Commodities Exchange Next Step for Exports

John Mwaniki

25 April 2011

analysis

Nairobi — Technological innovation is transforming the way agricultural development is undertaken today from land preparation, planting, harvesting, processing and packing for the market.

Rural small and medium scale farmers use their mobile phones daily to send SMS to find out information on markets, commodity prices, from their business colleagues regarding the price ranges for specific agricultural products.

The feedback received enables the farmers to make faster decisions in order to optimise their profits and use their time wisely.

Access to business information through ICT is one way of improving or reforming the market system.

Asia has demonstrated it is possible to do what some perceived to be impossible.

For example, Vietnam did not grow coffee in the 1960s, as factors like the climate, the soil conditions, the rainfall pattern, the altitude were against that country.

But through research and development and with government support, the country has been recorded by the International Coffee Organisation as one of the major 10 producers in the world. Among major producers of coffee in Asia are India, Indonesia and Papua New Guinea.

In Latin America the major producers of coffee are Brazil, Mexico, Guatemala, Costa Rica and El Salvador, employing millions of people.

They produce at least 50 per cent of the global coffee export market, which according to the Food and Agricultural Organisation, was estimated to reach seven million metric tonnes by the end of 2010.

Some of the leading coffee producers in Africa are Ethiopia, Uganda and Kenya.

Ethiopia used to produce between 300,000 and 330,000 metric tonnes but its output declined to 207,000 metric tonnes in the 1990s.

The Food and Agricultural Organisation estimated that the Kenyan production of coffee could increase to 88,000 metric tonnes, which is still significantly below the production levels of 136,000 metric tonnes of the 1980s.

Kenyan coffee, rated among the best in the world, is mainly used for branding coffee from various parts of the world.

It can therefore be used in branding the country as a gateway to Africa and an investment destination of choice.

This could attract more foreign direct investments which are valuable in economic development.

We can learn a lot from other countries. Leading coffee producers in selected Asian and Latin American countries have invested heavily in research and development.

They have focused on enhancing the quality of coffee to meet global competitiveness and aspire to exceed customer expectations in terms of quality, efficiency in delivery time and ensuring it has a long shelf life.

They have also transformed the traditional trading platform into that of e-commerce.

They have established electronic trading platforms, which makes it easier and faster for buyers to place bids from any part of the world.

This practice has strengthened the traditional coffee auctioning system.

The electronic trading system can be extended to other commodities.

In Kenya, an international electronic commodity trading platform would include traditional exports like coffee, tea, pyrethrum, sisal, horticultural products, minerals and refined petroleum products.

To do so, parliament would have to establish a policy framework with instruments to ensure that a legal and regulatory framework is in place.

An authority would be established to oversee the trade processes to ensure the auctions are conducted professionally to protect both the buyers (local and international) and the exporters (the coffee producers /farmers) and the participating financial institutions.

Once a sale is concluded, the payment must be made immediately as no commodities can be shipped out or removed from the warehouse before all the necessary payments including the government levies are paid.

This would be another step in carrying out the policy and institutional reforms in the trade sector to make it more competitive, efficient and ensure rewarding profits for the farmers at a time the coffee industry is faced with collapse if no action is taken.

What if the exporter does not deliver the products? In that case the International Chambers and Commerce trade agreements will apply in additional to other legal processes.

The country has reputable shipping, forwarding and clearing agents who have demonstrated their capacity for years in the import and export industry.

But they too will have to keep on improving to keep up with the ever transforming transport industry in line with the global standards.

John Mwaniki is a South-South co-operation trade policy expert based in Southern Africa.

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