Supply hurdles hit commodity exchange plan

NCPB chairman Jimnah Mbaru is one of the champions of the commodity exchange. Experts say Kenya has to invest in warehousing to achieve regular supplies. Photo/FILE
NCPB chairman Jimnah Mbaru is one of the champions of the commodity exchange. Experts say Kenya has to invest in warehousing to achieve regular supplies. Photo/FILE 

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.

“Exchanges thrive where there is adequate volume and players,” said Mr Chris Goromonzi, the managing director of South Africa-based Bourse Africa, a commodity spot and derivatives exchange that offers multi-asset class trading in commodities, currencies, bonds and diamonds.

Lesiolo Grain Handlers is one of the organisations partnering with the NCPB-led commodity’s exchange efforts.

Last year, it only received a total of 319 tonnes of maize and another 300 tonnes has trickled in this year but is upbeat the figure could rise sharply this year.

“The slow response is because farmers are yet to be sensitised fully about the system but it won’t fail because this is the direction that the grains market is headed,” Kevin Manyara, an administration manager at the Nakuru-based Solio Grain Handlers. But still, there is the challenge of space to store the grains.

“What we need to embark on immediately is to invest in warehousing facilities to ensure regular supplies to the commodity exchange system,” said Mr Kaniu.

Professional warehousing facilities are crucial because they guarantee proper storage of grains to the right moisture content that will eventually help to prevent losses.

On a wider view, agriculture policy expert James Nyoro, the managing director of global development group Rockefeller Foundation in Africa, said in an earlier interview that Kenya should have an agriculture marketing policy that will enable the private sector to mop up food crop harvests, store it and negotiate a future price to protect farmers from rock-bottom prices that are paid during the harvest season.

“Policies that empower the private sector to buy produce, store and negotiate prices with farmers for future sale will prevent a scenario common in Kenya when prices of commodities hit rock-bottom during harvest because of high supply,” he said.

The reverse happens when the country is in the middle or near the next harvest season, when brokers resell the same commodity at a very high price.

“A policy that would set up a commodity exchange managed by the private sector will mean the farmer will be paid the most likely future price when the supply is low.”