Commodities exchange yet to take off three years down the road

Njoro farmer Samuel Gitonga believes he understands the needs of farmers in the southern Rift Valley.

He is the regional chairman of the Kenya Federation of Agricultural Producers’ (Kenfap) — a small- scale farmers’ lobby — which has made it possible for him to interact with farmers almost on a daily basis.

However, when Business Daily recently asked him about plans to set up a commodities exchange he was lost for words.

“I remember attending a forum that discussed and concluded that the country was ripe for something like that a few years ago,” he said on phone.

He added: “The forum concluded that all players in the sector need to network and popularise it among farmers but things abruptly went quiet.”

Like Mr Gitonga, many farmers are not aware that a grain warehouse receipt system (WRS) that was launched in Nakuru two years ago was meant to pave the way for the eventual launch of a commodities exchange in the country.

Once touted as the silver bullet that would end heavy post-harvest losses and seasonal price swings that have stalked agricultural production in the country for years, the system got stuck at the conception stage.

While players in the agricultural sector, including top Agriculture ministry bureaucrats, regard the commodities exchange as an idea whose time has come.

But translating it into action has proved futile due to low sensitisation of small scale farmers who contribute close to 80 per cent of the country’s grain production.

“The WRS promoters have been busy putting a cart before the horse; we have advised them to try a bottom-up approach but they have insisted on going around the country to promote a system that only they can understand,” said a seasoned researcher at one of the government funded public policy research think tanks who asked not to be named for fear of being seen as criticising the government position

Under the Nakuru WRS system where Equity Bank became the first bank to play the role of financial intermediary, the East African Grain Council (EAGC) joined hands with Lesiolo Grain Handlers, and the National Cereals and Produce Board (NCPB) to launch the country’s first structured grain marketing system in April, 2008.

The warehouse was conceived to allow farmers — usually smallholders who lack access to proper storage facilities — to deposit their harvests with Lesiolo Handlers for drying and storage in exchange for receipts that they could present as collateral to get agreed minimum payments from the bank.

This, the system’s promoters say, would eliminate the usual rush to sell the produce during the harvesting time at cheaper prices, cutting middlemen from the commodity supply chain.

Later, when prices stabilise the farmers are free to sell their produce at better prices, clear bank loans and grain handling charges, and keep the profit.

“Farmers initially avoided the system because of the prolonged drought that resulted in the food crisis and government price controls of 2008, but there has been renewed interest in the system following the recent El Nino rains,”