NSE to launch farm produce market by June

Mr Daniel Mbithi, the secretary of the Kenya Coffee Planters and Traders (KCPT), the association that runs Nairobi Coffee Exchange, said the country has not established the fundamentals for a credible commodities 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.

Reports indicate that the Ethiopia Commodities Exchange (ECX) trades coffee worth more than $300 million (Sh22.8 billion) annually, along with four other key commodities.

The market has also been credited with improvement of agricultural output, trade and food security in Ethiopia and benefits 850,000 farmers.

ECX rides on a national payment system set up in partnership with seven commercial banks and handles 150,000 tones of commodities in 14 warehouses.

The market’s pricing and trading data is displayed in real time on 19 electronic display sites around the country and on the internet for international reach.

Experts reckon that for a commodities exchange to work in Kenya, the government needs to back the initiative with sound legal and regulatory frameworks such as enacting a Commodities Exchange Act and a Warehouse Receipts Act.

The system also requires major improvements in road networks connecting farms and a substantial investment 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,” he said.

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.

Bumper harvests

The plan required farmers to deposit their grains with Lesiolo — a professional grain handler in exchange for receipts that can be cashed at Equity Bank at Sh1,800 each — the pre-agreed price for one sack of maize.

Over time, however, the government has revised the producer prices per bag of maize from Sh1,300 to Sh1,950, settling at Sh2,300, which has killed interest in the system altogether.

“Initiatives such as warehouse grain receipt system are better applied under conditions of bumper harvests as long as pricing is left for market forces,” Unga Ltd Managing Director Nicholas Hutchison told the Business Daily in an earlier interview.