Kenya changes tack on commodities exchange

Monday June 11 2018

agricultural market, bananas, regional commodities exchange

An agricultural produce market. Kenya has prepared a new multicommodity Warehouse Receipt Bill likely to further delay the establishment of a regional commodities exchange linking Kenya, Uganda and Rwanda. PHOTO | CYRIL NDEGEYA | NATION 

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Kenya is redrawing its plans for a commodities exchange for agricultural and non-agricultural produce, which is likely to further delay the establishment of a regional commodities exchange linking Kenya, Uganda and Rwanda.

Principal Secretary in the State Department of Trade Chris Kiptoo told The EastAfrican that the government has now decided to establish an exchange that deals with both agricultural and non-agricultural produce such as oil and minerals, a project that will take time as a new legal and institutional framework has to be put in place.

Dr Kiptoo said a new multicommodity Warehouse Receipt Bill has been prepared and is under consideration by the Attorney General.

Once established, the exchange will be regulated by the Capital Markets Authority.

Initially, Kenya had planned to create an exchange to start trading in agricultural products and only introduce non-agricultural items once the market became fully operational.

The commodities exchange was to start trading maize, wheat, sorghum, millet, and coffee in the initial phase followed by tea, cow peas, dry beans, ground nuts and pigeon peas in the second phase.

The initial Warehouse Receipt Bill, which only catered for the trading of agricultural produce has been in parliament since 2015, raising concerns from the partner states about the country’s commitment to the joint infrastructure project.

The 11th summit of the Northern Corridor Integration Projects held in Nairobi in October 2015 blamed Kenya’s slow progress on establishing its legal and regulatory framework for hampering implementation of this market.

Kenya, Uganda and Rwanda agreed to a joint commodities exchange and warehouse receipting system to ensure transparency in standards and pricing of farm produce.

Negotiating power

But Kenya has lagged behind its regional peers by falling behind in enacting legislation to facilitate the establishment of a mart to stabilise the prices of agricultural produce.

Burundi and Tanzania are not members of the Northern Corridor transport strip linking landlocked Rwanda, Uganda, South Sudan and Kenya.

The establishment of national commodities exchanges by the EAC member states is the first step towards creating a joint regional commodities exchange that will link Kenya, Uganda and Rwanda as part of the Northern Corridor infrastructure projects initiative.

Rwanda already has a commodities exchange which is private sector-driven.

Kenyan plans to convert various publicly and privately owned entities into warehouses for the proposed market.

These include the Kenya National Trading Corporation, the National Cereals and Produce Board, the Kenya Farmers Association and the Kenya Planters Cooperative Union.

The warehouse receipting system is expected to help farmers to obtain credit from financial institutions using their agricultural harvest as collateral.

The joint commodities exchange will ensure food security and stabilise prices of non-perishable agricultural crops within the EAC.

Standards of quality and quantity will be harmonised across the region while the prices of the crops will be determined by the forces of supply and demand.

It will also foster regional integration and strengthen the bloc’s negotiating power with the rest of the world in the pricing of key exports.

Each country is expected to create its own private-sector-driven commodities exchange that will be linked electronically to facilitate interaction between buyers and sellers from all the partner states.