The Nairobi Stock Exchange (www.nse.co.ke) has set mid-2010 as the target to launch a commodities exchange. It will be a joint effort by the National Cereals Produce Board (www.ncpb.co.ke), the Kenya Agricultural Commodities Exchange (www.kacekenya.com), Eastern African Grain Council (www.eagc.org) and NSE.
The exchange aims to protect farmers against price turbulence, including seasonal variations in prices for farm produce that diminish earnings and cause tonnes of produce to go to waste. The trading platform will feature futures contracts on commodities, whether in stores or in the fields, so that a farmer can sell his produce ahead, locking in a specific price. Her or his responsibility is then to deliver the produce to the required quality and quantity on time. It also reduces the role of middlemen who buy commodities low during the market gluts often seen in harvest season.
According to a report in Business Daily newspaper (www.businessdailyafrica.com), Dr Adrian Mukhebi, the KACE chairman, says: “The plan is at an advanced stage and the market should open before June this year.” Deloitte & Touche is searching for two senior managers who will act as the link between NCPB and the commodities exchange. This is part of a restructuring proposal for NCPB that splits its commercial wing from the strategic reserve function as well as the establishment of the commodities exchange.
NCPB will use its silos and warehouses to store produce earmarked for trading at the commodities exchange.
“The market will initially trade major grains produced in East Africa, including maize, wheat, rice and beans but will ultimately trade other agricultural commodities, including inputs such as fertilizers and seeds,” said Dr Mukhebi.
The paper also quotes some sceptics, who say the policy framework is not ready and the project is being rushed after the great success of the nextdoor Ethiopian Commodity Exchange (www.ecx.com.et). It cites Mr Daniel Mbithi, the secretary of the Kenya Coffee Planters and Traders (KCPT) association which runs Nairobi Coffee Exchange: “We do not have the necessary legal framework for this market. The current sense of urgency is merely the product of recent reports that a similar market has been established in neighbouring Ethiopia,” he said.
Legal and regulatory frameworks could include a Commodities Exchange Act and a Warehouse Receipts Act, as well as investments in infrastructure such as roads and in NCPB facilities to fit them with modern equipment like sievers and driers to enable hold grains for longer periods.
Dr Mukhebi, however, said the commodities exchange would be regional in outlook and would benefit farmers from Kenya, Tanzania, Uganda, Rwanda and Burundi. “We have also partnered with the EAC Secretariat to catalyse the establishment of a harmonised legal and regulatory framework for the exchange in the region.”
In 2008, the Eastern Africa Grain Council, in partnership with NCPB and Lesiolo Grain Handlers set up a pilot maize receipt warehousing in Nakuru but the project funded by Equity Bank has performed below expectation due to prolonged drought and government price controls. However, Government reportedly increased the price it offered beyond the price offered at Lesiolo and the initiative died.