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You Are Here: Home » Feature Articles » The need to solve Ghana’s post-harvest losses – the Ethiopia example
The Private Enterprises Foundation (PEF) is proposing the establishment of a plan that it hopes to will solve the problem of post harvest losses of agricultural produce that has perennially engulfed the country’s agricultural sector.
The plan dubbed “the agricultural commodity exchange” is to bring producers, buyers and consumers together to trade on a common platform by providing ready market for farm gate products from the agricultural centres.
The Director-General of PEF Dr Osei Boeh-Ocansey emphasised in an interview with Graphic Business that the proposals would be submitted to the government’s economic team to be considered for the 2009 budget.
If government buys into this plan, a networking system would be created to link all farmer groups in the country to business people and consumers who have use for their agricultural products to trade effectively.
“In bumper harvest, prices fall so low that farmers are not able to repay their loans, despite abundant production. Then, it follows that in the following year, not enough food is produced to feed the population. Why don’t people store grain from year to year? Why can’t the market deliver in bad times and save in good times? The PEF boss queried.
According to him, the inefficiency of intermediation had resulted in high postharvest losses in the agricultural sector and the limited ability to attract investment into value-addition in the form of processing.
When adopted, Ghana would be the third country in Africa after Kenya and Ethiopia to embark on an aggressive overhaul of its agricultural sector.
Dr Boeh-Ocansey explained that since Ghana’s economy was basically agricultural, “it would make a lot of sense to see to the establishment of an effective commodity exchange thatwould not only eliminate the regular post-harvest lossesthrough the buying of produce for storage, but also put money in the pockets of farmers in the short-term to facilitate their downstream operations” .
He singled out the agricultural sector as a major industry, which when helped within the scope of the Commodity Exchange, could raise the hopes of millions of farmers, especially large-scale farmers and make their lives more meaningful.
The PEF boss is of the view that the existence of a commodity exchange would boost the GDP growth rate and place farmers and a host of industry players in a position to increase revenue and that could revitalise the private sector.
Pursuing the right path
The strategic approach to the development of commodities exchange in Ghana would involve the need to move locally produced commodities from the current non-industrial production storage centres into accredited warehouses and silos, in standardised lots, graded, shelf-life certificated and insured with no loss guarantees.
In addition to market information and linkage services as is the case in the operations of every commodities exchange, the franchised Market Resource Centres will develop a range of other services which may be lacking, but are beneficial to and in demand by poor smallholder farmers and their communities.
Examples are transport brokerage, which is considered to be a major constraint in matching offers and bids by the smallholder farmers; warehousing/storage services often for short periods of time while the produce awaits sale at better prices the following market day; offering weighing services as these are virtually not available to smallholder farmers in markets; quality control services such as testing for grain moisture using moisture meters at the Market Resource Centres; selling genuine farm inputs (fertilisers, seeds) at affordable prices; brokering financial services to farmers by banks and micro-finance institutions; and providing email service to smallholder farmers as well as their communities in the remote rural areas in which they are located.
The adoption of this as a policy in the budget formulation, Dr Boeh-Ocansey, believes would help to change the face of poverty in the rural farming areas.
At the moment, apart from cocoa that is traded on international exchanges, which serves as the benchmark for local pricing, purchasing and trading most of the commodities produced cannot be linked directly to global exchanges. There is therefore limited price discovery for them, which in turn, affects productivity in the sector.
The Securities and Exchange Commission is expected to come out with the needed regulatory framework to facilitate the Exchange and Clearing House once government accepts these recommendations from the private sector.
In setting up the Exchange, Dr Boeh-Ocansey called for infrastructure, legal framework, participation rules and dealing and settlement rules, as well as arbitration rules for the commodity sell-back trades and the financial derivatives.
PEF wants to quicken the pace of implementing a Ghanaian Commodity Exchange and Commodity Clearing House, which had had three failed attempts due to the unavailability of a regulatory framework.
The Ethiopian experience
Ethiopia, a country of chronic food shortages and malnutrition, has launched an agriculture commodity exchange in a daring experiment to raise food production by creating a safe and transparent agriculture market.
The idea to create a commodity exchange was hatched by a former senior economist at the World Bank, Eleni GabreMadhin, who was born in Ethiopia and educated in the United States. Gabre-Madhin did her doctoral research on the role of markets in developing countries and refined her ideas while at the International Food Policy Research Institute. She is now the chief executive of the exchange.
Gabre-Madhin said the Ethiopian government began to consider a commodity exchange after the food crisis in 2002/2003; a bumper crop and price collapse in 2002 were followed by drought that threatened 14 million people with starvation the next year.
Although Ethiopia is the biggest grain producer in Africa, its traditional markets are small because of narrow networks of trust among buyers and sellers. “Most farmers trade within 12 kilometers of their farms and only with people they know,” Gabre-Madhin said. She said more than two-thirds of farmers have faced contract defaults, and only 4 per cent have received legal enforcement of contracts.
In the traditional trading system, grain changes hands four to five times between producers and consumers. With each change, the grain is put into new sacks. This system enables buyers to know what they are getting in terms of quality and quantity, as the contents are inspected and weighed, but it is vulnerable to price shocks.
The Ethiopia Commodity Exchange began operating in April, creating transparency and predictability in the national market and connecting Ethiopian commodities to international markets.
The U.S. Agency for International Development (USAID), provided US$l million to launch the exchange.
The exchange provides warehousing, a reliable payment system, real-time market information, and quality control. Producers sell directly to the exchange, which assures payment within 24 hours.
“In the past, truck drivers took payment in envelopes filled with cash. It was never certain if or how much of the money would make it back into the hands of the seller,” Gabre-Madhin said. Buyers in the traditional system do not know the quality of what they get unless they open up the sacks and inspect the contents. The exchange has assumed the grading task and guarantees quality, so a distant buyer can be confident of what he or she is purchasing.
The Ethiopian exchange is linked to commodity markets around the world, making it possible for a trader in India, for instance, to buy futures of the prized Ethiopian lentils.
As for Ethiopia’s major export, coffee, 461 coffee suppliers have obtained one year memberships on the new commodity exchange.
“We’re going to disseminate New York prices on our trading floor, and we’ll feed our prices to the New York market. That means if you are looking at Ethiopian, Colombian or Rwandan coffee, you will have a basis for comparison,” Gabre-Madhin said.
Agricultural traders have deluged the exchange with applications for membership, which, in Gabre-Madhin’s view, is a sign that market confidence is building. “Worries about getting paid and getting the expected quality are being eliminated,” she said.
Gabre-Madhin said she expects the exchange will create incentives for farmers to bring more of their produce to market. In the traditional trading system, about one fourth of Ethiopia’s grain is brought to market. She said the goal of the exchange is to handle 50 per cent of Ethiopia’s grain production in five years.
She said that nearly half of Ethiopia’s rural households are net buyers of food. “Poor people buy food as well as sell food, which means that markets matter a lot, even at this low level of income,” she said.
The exchange is not without its critics. Some say it will not work as a market institution because government officials occupy six of the 11 seats of the board. Gabre-Madhin believes that the government’s involvement with the exchange will help it learn quickly how markets function.
Another concern has been that the exchange will further increase food prices, which have doubled in the past year. If Ethiopia’s food-deficient neighbours can buy Ethiopia’s commodities, then there will be less food for the country’s already malnourished people, critics say.
Gabre-Madhin counters that the exchange is not the panacea for all of Ethiopia’s food problems, but it is an important element for a functioning agriculture based economy.
Credit: Suleiman Mustapha
Source: GB
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I hope this new administration will seriously look into a major constraint in transportation system in rural farming areas, creating a meaningful way to transport fresh produce from the villages into the big cities. We cannot over emphasize post harvest losses of agricultural produce in busy markets like the Techiman market, where due to lack of access roads to transport the produce to other nearby cities, on market days food is just left to sit and rot.
The Government must be more aggressive in its efforts to eliminate post harvest losses by also looking to expanding access roads from the farming areas and markets through the major cities like kumasi, sunyani, takoradi, etc. Good access roads and a railway system that span from the farming villages through the big cities would be ideal. This is beneficial to both farmers and consumers.