and Newspaper) and Website to disseminate market information. Market information
on commodity prices in different markets and commodity offer to sell and bids to buy, and
others are collected, processed, updated and disseminated to market actors.

2.8.8. Risk management

Despite the reduction in risk involved in its operation due to the use of spot exchange than a
futures exchange, ECX goes beyond risk avoidance to identifying and managing an
acceptable level of risk. The exchange, within its domain, manages different types of risks
like: operational risk, credit risks, liquidity risks, and reputation and image risks. In order to
maintain integrity of the price discovery process and to safeguard the quality of the market,
the exchange has a market surveillance team that detects and prevents market manipulation
practices, insider trading and misstatements (false information to mislead the public).

2.8.9. Compliance

The formulation and enforcement of the Rules of the Exchange and other laws that affect
theExchange’s operation are mandated to the Compliance Division. To this end, the division
hasfour units with specific responsibilities: The Rules and Regulations Unit, the Compliance
Monitoring and Investigation Unit, Discipline and Enforcement Unit and the Arbitration
Tribunal.

2.9. Empirical Evidence Literature

Price of Commodities
Undeniably, the fact about demand and supply works in the price formation. Price of the
commodity is influenced by different factors. The major once are, cost of production,
demandof the product and supply. Other factors as psychological sensitivity, elasticity, social
impact of the consumer towards the product, degree of the product at which it is transformed
or valueadded and finally the economic standard of the people or nation who come across
trading andconsuming of the product contribute whether to accept a level of price attached to
the commodity in question.

25
When we look in to the commodities traded at ECX, transaction cost matter a lot. The oil
seeds and coffee transaction chain are generally very high. The reasons can be listed as
follows.
1. The chain that connects the farmer, collector, broker in a repeated manner extends the
duration it takes the commodity to ECX.
2. Information deficiency, what price and quantity prevails in the market for the product.
3. The producers and other actors negotiating on contractual agreements on price, purity,
quantity, delivery time, etc.

Other than the factors determining prices formation, world prices determine prices for export
products. Ethiopia has to compete with many similar product suppliers. This is another huge
task to consider while participating in the international market. Each link in the process has
cost which reduces the share of previous link in the chain.

Contrary to the existing situation in Ethiopia, (Seifu, 2004) writes, “The price of oilseeds at
farm gate will be the end result. Low world market prices will result in very low farm prices.”
This is not so currently. The research will give more emphasis in its last chapters on this issue.
(Wijnands, Biersteker, Hiel and Schuttelar& Partners 2007)

PRODUCTION

Ethiopian Sesame - Production and Potential

Due to its importance as a major export commodity the area coverage and production has
increased in the last consecutive years. There is an enormous potential to expand sesame
seedproduction in Ethiopia through cultivation of additional new land.

The government is enhancing the investment in the oilseeds sector with an extended package
of incentives. Hence with the transfer of technology and the provision of inputs, the increment
of production and yield will be achieved strongly. Availability of Virgin fertile new areas
whichcan be cultivated on large scale plus cheap and abundant labor is the key indicators of
the future potential. (EPOSPEA 2015) The Oilseeds sector production has shown significant
increment since the 2010/11 year of production.

26
Though Sesame Production has shown remarkable increment in the 2010/11 year of
production and slight decrement since from that year

According to data of CSA the production of year 2012/2013 has a record of -25.9 % of
the pervious production year.

Sesame production in Ethiopia

Farmers engaged in producing sesame are highly dependent on the income from the
commodity. (USAID, 2010). This crop is not for local consumption. More than 95% of the
whole production is meant for export. (Jennie 2010). Currently, Ethiopia stands fourth place
among the top five countries that produce sesame. World total sesame production reaches
about three million tones and steadily growing. (USAID, 2012). Ethiopia’s share covers
8.18% of the total world production (FAOSTAT, 2012).

Next to coffee, sesame seed is the second largest agricultural export revenue source for
Ethiopia. This has contributed a lot to the farmers for their living. (CSA, 2011). According
toCentral Statistics report of 2011, 763,893 small holder farmers were engaged in
sesameproduction in the year of 2010/2011. In year 2011/2012, the number increased to
893,883private peasants. This can be concluded as that the sector can involve even more
small holdersin the future which are possible to link them with domestic and international
markets. (CSA,2011)

Ethiopia produces different variety of sesame of which Gondar, Humera, Metema and
Wollegaare the major once. The first three mentioned are used for bakery, confectionary and
cosmetics whileWollega type is well known for its high oil content, (50%-54%) which gives
is a superior competitive advantage to be used as edible oil production (USAID, 2010).
Sesame seed is an important export crop in Ethiopia which has made the country play the
export role in the worldmarket other than coffee, leather and Chat. Ethiopia is the third world
exporter of the crop after India and Sudan (Alemu and W. Meijerink, 2010). In this regard, in
the last few 18 years, sesame production and marketing has confirmed highly significant
growth. In 1997, the total area under sesame production was about 64,000 ha (Aysheshm,
2007).

27
In 2010/2011 cropping season, the total area under sesame production reaches 384,682
hectares and about 327,740.92 ton of sesame seed has produced in the country (CSA, 2011).

Despite, these trends in2011/2012 production year sesame production and area under its
cultivation hasdeclined by about 25.31% and 12.26% respectively, compared to the preceding
year.

Accordingly, only 337,505.41 hectare of land has cultivated under its production and only
about 2,447,833.59 quintal of output was produced, (CSA, 2012). This indicates that not only
the size of land allocated to sesame and its production volume was decreased, but also the
crop yield too decreased from 8.52 quintal/hectare in 2010/2011 to 7.25 quintal/hectare in
2011/2012, by about 14.9% (CSA, 2012). (Geremew2012)

 The Oilseeds sector production has shown significant increment since the 2010/11
yearof production.
 Though Sesame Production has shown remarkable increment in the 2010/11 year
ofproduction and slight decrement later since from that year
 According to data of CSA the production of year 2012/2013 has a record of -25.9 %
of the pervious production year

28
 CHAPTER 3: RESEARCH METHODOLOGY
This chapter provides the methodology employed for conducting the current study. The
chapter addresses data type and source, research design and strategy, sample size,
sampling design & procedure, method of data collection &instrumentation, data
processing & methods of data analysis and anticipated ethical issue.

3.1. Research Strategy and Design

This study employed survey strategy. Choosing this design helped the researcher to collect
relevant data from the target population. Both qualitative and quantitative approaches were
used to assess the marketing mix practice and challenges in ECX. This study was descriptive
in nature hence; it intended to describe the marketing mix practice and challenges of ECX.
Moreover, this study was cross sectional survey design. According to Zikmund (2000), a
cross sectional survey design is the type of survey design in which necessary data is collected
at one point in time from particular set of population. This research design was utilized
because of resource and time limitation to undertake longitudinal survey.

3.2. Data Type and Source

This study employed both quantitative and qualitative types of data that obtained from
primary and secondary data sources. The reason being, the researcher gathered and analyzed
qualitative primary and secondary data to complement & elaborate the quantitative type of
data.

To generate valuable and relevant data, the researcher was depending on both primary and
secondary sources of data. The primary source of data was collected through a questionnaire.
In addition to this, for background discussion and theoretical explanation, the researcher
depended on secondary source of data. Secondary sources of data were obtained from ECX,
ECX reports, ECX newspapers, ECX magazines.

3.3. Population and Sampling Techniques

Population is the total group of people or entities from which information is required (Tustin
et al., 2005). The population on marketing of sesame (oil seeds) is so large that it is difficult to
include all for the purpose of information gathering. The population consists of all those who

29
are engaged in the production, distribution, middle men, exporters and stake holders of the
business.

For populations that are large, (Godden, 2004) developed the Equation to yield a
representative sample proportions. The following sample size formula for infinite population
is used to arrive at a representative number of respondents (Godden, 2004):

Where:
SS= Sample Size for infinite population

Z = Z value (95% confidence level)

P = population proportion (expressed as decimal) (assumed to be 0.5 (50%) since this would
provide the maximum sample size).

M = Margin of Error at 7% (0.07)

The researcher preferred 7% margin error because the population is so large that if smaller
percentage for error in the formula is selected, the larger the sample size will be. That would
bedifficult to distribute and collect response within the given frame of time

This being the fact, from the said large population relevant to the study, the total number
ofsample representatives for the various members of the population as per the formula set
above is196. The breakdown of the total into the different actors of the business activity is
depicted below.

30
Table 3 1: Sample Breakdown

Source: The researcher, 2017

One hundred ninety-six members of the infinite population are selected as per the formula to
calculate sample size provided their accessibility for communication in order to distribute the
questionnaire. From the total sample thirty of the organizations which are directly or
indirectly related to the marketing procedures are selected for interview. These are from
public and private banks, MOT, MOA, ECX, and ERCA, Inspection agencies, shipping
agents and forwarders. Marketing, as has been looked from different academician’s outlook is
shown in Chapter two of this research. Components of the marketing mix, according to Kotler
were Price, product, promotion and place. McCarthy in holistic marketing included, people,
process, programs and performance (Kotler and Keller, 2012). With these in mind, the
research has attempted to individually consider points of marketing problems in relevant
format to the problem statement shown in chapter one.

Procedures of Data Collection

The research uses structured interview and questionnaire for collection of primary data.
Questionnaires were availed to those actors directly involved in the marketing process. It is
obvious that the research won’t be able to get all concerned since the number of members in
the marketing of oil seeds is so large and widely spread in all directions of the country. It is
costly to cover the whole universe directly connected to the oil seeds transaction. The
universe is so wide and large.

The best place to meet with most actors except the stakeholders and the farmers is at the
ECXtrade floor. Brokers, exporters, ECX staff, some cooperatives representatives, sellers and
buyers in general do not miss the procedures at the ECX trade floor. Summary of the
transaction for the day is available from ECX website.

31
The researcher prepared questions which are open ended to the respondents both in the
questionnaire and structured interview for precise and direct reply. The questions were not of
a guiding type but open with options to choose from which the analyst think are relevant and
important for the study. Explanation and elaboration together with personal observation on the
questions provided were requested from respondents during the interview in particular. The
sample size is as per the formula stated by Cochran (1963:75) for infinite population as
discussed in sample size determination formula.

Secondary data is abundantly available for the research too. The researcher intends to fill the
gap of information from primary data from literatures, articles, timely bulletins, previous
research works of scholars and leaves the remaining to futures research works by those
interested to the issue. Research is not one-time work or something which can be concluded
overnight. It is continuous business.

Primary data is collected from actors involved in the marketing of sesame seed. It is shown
that structured interview questions and questionnaire are distributed to the group and
individuals who are in the vicinity of the research area. That is, those who can be accessed
easily with minimum effort and cost. The target population as shown in the above body of the
research is all participants in the sesame business activity.

A. Farmers and cooperatives – These enable us to get information regarding the

production of the crop, an answer to the supply part of the market. Quality, quantity, time
to avail the seed at the trading floor or for the use of buyers from exporters is determined
when and how these groups can make it available. In marketing sesame, most complaint
arises from quality and time of shipment. Disturbances and conflict between the importer
of the seed and the exporter basically begins here. In the case for which this research is
prepared, end user of the crop will be the external buyer since domestic consumption of
the seed in the local area is so insignificant. Price for the crop is estimated and put into
action by farmers with some information they gather from ECX and also from brokers.
This price does not put the selling price of exporters into consideration. Information
related to how price is formulated can be gathered from the farmers and cooperatives for
the purpose of the analysis.

32
B. Brokers or agents – These people are the intermediaries between the producer
(farmer)and the exporter who sells to buyers abroad or to the international market. They
charge fees for their fees for acting between the two. Bringing the producer and the
supplier together earns them some money which gives a rise to the selling price of the
seed at the ECX trading floor. Even though the base price for the crop is the farmer’s
production cost which the farmer does not know in figures, additional mark-up is
included by the agents as well. Most farmers and agents only run for more money on top
of the level ECX has announced as the last transaction price. Usually ECX has regulation
that the next day’s price will be lower than or higher than by plus or minus 5% of the
previous day’s level. That does not hold true for farmers or agents offer.

C. Ethiopia Commodity Exchange – This is the organization that was established for the
good of commodity exchange. Causes for the establishment are shown in chapter one
and two of this research paper. The loss the farmer used to face because of luck of
information, the timely payments to middle men and farmers and market knowledge gap
were some of the reasons ECX was there for. It is unfortunately, there still exists a wide
gap as the establishment study neglects the exporters in large. Marketing of commodities
take place at ECX trade floor. Well-organized data base releases quantity, grade, price
and actors involved in the transaction every day to all on the internet on the company
website. It has gone far enough in disseminating information to interested group through
mobiles, mass media, and the web for the good of those who have utilized what they got
at hand easily while the exporter is found to be the victim

D. Exporters – The major role players who are equally important with the farmers to the
ongoing economic activity are this group. They are financially strong but highly
dependent on financial institutions. Most trade activities of exporters are run with bank
loans which bear a large amount of interest. Exporters expect profit from their
transaction. They watch the market moves closely. Many have lost the game and were
evicted from the market already while some are still struggling to survive. Members of
this group are rich in information over all the marketing process beginning from the
farm gate to the sea port.

33
E. MOA, MOT, ERCA, Chamber of commerce, Inspection agencies, and freight
transporters are also active participants in the market of oil seeds. None of them work
without collecting service charge from exporters. They are stakeholders. Even though
their share in the activity is limited, they have a lot to say about the market.

F. NBE, CBE, EIC and other private financial institutes. All are under the category of
financial institutions except that the NBE is a regulatory body for them. Marketing of all
export items is closely controlled with these organizations. They have a lot to say on this
issue as every step of the transaction passes within the range of their services.

G. Regional Administrators have some knowledge of oil seeds marketing. According to

facts compiled in Chapter two, Ethiopia consumes less than 10% of sesame produced in
the nation. Because of this, local transaction is so limited. But in production areas where
the crop is produced, the administrative region has sufficient information on production
and marketed quantity

3.4. Data Collection and Instrument

In social science there are a lot of data gathering techniques: questionnaire, interview, focus
group discussion, observation method etc. In this study, the researcher used both structured
questionnaire and unstructured interview methods of data collection. The questionnaire was
used because it has the advantage of participating large respondents over other data gathering
techniques; it limits inconsistency and also saves time. In addition, gathering data by using
interview is very important to supplement the information gathered thorough questionnaires.
The questionnaires and interview questions were designed in English language. The
researcher was selected 3 data collectors to effectively collect data from the potential
respondents through questionnaires and appropriate training was given for the enumerators.

The following procedure was pursued to administer questionnaire to respondents. First, the
researcher and data collectors approached potential respondents to ask their cooperation in
filling the questionnaire and explained the purpose of collecting data, how the questionnaire
will be filled and the confidentiality of to be obtained information. Then, the questionnaires
were distributed and respondents were asked to furnish information honestly and return the
filled up questionnaire.

34
Pilot test of the questionnaire was carried out in Addis Ababa (Ethiopia commodity exchange)
and the Feedback obtained from the pilot test was incorporated in the questionnaire.

The data collection was held according to the time table and 196 questionnaires were
distributed to the potential respondents. Out of the total questionnaire, 175 (89%)
questionnaires were returned and considered for analysis.

3.5. Data Processing and Methods of Data Analysis

The data collected using structured questionnaire were edited, coded and analyzed with great
care. Both in-house and field editing was undertaken to detect errors that had been committed
by respondents during completing the questionnaires. The coding of the possible alternatives
in the questionnaire was made in advance of administering the questionnaire to the target
respondents.

The qualitative method of data analysis was employed for the analysis of data that were
collected through personal interviews. Data collected through questionnaires were analyzed
quantitatively by utilizing statistical tools such as tabulation, bar charts, and pie charts to
present data. In addition, descriptive statistics such as, frequency and percentage were used to
analyze and interpret data. After data had been presented and analyzed, conclusion and
recommendations were drawn from the findings.

35
 CHAPTER4: RESULTSAND DISCUSSION
This chapter deals with the presentation, analysis and interpretation of the data gathered from
sesame business society against the research questions. These data were obtained through
questionnaire and interview. The sample size as been calculated is based on the formula
shown in 3.2.1. The total sample sized reached at was 196. Questionnaires were distributed to
all 196.The number of respondents was 175. Of these 175, some have not replied to all
questions.

The researcher has chosen to reach the most accessible actors of the trade society to attain the
sample figure. All the actors in the sample were conscious about the marketing situation of
sesame in the country. Questions left without being answered were only those which seemed
irrelevant to the respondent. The farmers were not in a position to answer questions on
international trade while the exporters had no idea about how much the agent collects from
the farmer. Likewise, questions far beyond the ability of the respondents were left blank.

Interview questions were forwarded to those typically concerned and thought to have answers
at hand about a situation and public organization members were contacted for the answers.
Far away living farmers were not either neglected for information need to make this research
reliable. Thanks to communication technology, it was not difficult to find a farmer or an agent
living away from Addis as long as one can get phone number or email or social media ID.

All in all, the rate of return for the questionnaire was 89%. That means out of 196
questionnaire papers distributed, 175 have been received responded. The 11% failure was
actually because that it was difficult to go through and remind as most of the questionnaire
papers were handed to supporters for distribution since some of the sample members were
away from Addis Ababa where the researcher was living.

Other reason for not responding to the questionnaire could be because that most were engaged
in to their daily business activities and forgot to reply. It should be noted that the practice of
questionnaire answering is not well exercised around most areas. Most think that it is a waste
of time while it really is not. Others do not want to get into giving information they know
since they think that they are exposing someone or even think that they could put themselves
in jeopardy.

36
4.1. Result/Finding of the Study
4.1.1. General Characteristics of the Respondents

The following table shows the demographic characteristics of respondents which include sex,
age distribution and educational background level. The impacts of general characteristics are
aimed to be part of the questioner as there is a lot of influence to the subject matter from these
elements.

Table 4.1: Characteristics of the Respondents

Characteristics Respondents Total

Variable
category/Item Number Percent Number Percent
Sex Male 138 79 175 100
Female 37 21
Age 20-28 Year 36 20 175 100
29-38 Year 44 25
39-49 Year 45 26
Above 49 Year 50 29
EducationBackground Primary 36 21 175 100
Secondary 34 19
Diploma 51 29
First Degree 42 24
Masters & above 12 7
Experience Less than one year 30 17 175 100
In the 1-5 years 35 20
business 6-10 years 55 31
field 11-15 years 30 17
More than 15 years 25 14
Actors Farmers/Cooperatives 38 22 175 100
Exporters 48 27
Brokers 44 25
Financial Institutions 16 9
Public organizations 11 6
Private organizations 7 4
Exporters’ Association 3 2
ECX 8 5
Source: Own Survey, 2017

37
As shown above in table 4.1, out of 175 respondents selected, 108 or (62%) of them were
Male while the remaining 67 or (38%) of them were Female. This clearly indicates that the
bigger portion of respondents were male. Regarding item 2 of the same table above, 36 or
(20%) of them lie between the age range of 20- 28 years, 44 or (25%) of them under the age
limit of 29-38. This shows 45% of the respondents are young and Forty-Five (26%) of them
are between 39 &49. This are groups with in the middle age. The remaining 50 or (29%) are
above 49 years of age. The group is of middle and older age. This group is assumed to be
experienced and knowledgeable.

With regard to educational background of the respondents, as shown in item 3, Thirty-six or

(21%) of them have completed primary school, that is from grade 1-8, 34 or (19%) of them
have completed grades 9-12. 51 or (29%) of the remaining respondents are diploma graduates,
42 or (24%) of them are first degree holders and the rest 12 or (7%) have post graduate
degrees and above. This shows that most respondents are graduates with diploma.

Experience of the respondents in the field was the fourth variable that was considered for
evaluation. As can be seen in the table above, 30 or 17% of the sample had an experience of
less than a year. This could be in the field of farming, broker, exporting, or other activities in
the trade mentioned above. 35 or 20% of the respondents had been in the sesame production
or trade activities between one and five years. Those respondents who stayed in the field for a
time of six to 10 years are 55 in numbers constituting 31% of the sample. 30 or 17% stayed in
the business for a time of 11 to 15 years. Finally, the number of respondents who had the
biggest experience in the transaction is 25 or 14%. The time is more than 16 years.

There are eight major actors in the sesame marketing system. Of the 175 respondents selected
from the total population, participants in the questionnaires are partitioned as follows.
Farmers and cooperatives contribute 22% or 38 in number. 48 or 27% of the total sample size
are exporters. 44 or 25% of the respondents are brokers. 16 respondents or 9% are from
financial institutions like banks, insurance and national bank. Public organizations from
MOA, MOT, FIRA and others participation is 11 or 6% while the respondents from private
organizations like quality inspection agencies, pest control, transporters and service renders
are 7 or got 4% share. Respondents from EPOSPEA, the exporters Association were 3 or 2%

38
of the sample size. The last but not least respondents are from ECX who were 8 or 5% of the
sample.

In the marketing setup of sesame, it is difficult to segregate any of the mentioned actors as
they all contribute a lot at certain levels. The researcher has given equal attention expecting
something from each of them. A move from any one of the participants in the marketing
system affects the outcome somehow. It is the sum total of all actions from every direction at
a certain time of point that either inflates or suppresses price of the crop. Government policy,
social rules, economic policies, moral rules, individual interests alter the trade direction and
transaction frequency.

4.2. Analysis of Finding of the Study

4.2.1. Responses on Price Related Questionnaires

The research attempted to treat the four Ps of marketing mix expecting individual contribution
of each mix to the problem statement of the analysis. From responses to the questionnaire on
marketing mix the researcher has collected the following points which were important to find
out indicative answers to the marketing problem in question.

 When asked if farm gate price of sesame was reasonable (not exaggerated) more
thanhalf of respondents agreed in general to the point while nearly equal but lower by
somepoints disagreed to the forwarded statement. Whatever the outcome to the question
was,most have said that farm gate price is not exaggerated. We shall discuss this further
inthe coming chapter.

 The second question on price was about demand and supply influence on sesame pricein
Ethiopia. Surprisingly, about 68% of the respondents agreed that the local price doesnot
follow the economic terminology of demand and supply. 28% did not accept
thisstatement. Less than 3% remained neutral.

 The question about price being the base for change in demand and production was
wellaccepted by 91% of the sample size. The remaining was neutral and none disagreed.

39
  100% of the respondents accepted that every activity in the transaction affects
priceformation or price level.

 The response to all actors being responsible for poor price to sesame in the country
wasreplied as disagreed at different degree summing up to 60%. 35.43% agreed to be
sowhile only 4 abstained.

 A little more than 50% of the sample agreed that the exporters are conscious of
externalprice being low and still buys at disproportional high price locally. About 40%
disagreedto the statement. 8.57% remained neutral.

 53% of the sample asked to reply that farmers and agents do not have any idea
oninternational price agreed so. The remaining portion which was about 47% did not
agreebut showed that both actors do know about external price.

 68% of the respondents in general agreed that the local price of sesame is not
followingthe international price. A little higher than 22% disagreed and 8.57% did not
commenton this point.

Table 4.2: Response on Price

Strongly Strongly
No. Questions Agree Neutral Disagree Total%
Agree Disagree
Price
1 The farm gate price is reasonable 34.29 20 0 40 5.71 100
(Not exaggerated).
2 Sesame price in Ethiopia does 31.43 37.14 2.86 22.86 5.71 100
notfollow the rule of demand and
supply.
3 Price is the foundation for the 88.57 2.86 8.57 0 0 100
changein demand and production
volume
4 Every activity in the sesame 97.71 2.29 0 0 0 100
transaction seriously affects
priceformation
5 All actors in the transaction from 20 15.43 4 42.86 17.71 100
thefarm gate to the port,
contribute to thepoor pricing

40
 Strongly Strongly
No. Questions Agree Neutral Disagree Total%
Agree Disagree
method
6 The exporter knows that the 21.71 28.57 8.57 18.29 22.86 100
externalprice is down and still
buys the seed athigher
inappropriate price locally.
7 The farmers and agents do not 27.43 25.71 0 21.15 25.71 100
havesufficient knowledge about
worldsesame market.
8 Local sesame price does not 44.00 24.57 8.57 0 22.86 100
follow theinternational market
trend. It moves onits own line
Average 45.64 19.57 4.07 18.15 12.57 100
Source: Own Survey, 2017

4.2.2. Responses on Product Related Questionnaires

 The question about supply (production volume) depending only on the interest of
thefarmers were agreed by more than 86% and the remaining were neutral. Referee
Table 4.2

 The higher the return the farmer gets, the better will be production. This statement
wasfully agreed but only 1.14 did not say anything.

 Local and export prices were affected by supply question was responded as agreed
anddisagreed equally. Both sides took the idea of supply affecting price while 2.86% of
therespondents abstained from accepting both alternatives.

 When asked if the move of sesame from the farmers to the end user, exporter in
theEthiopian case is a civilized one as compared to the pre ECX days, all with
differentdegree agreed fully.

 The idea that ECX by passed other factors that contribute to supply increase
andemphasized only the supply of price information was again fully agreed. 2.86% did
notcomment on this point.

41
  ECX’s objective to increase production of sesame by backing up the farmers
withreliable information was an accepted strategy for supply increment. This statement
wasgenerally agreed by 85% and the other 15% were neutral.

Table 4.3: Response on Product

Strongly Strongly Disagree

No. Questions Agree Neutral Total%
Agree Disagree
1 Supply (production volume) 54.29 32.57 13.14 0 0 100
dependsonly on the interest of the
farmers
2 The higher the return the farmer 98.86 0 1.14 0 0 100
gets,the better will be production
3 Supply does affect local and 25.71 22.86 2.86 25.71 22.86 100
exportprice of sesame seed in Ethiopia
4 Nowadays, the move of sesame 57.14 42.86 0 0 0 100
from
the farmers to the end user,
exporter inthe Ethiopian case is a
civilized one ascompared to the pre
ECX days.
5 ECX by passed the idea of other 50.28 46.86 2.86 0 0 100
factors that contribute to
supplyincrease and emphasized only
the
6 ECX’s objective to increase 45.71 40.00 14.29 0 0 100
production of sesame by backing
up
the farmers with reliable
informationwas an accepted
strategy for supply?increment.
Average 55.33 30.86 5.72 4.29 3.81 100
Source: Own Survey, 2017

4.2.3. Responses on Promotion Related Questionnaires

 Promotion of the seed in any way possible could have brought a better return. A
littlehigher than 74% agreed and accepted this point while about 25% disagreed as a
whole.

42
  31% of the respondents agreed to the statement “We need promotion only for
valueadded products. Natural sesame seed does not need so.” 68% and few more did
notagree to this point.

 The country could earn more if the crop was processed and promoted for export.45%and
42% of the sample agreed and disagreed consecutively on this point and 13% to
thenearest stayed neutral.

 57% of the respondents agreed that promotion of the crop can change the
marketingcondition of sesame seeds. But 43% did not agree to this point.

Table 4.4: Response on Promotion

No. Questions Strongly Strongly

Agree Neutral Disagree Total%
Agree Disagree
1 Promotion of the seed in any way 48.57 25.71 0 11.43 14.29 100
possible could have brought a
betterreturn
2 We need promotion only for value 20.00 11.43 0 37.14 31.43 100
added products. Natural sesame
seeddoes not need so
3 Ethiopia could have earned more 32.00 13.14 12.57 21.71 20.58 100
thanthe price for raw seed if the
crop wasprocessed and promoted.
4 Promotion of the crop can change 29.71 28.57 0 16.57 25.15 100
themarketing condition of sesame
seeds
Average 32.57 19.71 3.14 21.71 22.86 100
Source: Own Survey, 2017

4.2.4. Responses on Place Related Questionnaires

 Sesame is cheaper externally than the local market is agreed by 34% and rejected
by45% while the remaining 18% did not comment for either side.

 43% of the questionnaire participant sided for the statement that was put as “The
needfor Ethiopian sesame is higher in the international market. That is why it is well
paidfor” the other 57% did not agree to this point. None remained neutral.

43
  All actors have clear idea about the sesame quality. This was agreed generally by
77%,disagreed by 20% and 3% were neutral.

 54% agreed that China buys most of Ethiopian sesame seed because China knows
thequality well. 46% did not accept this idea.

 46% of the participants agreed and 49% did not agree that sesame regardless of
areaproduced is improving both in quality and quantity. 5% are neutral.

Table 4.5: Response on Place

Strongly Strongly
No. Questions Agree Neutral Disagree Total%
Agree Disagree
1 Sesame is cheaper externally than 7.43 26.29 18.29 22.29 25.70 100
thelocal market.
2 The need for Ethiopian sesame 20.00 22.86 0 40.00 17.14 100
ishigher in the international
market.That is why it is well paid for.
3 All actors have clear idea about 40.00 37.14 2.86 14.29 5.71 100
thesesame quality produced
anywhere.
4 China buys most of Ethiopian 31.43 22.86 0 28.57 17.14 100
sesameseed. That is because China
knows thequality well.
5 Currently, sesame seed 31.43 14.86 5.14 33.14 15.43 100
producedeverywhere is improving
both involume and quality.
Average 26.06 24.80 5.26 27.66 16.22 100
Source: Own Survey, 2017

4.2.5. Responses on General Question about marketing of sesame related

questionnaires

 The comment if ECX’s contribution to the business is positive with regard to

itsobjective was accepted by 56.57% while 36% did not agree. 7.43% stayed neutral.

 The situation where there are exporters working as local suppliers via their agentslocally
37.71% did not buy the idea and 25.15 disagreed. Surprisingly, the majority37.14% did
not want to say anything on this issue.

44
  74.28% of the respondents generally agreed that exporters manipulate sesame
marketprice and 20.58 strongly disagreed. The neutrals were 5.14%.

 The objective of ECX did not support the interest of exporters. This was agreed
by51.42%, 33.72% disagreed in general. 14.86% were neutral.

 63.43% commented that marketing of sesame being affected by the existence of

manyactors. 17.14% did not accept to this statement. 19.43% neither accepted nor
disagreed.
 54.28% of respondents generally agreed to the situation where ECX collects
sesamefrom farmers and avails for sell at its floor. 29.72% disagreed and 16%
remainedneutral.
 62.85% of the participants positively commented that free market concept affects
pricecontrol of sesame. 31.44% disagreed to this point and the remaining 5.71% were
neutral.
Table 4.6: Response on General question about sesame

Strongly Strongly
No. Questions Agree Neutral Disagree Total%
Agree Disagree
24 ECX’s contribution to the 28.00 28.57 7.43 6.29 29.71 100
business ispositive with regard to its
objective
25 There are exporters working as 16.57 21.14 37.14 12.00 13.15 100
localsuppliers via their agents
locally.
26 Sesame price is mostly 45.71 28.57 5.14 20.58 0 100
manipulated byExporters in the
market.
27 The objective of ECX has 36.00 15.42 14.86 14.86 18.86 100
notsupported the interest of exporters
28 Marketing of the crop is 40.57 22.86 19.43 4.57 12.57 100
affectedbecause there are many
actorsinvolved.
29 It is better if ECX collects the 37.14 17.14 16.00 12.57 17.15 100
cropfrom farmers and avails for
sell at itstrade floor.
30 Free market concept has affected 45.71 17.14 5.71 11.44 20.00 100

45
 pricecontrol of sesame
Average 35.67 21.55 15.10 11.76 15.92 100
Source: Own Survey, 2017

4.3. Interpretation and Discussion

Most replies were forwarded from participants in their own level of understanding. Some
were skeptical in their way of answering. They might have thought that their feelings could be
revealed to whoever is concerned about it. Some points in the questionnaires were more of
technical and all respondents were not expected to answer them. Economics related questions
or specialized discipline points raised may not be so easy for everyone to accept or reject.
Therefore, in the analysis of the questionnaire the researcher has noticed that replies to
sensitive issues were deliberately responded as neutral or checked irrelevant choices from the
alternatives left to them. An understanding has been gathered that neutral was in most places
meant to replace “I do not know” or I do not care. Even during an interview with actors of the
transaction were made, some politely requested for skipping to comment on sensitive
questions or issues. The researcher expected more from those who were directly involved in
the trade activities of sesame. The outcome was not satisfactory since members of the sample
either did not have the idea what the questionnaire is about or just wanted to avoid the issue.
(Refer to Table 4.2)

Let us go back to the first chapter and recall the research questions:
 What were the challenges faced by ECX in the ongoing functions of the organization?
 What are the ways of price control for the product?
 Who benefits from the daily market price information posted?
 Is there any activity to promote the commodity?
 What is to be done so that ECX can achieve its objectives?
 What should be done to control transportation charges?

Challenges of ECX with respect to price were not significant. Responses from the participants
did not indicate any clear problem as being raised by ECX. Local price control being subject
tithe interest of actors like farmers, agents, suppliers, and exporters was the one of the main
issue to the marketing mix practice and challenge. It has been the regular exercise of ECX to

46
see that the trade floor price change margins are kept. Plus, or minus is only allowed at a level
of 5% up or down based on previous day’s transaction price of a product at ECX(ECX, 2009).
Everyone in the business knows that ECX has got not interference to price changes but is
limited to control so that the daily changes are within the given dimensions. Whatever change
is realized at the ECX trade floor, it is up to the buyer and seller including the brokers.
Therefore, it is the action of the actors within the business that allows any positive or negative
consequence to the business activity. Again we can observe that exchanges outside ECX have
always been the main problem of marketing. One can ask the determinants of price at farm
gate level, brokers’ level and suppliers’ level until the crop enters the ECX exchange process.
These are the indicator to ECX initial base price of any product exchanged at ECX. Sesame is
regularly availed at ECX warehouse and ready for exchange at the trade floor as long as
production of the season is harvested and transported to the place. There was no need for
promotional activities as the seed is well known and profitable in the country. With regard to
distribution, the other major problem source is transportation. Charges for this service not
stable. Owners or associations change their prices for transportation as they wish and ECX
and export price is highly affected as a result of this.

The ethics of the business allows transparent information exchange internationally. It is a pity
that this act has affected the exporters adversely. All the actors who are engaged in the
business process until the seed comes to ECX for exchange benefit from the daily transaction
price report. It helps them follow the path and adjust their price since they are the one who fix
the base price. The surprising thing about the posted price is that foreign importers of the
crops which are exchanged in ECX benefit a lot. They get reliable price information that
enables them to negotiate export price towards their own end. The responses from the
questionnaires have indicated that farmers, agents, suppliers and public organizations showed
that the daily price update has benefited them. Exporters did not accept this idea while they
think the procedure is right but should be done in a way that it also enables them to benefit.
Late hour posting of price updates may help exporters negotiate export prices better. This
solution may give them the upper hand to strongly bargain over their product’s exchange
price. The better the export price is, the better the amount of foreign currency the country
gets.

47
The role of ECX in this trading activity is well accepted by most of the sample
representatives. Objectives of ECX were understood and the establishment was also
something longed for. Unfortunately, except some most privileged groups, some did not like
the establishment of this organization. Again we will bring up some of the then existing
problems which ECX was aimed to resolve.

a) High contract default

b) Unreliable supply
c) Volatile prices
d) Poor quality
e) Unreliable trading practices
f) Poor information
g) Unregulated actors
h) Uncoordinated markets
i) High costs, high risks (ECX, 2008)

Contract default was highly improved, no question about this. The unreliability of supply has
not been changed much. Still the farmer and suppliers speculate the market and drain the
stock which was to be exchanged at the ECX. The farmers, brokers and suppliers follow the
price path only when it is rising and keep it down when the trend begins to follow waiting for
increase. Price volatility could not be regulated. ECX managed to do so only at it is own
capacity. Farmers’, agents’ and suppliers’ level were beyond the control of ECX. This level
makes the base price and does affect the exporters’ price. The respondents confirmed that
ECX has never involved in quality control. The complicated corruption activity has hindered
the organization from accomplishing what it is meant for. Some have responded that the
current situation is better with regard to corruption. But the quality point should have gone
down to farm. If this was the objective of ECX, partial concern over quality is not acceptable.
Even though this organization was able to control quality at some degree while the seed is
within the range of its control, the effect is not big enough to promote the crop for export.
Some including exporters firmly debate that ECX should have advised or worked together
with someone responsible about quality, like MOA.

48
Unreliable trading practices can be said that it has been achieved by ECX according to the
responses from the sample representatives. The release of updated price information to only
limited actors is fine. How about information needed by exporters? The sector includes all
actors who deserve equal attention from ECX. Exporters are even further affected adversely
by the posting of updated crop prices. Importers of the crop get information directly from
ECX website and use the information to control over price negotiation. Late posting may
help, as some respondents of the questionnaires reflected. They raised a point about exporters
having an upper hand over the price negotiation if the information is released a little late than
the usual known release time.

Unregulated actors and uncoordinated market should not have been brought up together as an
objective to ECX. The question of unregulated actors is suspected to be the major source of
problem. If this could be rechecked and a solution can be found, the whole problem may be
resolved potentially. The objective of coordinating the market can be said achieved at the
current level of understanding.

High cost and high risk conditions may be treated separately. For high cost, the respondents
reacted as being aggravated rather than being solved. High risk as problem to be settled did
not either works for ECX. Cost of sesame export never came down since the establishment of
ECX. It showed an increase since 2008. Actually, though price of the product was increasing
a proportionate rise of export price was realized for some time which was followed by a sharp
increase in domestic price and a decline in export price.

In general, the researcher observed that ECX has worked out most of its objectives while
there are more to be attained or revised. Therefore, the practice and challenge in the marketing
mix with respect to sesame, is being attempted by ECX progressively. Some objectives should
be seen and revised. Exporters think that they are neglected because they are victims of price
increase.

49
 CHAPTER 5:SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS
This chapter comprises of four sections, which include summary of findings, conclusions,
limitations of the study and recommendations.
 Summary of findings will be drawn from the results discussed under chapter four.
 Conclusions will be drawn from the summary of findings
 Any limitations that could have effect on the conclusions will be specified.
 It will be shown that recommendations are practical.

5.1. Summary
It is shown in the previous chapters that sesame is locally consumed rarely. Since export of
the crop has been realized about ten years ago, almost all production of the seed is sent to the
otherworld to gain foreign currency for the country. Sesame is used as confectionary, bread
spread, medicine and oil. Most countries all over the world with limited consumption rate to
USA utilize the crop in different ways. China together with the Far East countries and the
Middle East consume most while EU nations also make their food from sesame.

The research covered the marketing mixes, price, product, place and promotion parts in order
to find out where the marketing problem could be. The secondary data obtained from the
sample population was analyzed against the facts from the primary data. Articles, research
works and books on sesame marketing processes were the basis for this work. The researcher
being one of the members of the actors as an exporter participant had understood that there
are problems in marketing this product. The problems are difficult to find where their sources
are. This research work is aimed that it could identify some of the problems and also let others
to work and find out more effectively by using this as a ground.

Responses on questionnaires and reply to interview questions gathered were more of

contradictory ones. Respondents were skeptical in attempting the questionnaire. Most did not
feel responsible while giving their comments. If the statement forwarded is against the interest
of the respondent, the response is brought up on the opposite direction. For example, a reply
to a comment about farm gate price not being exaggerated was positive for exporters and

50
negative for farmers and brokers. Some common questions which neither affected any of the
respondents were replied reasonably.

The responses from the questionnaire participants cannot be ignored as useless. The research
has gathered some facts and indications that there are marketing problems. The following
points summarized from the questionnaire have got something to say about the statement of
the problem.

 Even though, the point about price being exaggerated at farm gate is attempted
differently, it is implied that this price has affected the overall exchange transaction
because it is beyond the control of none of the actors but only the farmers.
 Sesame price in Ethiopia is not influenced by the economic theory that states price is
affected by demand and supply of the product.
 It is truly identified that price is the basis for demand and supply of sesame.
 All actors involved in the transaction of sesame trade get some profit from their
activity. That is the mark up on previous price of the crop keeps on increasing the
price of the seed as the number of participants in this field increase.
 Some actors look for profit higher than their contribution, rather exaggerated which in
turn affects the final exporters price for the foreign importer.
 Exporters involve in the market with full knowledge but yet complain about losses.
 ECX has modernized sesame marketing.
 All respondents replied from their own advantage point of view.
 Free market policy has encouraged every actor to move his own way.

5.2. Conclusion
The research reached to a conclusion that sesame being the second foreign currency earner,
should be given due attention as the path it is following currently is dangerous. International
price and local price are not reconciled. Whichever direction international price is moving;the
local or domestic price takes its own way. It is observed that exporters who loose on sesame
transaction have got a compensating import business. This does not help the nation’s balance
of trade.

51
A loss on incoming currency and indirectly another loss due to payments in foreigncurrency
have enabled the economy to get closed with negative balance of trade.It is clear that the
farmer as a producer is interested to produce more if he gets a better return. With help of
technology and ECX, all information the farmer needs are there for him. The quantity sold
and prevailing price of the period is posted or can be requested and gathered by the farmer
easily. That is all what the farmers need provided a favorable weather condition and
consistent market for their product. The researcher understood that the farmers of the
agents(brokers) do not have much concern or idea about what is going on externally. They
rather talk of unrealistic price status in order that their stock is sold to exporters.

Quality of sesame has deteriorated due to extensive use of the soil. The farmers are aware that
sesame price is showing an upward tendency every time. Crop rotation concept is neglected
and the farm is forced to produce only that crop which can be sold for a better price. Scientific
farming methods are ignored. This is also another setback of the marketing problem which is
prevailing in the country.

The unity of the idea of domestic market relying on external market has lost its connection.
This is so because the establishment of ECX did not consider the exporters’ activity in the
sesame marketing system. All that was focused was the “poor” farmer who never got correct
information and was selling his crop for price that he does not deserve. Whom does the farmer
sell? This was a question which was overlooked. The other question is, are all information
with regard to sesame market or other crops sold in ECX floor, given due care that they pass
on to the needy properly? Again here it has been gathered that information from the source
are mostly incorrectly transmitted so that the other party is misled.

Other stake holders with in the sesame transaction activity know a lot about the price flow
internally and externally, but never advise the agents accordingly. MOT imposes regulation
that exporter sell their stock without delay so that the country gets its foreign currency. The
financial institutes push the exporters to increase the number of the turnover so that they get
better interest from their advances. Transportation charges are other costs which is highly
affecting the cost of sesame every time at each level. Service charges from ECX, MOA,

52
MOT, ERCA, inspection agencies, and fumigators, associations, chamber of commerce and
others related to, this business affect the price of sesame negatively. These groups understand
the international and domestic market situation but do not support but always think that there
is good money from the business and hence are heavily charged.

Therefore, the above being some of the results gathered from the analysis, the researcher
recommends the following as a long run remedy to the sesame marketing problem existing
currently.

5.3. Limitation
The researcher’s need for reliable responses from the sample population selected was limited.
Responses from questionnaires and interview participants were not genuinely forwarded. The
subject being vast requires these elements in order to make the reliability margin acceptable.
It is unfortunate that the resources to facilitate the research were not as required. Other
limitations were relevant studies, articles, and books for the research work. The researcher
believes that the fulfillment of the above could have minimized the error margin.

5.4. Recommendation
 The big number or actors in the business has affected the price of sesame adversely.
Every group requires an extra charge on top of the price they acquire the crop. This,
from social economy point of view is positive. But from National point of view, it
prohibits the exporter from active participation in the world sesame transaction.

 If the above point is not working in order to let all participants gain from the activity,
then the researcher recommends the state to subsidize the business like other countries
like India giving 5% to this business.

 Extra charges at all levels of the transaction should be reduced. ECX warehouse
charges, transportation charges, regional duty charges, and bank interest from private
banks which is more than 3% above the level CBE interest level are some of them.

 Farmers must be taught to use crop rotation for a better future production.

53
  Revision of on government policy is expected for a healthy export business. There is a
committee in support of the export sector with members from higher government
officials. It is unfortunate that, even though these groups are meeting regularly for the
good of the sector, the marketing problem of sesame has never changed.

 Introduction of promotion for the crop is indispensable. Worldwide promotional work

in order to introduce the product will be beneficial.

 Focus on commitment to fulfill a contract and supply of quality crop can make the
greatest change in the market. Defaulting contract from both party’s side is become a
culture in the business society of oilseeds and pulses. This happen when there is a
change in price for the product. Unless illegal actions as such are improved, it will
damage the image of the nation and put future business relationship at risk. We need
to work hard to remove the already spoiled name of the business.

Finally, this paper is not complete at its current stage. It is not exhaustive to clearly indicate
all the marketing problems of sesame in Ethiopia. The researcher rather hopes that others will
make this paper a base for better findings and solutions.

54
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 APPENDICES
Table A1Export performance of Sesame Seed at National Level (2010/11- 2012/13)

Exported Amount in Tone

Year of
No
Export July August Sept Oct. Nov Dec. Jan Feb March April May June Total
1 2010/11 15,929 19,441 6,284 4,599 3,551 15,557.2 21,074 39,322 23,366 13,468 33,281 22,234 218,106
2 2011/12 36,204.3 11,871.5 11,716.4 8,087.8 8,203.8 28,885.7 46,054.6 50,052 43,175.6 32,826.0 30,809 23,183.1 331,070
3 2012/13 9,136 16,175.5 7,243 5,342 20,857.8 32,543.8 23,682.8 32,687.2 19,487 20,712 19,230 15,608 222,704

Source: EPOSPEA, report on Sesame production situation & market trend of Ethiopia, 2013

i
 Appendix A
Alpha University College
School of Graduate studies
Department of Business Administration (MBA)
Questionnaire filled by Financial Institution, Exporter, Agents, Public
Organization, Farmers/Cooperatives, Ecx, Export Association, Supplier
Dear Respondents:
My name is AbuyeGedefa, I am studying Masters of Business Administration in Alpha
University College; I am carrying out a study on “marketing mix practices and challenges in
Ethiopia Commodity Exchange with special reference to Sesame: the case of Ethiopian
commodity exchange”, as partial fulfillment of my MBA degree. The outcome of the study
will be used in order to suggest possible solutions for problems identified while conducting
the study. I kindly request you to spent your precious time to fill the questionnaire as frank as
and reasonable as possible. I inform you that, the information you provide will be consumed
for academic purpose only. The information you provide is confidential. Therefore, you all
not expected to write your name.
Thank you in advance for your cooperation.
If you have any query, please don’t hesitate to contact me.
AbuyeGedefa: Candidate of MBA
Cell Phone: +2519-20-50-26-66
Email: abuye.alpha@gmail.com
Section one: (Demographic information).
Please put “X” in the box
A. Gender: - Male ☐ Female ☐
B. Age: - < 25 ☐ 25-35 ☐ 36-50 ☐>50 ☐
C. Education: - Primary☐ Secondary ☐ Diploma ☐ BA Degree ☐ Masters and
above ☐
D. Occupation: - Financial Institution ☐ Exporter ☐ Agents ☐ Public Organization
☐ Farmers/Cooperatives ☐Ecx☐ ExportAssociation ☐ Supplier ☐
Section Two: Questionnaire on Marketing Mix
The following set of statements describes your general feelings towards marketing mix please
put “X” on the answer inside the box.
Clarification on numbers from 1-5
 1-Represent strongly disagree,
 2- represent disagree
 3- represent Neutral,
 4- represent agree,
 5-represent strongly agree

ii
 1. Price

1 2 3 4 5
The farm gate price is reasonable (Not exaggerated).
Price is the foundation for the change in demand and production volume.
Every activity in the sesame transaction seriously affects price formation.
All actors in the transaction from the farm gate to the port, all contribute to
the poor pricing method.
The exporter knows that the external price is down and still buys the seed at
higher inappropriate price.
The farmers and agents do not have sufficient knowledge about world sesame
market.
. Local sesame price does not follow the international market trend. It is by
itself.
Sesame price in Ethiopia does not follow the rule of demand and supply

2. Product

1 2 3 4 5
Supply (production volume) depends only on the interest of the farmers.
. Supply does affect local and export price of sesame seed in Ethiopia.
Nowadays, the move of sesame from the farmers to the end user, exporter in the
Ethiopian case is a civilized one as compared to the pre ECX days.
ECX by passed the idea of other factors that contribute to supply increase and
emphasized only the supply of price information.
ECX’s objective to increase production of sesame by backing up the farmers
with reliable information was an accepted strategy for supply increment.
The higher the return the farmer gets, the better will be production.

3. Promotion
1 2 3 4 5
Promotion of the seed in any way possible could have brought a better return.
Ethiopia could have earned more than the price for raw seed if the crop was
processed
Promotion of the crop can change the marketing condition of sesame seeds.
We need promotion only for value added product. Natural sesame seed does not
need so.

iii
 4. Place
1 2 3 4 5
Sesame is cheaper externally than the local market.
The need for Ethiopian sesame is higher in the international market. That is
why it is well paid for.
Sesame is not consumed much locally. Most supply is for export. And yet all
actors know which has a better or lower quality.
China buys most of the Ethiopian sesame seed. That is because it is only
China who consumes this crop well in the world.
Current production of sesame seed is improving both in volume and quality.

Section Three General Issue

1 2 3 4 5
ECX’s contribution to the business is positive with regard to its objective.
There are exporters working as local suppliers via their agents locally.
The objective of ECX has not supported the interest of exporters.
Marketing of the crop is affected because there are many actors involved.
It is better if ECX collects sesame stock from farmers and avail for
transaction at its floor. (This is to reduce the extra charges from the middle
men)
Free market concept has affected price control of sesame.
Sesame price is mostly manipulated by Exporters in the market.

iv
Appendix B
Alpha University College
School of Graduate studies
Department of Business Administration (MBA)
Interview Questions for Management of Ethiopian Commodity Exchange and Exporter

The interview has been designed to seek information purely for academic purposes. The main
purpose of the study is to conduct a thesis on the topic. Marketing mix practices and
challenges in Ethiopia Commodity Exchange with special reference to Sesame: In the case of
Ethiopian commodity exchange. Thus as a manager of the company. It’s hoped that the
success of the study depends on the information you provide.

1. Is it possible to say that there are problems in sesame (oil seeds) marketing in Ethiopia?
2. Is the sesame export business profitable? Why?
3. Who owns the major marketing role in Ethiopia?
4. Do you think farmers will keep on getting more income from sesame sales indefinitely?
5. If the objective of high income for farmers is true, and on the other side the exporter is
notable to export the crop because of external price decline, will sesame production
increase? Why?
6. If ECX could manage the stock from the farmers, the extra charge to middle men
whichinflates the crop’s price at ECX would decrease and hence an increase in
participation at theinternational market. Do you agree with this statement?
7. 7. What are the major reasons which could be problems to the marketing of sesame?
8. 8. Marketing involves price, place, promotion and product. Which one affects marketing
as awhole in Ethiopian sesame market?
9. 9. Do you think sesame export business is profitable? If not, why are there many
exporters?
10. How much will be the contribution of transport cost to the total cost of export?
11. Is it possible that Ethiopia Commodity Exchange can meet the requirements parties
involvedin the marketing of the commodities?
12. Which most affects the sesame marketing in the Ethiopian case? Supply, demand,
foreigncurrency rate, other countries exporters, local agents, the government policy,
financialinstitutions, public organizations, and or etc…
13. When do you think such negative profit earning will stop in the sesame business? And
how?
14. What is the reason that exporters offer high prices locally while export prices are so low?

Thank You