Supply hurdles hit commodity exchange plan
Posted Monday, March 28 2011 at 00:00
While Kenya is consistently working on efforts to attract foreign investors and increase value generated from agriculture, establishing a thriving commodity exchange remains on the back burner.
Among other things, the state of affairs means investors eyeing or are already in the sector are limited in terms of growing and processing crops. They also cannot participate a cereals futures market.
However, there are tea and coffee auctions in Mombasa and Nairobi.
Currently, a number of partners led by the National Cereals and Produce Board (NCPB) are leading efforts to set up such a market.
When the former chairman of the NSE, Mr Jimnah Mbaru, was appointed to be the chairman of the NCPB, expectations were high that as a champion of a commodity exchange, the dream would soon be a reality.
Among others, such a market offers opportunities for the interested parties including guaranteed better prices and facilitates futures trading of cereals.
“What the commodity exchange does, it’s to eliminate two major risks faced by agro-investors, namely price volatility and assures them of the market and supply. As a result, more investments are pulled into the cereals growing market,” said Kenneth Kaniu, a senior investment manager at the Stanbic Investments.
Lack of laws have been cited by watchers, saying that was the hurdle Kenya was grappling to join success cases like Ethiopia and South Africa.
The Commodities Trading Bill and the Warehouse Bill are yet to be debated in Parliament.
For organisations that have partnered with NCPB to start a commodity exchange, through first establishing the warehousing receipt system, the experience has been that there is a need for farmers to be fully educated and made aware of this initiative because its success depends on their supplies.
According to global standards, the minimum delivery to a commodity exchange is 100 bags of 90kg packages.
This applies in Ethiopia, South Africa, Europe and United States.
In the Kenyan case, most of the farmers are smallholders and may not produce such volumes in one season.
Therefore, farmers participating in this system require sensitisation to work in groups to meet the supply threshold.
Among other methods, farmers can work under the co-operatives, meaning they will not be starting from scratch in the search for the right supplies meeting the commodity exchange minimum.