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ECX’s coffee market :traceability and new developments 14 th AFCA Conference & Exhibition Der es Salaam, February,2016 1
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Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

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Page 1: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

ECX’s coffee market :traceability

and new developments

14th AFCA Conference & Exhibition

Der es Salaam, February,2016

1

Page 2: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Outline

1.Overview on ECX’s coffee market

2.Major developments in the market

I. ECX warehouse and quality spin-off

II. Electronic Trading (e-Trading)

III. Coffee contract consolidation

IV. Coffee Traceability

2

Page 3: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

3

1. Overview about ECX

Outline

Page 4: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Background

Coffee

• Coffee is a strategic commodity to Ethiopia.

• It covers 24-26% of the total income of its earning.

• Is a source of income to a quarter of the population.

ECX

• Ethiopia Commodity Exchange (ECX) was established in

the year 2008 with the vision to revolutionize Ethiopian

tradition bound agricultural value chain through

creating a new marketplace that serves all market actors.

• Coffee, then incorporate in to the Exchange system as of

December 2008.

4

Page 5: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

ECX’s value proposition, to create a

1st • Structured,

2nd • Orderly,

3rd • Transparent,

4th • Reliable,

5th • Efficient, and

6th • Standardized market

5

Page 6: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Coffee @ ECX

• Membership: Out of the 346 full members around 55% of

them participate in coffee trading.

• Volume : Coffee contributes on average 43% of the total

volume traded at ECX per annum(1.4Million MT since 2008).

• Value: coffee represents 60% of the value transacted .

• Delivery centers /lab: Out of the 20 DCs/labs, 9 (50%)are

coffee DCs.

• Farmer cooperative unions: out of 32 member 8 engage in

coffee trade.

6

Page 7: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Coffee Export • Export against ECX trade data

7

-

50,000

100,000

150,000

200,000

250,000

2011 2012 2013 2014 2015

MT

Axis Title

ECX

Export

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

MT

Year

ProductionTarget

GTP II coffee production target

Average

variation

+9%

1.1

million

Ton

Page 8: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

8

2. New developments in the market

Outline

Page 9: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

What is new ?

9

Page 10: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

10

ECX Warehouse and Quality Spin-off

Introduction of Electronic Trading (E-Trading)

Coffee Contract Consolidation

Coffee Traceability

Major developments:

Page 11: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Outline

I. ECX warehouse and quality spin-off

Strategic Shift

11

Page 12: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Integrated ECX technology solution

WAREHOUSE GOODS

RECEIVING (QUALITY

AND QUANTITY

CERTIFICATION)

MARKET DATA

PROCESSING

DATA

CENTER

MARKET

SURVEILLANCE

CENTRAL

DEPOSITORY OF

WAREHOUSE

RECEIPTS

CLEARING AND

SETTLEMENT

TRADE ORDER

MATCHING AND

RECONCILIATION

ME

MB

ER

S A

ND

CL

IEN

TS

W

AR

EH

OU

SE

S

REGULATORY

BODY

PR

ICE

TIC

KE

RS

WE

BS

ITE

DA

TA

FE

ED

S

BA

NK

S

MEMBERSHIP

MANAGEMENT

12

Page 13: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

13

ECX with End-to- End solution

Membership management, Warehouse and Quality operation

Central Depository and Trading Operation

Clearing & Settlement, Market Dissemination, Market

Surveillance

Compliance, Business conduct Committee, Arbitration etc…

• Highly burdened operation with wide area coverage

• Result in less focus, less efficiency & response time,

diminished potential to grow

ECX prior of the spin-off

Page 14: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Why is the strategic shift becomes important ? 14

ECX decided to do a strategic shift, reasons are:

Page 15: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

……spin-off

Create SPECIALIZATION – separation between Exchange

and Warehouse service provision

Operational EFFICIENCY – fast decision making

Management FOCUS – better customer service and short

response and recovery time,

INVESTMENT opportunity – upgrading of infrastructure &

technology through budgetary injection from government,

other stakeholders and partners etc

SECTORIAL growth- knowledge proliferation in exchange,

inventory management and quality certification

15

Page 16: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

The emerging eco-system

MARKET DATA

PROCESSING

DATA

CENTER

MARKET

SURVEILLANCE

CLEARING AND

SETTLEMENT

TRADE ORDER

MATCHING AND

RECONCILIATION

ME

MB

ER

S A

ND

CL

IEN

TS

REGULATORY

BODY

PR

ICE

TIC

KE

RS

WE

BS

ITE

DA

TA

FE

ED

S

BA

NK

S

MEMBERSHIP

MANAGEMENT

16

Page 17: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

…..after the spin-off

ECX –with Trading and Clearing and Settlement

• Focused on Member Management, Trading, Clearing & Settlement

• With open out cry and electronic trading platform

EACWSE-Warehousing service Provider –

• Specialize in warehousing service, quality certification and Central depository

• Focus on inventory Management and Infrastructural upgrade

17

Page 18: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Status of the spin-off process

The Council of Ministers , approved the

Separation of the Warehouse & Quality

operations of ECX. Established a new

enterprise, named Ethiopian Agricultural

Commodities Warehousing Service

Enterprise under regulation #331/2014,

The Enterprise is established with the

mandate on the two major functions–

warehousing service and quality

certification

18

EACWSE is operational

as of October 2015

Page 19: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Outline

II. Electronic Trading (e-Trading)

19

Modernization

Page 20: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Why e-Trading is so preferred?

Open Outcry

• Has space limitation

• Noisy and chaotic

• Time bounded

• Has physical interaction

• Hand shake is mandatory

• Difficult to market surveillance and follow up

Electronic Trading

• Operate beyond space boundary

• Efficient and time saving

• Convenient and easy

• Remotely accessible

• Easy for market surveillance

20

Modernizing market

and creating

efficient trading

platform

ECX commitment

Page 21: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Major breakthroughs

• Enable clients to give direct

e-instruction to traders,

• Creates efficiency, transparency

&convenience,

• Facilitate robust service provision

& accessibility

• Open up opportunity to boost

members capacity

21

E-trade is launched as of July 2015

Page 22: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

ECX Trading Platform

22

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23

Regional trading centers

• Having 4 coffee trading centers :

• The first four - at Addis Ababa, Hawassa, Jimma, Dire Dawa

Mobile trading facility

• Trading from any where

• Easy access to market information

MIK (Market Information Kiosk)

• Market data dissemination tool

• Interactive information kiosks

The way forward in e-trading

Page 24: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Outline

III. Coffee contract consolidation

24

Page 25: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Basics :

• Ethiopia has multi-genetic potential source and center of origin for Coffea arabica L.

• Ethiopia exports coffee based on their specific geographical origins.

• Each coffee has their own distinguished; physical

and Organoleptic character,

So:

• Both physical and sensory assessment are used to determine the quality of coffee.

• Previous arrival coffee grading system unbundled the coffee grades up to 10

ECX coffee quality grading system

Page 26: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Why is important to consolidate coffee contract?

Align ECX grading standard with the national coffee export standard

Improve repeatability and consistency of coffee quality grading

Revise and upgrade the overall coffee grading standards

Properly utilization warehouse space

Reduce number of contracts for easy understanding

26

Page 27: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Previous coffee grading standards

ECX old coffee grading standard

Grade levels Grade range

points

Variation between the

highest and lowest pts Remark

Grade 1 91 - 100 10

Potential for Specialty 1

and 2

Grade 2 81 – 90 10

Potential for Specialty 1

and 2

Grade3 71 – 80 10 Commercial

Grade 4 63 – 70 8 Commercial

Grade 5 58 – 62 5 Commercial

Grade 6 50 - 57 8 commercial

Grade 7 40 – 49 10 Commercial

Grade 8 31 – 39 9 commercial

Grade 9 20 – 30 11 Commercial

Grade UG 15 – 19 5 Commercial

27

Page 28: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

New consolidated grading standards

ECX new coffee grading standard

Grade levels Grade range points Variation between

the highest and

lowest points

Remark

Grade 1 ≥ 85.0 15

Potential for

Specialty 1 and 2

Grade 2 75 – 84 9

Potential for

Specialty 1 and 2

Grade3 63 – 74 11 commercial

Grade 4 47 – 62 15 Commercial

Grade 5 31 – 46 15 Commercial

UGp & UGnp* 15 – 30 15 Commercial

28

• p and np = with and without parchment respectively

Page 29: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Outline

IV. Tracing coffee (Traceability)

29

Value addition

to the value

chain

Page 30: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Rationale:

30

Tracing the coffee

Inventory management

Operational efficiency

Page 31: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Why traceability initiative for?

o To provide buyers with traceable information on

coffee purchased at ECX.

o To create accountability through barcode tags

with the respective coffee processing (washing or

hulling) station

31

Page 32: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Washing

Station

Washing

Station

Transport

to DC

Arrival

at DC

Transport

to

Exporter

Arrival at

Exporter

Warehouse

Exported

with Digital

Passport

Cupping

process

The diagram below provides a high-level process flow of the

traceability business process when fully implemented:

Traceability process flow 32

Page 33: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Scope and time line

Coffee type in scope

• Sidamo A, Yirgachefe, Jimma and

• Lekempti

Coffee bags/tags (1 Mill)

• Washed = 550,000

• Unwashed = 450,000

Processing stations (834)

• Hawassa (219), Ghimbi(280)

• Dilla(250), Jimma (85)

33

Oct ’15 Legal framework,

Tag distribution

Nov-Dec’15 System test, user acceptance test, Training,

February’16 Launch date Trading traceable coffee

Page 34: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

Smallholder Farmer Cooperatives Primary Markets

Washing/Hauling Stations Tag Delivery and Bag Tagging Alert Sent/Truck to ECX

ECX Warehouse / Lab Scanned In/Unloaded/Stacked Traded Scanned Out/Delivered

Overall view

Scanned In/Unloaded/Stacked Processed Shipped

EACWSE Warehouse

Exporter Warehouse

Washing/Hauling Station (Traceability Begins Here)

Farmers/Primary Market/Co-ops

ECX Certificate $

Page 35: Abenet Bekele - Ethiopian Commodity Exchange, Traceability ...

The journey started …. 35

THANK YOU!!!

• www.ecx.com.et

[email protected]