Ethiopia’s market reforms of the 1990s did not have the intended impact on agricultural growth and poverty reduction. Market constraints like high transaction costs limited the markets’ potential to catalyze production and growth and boost rural incomes. Researchers from the IFPRI and the Ethiopian Development Research Institute (EDRI) concluded that the fundamental market problem facing Ethiopia was the lack of a low-cost way of coordinating market exchange that could increase marketed volumes and engage smallholders in the market economy. IFPRI research in several countries, including Ethiopia, showed that a commodity exchange could fill this critical need by generating market information; making product grades and quality, marketed volumes, and market-clearing prices more transparent; and promoting self-regulation by enhancing the incentives for preserving the order and integrity of the system.
In May 2005 IFPRI’s research project in Ethiopia organized a major conference entitled “Harnessing Markets for Agricultural Growth in Ethiopia” that led to engagement in the topic by senior policymakers and the private sector. IFPRI’s research results were circulated to senior policymakers, including the prime minister, in November 2005.
The Ethiopian government decided in December 2005 to establish an Ethiopian Commodity Exchange, saying it would transform Ethiopian agriculture and bring real progress toward the country’s poverty reduction and rural growth objectives. A task force, appointed by the deputy prime minister and involving key stakeholder groups including IFPRI, was convened in early 2006 to plan the exchange, and a final design was completed in July 2006. In early July 2007 the Ethiopian Parliament endorsed the proclamation to establish the Ethiopian Commodity Exchange and the Ethiopian Commodity Exchange Authority. On January 18, 2008, the exchange was opened and launched its first membership registration. The exchange will trade six crops, including coffee, wheat, and maize, both on a physical trading floor in Addis Ababa and electronically.
For more information on the Ethiopian Commodity Exchange and IFPRI’s role, see:
Does Ethiopia Need a Commodity Exchange? An Integrated Approach to Market Development
Eleni Z. Gabre-Madhin and Ian Goggin. EDRI-ESSP Policy Working Paper No. 4.