Experts root for commodities exchange

March 23, 2011

, NAIROBI, Kenya, Mar 23 – The Government is being challenged to develop an Agricultural Commodities Exchange (ACE) to facilitate easier access to markets and a wide range of buyers.

Stanbic Investment Management Services Limited argues that the country\’s agricultural sector is exposed to a number of challenges.

SIMS Chief Investment Officer Anthony Mwithiga said on Wednesday, a commodities exchange would reduce the risks in agricultural production while at the same time boosting the prices of agricultural produce.

"The biggest benefit for farmers is price discovery where, they will know what the best price to sell their produce is, and also at what time is best for them to sell," Mr Mwithiga said.

The exchange is likely to provide a better platform for farming estates rather than listing at the Nairobi Stock exchange. There are currently eight agriculture companies listed on the bourse comprising 0.75 percent of total NSE market capitalisation.

Mr Mwithiga said a commodities exchange would allow crops such maize, rice and wheat together with tea, coffee and sugarcane as a panacea for seasonal grain price swings and ensure food security.

Tea and coffee already have strong institutions that govern their pricing with the Tea Auction in Mombasa and the Coffee Exchange.

"Tea and coffee already have their own organisations but we need to consolidate this and form a strong commodities exchange that encompasses produce that more small scale farmers deal with," he said.

The ACE would pave way for the introduction of a national warehouse receipt system to empower farmers to ditch intermediaries and get the best price for their produce.

The receipt will also allow farmers to turn their grains into security with which they can negotiate for credit facilities at financial institutions.

Mr Mwithiga however said proper legislative structure would need to be in place to facilitate the exchange. He proposed to have a Commodity\’s Trading Act and a Warehouse Act to anchor the exchange and the trade in farm produce. 

Agriculture accounts for 26 percent of the GDP and forms a bulk of the country\’s exports at 65 percent of total exports.

The sector has however failed to meet its full potential due to continued reliance on rain.  The government has taken steps to change agriculture production to be irrigation based to safeguard production and output from the vagaries of weather.

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