KENYA AGRICULTURAL

COMMODITY EXCHANGE

The Kenya Agricultural Commodity

Exchange Limited: Linking Farmers to
Markets
By
A. Mukhebi and J. Kundu

A Presentation at the Workshop on Improving the Functioning of

Commodity Markets in Eastern and Southern Africa through
Warehouse Receipts Systems and Market-based Interventions
Taj Pamodzi Hotel
Sep 30th – Oct 2nd, 2009
Lusaka ZAmbia

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COMMODITY EXCHANGE

• What is KACE?
• What have we done and why?
• What has succeeded and why?
• What has not succeeded and why?
• What Lessons have we learned?
• What impact has KACE had?
• What challenges has KACE faced?
• What is KACE’s future strategy?

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KENYA AGRICULTURAL
COMMODITY EXCHANGE

The Kenya Agricultural Commodity Exchange

Limited (KACE), a private sector firm, was
launched in 1997 to:
Š Provide the services of an agricultural
commodity exchange in Kenya following
market liberalization policy reforms: price
discovery, improve market
transparency/efficiency, increase liquidity in
commodity markets, link farmers to input
and output markets more profitably, etc.
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 KENYA AGRICULTURAL
COMMODITY EXCHANGE

What?
Developed a market information and linkage system with private-
public sector approach (users pay for services) that:
Š Provides timely market information: commodity prices, offers
and bids (at modest charges)
Š Links farmers to input and output markets through matching
(often bulked) offers and bids (at modest commissions)
System components:
Š Rural based Market Resource Centres (MRCs)
Š Mobile Phone Short Messaging Service (SMS)
Š Interactive Voice Response (IVR) service
Š Internet based database system
Š Radio: National and rural FM
Š KACE Hub
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COMMODITY EXCHANGE

Why?
Necessary and sufficient conditions for a typical
commodity exchange operations are weak or absent in
the country:

E.g.:
• A conducive policy environment: market-friendly
• Availability of standardized tradable volumes of
commodities
• A sound infrastructure such as roads and a
telecommunication network
• Availability of sound financial services
• A strong/knowledgeable clientele of exchange players
• A sound network of secure and reliable warehouses
• A sound legal and regulatory framework
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KENYA AGRICULTURAL
COMMODITY EXCHANGE

What?
Š Providing timely market information: daily prices, offers and bids
Š Linking farmers (esp. smallholders) to markets more profitably
Š Evidence of improving market efficiency and integration and farm-
gate/producer prices
Š Revenue generation from services provided for long term financial
sustainability
Why?
Š Bargaining power of farmers for a better price improved: value-
addition
Š Harnessing the power of ICTs for farmer empowerment: mobile
telephony; rural FM radio
Š Reducing market information asymmetry
Š Affordable user charges

www.kacekenya.com
KENYA AGRICULTURAL
COMMODITY EXCHANGE

What?
Š More effective market institutional development:
COMEX; WRS
Š Offering typical services of a commodity exchange:
e.g., centralized price discovery; increasing
liquidity in commodity markets through
collateralized warehouse stocks
Why:
Still evolving necessary and sufficient conditions:
esp. market-friendly policy environment (domestic
& regional)
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 KENYA AGRICULTURAL
COMMODITY EXCHANGE

What Lessons have we learned?

• Market information and linkage innovations besides WRS

and COMEX can improve market efficiency & bargaining
power of smallholder farmers
• Smallholder farmers are willing and able to pay for
services that are value-adding and affordable
• There is increasing demand for additional marketing
services by smallholder farmers, e.g., grading, storage,
transportation, short-term credit (for example to hire
transport to market), and e-services (ICT-based).
• Market information per se in a necessary but not
sufficient condition for poor smallholder farmers to
access better input and output markets: additional
market linkage services & collective marketing required
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COMMODITY EXCHANGE

KACE MILS Lessons Contd.

ƒ ICTs have a critical role to play in enabling
smallholder farmers in remote rural areas to
access input and output markets; however, they
must be affordable
ƒ To be financially self-sustaining market
information services must cover large areas,
connecting commodity surplus and deficit areas,
in domestic, and better still, regional markets

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COMMODITY EXCHANGE

What impact has KACE had?

a) M.Sc. Thesis (2007):
• The proportion of farmers and traders that say their incomes have
increased and their bargaining positions have improved was 75%
farmers and 60% traders.
• Market integration improved for two commodities studied (i.e. maize
and beans)
b) KACE model has been adapted/replicated elsewhere in Africa or
served as a catalyst
c)KACE model as a case study: students/researchers
d) Contributions to agric policy formulation
e) International Recognition: Ashoka Social Entrepreneurship
Fellowship (2005); African Association of Agricultural Economists’
Fellowship (2006)

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COMMODITY EXCHANGE

What challenges has KACE faced?

• Small-scale structure of farmers: supply & offer small

quantities of highly varied quality of products
• ICT illiteracy among smallholder farmers
• Poor/undeveloped ICT infrastructure in rural areas
• Still high ICT costs: mobile phone airtime, SMS and
internet access
• Poor other infrastructure that imposes high transport
costs to markets
• Market-unfriendly government policies (domestic &
regional)
• Limited resource capacity (human & financial) for
scaling up & out of KACE MILS
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COMMODITY EXCHANGE
What are KACE’s future strategies?
• Scaling out MILS to cover more farmers in surplus and deficit
areas in Kenya
• Promoting collective marketing by smallholder farmers: through
bulking of smallholder farm input demand and product supplies
for access to large volume markets and WRS
• Forging partnerships/alliances with other emerging commodity
exchanges in eastern and southern Africa to facilitate regional
agricultural trade
• As a founder member of the EAGC and an association with the
NCPB, promote the establishment of a regional commodity
exchange and a warehouse receipt system in the EAC region

www.kacekenya.com
a) Directors’ capital for start up
b) At various times, financial support from
development partners:
Š AGRA

Š Rockefeller Foundation

Š ACDI/VOCA/USAID

Š CTA
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COMMODITY EXCHANGE

Special Visitor to KACE on July 15, 2007

Dr. Adrian Mukhebi (left) explains KACE’s services to Mr. Kofi Annan: Many
visitors to KACE: domestic, regional, international

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KENYA AGRICULTURAL
COMMODITY EXCHANGE

Thank You!

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SOME KACE PHOTOS
KENYA AGRICULTURAL
COMMODITY EXCHANGE
A Franchised MRC

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KENYA AGRICULTURAL
COMMODITY EXCHANGE

Information received an MRC is displayed on

trading boards and is available every market day
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KENYA AGRICULTURAL
COMMODITY EXCHANGE

Rural Based Market Information Points: MRCs

Chwele MRC Assistant Alex takes Farmers and Traders

through Offers and Bids on the Trading Floor Board

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KENYA AGRICULTURAL
COMMODITY EXCHANGE

Mobile Phone Short Messaging Service

(SMS)

A farmer accesses cattle prices via his mobile phone from

his farm.
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KENYA AGRICULTURAL
COMMODITY EXCHANGE

Farmers Listening to KACE information on

Radio

A group of farmers tune in to Soko Hewani, a virtual

trading floor on a local FM station. www.kacekenya.com