Ethiopa opening market for grain trade

Ethiopia, which suffered through decades of Communist rule with red terror and forced deportations, is opening the market opportunities for its many small farmers by opening a trade exchange for grains.

Now small farmers, who grow 90% of Ethiopia's crops, have little or no ability to store and transport their crops, so at harvest they sell to the first trader who comes by their farm or village. The exchange will give them to opportunity to sell to the whole world. And they will know the current prices on world markets.

Wall Street Journal:

This country has some of Africa's most fertile land, with fields of wheat and corn stretching to the horizon. Yet a few years ago, 14 million Ethiopians stood at the brink of starvation, saved only by vast international aid.

Now Ethiopia has hopes of breaking its deadly cycle of famine. Not with a Green Revolution, but with a market revolution.

... "The biggest revolution of the exchange is that our farmers will start to think national and global instead of local," said Eleni Gabre-Madhin, an economist who is the force behind the exchange. Today, "they think only of their nearest market down the road," she added. But "if they can see that global markets are up, that there is demand for the harvest, they will make better decisions on how much to plant, how much to invest in seeds and fertilizer, when to sell. We'll start seeing bigger gains in agricultural productivity."

Better decisions will help avoid cycles such as caused a disastrous, but unnecessary, crop shortfall in 1973.

Futures and other aspects of the system should help spread the risk of price swings, which until now has been borne solely by Ethiopia's farmers. This is what made a crop shortfall in 2003 far worse than it might have been.

The previous two years had produced bumper crops. But farmers -- needing cash to repay planting debts, and having no way to store their surplus -- flooded local markets with produce right after the big harvest. Prices collapsed by as much as 80%. There was no market system to sell and move these surplus crops efficiently to food-short regions in Ethiopia or elsewhere. With prices so low, some farmers didn't even go to the expense of harvesting crops and hauling them to market, leaving 300,000 tons to rot in the fields.

Farmers lost not just money but motivation. Unlike U.S. and European growers of certain crops, those in Ethiopia don't receive subsidies that would lead them to plant even if they expect market prices to be low. So the following season, farmers did whatever they could to cut expenses -- reducing fertilizer use, shutting off irrigation systems and simply not planting some fields. Many planted just enough to feed their families.

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