The Kenya Agricultural Commodity Exchange Limited: Linking ...

KENYA AGRICULTURALCOMMODITY EXCHANGEThe Kenya Agricultural CommodityExchange Limited: Linking Farmers toMarketsByA. Mukhebi and J. KunduA Presentation at the Workshop on Improving the Functioning ofCommodity Markets in Eastern and Southern Africa throughWarehouse Receipts Systems and Market-based InterventionsTaj Pamodzi HotelSep 30 th –Oct 2 nd , 2009Lusaka ZAmbiawww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGE• What is KACE?• What have we done and why?• What has succeeded and why?• What has not succeeded and why?• What Lessons have we learned?• What impact has KACE had?• What challenges has KACE faced?• What is KACE’s future strategy?www.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEThe Kenya Agricultural Commodity ExchangeLimited (KACE), a private sector firm, waslaunched in 1997 to:• Provide the services of an agriculturalcommodity exchange in Kenya followingmarket liberalization policy reforms: pricediscovery, improve markettransparency/efficiency, increase liquidity incommodity markets, link farmers to inputand output markets more profitably, etc.www.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEWhat?Developed a market information and linkage system with privatepublicsector approach (users pay for services) that:• Provides timely market information: commodity prices, offersand bids (at modest charges)• Links farmers to input and output markets through matching(often bulked) offers and bids (at modest commissions)System components:• Rural based Market Resource Centres (MRCs)• Mobile Phone Short Messaging Service (SMS)• Interactive Voice Response (IVR) service• Internet based database system• Radio: National and rural FM• KACE Hubwww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEWhy?Necessary and sufficient conditions for a typicalcommodity exchange operations are weak or absent inthe country:E.g.:• A conducive policy environment: market-friendly• Availability of standardized tradable volumes ofcommodities• A sound infrastructure such as roads and atelecommunication network• Availability of sound financial services• A strong/knowledgeable clientele of exchange players• A sound network of secure and reliable warehouses• A sound legal and regulatory frameworkwww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEWhat?• Providing timely market information: daily prices, offers and bids• Linking farmers (esp. smallholders) to markets more profitably• Evidence of improving market efficiency and integration and farmgate/producerprices• Revenue generation from services provided for long term financialsustainabilityWhy?• Bargaining power of farmers for a better price improved: valueaddition• Harnessing the power of ICTs for farmer empowerment: mobiletelephony; rural FM radio• Reducing market information asymmetry• Affordable user chargeswww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEWhat?• More effective market institutional development:COMEX; WRS• Offering typical services of a commodity exchange:e.g., centralized price discovery; increasingliquidity in commodity markets throughcollateralized warehouse stocksWhy:Still evolving necessary and sufficient conditions:esp. market-friendly policy environment (domestic& regional)www.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEWhat Lessons have we learned?• Market information and linkage innovations besides WRSand COMEX can improve market efficiency & bargainingpower of smallholder farmers• Smallholder farmers are willing and able to pay forservices that are value-adding and affordable• There is increasing demand for additional marketingservices by smallholder farmers, e.g., grading, storage,transportation, short-term credit (for example to hiretransport to market), and e-services (ICT-based).• Market information per se in a necessary but notsufficient condition for poor smallholder farmers toaccess better input and output markets: additionalmarket linkage services & collective marketing requiredwww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEKACE MILS Lessons Contd.• ICTs have a critical role to play in enablingsmallholder farmers in remote rural areas toaccess input and output markets; however, theymust be affordable• To be financially self-sustaining marketinformation services must cover large areas,connecting commodity surplus and deficit areas,in domestic, and better still, regional marketswww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEa) M.Sc. Thesis (2007):What impact has KACE had?• The proportion of farmers and traders that say their incomes haveincreased and their bargaining positions have improved was 75%farmers and 60% traders.• Market integration improved for two commodities studied (i.e. maizeand beans)b) KACE model has been adapted/replicated elsewhere in Africa orserved as a catalystc)KACE model as a case study: students/researchersd) Contributions to agric policy formulatione) International Recognition: Ashoka Social EntrepreneurshipFellowship (2005); African Association of Agricultural Economists’Fellowship (2006)www.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEWhat challenges has KACE faced?• Small-scale structure of farmers: supply & offer smallquantities of highly varied quality of products• ICT illiteracy among smallholder farmers• Poor/undeveloped ICT infrastructure in rural areas• Still high ICT costs: mobile phone airtime, SMS andinternet access• Poor other infrastructure that imposes high transportcosts to markets• Market-unfriendly government policies (domestic &regional)• Limited resource capacity (human & financial) forscaling up & out of KACE MILSwww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEWhat are KACE’s future strategies?• Scaling out MILS to cover more farmers in surplus and deficitareas in Kenya• Promoting collective marketing by smallholder farmers: throughbulking of smallholder farm input demand and product suppliesfor access to large volume markets and WRS• Forging partnerships/alliances with other emerging commodityexchanges in eastern and southern Africa to facilitate regionalagricultural trade• As a founder member of the EAGC and an association with theNCPB, promote the establishment of a regional commodityexchange and a warehouse receipt system in the EAC regionwww.kacekenya.com

a) Directors’ capital for start upb) At various times, financial support fromdevelopment partners:• AGRA• Rockefeller Foundation• ACDI/VOCA/USAID• CTA

KENYA AGRICULTURALCOMMODITY EXCHANGESpecial Visitor to KACE on July 15, 2007Dr. Adrian Mukhebi (left) explains KACE’s services to Mr. Kofi Annan: Manyvisitors to KACE: domestic, regional, internationalwww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEThank You!www.kacekenya.com

SOME KACE PHOTOS

KENYA AGRICULTURALCOMMODITY EXCHANGEA Franchised MRCwww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEInformation received an MRC is displayed ontrading boards and is available every market daywww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGERural Based Market Information Points: MRCsChwele MRC Assistant Alex takes Farmers and Tradersthrough Offers and Bids on the Trading Floor Boardwww.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEMobile Phone Short Messaging Service(SMS)A farmer accesses cattle prices via his mobile phone fromhis farm.www.kacekenya.com

KENYA AGRICULTURALCOMMODITY EXCHANGEFarmers Listening to KACE information onRadioA group of farmers tune in to Soko Hewani, a virtualtrading floor on a local FM station. www.kacekenya.com