March 23, 2011 / 12:41 PM / 7 years ago

ANALYSIS-Kenya's agriculture needs merged exchanges

* Agriculture contributes 25 percent to GDP

* Kenya has three fragmented exchanges

* Delivery threshold for maize farmers too high

By Beatrice Gachenge

NAIROBI March 23 (Reuters) - Kenya needs to consolidate its separate agricultural exchanges to increase the commodities traded and attract new ones, but it needs a new law to achieve that.

Supporters of reform say consolidation of the exchanges would lead to a four-fold growth in the turnover of the sector which underpins the economy of east African’s largest economy, contributing about 25 percent to its gross domestic product.

Kenya has three privately-owned commodity exchanges for tea, coffee and some agricultural commodities.

Ethiopia and South Africa have the most active consolidated agricultural exchanges in Africa, which trade a mixture of commodities, and have helped trade in the sector to expand.

Kenya runs its Mombasa Tea Auction, Nairobi Coffee Exchange and Kenya Agricultural Commodities Exchange separately.

“We need to consolidate these exchanges and have one vibrant and widely-owned exchange. Kenya needs to move from the granary to the exchange,” said Antony Mwithiga, chief investment officer at Stanbic Investments East Africa, a unit of South Africa’s Standard Bank Group.

The absence of a legislative framework on commodities trading and warehousing, compounded by lack of political will, were seen the stumbling blocks to hopes of setting up a consolidated agricultural exchange in Kenya.

Such an exchange would yield better prices for farmers, its supporters say.

“Just to draw parallels to the stock market when they automated, turnover quadrupled. We expect the same,” said Ken Kaniu, senior investment manager at Stanbic Investment.

“It would attract more investors to agriculture and incentivise large scale farming because of guaranteed ready market and prices. This would exponentially increase its contribution to GDP.”

The Nairobi Stock Exchange was automated in 1999, moving away from the public outcry trading, attracting new investors.

Privately owned commodities exchanges said they have in the last year lobbied the government to enact laws that would enable the formation of a consolidated agricultural exchange.

“A consolidated exchange means that we pull together our overhead costs as stakeholders and have one clearing system,” said Adrian Wakulo chairman at Kenya Agricultural Commodities Exchange, on which maize, beans and tomatoes are traded.

Analysts said prior to establishing a consolidated exchange, Kenya would need to set up more warehouses, which in turn could act as collateral to access loans to expand their output.

Kenyan maize farmers have access to the state-owned National Cereals and Produce Board silos, but its high delivery threshold of 100 bags has locked out small scale farmers, who account for about 75 percent of the country’s total grain production. “The threhold is very high for small scale farmers. NCPB needs to certify more middlemen to allow more farmers to access the warehouse,” said Mwithiga.

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