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Purpose and potential for commodity exchanges in African economies

Author

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  • Rashid, Shahidur
  • Winter-Nelson, Alex
  • Garcia, Philip

Abstract

This paper reviews the purpose and potential of commodity exchanges in Africa. Drawing from the existing literature and using indicative empirics, it examines the conditions that enable successful exchanges, highlights the special challenges to setting up exchanges in Africa, and reviews alternatives to domestic exchanges. We argue that many critical preconditions for the successful establishment of commodity exchanges in Africa remain binding in the short to medium term. The development of commodity exchanges in the region is impeded by the relatively small size of domestic commodity markets, the weak physical and communication infrastructure, a lack of supportive legal and regulatory environments, and the likelihood of policy interventions, particularly in the staple cereals market. Meanwhile, the demand for a domestic commodity exchange for export crops may be limited due to the availability of well-established exchanges abroad and functioning auction floors. The paper highlights three points: (a) efforts to launch exchanges in Africa should realistically assess whether basic conditions for success can be met, (b) if the pre-conditions cannot be met, the use of existing exchanges abroad or the development of regional exchanges may be more feasible than the establishment of national commodity exchanges, and (c) the goals of risk management and reduced transaction costs might be achieved more effectively by improving market fundamentals through investments in transportation, information services, or other financial institutions.

Suggested Citation

  • Rashid, Shahidur & Winter-Nelson, Alex & Garcia, Philip, 2010. "Purpose and potential for commodity exchanges in African economies," IFPRI discussion papers 1035, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:ifprid:1035
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    File URL: https://hdl.handle.net/10568/154833
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    References listed on IDEAS

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    1. Keith Bollman & Philip Garcia & Sarahelen Thompson, 2003. "What Killed the Diammonium Phosphate Futures Contract?," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 25(2), pages 483-505.
    2. Philip Garcia, 2004. "A selected review of agricultural commodity futures and options markets," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 31(3), pages 235-272, September.
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    5. Sushil Mohan, 2007. "Market-Based Price-Risk Management for Coffee Producers," Dundee Discussion Papers in Economics 199, Economic Studies, University of Dundee.
    6. Jayne, Thomas S. & Mather, David & Mghenyi, Elliot W., 2006. "Smallholder Farming Under Increasingly Difficult Circumstances: Policy and Public Investment Priorities for Africa," Food Security International Development Policy Syntheses 54507, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    7. Gilbert, Christopher L., 1996. "International Commodity Agreements: An obituary notice," World Development, Elsevier, vol. 24(1), pages 1-19, January.
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    9. William G. Tomek & Roger W. Gray, 1970. "Temporal Relationships Among Prices on Commodity Futures Markets: Their Allocative and Stabilizing Roles," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 52(3), pages 372-380.
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    Cited by:

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    3. Joshua Huang & Teresa Serra & Philip Garcia & Scott H. Irwin, 2022. "To batch or not to batch? The release of USDA crop reports," Agricultural Economics, International Association of Agricultural Economists, vol. 53(1), pages 143-154, January.
    4. Seyfe Fikre, 2020. "The Role and Challenge of Ethiopian Commodity Exchange (ECX) on Coffee Supplies and Marketing in Ethiopia," Business and Management Studies, Redfame publishing, vol. 6(3), pages 1-12, September.
    5. Nyarko, Yaw & Pellegrina, Heitor S., 2022. "From bilateral trade to centralized markets: A search model for commodity exchanges in Africa," Journal of Development Economics, Elsevier, vol. 157(C).
    6. Sitko, Nicholas J. & Jayne, T.S., 2012. "Why are African commodity exchanges languishing? A case study of the Zambian Agricultural Commodity Exchange," Food Policy, Elsevier, vol. 37(3), pages 275-282.
    7. Nicholas J. Sitko & Brian Chisanga & David Tschirley & Thomas S. Jayne, 2018. "An evolution in the middle: examining the rise of multinational investment in smallholder grain trading in Zambia," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 10(2), pages 473-488, April.
    8. Hernandez, Manuel A. & Rashid, Shahidur & Lemma, Solomon & Kuma, Tadesse, 2015. "Institutions and market integration: The case of coffee in the Ethiopian commodity exchange," IFPRI discussion papers 1464, International Food Policy Research Institute (IFPRI).
    9. Hernandez, Manuel & Lemma, Solomon & Rashid, Shahidur, 2015. "The Ethiopian Commodity Exchange and the coffee market: Are local prices more integrated to global markets?," 2015 Conference, August 9-14, 2015, Milan, Italy 211732, International Association of Agricultural Economists.
    10. Yamamoto, Shuhei & Janzen, Joseph P. & Serra, Teresa, 2024. "Autopsy of a futures market failure: Japan’s Dojima rice futures in the early 21st century," Food Policy, Elsevier, vol. 128(C).
    11. Tschirley, David & Myers, Robert & Zavale, Helder, 2014. "MSU/FSG Study of the Impact of WFP Local and Regional Food Aid Procurement on Markets, Households, and Food Value Chains," Food Security International Development Working Papers 184835, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    12. Roche, Julian Spencer, 2020. "Success criteria for commodity exchanges," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 15(02), June.

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