ECX Exclusive Cooperative Auction Falls Short of Expectations
Exclusive auction for farmer cooperative seats only rejects one offer and accepts the rest
The Ethiopian Commodity Exchange’s (ECX) exclusive auction for farmers’ cooperatives seats attracted few and vastly differing offers, all but one of which were declared winners for the seats they sought.
The Exchange has a total of 329 seats, 15 of which are held by farmers’ cooperatives. These cooperatives are even less significant in their trading participation, accounting for just 2.2pc of the 601,000tns traded in 2012.
The reason for their low presence, according to both cooperatives and the ECX, is that they are permitted to bypass the Exchange in exporting their products. Additionally, most of them happen to have a limited financial capacity to compete with businesses for auctioned seats.
ECX’s seats, which were auctioned at a starting price of 50,000 Br when the Exchange was launched in 2008, reached an average of 1.35 million Br in 2012, with the highest offer being 3.5 million Br.
It was during the ECX’s annual meeting with cooperatives, at Ghion Hotel, in January 2013, that the Exchange announced there would be an exclusive auction for cooperatives, in order to boost their presence on its trading floors.
It floated the auction for 30 seats, with a starting price of 100,000 Br, in April 2013, reserving 12 for coffee, 10 for sesame and five for haricot supplying cooperatives, with the remaining three left open for other commodities. The seats bidders made offers on would not limit the commodities they could later trade, if they won.
The exchange said that 25 cooperatives had bought the bid document, but only 19 made offers, even after the ECX had postponed the closing date, from April 31 to May 16. One cooperative, Awroplan Marefia Cooperative, was disqualified because it offered only 20,000 Br; this bidder is a primary cooperative, not a union formed by several cooperatives, which would have given it financial leverage.
ECX’s executives were expecting a much higher turnout of at least 200 offers, according to Abenet Bekele, Chief Strategy Office (CSO) of the ECX.
There being too few offers for the seats availed, the remaining 18 bidders were all declared winners on May 16, 2013. Their offers, which were made with the expectancy of lesser competition, ranged from as little as 117,300 Br, by Tabor Farmers’ Cooperative Union, for a haricot bean seat; to 983,891.70 Br, by Burka Kaliti Farmers’ Cooperative Union for yet another coffee seat. This offer was even far larger than the second highest offer of 345,000 Br, by Arba Gugu Union. Ten Seasame producing cooperatives participated in the tender, offering an average of 191,000 Br.
The lowest successful bidder was the haricot bean producer, Tabor Cooperatives Union, which offered 117,300Br. Four haricot bean-producing cooperatives participated in the tender, offering an average of 178,000Br.
“We anticipated that prices would be lower, since there was no competition from businesses,” said Tilahun Assefa, general manager of Tabor Union, which has 86 cooperative unions, with one million farmers as members.
The Union produces 15,000qt of haricot bean a year, and has a capital of 7.2 million Br.
Previously, the individual cooperative members used intermediaries, to which they paid a commission of 0.5 to two percent for each transaction.
“We will try to cut this cost when we become ECX’s members,” he told Fortune.
A possible 20.1 million Br could have been gained, if calculated by the average price of previous ECX auctions, according to a press statement released by the ECX.
The fact that the ECX floated the tender, despite the risk of attracting low prices, shows its commitment to helping small scale farmers and its determination to support the Growth and Transformation Plan, said Anteneh Assefa, CEO of the ECX, speaking at a press conference he held with Abenet.
The number of cooperatives that are part of the ECX will now reach 33, which is nine percent of the total membership. But, this still remains a miniscule amount when compared to the 505 cooperative unions that exist in the country, according to 2011 figures.
“If member unions traded at full capacity, the representation would have been enough,” Anteneh told Fortune.
But, this is mostly not the case. Some cooperatives do not make a transaction for as long as six months, according to a source with close ties to cooperatives, who wished to remain anonymous. This is because harvest season is limited to a certain time of the year and the trading schedule of the ECX may not coincide.
“Cooperatives have permission to directly export products like coffee, sesame and haricot beans that are mandated to be traded only via ECX,” Anteneh told Fortune, explaining the low participation of the unions.
Even those that bought seats at the ECX may use it only when they do not find customers using other channels, according to Alemu, from Tabor. His cooperative plans to use the ECX to access international market prices and sell commodities left over from direct exports, in addition to purchasing other commodities for its individual members. The low participation at the tender may also be explained by the low capital of the majority of cooperatives.
“The ECX requires that cooperatives have sufficient assets and financial capacity to participate on the trading floor,” Alemu Chane, manager of the Sesame-producing, Gozamen Cooperative Union, which won a seat at the tender, for the sixth lowest amount of 134,550 Br, told Fortune.
The bid document required that trading members must have assets amounting to 500,000 Br. For intermediaries who trade for themselves as well as for clients, the requirement was raised to a million Birr. Moreover, bidders for trading and intermediary membership needed a bid bond of 200,000 and 300,000 Br, respectively.
For many cooperatives with lower capital, or without products to export frequently, it could be cheaper to use intermediaries, according to an instructor at Adama University, who is doing a research on cooperatives.
Larger unions benefit more from the membership, according to Alemu, from Gozamen, which has 53.3 million Br in capital and a membership of 56 cooperatives, with 91,000 farmers. The union once sold 3000qt of sesame for eight million Br, through the ECX, which cost it 80,000 Br in intermediary fees.
“Since we plan to start exporting sesame next year, a seat is a viable option,” Alemu told Fortune. “We could also act as intermediaries and become beneficiaries.”
This is the third time that the ECX has made seats available for new members, since it started out with 100, back in 2008. It added an additional 150 members in 2010, when a seat was auctioned for as much as 3.2 million Br.
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