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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

Typical Maize Trade 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

No man's land

BUSIAUganda

BUSIAKenya

BusiaMaizeMarket

URAYard

KRAYard

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

Market Prices in selected countries

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

Shared Information, does it work?

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

Conclusion/Recommendation

• Maize = Food = Politics; therefore;

• Get regional Ministers of Agriculture, Chairpersons of Agricultural Committee in Parliament in one room to discuss and agree on way forward;

• Policy that leads to food shortages• Governance• Corruption