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Grain Trading Systems and Market Information
FAO/University of Pretoria workshopPresented by Stephen Kiuri Njukia
RATES ProgramMarch 23rd – 24th , 2006
Cotton/TextilesCotton/Textiles
MaizeMaize
DairyDairyLivestock*Livestock*
Specialty Specialty CoffeeCoffee
RATES is commodity focused with an emphasis RATES is commodity focused with an emphasis on regional integrationon regional integration
East and Southern Africa• Our region is dotted with many food
insecure areas
Maize
• Many small scale farmers produce for subsistence and/or market
• In many African countries, maize is associated with food security: “Where there’s NO Maize there is NO Food.”
• Although maize is still the dominant staple food in this region, wheat products are catching up quickly in urban areas
• Wheat consumption is growing at a faster rate than maize
Maize is Food
COMESA/EAC Maize Statistics• Average Total Production – 22,000,000 MT• Average Total Consumption –
16,000,000MT• Average surplus = 4,000,000 MT• Despite overall surplus, we can still have
pockets of surplus and deficits at the same time
• This has resulted in the formal and informal movement of maize from surplus to deficit areas
Isebania200
Mombasa231
Nairobi235
Kigali236
Mbeya185
Dar es Salaam255
Songea190
SumbaWanga227
Kabale172
Kampala192
Bukoba230
Busia160
Mwanza260
Tanga261
Kamwenge130
Lira140
Kitale177
Current East Africa Maize Flow
Food Insecurity• Production Failure
– Reduced government investments to research, extension, inputs, poor climatic conditions, etc.
• Lack of Access– A function of movement from surplus to deficit areas
• Commercial access– People have income to purchase e.g. Northern Tanzania buying
from Uganda– Is increased where traders identify market opportunities– Is reduced when government policy is unpredictable
• Relief access– Lack of funds by the government to pay for distribution logistics– Poor road and rail network– Export ban from neighboring countries can limit this access
Constrain to Commercial Access
• Lack of market information
• Poor infrastructure
• Unclear Government food policy
• Disorganized Grain Trade
Market information• Prices
– In the absence of a defined price discovery mechanism, farmers do not know the prevailing prices beyond their locale
• Cross border trade flow direction– Lack of information on informal exports and imports
leads to an inaccurate food balance sheet • Crop update
– Lack of information on crop development in neighboring countries can lead to losses for farmers and traders taking a long position
• Poor policy decisions
Lack of Information by govt;- Crop Forecast- Regional S&D position
(Blind Decisions)
Govt. impose barriers to trade, e.g.;- Export/Import Ban- High Import duties- Un-harmonized Quality Standards
Barriers to trade promotes;- Informal (illegal) Trade- Corruption
Corruption and illegal trade;- Higher Consumer prices- Food insecurity
Infrastructure• Failure by government to investment in
– inter-regional road and rail network– Rural access roads to bring produce to
market– Research on new and developing markets– Market information system (MIS)
• Most MIS are donor funded or operate under budget
Government food policy• Unclear trade policy and regulatory
framework– Unpredictable market interference
• Ad hoc import/export bans– Currently Zambia ban on all food exports is
curtailing export of sorghum to Tanzania• Lack of trust and understanding between
private and public sector– Traders always described as “unscrupulous”
Disorganized Trade• Competing with Government programs
– Marketing Boards engaged in both commercial and relief food operations
• Limited private sector growth– Traders will not take position in unpredictable
environment – Banks will not fund trades where there are no
clear price discovery mechanism
RATES Program Initiative
• Market Information
• Regional Maize Trade Policy
• Structured Trading System
RATES Experience with Market Information Systems
• Trade Linkage Mechanism - Emphasis on ensuring trade takes place
– Maize, Beans and Pulses Traders• www.tradeafrica.biz
– Cotton and Textile Traders www.cottonafrica.com
190192192193183Average Price USD/MT
162,744,27039,258,00037,830,30057,214,29028,441,680Value in USD845,290206,200194,960289,910154,220Volume in MT
Cumulative Total
Quarter 4Jul1–Sep 30
Quarter 3Apr 1–Jun
30
Quarter 2Dec 1–Mar
30
Quarter 1Oct 1–Nov
30
Inquiries to Buy Maize
190184191192196Average Price USD/MT
86,753,98031,354,30022,273,06026,432,16038,048,760Value in USD
488,764235,000118,427150,797219,540Volume in MT
Cumulative Total
Quarter 4Jul1–Sep30
Quarter 3Apr 1–Jun
30
Quarter 2Dec 1–Mar
30
Quarter 1Oct 1–Nov
30
Offers to SellMaize
Tradeafrica.biz - Volume & Value of Business Postings
RATES Experience with Market Information Systems
• Market Information for Kenya, Uganda, Tanzania and Rwanda
– RATIN – www.ratin.net(Regional Agricultural Trade Intelligence Network)
• Provides maize balance sheet position that includes both formal and informal trade
• Forecasts on trade opportunities
• Monthly bulletin in English and Kiswahili
Tradeafrica and RATIN connection
• Cross Border– Linked Busia Trader to
Farmers Choice
– Linked Golden Harvest to Busia Traders
Regional Maize Trade Policy• Promoted the “Maize without Borders” concept
that has been adopted by both COMESA and EAC– We still see some backsliding when there’s talk of food
shortages
• Initiated dialogue on reduction of barriers to trade – EAC maize traders guide– Simplified Customs document for cross border traders
for COMESA– Training of cross border traders on grades and
standards, customs, and phytosanitary requirements– Duty reduction to zero within East Africa Community
Three basic requirements to Structured Trade
Stor
age
Stor
age Finance
Finance
Price Risk Management
Price Risk Management
Building Blocks for a Structured Trading System in East Africa• Storage• Aggregation of volume• Standards and grading – EAC Maize done• Contract enforcement system• Legal and regulatory environment• Finance (role of banks)• Users role defined• Clearinghouse/ Commodity Exchange
Who Benefits from a Structured Trading System?
•ALL OF US!– Kenya Grain industry players have started an initiative to from an East African Grain Council;
• Bankers, Traders, Farmers, and Millers Associations, plus Stock Exchange, Cereals Board, with support from Government and Donors programs
East Africa Grain Council Goals• Uniform, regulated, and impartial system
– Acceptable code of conduct• Market Transparency – (Spot Market)
– Offers and bids are known by all participants• Price Information – RATIN
– Accurate, Timely, Public, Readily available• Reduce seasonal market prices volatility –
functional spot commodity exchange– Offers opportunity to manage your risks
• Increase the regions’ money supply– Bring liquidity to the grain market (Banks)
Conclusion
• Trade flows (not food aid) normally account for the bulk of food inflows to crises areas
• In 2002/03, trade accounted for ¾ of food inflows needed by Zambia and Malawi (T.S. Jayne, D. Tschirley, P. Arlindo, B. Mwiinga)
• Therefore, we can reduce food shortages through– Improved commercial movement of maize
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