Case Study on The

Ethiopia
Commodity
Exchange
By Group- B
Neenv Raju (1226113106).
Anusha (1226113108).
Harish (1226113118).
Himaja (1226113121).
Sai Anvesh (1226113131).

Introduction
Dr. Eleni Gabre-Madhin, founder and CEO of the Ethiopia Commodity Exchange (ECX).
Elein recalls her market discussion which she had with the farmers, traders and the end buyers.
She remembers one of her first meetings with Abdu Awol in Nekempt, a town in the heart of western
Ethiopias fertile maize belt, in 1996.

Eleni was conducting a survey of 12 grain markets across Ethiopia for her doctoral thesis ,she sat down
on a sack in a corner of Abdus stall and watched him haggling with the farmers who were selling their
few bags of grain and with the rural traders.
Six years later, Eleni was again in Nekempt but as a researcher from the International Food Policy
Research Institute (Washington, DC), which was conducting a national grain and coffee market survey of
45 markets and hundreds of traders.

 She asked Abdu the same question of :

How do he know about prices in far-off markets and where does he sell
the grain which he gets from the
farmers?
His reply was that he had no good way of learning about prices and only
knew traders in Addis Ababa, where all the wholesale traders from
Nekempt sold their grain.
The she wanted to know the reason for not selling their grains where the
price is high and there is a requirement of it.

He then told her about his bad experience he faced in the process of
selling his grains in Mekele, a town in the North.
Listening to this she was shocked and she travelled around the country and
followed the grain from its production to the end where its is sold.
The risk that products would not be delivered in the right quantity and/or
quality was high.

 Eleni found that 67 percent of traders regularly suffered contract

breaches and only four percent had recourse to legal measures to
resolve these disputes.
At the end of 2002, 14 million people in Ethiopia were again facing
starvation.
Eleni was invited to talk at a conference that would address this crisis
and would be attended by the then Prime Minister Meles Zenawi and
other senior officials.
She took this opportunity to share the facts and stories of Ethiopias
markets.

Eleni spoke about the need for formalized trust in the market and an
infrastructure that went beyond the building of roads.
Eleni therefore presented the idea she had had in mind since her
doctoral days for the first time: A commodity exchange as a holistic
platform that would integrate all of these elements.
The exchange that Eleni envisioned would not exclude those with less
education or less capital. It would also strive to balance the interests of
all relevant actors across the public and private sectors

FRAME WORK
Appointed a task force to prepare to launch a commodity exchange
Task force members had explored the best practices in emerging countries
such as china , India and south America.

Eleni, the chair person of task force organized a study tour to visit two rapidly
growing national commodity exchanges in Mumbai, India.
Study tour helped them in understanding the real life exchange in an emerging market
With many challenges
They have also learnt that technology plays important role in accessing
information and markets.
Public and private sector actors to interact openly in terms of common agenda

Physical trading floor

Spot trading

TAKING THE BEST FOR ETHIOPIA EXCHANGE MARKETS

Problem with fully member owned exchange

Problem with investment.

The hybrid model
Non profit based exchange
In mid 2006, task force submitted a report of complete model
There are five financing partners for Ethiopia exchange markets
By 2010 the total funding reached to usd 29 million.

Skills & Corporate Culture -Creating the foundation

for success
Question raised who would operate and manage the exchange?
Eleni weighted the opportunity to go beyond designing and build an operational role.
Eleni developed a new concept for the future management of exchange.
Concept based on earlier management contracts awarded to outside companies and
awareness of Ethiopians working in senior positions around the world.
She believed that the Ethopianization strategy and transition from the international team
could then be achieved within three to five years.

Continued

Lawyers, warehouse and quality experts, IT developers, finance experts, business

professionals, trainers, and communications experts collaborated very enthusiastically.

For 18 months, a team of 17 people drafted, negotiated, and passed two laws to
establish the exchange and its regulator; designed and implemented qualitycontrol and warehouse operations, an electronic warehouse receipts system, a
central depository, a financial clearinghouse, an electronic market data system,
quality standards, and standard trading contracts; recruited and trained members and
regulators; and developed the rules of the exchange and a market surveillance system.
In addition, they decided to develop an in-house suite of IT applications for all
elements and to integrate the IT network infrastructure with all warehouses and
partner banks.

Their objective to include smallholder farmers and small traders, member recruitment was
particularly important.
On the one hand, they strove for a world-class performance level, which implied using quality
standards, standard lot sizes and trading parameters, formal rules and processes, and electronic
operations.

On the other hand, they needed to serve a diverse set of actors, many of whom had not completed high
school, had never used a computer, were not comfortable working in English, and had always functioned
in the informal economy.
On October 10, 2007, in a television broadcast that reached up to 25 million people and surprised the
task force, President Girma Wolde Giorgis announced the establishment of a commodity exchange to
help resolve the markets deep-rooted problems and particularly those of farmers.
Elenis team launched a nationwide advocacy campaign. With the Grow with Us membership
recruitment campaign, they promised to involve small actors and help grow their businesses.

By February 2008, they had recruited 67 of the target 100 founding members of the
exchange, who had each bought a membership seat for the equivalent of USD 5,000
The board then assigned Eleni the position of Chief Executive Officer. The Prime
Minister commented: Eleni was committed to the idea of development in Ethiopia and primarily
to the development of the rural areas. And, second, she was absolutely convinced that the commodity
exchange would play a central role in this development. She had the commitment, the vision, and the
skills to deliver.

In 2008 domestic grain prices spiked by 200% which accelerated

pressure to introduce new commodity with more liquidity
New law replaced Ethiopia coffee legislation and introduced the ECX
in July 2008
Established standards and classification for coffee

ECX was set up as a public private partnership to balance the interest of

its promoters , government of Ethiopia and private traders
Rumours against ECX transparency
Competition between cooperatives and private traders increased price
paid to producers.

Required maintaining a reliable technology system.

Required people to give up century old traditions.

Transparency of the market enabled ECX price to be used as reference price.

Use of market intelligence.

Increase quality and raised standards of products delivered.

Had become a financially sound company with minimal fees of about 2% per transaction

Started designing a system of futures trading to enable price risk management.

Create opportunities for regional coffee index giving East African countries leverage in
International Markets.

Helped various other African countries launch their exchanges.

Task of finding ware house operators and managing human resources huge.

Can the management team succeed in the daily battle to balance private
and public interests, maintain a reliable technology, and make more
progress towards ECXS Aim to involve smallholder farmers?