Kenya eyes software to boost coffee marketing

Kenya is among three African countries that are eyeing a software developed by the Ethiopian Commodity Exchange (ECX) to market and sell agricultural products through an internet portal.

Others are Zimbabwe and Tanzania who have hailed the tool that can improve farmer’s earnings, ECX chief executive Dr Eleni Gadri-Madhini said at the seventh African Fine Coffee Conference and Exhibition held in Mombasa last week.

Once adopted, farmers will have increased access to market information and be able to trade coffee directly.

Farmers in most of the coffee producing countries use agents to access the markets.

For instance, Kenya is using the central auction system conducted weekly. 

This is a market where coffee is bought by licensed dealers through competitive bidding. 

The direct sale, commonly referred to as the “Second Window” requires a marketing agent to negotiate with a buyer outside the country and a sale contract registered with the Board.

The two systems leave the farmer with little information on the dynamics of the market, which according to Etienne Delbar, a stakeholder in the industry, leads to a decline in the performance of the sector in many parts of Africa.

ECX system is the first of its kind in Africa, which once adopted by African coffee producers will increase the global market share that stands at 10 per cent to more than twice, experts said.

The software serves farmers, traders, processors, exporters and consumers.

It provides a secure and reliable system of handling, grading, and storing commodities, matching offers and bids for commodity transactions, and a risk-free payment and goods delivery system.

One of the key successes of the ECX was to kick brokers out of the marketing chain.

And although they opposed the $24 million project when it was started 18 months ago, according to Ms Gadri-Madhini, those who reinvented themselves are today some of the main beneficiaries.

“The brokers had taken advantage of the insufficiencies that existed in the marketing chain but have since adjusted the way they do business,” she said.

And farmers, she said, were now able to access international markets directly and are no longer restricted to local markets as the ECX provides them the scope of forward contracting.

By involving themselves in commodity forwards trading, farmers in Ethiopia are now able to manage risks and as the system ensures market transparency in its transactions, they get the advantage of price negotiations, she added.

Farmers, cooperatives or traders bring in coffee to the exchange operated centre.

The exchange assesses the quality and issues an Electronic Warehouse Receipt on the basis of the quality and weight.

Buyers deposit pre-trade funds in settlement accounts in Exchange partner Bank.

At the ECX trading floor, buyers post bids and sellers post offer, which are then matched. 

ECX back-office helps in order reconciliation and clearing and settlement.

It also provides market information, market surveillance and risk management.

Since its inception, the ECX has 781 unique coffee grades traded and 161,000 tonnes of export and domestic grade coffee handled in 14 warehouses.

Ethiopia consumes about half the coffee it produces.

Biggest producer

More than 14,247 trades have been handled and $400 million settlement handled, according to Ms Gadri-Madhini.

These include about 4,000 Pay-Ins from buyers and 6,903 Pay-Outs to Sellers.

The coffee harvest in Ethiopia, which is Africa’s biggest producer, is currently at least 25 per cent higher than a year earlier, which is attributed to efficiency at the ECX, she added.

The volumes of specialty coffee traded on the exchange more than doubled last month to 2,173 metric tonnes, compared with a year earlier, because of the introduction of a new quality certification system, which improved support to farmers from government agents and greater use of the exchange by traders.

The exchange is this week set to open a new market for specialty buyers who wish to buy directly from specific farmers and cooperatives as coffee sold on the exchange’s current trading floor is identified only by region and grade.

Colorado-based Allegro Coffee Co, a supplier for Whole Foods Inc., Portland, Oregon-based Stumptown Coffee, and Switzerland-based Schluter SA are among the international importers who have registered for the direct market, said Ms Gadri-Madhini.