Kenya's bid to buy Ethiopia wheat hits headwinds

Farmers thresh wheat in the outskirts of Gondar, Ethiopia, on November 24, 2020. PHOTO | AFP

President William Ruto’s deal with Ethiopia Prime Minister Abiy Ahmed to have Kenya import cheaper wheat from Addis Ababa has been hit by a setback after Ethiopia listed the grain on the commodity exchange, locking out local traders from direct purchases.

Ethiopia’s commodity exchange is a closed market with only registered members allowed to trade and it is not open to international traders.

By listing the commodity, it means that all the produce from Ethiopia will have to go through the exchange as opposed to direct exports, a move that will make it costly should Kenyan traders want to import.

Stakeholders in the grain industry say direct sales would have been cheaper than buying from the exchange where it will attract brokerage fees and other levies.

“Having the wheat exported to Kenya through the exchange will make it more expensive by the time it lands here,” said Gerald Masila, executive director of Eastern Africa Grain Council.

He also said it would be difficult for traders to get all the volumes that are required from the exchange, hence needing to purchase it from different buyers, a move that will increase transaction costs.

“It is difficult for a trader to get like 100,000 tonnes at the exchange in one go. This means that they have to make multiple transactions and this has a cost implication,” said Mr Masila.

Traders normally source wheat in bulk to enjoy economies of scale.

Dr Ruto and his Ethiopian counterpart had reached an agreement early this month that would see Addis Ababa export wheat to Kenya to ease the shortage. The head of State visited Ethiopia on October 6.

Ethiopia, which is a top producer of wheat, recorded a bumper crop this year and has projected a surplus of more than a million tonnes. The imports from Ethiopia were meant to tame the high cost of the commodity brought about by expensive wheat from Europe.

Even though the cost of wheat at the international market has dropped to a low of $390 a tonne, processors say the produce in the market was purchased in April at higher rates of $540 a tonne.

Bakers say the contracts that were entered in April for the crop are being delivered based on prevailing higher prices at the height of the Russian-Ukrainian war.

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