Gebrekiros Gebremedhin

Trading practice and challenges of participants: The case of ECX .
2011
ADDIS ABABA UNIVERSITY

SCHOOL OF GRADUATE STUIDIES
DEPARTMENT OF MANAGEMENT
Trading in Commodity Exchange and Challenges of Participants:

The Case of Ethiopian Commodity Exchange
By
GEBREKIROS GEBREMEDHIN
A Thesis Submitted to the School of Graduate Studies of Addis

Ababa University in Partial Fulfillment of the Requirements for
Degree of Masters of Business Administration in Finance
Advisor
VENKATI PONNALA (PhD)
June, 2011
Addis Ababa
G/Kiros G/Medhin Page i

Trading practice and challenges of participants: The case of ECX . 2011
ADDIS ABABA UNIVERSITY

SCHOOL OF GRADUATE STUDIES
Trading Practices and Challenges of participants: the case of Ethiopian commodity

exchange
Thesis submitted to the School of Graduate Studies, Addis Ababa University, in Partial
fulfillment of the Requirements for the Degree of masters of business administration in finance
BY
Gebrekiros G/Medhin
Approved by Board of Examiners
1. Faculty Chairman
Signature
____________________________ ___________________________
2. Advisor
____________________________ ___________________________
3. Internal Examiner
___________________________ ___________________________
G/Kiros G/Medhin Page ii

Declaration
I declare that the thesis entitled on trading in commodity exchange and challenges of
participants: the case of Ethiopian commodity exchange is my original work and has not been
presented in Addis Ababa University and all source of materials used for the thesis have been
duly acknowledged.
Advisors name: VENKATI PONNALA (PhD) Researcher: G/Kiros G/Medhin
Signature ------------------------------ Signature -----------------------
Date --------------------------------- date. -----------------------------
G/Kiros G/Medhin Page iii

Certification
This is to certify that this study on the topic entitled “trading in commodity exchange and
challenges of participants: the case of Ethiopian commodity exchange” is a bona fide work of
Gebrekiros Gebremedhin Berhe, ID NO.GSR/0453/02 who carried out under my
guidance/supervision and this work is original in nature and is suitable for submission for the
award of masters of business administration.
Advisors Name: VENKATI PONNALA (PhD)
Signature--------------------------
Date----------------------------
G/Kiros G/Medhin Page iv

Acknowledgement
All praises are due to Almighty God who enabled me to complete this thesis on “The trading in
commodity exchange and challenges of participants: the case of ECX” in a well manner.
With deep gratitude, I also acknowledge and appreciate the kind support, guidance, constructive
supervision, insightful comments and suggestions of my academic advisor Dr.Venkati Ponnala
from the core of my heart. His constant encouragement throughout the period of this study have
been greatest inducement for me and directly contributed to the accomplishment of the task.
My sincere and heartfelt gratitude goes to my beloved friends to Ato Azmeraw Ayehu,Antigen
Birhan and Muluken Dessalegn for their insightful comments and suggestions, invaluable
dedication to edit the research paper, advice and motivation with which they handled the work
to ensure the high quality is attained throughout the study. Special word of mouth is their credit.
Sincere thank to the ECX participants and officers for their precise time and frank response to
the questionnaires and interviews with out which this paper would come to life.
Last but not least, I am greatly indebted to my friends Ato Haile,Girmachew,Ahferom,Demile
for their moral support and suggestions to complete this paper successfully.
G/Kiros G/Medhin Page v

Table of Contents
Acknowledgement .......................................................................................................................... i
List of tables .............................................................................................................................. viii
Acronyms.................................................................................................................................... ix
Abstract .........................................................................................................................................x
CHAPTER ONE ...........................................................................................................................1
1. INTRODUCTION ....................................................................................................................1
1.1 Background of the Study ..................................................................................................1
1.2 Statement of the Problem .................................................................................................2
1.3 Objectives of the Study .....................................................................................................4
1.3.1 General objective ........................................................................................................4
1.3.2 Specific objectives .......................................................................................................4
1.4 Research Questions ...........................................................................................................4
1.5 Significance of the Study ..................................................................................................5
1.6 Delimitation and Limitation of the Study ......................................................................5
1.7 Organization of the Paper ................................................................................................5
CHAPTER TWO ..........................................................................................................................7
2. REVIEW OF RELATED LITERATURE ................................................................................7
2.1. Theoretical Literature .......................................................................................................7
2.1.1 A Glimpse of Commodity Exchange .......................................................................7
2.1.2. Definition and Concepts of Commodity Exchange ..............................................9
2.1.3. Contracts of Commodity Exchange ......................................................................10
2.1.4 Commodity Exchange Actors .................................................................................12
2.1.5. Functions of Commodity Exchange ......................................................................14
2.1.6. Commodity Exchanges and Regulation ...............................................................17
2.1.7. Trading System of Commodity Exchanges .........................................................18
2.2. Empirical Literature .......................................................................................................24
CHAPTER THREE ....................................................................................................................29
3. RESEARCH METHODLOGY ..............................................................................................29
G/Kiros G/Medhin Page vi

3.1 Source of Data ..................................................................................................................29

3.2 Sample Size and Sampling procedure ................................................................................29
3.3 Data Collection Instruments ...............................................................................................31
3.4 Data Analysis......................................................................................................................31
3.4.1 Binary Logistic Regression Model specification ........................................................31
CHAPTER FOUR .......................................................................................................................34
4. RESULTS AND DISCUSSION .............................................................................................34
4.1 Brief Description of the Study Population ...................................................................34
4.2. Trend and Membership categories of ECX Participants ...........................................36
4.3. Practice and Challenges of the Ethiopian Commodity Exchange ...........................38
4.3.1. Trading Practice ...........................................................................................................38
4.3.2. Market Information System ...................................................................................40
4.3.3. Warehousing and Quality Grading ......................................................................43
4.3.4 Liquidity.....................................................................................................................48
4.4 Regulation .....................................................................................................................50
4.5.1. Results of the Binomial Logit Model .........................................................................52
5. CONCLUSION AND RECOMMENDATION ..................................................................57
5.1. Conclusion .......................................................................................................................57
5.2. Recommendation ............................................................................................................58
REFERENCES ............................................................................................................................61
Annexes .......................................................................................................................................65
Annex 1: Pair-wise Correlation Results ..................................................................................65
Annex-2. Questionnaire (English version) .............................................................................66
Annex-2- Questionnaire (Amharic version) ..........................................................................72
G/Kiros G/Medhin Page vii

List of tables
Page No
Table1: Socio-Demographic Characteristics of ECX Participants-----------------------------------35

Table 2: The Distribution of Membership Categories of ECX Participants------------------------37
Table 3: Trading practice---------------------------------------------------------------------------------40
Table 4: Market information System dissemination of ECX-----------------------------------------41
Table 5; warehouse and quality grading System ECX participant----------------------------------45
T able 6: liquidity Characteristics of ECX--------------------------------------------------------------49
Table 7: Regulation of ECX --------------------------------------------------------------- -------------51
Table 8: Binary Logistic Regression Result of membership category----------------------53
G/Kiros G/Medhin Page viii

Acronyms
ECX Ethiopian Commodity Exchange
ICT Information communication Technology
KACE Kenyan Agricultural Commodity Exchange
SMS Mobile Phone Short Message Service
SPSS Statistical Package for Social Studies
TV Television
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Program
USAID United States Agency for International Development
WRS Warehouse Receipt System
G/Kiros G/Medhin Page ix

Abstract
The Ethiopian Commodity Exchange was established to revolutionize Ethiopian agriculture and
transform the economy through a dynamic, efficient and transparent marketing system. Properly
implemented and regulated, commodity exchanges can contribute greatly to the achievement of
a country’s economic and developmental goals and strengthen the bargaining power of
participants. Hence the overall objective of this study is to assess the trading practices and
identify the challenges of participants of the Ethiopian commodity exchange. And the variables
that were assessed and identified were trading practice, warehouse and quality grading,
liquidity and market information system. A survey questionnaires and interviews were prepared
to collect a primary data, secondary data from the books and documents of the ECX and other
sources were also used to augment the primary data. The data was collected from a sample of
80 Ethiopian commodity exchange participants or members selected through random sampling.
And the survey was collected through cross-sectional survey. And the data was analyzed
through descriptive analysis and binary regression model by using of SPSS version 16.The
result shows Ethiopian commodity exchange was practicing an open outcry trading system and
spot contract. The binary regression model result verified that time of participation, limited
membership seat, membership seat fee and occupation was found to be highly significant with
the choice of membership category. Apart from this according to the descriptive analysis lack of
adequate warehouses, grading and sampling system, higher penalty cost for not withdrawing
commodities from the warehouses on time, availability of in store credit, higher membership
seat fee and transaction cost, were found to be some of constraints that hinder participants
from the smooth functioning of transactions in the exchange.
Key words: ECX, ECX participants
G/Kiros G/Medhin Page x

CHAPTER ONE
1. INTRODUCTION
1.1 Background of the Study

In the era of globalization, how the economy and commodity market exchange is organized and
coordinated is increasingly became a fundamental concern of all nations across the world. More
specifically, linking of buyers and sellers in to commodity market for the effective and efficient
accomplishment of transactions among the participants is the most challenging task. In response
to this and following market liberalization and increasingly affordable information technology
since 1990, commodity exchanges have mushroomed around the world.
Commodity derivative exchanges provide a platform where traders and investors from various
parts of the world can participate in the hedging and price discovery of any listed commodity
(Bose, 2009). Instruments (contracts) traded on commodity exchanges include futures, options
and other derivatives. Trading in these instruments began with floor trading, also called open
outcry systems. In open outcry systems, traders assembled in a pit in the exchange and traded
commodities by indicating their bids or offers to others in the pits. Commodity futures markets
help with price discovery and provide a way to hedge for producers and buyers of commodities
(Thomas, 2008).
The Ethiopian Commodity Exchange was established in 2008 to revolutionize Ethiopian
agriculture and transform the economy through a dynamic, efficient and transparent marketing
system that serves all and essentially turns commodity into assets. And properly implemented
and regulated, commodity exchanges can contribute greatly to the achievement of a country‟s
G/Kiros G/Medhin Page 1

economic and developmental goals and strengthen the bargaining power of weak groups such as
small farmers.
Despite its establishment there were not adequate studies that identified the trading practices and
challenges of the participants of the commodity exchange. As findings of Tollens, (2006)
revealed that market information and commodity exchanges can be powerful instruments to
inform participants about market conditions and prices, to find willing buyers, to empower them
by making the transactions more equal and fair, to inform them about the optimal timing of
buying and selling, to induce them to store optimally and to plan ahead, making better informed
optimal production and marketing decisions. This thus helps to break the vicious poverty trap,
inducing resilience and better coping mechanisms, and reducing inequality in the markets.
The main purpose of the this study is to assess what the trading practice looks like and to
identify the constraints of the participants that arise from market information, storage
(warehouse), quality grade (standard), regulation, and liquidity, of the Ethiopian commodity
exchange.
1.2 Statement of the Problem
Some of the research findings in the area verified that how commodity exchange market can be
coordinated efficiently, at minimum transaction costs, among the myriad of actors in the rural
economy, the diverse and spatially dispersed producers and consumers, in such a way as to
enhance livelihoods and lead to the optimal allocation of resources was not given higher
concern in most developing countries.

According to Mukhebi ( 2004) high contract default, unreliable supply, volatile prices, poor
information, unregulated actors, unreliable trading partners are taken as the major initiatives to
establish commodity exchange and as interest in commodities has risen the range of available
products has developed to meet the needs of new and existing investors.
The Ethiopian commodity exchange is young established with bright vision and mission to
contribute to the economic development of the country in general and to the individual
participants at the grass root level. In a country like Ethiopia where a predominantly agrarian
society dominates, agriculture is the backbone of the countries development endeavor. Despite
this agricultural product marketing were not given much attention and were not getting its real
value for the last consecutive decades.
Gebremedhin and Ian Goggin (2005) found that producers of agricultural products and the
country at large were facing different challenges due to ineffective use of commodity exchange.
Despite its implementation commodity exchange progress in most developing countries were
found to be an area of difference.
Researches regarding to the Ethiopian commodity exchange participants are very limited and
the challenges of the participants is not fully articulated and described yet. This research is
therefore an attempt to fill the research gap of the Ethiopian commodity exchange participants.

1.3 Objectives of the Study
1.3.1 General objective

The overall objective of the study is to assess the trading practices and identify the challenges of
participants of the Ethiopian commodity exchange.
1.3.2 Specific objectives

 To assess the trading practices of the Ethiopian Commodity Exchange
 To describe the regulation system of the exchange
 To identify the challenges of Ethiopian Commodity Exchange participants
 To provide relevant recommendation that could significantly contribute for ensuring
commodity exchange system for participants in Ethiopia
1.4 Research Questions
The following questions were answered in this study among others include:
1. What does the ECX trading practice looks like?
2. Does the ECX or authority effectively regulate the exchange?
3. What are the major constraints/challenges of the ECX member participants?
4. What possible and viable recommendation could be forwarded to ensure the smooth
functioning of the exchange?

1.5 Significance of the Study
The growth of Ethiopian commodity exchange was impressive in the last two years. Despite this
only little attention was given to variables which influence Ethiopian commodity exchange
participant‟s success. Thus study was assessed the trading practice and identified the challenges
of participants of the Ethiopian commodity exchanges that hindered the smooth functioning of
the exchange.
Hence, such studies are beyond doubt important for the success of lately emerged Ethiopian
commodity exchange. Policy makers and planners can also draw lessons on the issue under
consideration for better success in the field. Besides adding a brick to the body of knowledge on
the subject, the output of the study could also be informative for development practitioners and
donors interested to operate and strengthen Ethiopian commodity exchange. Furthermore the
findings of this study may also serve as a spillover for further research in the area.
1.6 Delimitation and Limitation of the Study
At the study period there were other commodity exchanges in the regional parts of country. But
to make the study narrow and manageable the scope of the research will be delimited to the
Addis Ababa city commodity exchange participants.
Due to time, manageability of data and budget constraint the researcher was delimited its sample
size in to 80 respondents. And these may have limitation on the results of the study.
1.7 Organization of the Paper
The research paper was organized into five chapters. The first chapter provided a general
introduction, statement of the problem, the research objective, why the topic was worth to be

conducted and scope and limitation of the study. The second chapter dealt with review of
literature pertinent to the research. The third chapter covered the research methodology
(research design, source of data, sample, sample size, sampling technique, and data collection
instruments and data analysis) while the fourth chapter portray major findings of the research.
Finally the conclusion and priorities ahead were presented in chapter five.

CHAPTER TWO
2. REVIEW OF RELATED LITERATURE
2.1. Theoretical Literature
2.1.1 A Glimpse of Commodity Exchange

Organized commodity exchanges have a long history. Grain traders in Japan began
experimenting with the idea in 1730, and the Chicago Board of Trade (CBOT) and the London
Metal Exchange successfully launched their operations in 1864 and 1877, respectively. For
more than a century, commodity exchanges remained largely confined to industrialized nations.
However, with market liberalization and increasingly affordable information technology since
1990, commodity exchanges have mushroomed around the world (UNCTAD, 2007).
Rashid, et al (2010) growing interest in commodity exchange from government and donors in
Africa is a clear reflection of need for commodity risk management. Because international
markets remain volatile and domestic markets are thin and fragmented, risk management is
critical for commodity sector development.
There have been many donor-supported initiatives to establish commodity exchanges in
developing countries, but very few have succeeded. In Africa, five countries launched
agricultural commodity exchanges shortly after market liberalization in the 1990s, but only
South Africa succeeded in making its exchange sustainable. Despite the initial stage of success,
Zambia and Zimbabwe suspended their operations following unusual price hikes and subsequent
government intervention.

Other exchanges established in the 1990s include the Kenyan Agricultural Commodity
Exchange (KACE) which no longer support actual trades but exist with donor support and the
Uganda Commodity Exchange (UCE) which does coordinate trades but not been able to attract
sufficient trade volumes to be self sustaining. Since 2004, more and more countries have been
launching exchanges-notable ones include Malawi in 2004, Nigeria in 2006, the Ethiopian
Commodity Exchange (ECX) in 2008 and the new Zambian exchange, ZAMACE, established
in 2007( ibid).
ECX is an institution established by specific legislation and owned by the government.
According to Proclamation No. 550/2007, ECX is a wholly State owned market institution,
which commenced operation with a government authorized capital of 250 million Birr having its
own legal personality. As a government owned entity, it is supervised by the Ministry of
Agriculture and Rural Development and regulated by the Ethiopia Commodity Exchange
Authority (ECX, 2008). It was funded by a consortium of financing partners including UNDP,
the World Bank, American development agency USAID, Canadian Development Agency and
the World Food Program (Alemu et al, 2010).
ECX is state owned Public-Private Partnership enterprise. The Government of Ethiopia is the
owner of the ECX, while the ECX offers the sale of Membership seats, which are privately
owned, permanently and freely transferable rights to the stream of earnings from trading on the
Exchange.
It is established as a demutualized corporate entity with clear separation of ownership,
membership, and management. Thus, owners cannot have trading stake, members cannot have
ownership stake, and the management can be neither drawn from the owners nor from the

members. There is a joint Board of Directors drawn from relevant public institutions (state) and
ECX members (private) (ECX, 2008).
It is anticipated that ECX will reward quality to producers; reduce transaction costs of market
participation thus increasing returns to market activity; enable quick capital turnaround thus
increasing market volumes, and reduce risk related to counterparty default and prices, thus
increasing market participation; increase information and transparency for all market actors,
thus empowering smallholders and other disadvantaged actors (Alemu et al, 2010).
2.1.2. Definition and Concepts of Commodity Exchange
According to UNCTAD (2005) commodity exchanges are defined in many different ways. For
many observers in developed countries, a commodity exchange is a platform for the trade in
futures contracts (standardized contracts for delivery of commodities at some time in the future)
any other form of trade would not classify.
In addition to the above commodity exchange is defined as a market in which multiple buyers
and sellers trade commodity-linked contracts on the basis of rules and procedures laid down by
the exchange. And in an increasing number of developing countries, such exchanges typically
act as a platform for trade in futures contracts, or for standardized contracts for future delivery.
Parvez (2009) defined as an auction market where contracts on commodities are available for
purchase or sale at an agreed price and for delivery on a specified date. Or it is an association or
a company or any other body corporate organizing futures trading in commodities for which
license has been granted by regulating authority.

And according Gabremedhin and Gogggin ( 2005),a commodity exchange is defined as central
market place where sellers and buyers meet to transact in an organized fashion ,with a certain
clearly specified and transparent “rules of the game “.In its wider sense a commodity exchange
is any organized market place where trade is funneled through a single ,well defined mechanism
2.1.3. Contracts of Commodity Exchange
Commodity exchange is an exchange where various commodities and derivatives products are
traded. Most commodity markets across the world trade in agricultural products and other raw
materials (such as wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies,
oil, metals) and contracts based on them. These contracts can include spots, forwards, futures
and options on futures.
Commodity exchanges usually trade futures contracts on commodities, such as trading contracts
to receive something and it protects the farmer (seller) from price drops and the buyer from
price rises. Speculators also buy and sell the futures contracts to make a profit and provide
liquidity to the system (Meijerink etal, 2010).
2.1.3.1. Spot Contract

A spot contract is an agreement between a buyer and a seller at time zero, when the seller of the
asset agrees to deliver it immediately for cash and the buyer agrees to pay in cash for that asset.
Thus, the unique feature of a spot contract is the immediate and simultaneous exchange of cash
for securities, or what is often called delivery versus payment (Ross et al., 2002).

2.1.3.2. Forward Contract

A forward contract is a legally binding agreement between two parties calling for the sale of an
asset or product in the future at a price agreed upon today. The terms of the contract call for one
party to deliver the goods to the other on a certain date in the future, called the settlement date.
The other party pays the previously agreed-upon forward price and takes the goods. Forward
contracts can be bought and sold.
The buyer of a forward contract has the obligation to take delivery and pay for the goods; the
seller has the obligation to make delivery and accept payment. The buyer of a forward contract
benefits if prices increase because the buyer will have locked in a lower price. Similarly, the
seller wins if prices fall because a higher selling price has been locked in. Note that one party to
a forward contract can win only at the expense of the other, so a forward contract is a zero-sum
game (Ross et al., 2002).
2.1.3.3. Future Trading Contract

According to Sahadevan K.G. (2002) Futures contracts are an improved variant of forward
contracts. They are agreements to purchase or sell a given quantity of a commodity at a
predetermined price, with settlement expected to take place at a future date. The futures
contracts as against forwards are standardized in terms of quality and quantity, and place and
date of delivery of the commodity.
Parvez (2009) cited in the literature futures market contract in commodity exchange are largely
used as risk management or hedging mechanism on either physical commodity itself or open
positions in commodity stock. This purchase or sale of commodities must be made through a

broker or trading member who must be a member of the exchange and the trade should be done
under the terms and conditions of the exchanges.
Due to the bulky nature of the underlying assets, physical settlement in commodity derivatives
creates the need for warehousing, the quality of the asset underlying a contract can vary largely
and this becomes an important issue to be managed. Participants of a commodities exchange are
not free from risk.
In futures contracts, inexperienced investors may face price risk as all futures prices respond to
many factors. Such factors may include unexpected high inflation, general strikes, natural
calamities, reports on economic forecasts, politics and even on rumors and many other internal
and external matters. The factors that can influence commodities prices may occur any time.
In addition to the above Frank.Faboziand and Franco Modiliani (1996) stated that the basic
economic function of future markets is to provide an opportunity for market participants to
hedge against the risk of adverse price movements. Future contracts products created by
exchange .to create a particular future contract; an exchange must obtain approval from the
commodity future trading commission, government regulatory agency.
2.1.4 Commodity Exchange Actors

In modern commodity exchange system the number of exchange market actors who participate
in the exchange is very limited as compared to the number of people who wish to trade in the
exchange. This is due to the limited capacity of the trading floor to accommodate large number
of traders on one hand and other limitations that involve market and marketing infrastructure
and the degree of complexity of monitoring and regulatory requirements of the system on the

other. Moreover, increasing the number of members that directly participate in the commodity
exchange market would complicate the healthy function of the market system.
In countries where commodity exchange market is available different producers, processors,
wholesalers and retailers as well as consumers trade through intermediary members that are
granted recognition from the commodity exchange authorities. In the commodity system of
Ethiopia, there are different types of membership of which the main are of two types trading and
intermediary member .trading members are those members that can trade (buy and /or sell) only
for themselves. Intermediary members on the other hand are members that can trade for
themselves as well as on behalf of other market participants who have not got the chance to be
members of the commodity exchange (ECX, 2008).
Commodity exchange actors can be defined as any person recognized by the authority who
engage in the business of buying and selling exchange trade contracts for others or for his own
account. According to Gebremedhin (2007) there are three types of actors or participants in an
Exchange. First, there are those interested in the physical commodity itself, such as producers,
processors, or consumers. These actors either have a product they want to sell, or they wish to
buy a product for a particular purpose. Typically, these actors are least willing to take risk and
actively seek to reduce their risk to as little as possible so, if they can, they prefer to pass on
their risk to someone else in the market.
Both brokers and dealers, as market intermediaries, play an important role in the market by
offering options to trade. Through their actions, they ensure that prices do not vary much across
markets. When prices diverge, dealers buy goods in cheaper markets and sell in more expensive
markets, thus connecting sellers and buyers across these markets.
Second, there are those who are interested in arbitrage, which is taking advantage of the
opportunity to buy at one price and sell at another to make a profit. These actors, such as

dealers and brokers, are interested in taking calculated risks involving the sale and purchase of
commodities.
A third category of market participant involves those who are even less interested in the
physical commodity, and even more willing to take risks based on their predictions or informed
guesses about the direction of the market. These actors are speculators, who profit from
information they have about future prices. Well-informed speculators can predict future prices
better than other traders in the market. They provide the market with signals about the future
based on their ability to judge market trends and are willing to take a risk on their judgment.
Unlike the arbitrageurs in the second category, speculators only exist where there is uncertainty
over time, leading to a given degree of price volatility in the market.
Tse et al, (2001) a floor trader is an Exchange member or employee of a member, who executes
trades by being personally present in the trading ring or pit. The floor trader has no place in
electronic trading systems.
2.1.5. Functions of Commodity Exchange

The purpose of a commodity exchange is to provide an organized marketplace in which
members can freely buy and sell various commodities in which they have an interest. The
exchange itself does not operate for profit. It merely provides the facilities and ground rules for
its members to trade in commodity futures and spots and for non-members also to trade by
dealing through a member broker and paying a brokerage commission (Lerner, 2000).
In addition commodity exchange reduces transaction costs by offering services at lower cost
than that which participants in the commodity sectors would incur if they were acting outside an

institutional framework. These can include – but are not limited to – the costs associated with
finding a suitable buyer or seller, negotiating the terms and conditions of a contract, securing
finance to fund the transaction, managing credit, cash and product transfers, and arbitrating
disputes between contractual counterparties. Therefore, by reducing the costs incurred by the
parties to a potential transaction, a commodity exchange can stimulate trade.
Moreover, properly functioning commodity exchanges can promote more efficient production,
storage, marketing and agro-processing operations, and improved overall agriculture sector
performance (Newman S, 2008). And Gideon O.E, 2003) describes commodity exchanges can
be an important part of interventions to address the identified constraints because of the
following economic benefits:
A) Exchange trading generally saves time and cost of transacting as well as reduces risks faced
by counterparties, who are assured of a fair deal (arising from competitive trading), guaranteed
payment for what is sold and delivery of what is paid for.
B) The system creates a means by which sellers and buyers are brought together to trade on the
basis of reliable information on the quality, quantity and location of commodities to be traded.
This reduces the cost of sourcing produce for traders and processors, while lowering the cost of
accessing markets for farmers, especially for premium quality produce. It avoids the high-cost
and time-intensive process of physical sampling of goods before purchase, which is
predominant in the informal agricultural trade in the country. This is because the quality and
quantity of the traded product is assured, thus making „sight-unseen‟ trade possible, implying
sellers can sell to buyers in a wider geographical area than their immediate location.

C) Guarantee of delivery by the exchange, based on the guarantee by warehouse operators,
reduces the risk of non-performance of trade contracts. Sellers are also assured of payment for
the commodity sold, with systems being in place to minimize the risk of default by buyers,
especially when the market moves against them. The greater security in trade transactions
provided, leads to significantly lower cost (including time lost) associated with contract
enforcement, especially where litigation is time consuming and expensive.
D) Increased availability of inventory finance is also likely to boost non-traditional exports by
reducing uncertainty regarding contract performance faced by importers. This will be through
enabling exporters to stockpile using inventory finance, thereby assuring more regular supply
and to guarantee delivery on schedule of commodities of known quality and quantity.
E) Exchange trading improves collection and dissemination of market information to all players.
Prices on the exchange, discovered through a transparent process, are widely disseminated.
Brokers, who are expected to facilitate trade and provide market advice to their clients, receive
and analyses price-sensitive market information, thereby assisting buyers and sellers in making
trade decisions.
F) The exchange represents a transparent and often reliable means by which lenders can
liquidate collateralized commodities in the event of default by the borrower. Therefore it
facilitates access to commodity finance.
G) As the exchange matures from a spot market into offering various risk management
instruments, including futures and options contracts, lenders will use such instruments to hedge
price risks. By so doing, they will reduce credit risks, leading to lower cost of borrowing. The
formal market in commodities will also attract investors intending to profit from price
movements. Their involvement will bring added liquidity to the market to the benefit of all
players.
2.1.6. Commodity Exchanges and Regulation

Regulation: Commodity exchanges typically institute and robustly enforce relevant procedures,
rules, regulations and guidelines to regulate the conduct of members, brokers and transactors.
They are often able to take disciplinary action against parties in the event of non-compliance
with the rules and procedures. They also tend to establish formal systems for quick and low cost
resolution of trade disputes (Gideon O.E, 2003)
Government has two important role to play - an oversight role by which the government
disciplining those who try to manipulate the markets for their own benefit, and ensuring the
sanctity of contracts; and secondly, an enabling role by which the government providing the
necessary legal and regulatory framework for the smooth functioning of the system.
The regulatory intervention should be most active at the time of the establishment of the
exchange and of contracts. If the contracts are well formulated, and delivery modalities provide
effective line of defense against attempts at manipulation, government has to only act as a
watchdog intervening only when necessary. The goal of regulatory agency is not only to
regulate but also to inculcate the culture of self-regulation among the participants. This in turn,
over a period of time, will give way for more self-regulation supported by the advisory role of
state regulation (Sahadevan, 2002)
As it was stated in UNCTAD (2005) intermediaries play a role in the market on behalf of end
users; the activities of these intermediaries need to be overseen to ensure that they fulfill
obligations. When either of these thresholds is crossed, there is a requirement upon the
exchange to act as a self-regulatory of activities taking place in its markets, and for Government
to provide an overall framework for oversight.
2.1.7. Trading System of Commodity Exchanges

A movement towards electronic trading has taken place in recent years. This has been driven by
technological advances and by the advantages in speed, cost, transparency and functionality that
such trade typically offers over the established “open outcry” form of trading, which brings
traders together on a trading floor. And in addition Computer technology has the potential to
increase the efficiency, transparency, and liquidity of the commodity markets by increasing the
speed of transactions and lowering transaction costs.
Electronic trading typically brings a number of other potential advantages. These include
limiting informational asymmetries between trading interests, allowing potentially longer
trading hours, and increasing access to markets regardless of one‟s geographical location
(Thomas, 2008).
It was also explained by Gbremedhin et al (2005) that trading on a commodity exchange is like
a continuous two-way auction, in which offers to buy are going on simultaneously with offers to
sell. This is possible because the graded product needs no description with a standardized
contract and because there is sufficient volume of both buy and sell orders.
2.1.7.1. Clearing and Settlement of Services

A clearing and settlement system that assures payment to sellers as well as minimizes
overexposure of counterparties is essential. Financial institutions which are members of the
exchange usually offer clearing services. Reliable and timely dissemination of such market

information as would ensure informed decisions by various parties, local and regional, who
intend to trade. Informed decisions are critical to market efficiency (Gideon, 2003).
Clearing is the process of determination of obligations, after which the obligations are
discharged by settlement. Settlement is a two-way process that involves legal transfer of the title
to funds and securities/other assets on the settlement date. The clearing bank services are a
highly time critical activity as delays directly impact the members/exchange. Banks can play an
important role in settlement of obligations in the overall ecosystem including exchanges,
members, clients, custodians, etc. This is highly transactional nature of the business. Dedicated
infrastructure, trained manpower, and use of technology are the key parameters to doing this
business (Sahadevan, 2002).
And the banking settlement system plays a crucial role in the overall risk management of the
exchange mechanism, wherein daily settlement of trades/obligations, ability to manage fund
flows in volatile days, coordination with exchanges and members, etc contribute towards
effective functioning of the exchange mechanism. Apart from clearing services, banks also
provide fund and non-fund based facilities to the members of the exchange for managing their
working capital requirements and, thus, earn revenues through float funds, interest earned on
overdrafts/loans, commission income, etc.
All members of an exchange are required to clear their trades through the clearing house at the
end of each trading session, and to deposit with the clearing house a sum of money (based on
clearinghouse margin requirements) sufficient to cover the member‟s debit balance
(Lerner,2000).

2.1.7.2. Price Determination

Prices of commodity exchange are determined solely by the interaction of supply and demand
conditions. If there are more buyers than sellers, prices will be forced up. If there are more
sellers than buyers, prices will be forced down. Buy and sell orders, which originate from all
sources and are channeled to the exchange trading floor for execution, are actually what
determine prices. These orders to buy and sell are translated into actual purchases and sales on
the exchange trading floor, and according to regulation this must be done by public outcry
across the trading ring or pit and not by private negotiation. The prices at which transactions are
made are recorded and immediately released for distribution over a vast telecommunications
network (Lerner, 2000).
As cited in Chicago Mercantile Commodity Exchange trading futures contracts, it is essential
that you know how to make a reasonable estimate of what will happen to prices in the future. Of
course, no one can know for certain what prices will be, but it pays to have an educated opinion
as to whether prices will rise or fall (www.cme.com.retrived 5th April 2011).
2.1.7.3. Market Information System

According to Gebremedhin and Goggin (20005) the core attribute of an exchange, is to
enhances market transparency through generating and disseminating information. Through its
own functioning, the exchange creates market information about the underlying supply and
demand conditions in the economy. Thus, contrary to popular perception, commodity exchange
does not require an external market information system as a pre-requisite to its proper
functioning.

a market information system is a service that involves the collection on a regular basis of
information on prices and, in some cases, quantities of widely traded agricultural products from
rural assembly markets, wholesale and retail markets, as appropriate, and dissemination of this
information on a timely and regular basis through various media to farmers, traders, government
officials, policy-makers and others including consumers.
Market information helps potential buyers and sellers to make market decisions and gives them
the assurance that the market is transparent and can handle their market needs. Once the market
is established, market information is disseminated by word of mouth, as market user‟s travel to
and from the market to other locations. As the market evolves, market information is also often
carried by newspapers that are distributed within the market‟s catchment area; today such
information can also be disseminated by radio, TV telephone links and via the web (Ibid).
2.1.7.4. Warehouse and Quality Grading System

Warehouse can be defined as a place in which goods or merchandise are stored; a storehouse.
And the development of warehousing has positive knock-on effects up and down the supply
chain. The warehouse receipt system (WRS) provides a platform for the introduction of other
institutional innovations, notably grading, contracting and exchange trading. It facilitates public
procurement as national and international agencies can simplify their activities by dealing in
paper such as warehouse receipts, rather than trade directly in physical commodities.
WRS is also a valuable instrument for financing agricultural commodity chains, especially in
countries where the shortage of alternative forms of collateral constitutes one of the most
important obstacles in access to finance. Warehouse receipts are issued by warehouse operators
as evidence that specified commodities of stated quantity and quality have been deposited at

particular locations by named depositors. The warehouse operator holds the stored commodity
by way of safe custody; implying he is legally liable to make good any value lost through theft
or damage by fire and other catastrophes but has no legal or beneficial interest in it (Gideon
,2010).
The quality of warehouse and storage management skills tends to be highly variable in most
developing countries. Improving professional skills in the warehousing industry is necessary if
storage losses are to be kept at a minimum. Similar training and capacity building is required to
enable traders and processing companies to utilize the WRS in cost-effectively managing their
inventories (ibid).
According to Gebremedhin & Goggin (2005) transferable warehouse system is highly
complementary to the functions of the exchange. The receipts system goes hand in hand with a
commodity exchange in that: Grades and standards are essential to warehouse operations as well
as to a commodity exchange with standardized contracts; Price transparency is achieved because
receipts indicate a specific grade, which generates price information that can also be used on the
exchange; Risk is transferred by selling receipts on the exchange; and, Integrity and order: the
legal enforcement of quality and of the transferability of the receipt is vital for both the
warehouse receipts system and the functioning of the exchange.
2.1.7.5. Membership
In a deregulated market, membership is voluntary. Any individual or business organization that
is engaged in the marketing of commodities may become a member of an exchange: traders,
brokers, cooperatives, processors, state enterprises, etc. A key function of the exchange is
therefore to ensure compliance of all of its members. An exchange is itself registered with and

supervised by government agencies established to oversee its activities in line with the law in
place (UNCTAD, 2005).
The exchange‟s regulations and directives usually make it mandatory for members to make use
of standard contracts prepared by the exchange to which they belong. Thus, members are
required to strictly adhere to the terms and conditions laid down in the contracts, to keep
appropriate records of their transactions; and to submit to be bound by the disciplinary rules of
the exchange (Gideon, 2010).
2.1.8. Overview of the Ethiopian Commodity Exchange

The Ethiopian Commodity Exchange (ECX) is designed to be a marketplace where buyers and
sellers meet to trade, assured of quality, delivery and payment. It will manage a system of daily
clearing and settling of contracts. It will enhance market efficiency by operating a trading
system where buyers and sellers use standardized contracts. Market transparency will be
achieved by disseminating market information in real time to all market players (ECX, 2008).
As Mheen-Sluijer etal (2010) explained, trading takes place on a physical trading floor located
in Addis Ababa, where buyers and sellers participate in “open outcry” bidding. Market prices
are constantly changing throughout trading hours. The ECX uses several ways to transmit these
prices in real time to producers and consumers directly. Once a deal is made, the ECX credits
the seller‟s account and transfers title of the commodity to the buyer. The buyer then needs to
collect its goods within 10 days from the warehouse where the product was deposited.
Once the product is deposited in the ECX warehouse, the ECX samples, grades, weighs and
certifies the product according to ECX established and Products are stored in the ECX

warehouse, and an Electronic Warehouse Receipt is issued to the depositor or his/her
representative (ibid).
It aims to provide a trading ground for sesame, haricot beans, maize, wheat and coffee. The
ECX is supposed to guarantee: market integrity: guaranteeing the product grade and quantity
and operating a system of daily clearing and settling of contracts; efficient coordination of
buyers-sellers and standardized contracts; market transparency: disseminating market
information in real time to all market players; and managed risk (Getahun, 2010)).
ECX Members are the core actors of the market. Membership is acquired through the purchase
of a Membership Seat, provided other requirements are met. A Membership Seat is a permanent
and transferable right to trade on the Exchange. Members are required to follow the Rules of the
Exchange and thus maintain the integrity of the ECX marketplace (Alemu et al, 2009).
2.2. Empirical Literature

Sarkar and Tozzi (1998), suggest that although open outcry systems were more effective to trade
highly active contracts, electronic trading has the potential to enhance operational efficiency and
reduce costs. In contrary to the above Tse and Zabotina (2001) found that electronic trading
systems reduce spreads while open outcry systems have higher market quality due to smaller
variance of pricing error and higher information content. Information content is measured by
studying the bid-ask spreads in response to trades. In addition according Robin Thomas (2008)
Electronic trading leads to reduced price movement, then it would lead to lower volatility and
hence lower risk in the market.
Adebusuyi‟s (2004) finding reveals that communications and transportation infrastructure is
critical to a functioning exchange and outstanding constraints, and challenges to the stabilization
of commodity prices were identified to include the small scale nature of production and low
level of further processing, poor performance of state and public institutions, poor infrastructure
which made production uncompetitive and inadequate market information as well as poor
access to productive assets. And as per his finding one of the major factors influencing the
fluctuation of commodity prices is cyclical income fluctuations in the consuming countries
Shahidur et al (2010) found that Countries with successful exchanges have far more developed
communications and/or transportation infrastructure than countries with less successful
exchanges and the researchers added that the real challenge in African commodity exchange is
not the development of grades but the enforcement of contracts that use those goods.
Celeste Aida (2010) also found inadequate market information, a weak system to enforce
contracts, lack of standards and grades and the inexistence of the necessary institutions that
support proper market functioning are some of the constraints of coffee market in Ethiopia.
According to Shahidur et al (2010), erratic price behaviors that are inconsistent with transaction
costs could undermine a commodity exchange by making risk unacceptably high. Prices can
also vary significantly across space due to inadequate infrastructure or information asymmetry,
both of which are important sources of market failures. The non-competitive situations resulting
from market failures can make it difficult to identify how to structure contracts to be traded on
an exchange.
According to Gideon (2010) quality of warehouse and storage management skills tends to be
highly variable in most African countries. Improving professional skills in the warehousing
industry is necessary if storage losses are to be kept at a minimum. Similar training and capacity
building is required to enable traders and processing companies to utilize the WRS in cost-
effectively managing their inventories.

According to the study made by Alemu et al (2010) limited availability of international market
information in terms of prices and production levels, which is reflected in poor linkage /
transmission of price trends with the national market, is expected to be another challenge
considerably affecting the competitiveness of the Ethiopian sesame in the international market
and this is expected to create disincentives for sesame exporters to engage in the sesame market
through ECX.
And the researchers added that exporters in Ethiopia face several quality problems in terms of
quality grading and sampling representation commodities and adulteration especially by mixing
sesame seed of different origin and the Ethiopian Quality and Standard Authority (EQSA)s‟,
quality grading and certification which has been reported to take a long time as well as prone to
corruption.
In addition Celeste Aida (2010) found that Internet and telecommunications in the ECX are
still quite deficient (sometimes nonexistent) to disseminate information to the participants.
And as it is explained by Francesconi ( 2009) his study “Lack of capital, remoteness, poorly
developed roads and telephone lines are only some of the barriers that keep farm households far
away from markets, and therefore from the potential benefits of the ECX”.
As the findings of Mukhebi (1998) Kenyan Agricultural Commodity Exchange faces several
constraints that impede the KACE from the successful accomplishment are ;first, poor quality
of produce that farmers deliver combined with the fact that most small-scale farmers find it
difficult to deliver in bulk which is ideal for an exchange; and secondly, most of the
commodities in Kenya are heavily regulated by boards and are grown and marketed in an
environment of struggling cooperatives, which are inefficient, mismanaged and have

cumbersome internal bureaucracies. And the other major factor identified in the study was
intervention of Kenyan government, in grain markets distorts prices and discourages increased
private sector participation in commodity markets.
In addition to the above Gabremedhin and Ian Goggin, (2005) before the establishment of the
ECX found that the Ethiopian grain markets faced some constraints such as; lack of sufficient
market coordination between buyers and sellers, the lack of market information, the lack of trust
among market actors, the lack of contract enforcement, and the lack of grades and standards,
implies that buyers and sellers operate within narrow market channels, that is, only those
channels for which they can obtain information and in which they have a few trusted trading
partners .and their concluding showed that establishing of a commodity exchange will eliminate
constraints that the Ethiopian commodity market faced.
Tollens (2006) in his study cited that the absence of easily accessible market information for
farmers or small traders leads to lack of market transparency, low bargaining power of the
buyers and sellers, low and highly variable prices due to market inefficiency, coexistence of
surplus and deficit areas due to weak spatial integration of markets, high risks, low produce
quality and high losses, high transaction costs and insufficient production to satisfy consumer
demand.
Another important finding made by Ian Goggin (2007) showed that no perceived need for
market transparency in the market ,Lack of credit, Lack of understanding of the exchange
concept ,New concept-particularly for small-scale operators, including farmers, resistance to
change and non-performance on contracts are considered in the study as the main constraints for
the successful accomplishment of commodity exchanges.

Gideon O.E (2010) found that “Liquidity in the agricultural trade can be enhanced if lenders
aversion to the provision of inventory finance is addressed through the development of credible
warehouse system which allows stored commodities to be used as collateral for loan”.

CHAPTER THREE
3. RESEARCH METHODLOGY
The study employed both quantitative and qualitative research tool in order to produce a richer
and more factual report. To assess the trading practice and pinpoint out challenges of the
participants in the Ethiopian commodity exchange the study employed a survey questionnaire
which comprises of both closed and open ended questionnaires. Besides key informant
interview and on spot observation of the trading practice at ECX was made to augment the data
collected through the aforementioned data sources. In this study challenge of commodity
exchange participants was identified in terms of market information, quality standard and
warehousing, liquidity, regulation and trading practice. To this end, cross-sectional survey
method was employed.
3.1 Source of Data

The source of data for this study comprises of both primary and secondary sources. Primary data
source was collected through employing questionnaire and key informant interviews in order to
assess trading practices and to identify the main challenges of the Ethiopian commodity
exchange participants. To support the collected primary data sources direct observation was also
conducted. In addition to this, Secondary source of data was also used for the study inter alias
include data from ECX, published and unpublished materials and electronic sources.
3.2 Sample Size and Sampling procedure

From the total study population of 498 ECX participants, which were categorized as full
members and limited members of the Ethiopian commodity exchange, engaged in buying,
selling and exporting of commodities in Addis Ababa city 80 participants were selected as a
sample. The study employed standard statistical formula to determine the sample size of the

study. Based on a single proportion formula, the sample size was 165 but due to manageability
of the data and the time available, the researcher prefers to take only samples of 80 member
participants. The sample was selected through a two-stage stratified random sampling technique
using proportional size allocation, which in this case was the major unit of analysis. The
sampling frame, list of the commodity exchange participants or actors, was taken from the
Ethiopian commodity exchange found in Addis Ababa city. The Ethiopian commodity exchange
participants included in the sample were those commodity actors which were the legal members
of the Ethiopian commodity exchange.
Furthermore, key informant interview was held with knowledgeable informants, who among
others include warehouses operation officers, membership relation, quality grading officers,
member participants and others were the potential informants.
Since the sampling frame consists of heterogeneous membership type categories, the
appropriate sampling technique for the research was found to be stratified sampling technique.
Sample size of each stratum was decided based on proportional sampling method. Selections of
key informants were carried out in consultation with concerned bodies of the Ethiopian
commodity exchange coordination office.

3.3 Data Collection Instruments
Appropriate questionnaires were prepared and used for the survey. Respondents were told what
the research was all about in the language that they can understand. Respondents in this study
were speakers of Amharic. Therefore, the questionnaire was translated into the language that
they can understand. Doing so was very important for respondents to easily understand the
questionnaire and express their ideas comfortably. Pilot test of the questionnaire was carried out
at Humera commodity exchange. Feedback obtained from the pilot test was used to refine the
questionnaire. Out of the total 80 questionnaires administered, 73 were found filled
appropriately and considered for analysis.
3.4 Data Analysis

The Data collected through the aforementioned research tools were organized in a way suitable
for analysis using computer soft ware. A descriptive method of data analysis was employed
using Statistical Package for Social Studies (SPSS). To this end version 16 SPSS software was
used to analyze the data collected through different instruments and t-test was also used to test
whether the dependent variables have differences on the constraining variable. Besides binary
logistic regression was used to sort out the relative strength of explanatory variables which are
expected to influence the decision and status of participants‟ membership category (limited and
full membership categories).
3.4.1 Binary Logistic Regression Model specification
Binary regression model is amongst the most popular categories of econometric techniques
employed to identify determinants of a given dummy dependent variable, which in this case is
status of membership participation category. In so many cases, logistic regression is preferred

to the others due to its link to other models and allows bringing out patterns in the data that
might be obscured. As a result, logits are considered as „first aid bandages‟ that can help
wrapping various factors in a meaningful form. And this study employed Binary Logistic
Regression model so as to investigate determinants of membership participation category.
Specification of the model is depicted below. Norusis, (1994) pointed out that in logistic
regression model, we directly estimate the probability of an event occurring. For the case of a
single independent variable, the model can be written as:
Prob (event) = eBo + B1X ------------------------------------------- (1)
1 + eBo + B1X
Or equivalently,
Prob (event) = 1 ------------------------------------------------ (2)
1 + e-(Bo + B1X)
Where, Bo and B1 are coefficients to be estimated from data
X is the independent variable
e is the base of the natural logarithms, approximately 2.718.
For more than one independent variable the model can be written as
Prob (event) = eZ ------------------------------------------ (3)
1 + eZ
Or equivalently,
Prob (event) = 1 ------------------------------------- (4)
1 + e-Z
Where ,Z is the linear combination of independent variables written as

Z = Bo + B1X1 + B2X2 + … + BpXp ---------------------------------- (5)
The probability of an event not occurring is estimated as: Prob (no event) = 1- Prob (event)
Rearrangement of the equation facilitates the understanding and interpretation of the coefficients
of the logistic regression model. The model can be re-written in terms of the log odds of an
event occurring, which is called logit. The odds of an event occurring are defined as the ratio of
the probability that it will occur to the probability that it will not (ibid).
Log Prob (event) = B0 + B1X1 +... + BpXp ----------------------- (6)
Prob (no event)
From equation 6, the logistic coefficients can be interpreted as the change in the log odds
associated with a unit change in the independent variable. Since it is easier to think of odds
rather than log odds, the above equation can be re-written in terms of odds as:
Prob (event) = eBo + B1X1+. . . + BpXp = eBo e B1X1 … e BpXp ------------------------- (7)
Prob (no event)
Then e raised to the power Bi is the factor by which the odds change when the ith independent
variable increases by one unit. If Bi is positive, the factor will be greater than 1, which means
that the odds are increased. If Bi is negative, the factor will be less than 1, which means that the
odds are decreased. When Bi is zero, the factor equals 1, which leaves the odds unchanged.

CHAPTER FOUR
4. RESULTS AND DISCUSSION
The study employed both quantitative and qualitative research tool in order to produce a richer
and more factual report. To describe the trading practice and identify challenges of the
participants in the Ethiopian commodity exchange, the study employed a survey questionnaire.
To this end, a total of 80 respondents were considered.
4.1 Brief Description of the Study Population
As depicted below in table 1, about 85% of the respondents were male and only 15% were
females. This shows that the major participation in the Ethiopian commodity exchange was
dominated by male participants. With regard to the age category of the respondents, 56.2% of
the respondent‟s age was found to be within the range of 31-65 age groups, which is believed to
be highly committed age group and old age, while the rest of the participants (42.5%) were
found to be youngsters.
As the table1 below reveals the majority of the respondents‟ educational status (67.1 %`) was
found attaining tertiary level educational background whereas only 24.7% and 8.2% of the
respondents had secondary level and primary level educational backgrounds respectively.
Besides the result of the survey portrayed below reveled, as the level of the participant‟s
educational status increases, the level of accessing market information through internet and
SMS was also found increasing.
Regarding the occupation of participants, majority of the respondents (75.3%) were found to be
full time merchants. As results of the key informant interviewee verifies, full time merchants are
relatively committed and give their time and resource to the business activities than those par

timers. The rest of the respondents 13.7 % and 11% were government employees and students
respectively. This implies that respondents were participating in the Ethiopian commodity
exchange as par timers. A t-test analysis for equality of means between full member and limited
participant verifies that the dependent variable have no such significant difference with regard to
the variables under consideration.
Table 1: Socio-Demographic Characteristics of ECX Participants

t-test for Equality
of Means between
Full and Limited
Frequency Percent participants
Male 62 84.9 Sig.
sex Female 11 15.1
Total 73 100.0
Age 15-30 year 31 42.5
31-65 year 41 56.2
>65 year 1 1.4
Total 73 100.0
Educational status Primary level 6 8.2
Secondary level 18 24.7
Tertiary 49 67.1
.667
Total 73 100.0
Occupation Merchant 55 75.3 .364
Student 8 11
Government employee 10 13.7
Total 73 100.0
Trend of ECX .000***
membership participation
*** Significant at 1%, ** Significant at 5% *Significant at 10%

Source: own survey, 2011

4.2. Trend and Membership categories of ECX Participants
As results of the study indicate, about 24.7% of the respondents were replied as they were
started participating in the Ethiopian commodity exchange since its establishment in
2008.Whereas, 23.3 % of the respondents joined the commodity exchange after 1 year of its
establishment (2009). The remaining 38.4% and 13.7% of the respondents were replied as they
were start 2011 and 2010 respectively. As the figure depicted below reveals the trend of ECX
membership participation was found to be inconsistent, more specifically in 2009 and 2010 the
figure indicated a downward trend. Results of the t-test analysis also verify the existence of a
significant difference between full member participant and limited membership participant at
1% level of significance with regard to the variable under consideration. And as results of key
informant interviewee verifies, the trend is highly associated with the misconception related to
lack of awareness and limited promotion of ECX and well organized system that can attract the
participant to the exchange system. In 2011 the number of ECX participants was started
showing a positive progress.
Figure 1- Trend of ECX membership participation
Source: Own source, 2011

Table 2: The Distribution of Membership Categories of ECX Participants
Frequency Percent
Membership category Full trading member 9 12.3
Full intermediary member 27 37
Limited trading member 12 16.4
Limited intermediary member 25 34.3
Total 73 100.0
Desired membership Full trading member 30 41.1
category Full intermediary member 41 56.2
Limited intermediary member 2 2.7
Total 73 100.0
With regard to membership category, a relatively higher percent of the respondents 37% and
34.3% replied as they are full intermediary members and limited intermediary members
respectively. While 16.4% and 12.3% were found to be limited trading members and full trading
members of the exchange.
A perusal of the analysis with regard to best membership category, a considerable percent of
the respondents (56.2%) indicated full intermediary membership as the best compared with
others. The opportunity associated with the membership including buying and selling all types
of commodities for their own account and for others was the reason for the participant to
designate it as best membership category. On the other hand, about 41.1% of the respondents‟
replied that their best membership category is full trading membership as this membership gives
them the advantage to buy and sell all types of commodities for themselves. From the
aforementioned result and analysis, it was found out that majority of the limited membership
participant (94.6%) were found participating in a membership which they were not interested to

participate. This according to the key informant interviewee leads to lower level of participant‟s
engagement and performance in the Ethiopian commodity exchange.
4.3. Practice and Challenges of the Ethiopian Commodity Exchange
4.3.1. Trading Practice

As results of on spot observation and document analysis revealed, the ECX was applying open
outcry trading system. Although electronic trading is practically preferred and employed all over
the world as a means of facilitating the exchange system, the system is not yet considered here
in ECX as a means due to poor ICT infrastructure and awareness problem of the ECX
participants. According to results of key informant interviewees, price movement, ICT related
problems, lower seeped of transactions were found to be the major problems associated with the
open outcry trading system. Consistent with this, findings of Thomas (2008) revealed that
electronic trading leads to reduced price movement, lower volatility, lower risk in the market
and higher liquidity by increasing the speed of transactions and lowering transaction costs. But
according to the information obtained from ECX participant the existing exchange system is
operating in good position although much have been left to be accomplished to make it more
functional.
Although ample literatures confirmed the immense role of commodity exchange in reducing
transaction cost, results of this study revealed the otherwise. According to the findings of this
study, about 68.5% of the respondents replied as participating in the Ethiopian commodity
exchange increased the transaction costs than the traditional trading system. Costs for
warehousing, quality grading, warehouse related services, ECX, intermediary among others
were mentioned as the probable reason for high transaction cost. Unlike the aforementioned
result, 30.1% of the respondents who participate in ECX were verified that as participating in

ECX reduced their transaction cost while insignificant number of respondents (1.4%) replied as
transaction cost in ECX and the traditional trading system were the same. In contrary to the
findings of this study, findings of Gebremedhin, et al (2005) verified that commodity exchange
plays a pivotal role in reducing transaction costs by offering services at lower cost than that
which participants in the commodity sectors would incur if they were acting outside an
institutional framework.
With regard to the contractual agreement, on spot observation and document analysis result
reveled that Ethiopian commodity exchange were practically employing spot contract agreement
system. As results of key informant interviewee revealed this trading agreement system was not
such encouraging and promising due to problems associated with price fluctuation. As results of
the finding portrayed below in table 3 verifies, about 56.2% of the respondents replied that the
ECX membership seat fee is expensive and unfair while 42.4% revealed the membership seat
fee is fair and easy to afford. According to information obtained from key informant interview
verified the membership seat fee was decided by the members bid agreement not by the ECX.

Table 3: Trading practice

Characteristics Response
No of respondents Percent
Membership seat fee Expensive 41 56.2
Cheap 1 1.4
Fair 31 42.4
Total 72 100.0
membership requirement Encouraging 47 64.4
Discouraging 26 35.6
Total 73 100.0
reduced transaction cost 22 30.1
Transaction costs increased transaction cost 50 68.5

no difference 1 1.4
Total 73 100.0
4.3.2. Market Information System

As depicted in table 4, below about 41% of the respondents confirmed that the available
information communication technology of the Ethiopian commodity exchange facilities were
satisfactory. In contrary to this a relatively higher percent of the respondents (59 %) of the
survey result shows that the information communication technology of the Ethiopian
commodity exchange was not providing satisfactory service. Consistent with this, key informant
interviewee also confirmed the limited and unsatisfactory service of ECX with regard to the
point of discussion. Although much has been left to be done in this regard, a positive
momentum has been seen in the use ICT in the exchange system. Consistent with these findings
of the study by Tollens (2006) revealed that with full application and development of ICT, the
commodity exchange market information system will have lower transaction costs and improve

market efficiency, and thereby enhance smallholder farmer access to markets and lower market
risks.
Despite this, the vast majority of the respondents confirmed as they are getting market related
information from the ECX. According to these respondents the Ethiopian commodity exchange
disseminates prevailing market prices, commodity volumes and market conditions and also
price trend data through the use of different market information communication systems.
Table 4: Market information System dissemination of ECX

Response No of respondents Percent
ICT facility of ECX satisfactory 30 41
No 43 59
Total 73 100.0
Use of News paper and Magazine sources Yes 17 23.3
No 56 76.7
Total 73 100.0
Use of Mass media Yes 26 35.6
No 47 64.4
Total 73 100.0
SMS users Yes 43 58.9
No 30 41.1
Total 73 100.0
Internet data base system users Yes 38 52.8
No 34 47.2
Total 72 100.0
ICT network condition for Good 29 49
internet and SMS user No 30 51
Total 59 100
Actual price at the time of sale or buy usually Yes 21 28.8
the same as compared to the local market No 52 71.2
Total 73 100.0

In terms of access to market information, survey results of the study revealed that a considerable
percent of the respondents (76.7% and 64.4%) revealed as they are not using magazines and
mass Medias a source of market information respectively. while only 23.3 % and 35.6% of the
study participants replied as they are using magazine and mass media respectively. This was
also confirmed by key informant interviewee. As results of the key informant interviewee
verifies the Ethiopian commodity exchange disseminates market related information to
participants through magazines, news papers and mass media. According to the survey results
about 58.9% and 52.8%of the respondents revealed that they were accessing SMS and internet
data base system respectively. Consistent with these findings of Shahidur et al (2010) found out
that Communications and transportation infrastructure is critical to a functioning exchange. In
line with key informant interviewee also argue that presence of a reliable and functioning
system for transportation and distribution, that facilitate a credible delivery system, is a pre
requisite for successful commodity exchange system establishment.
As results of the finding depicted below in table 4 verified, about 51% of the respondents who
use SMS and internet were found not satisfied with the network of ECX. In contrary to this 49%
of the survey participants were satisfied with network of the SMS and internet of the ECX.
Consistent with this finding of a study conducted by Celeste Aida Molina Fernandez (2010)
revealed that internet and telecommunication services in the ECX are still poor and quite
deficient (sometimes nonexistent) to disseminate information to the participants.
As the results of the study in table 4, revealed 28.8% of the respondents replied that the actual
price at the time of sale and buy were similar with the information they have in the local and
foreign markets.

As results of this study revealed that a considerable percent of respondents (71.2%) verified that
they were not satisfied with buying and selling of commodities related to the actual price and
information they have in the local and foreign market. According to information obtained from
key informant interviewee price fluctuations were mentioned as the probable reason for the
aforementioned difference.
4.3.3. Warehousing and Quality Grading

According to the key informant interview and secondary data analysis result, Ethiopian
commodity exchange has 35 privately and 16 government owned warehouses in 16 different
parts of the country. As results of the aforementioned source confirmed these warehouses are
not adequate enough to accommodate all the requests of participant‟s commodities. In line with
this, survey results of the study verify that about 69.9% of the respondents responded as ECX
did not have adequate storage service which accommodates request of the participant‟s
commodities. Whereas, 30.1% of the respondents revealed that the Ethiopian commodity
exchange have adequate warehouse to accommodate commodities in case of request from the
participants.
Likewise findings of this study depicted below in table 5, indicated that a relatively higher
percent of the respondents (61.6%) responded as the Ethiopian commodity exchange recording
and management system of the warehouse was not as such satisfactory while 38.4% of the
respondents were found satisfied with the recording and management system. As findings by
Gideon O.E. (2010) indicated a professional skill in the warehousing is necessary if storage
losses are to be kept at a minimum.

Concerning the warehouses storage costs, about 68.5% of the respondent replied as it were fair
and affordable while 31.5% of the respondents replied as it were not fair and affordable.
Likewise findings portrayed in table 5 revealed that about 23.3% of the respondents replied as
the penalty cost for the delay made to withdraw the commodity on time from the warehouse was
fair and affordable. In contrary to the above findings, majority (72.6%) of the respondents
revealed that the penalty cost for the delay made to withdraw the commodity on time from the
warehouses was very much higher. consistent with this, key informant interviewee was also said
that the penalty cost for not withdrawal on time from the warehouses was 2% of the price of the
commodity (2% of the price of 1 quintal) and added that because they were transacting in
millions of birr 2% of penalty was much higher.

Table 5: warehouse and quality grading System ECX

Response No of t-test for Equality of Means
responden between Full and Limited
percentage participants
ts
Sig.
Adequacy of warehouses Adequate 22 30.1 .223
No 51 69.9
Total 73 100.0
Recording and management system of Yes 28 38.4 .597
the warehouse No 45 61.6
Total 73 100
Warehouse storage cost fair and affordable 50 68.5 .540
Expensive 23 31.5
Total 73 100.0
Penalty cost for the delay to withdraw Low 3 4.1 .733
Fair 17 23.3
High 53 72.6
Total 73 100.0
Time given to store and transfer Enough 34 46.6 .095*
commodities No 39 53.4
Total 73 100.0
Warehouse security Secured 50 68.5 .907
No 23 31.5
Total 73 100.0
Presence of quality control specialist Yes 45 61.6 .298
No 28 38.4
Total 73 100
Grading and sampling system Satisfactory 24 32.9 .552
No 49 67.1
Total 73 100.0
Reasons for unsatisfactory quality Bias 27 37.0 .651

grading and sampling system lack of knowledge 25 34.2
Corruption 15 20.5
Lack of measuring 6 8.2
equipment
Total 73 100.0


The table 5, above indicated that 46.6% of the study participants replied the time given to store
and transfer commodities were adequate enough. In contrary to the aforementioned result,
53.4% of the respondents revealed that the time given to store and transfer the commodities are
not adequate enough. This, according to key informant interviewee, is highly associated with the
absence of the warehouse in the vicinity. According to the information obtained from this
source, the Ethiopian commodity exchange warehouses were found out of Addis Ababa and
the infrastructure development /transportation was not much developed.
As depicted in the above table 5, of study, a relatively higher percent of the respondents (68.5%)
believed the security of the warehouse in case of risky casualties like theft and fire were
secured. According to the key informant interview the exchanges were insured by the insurance
companies, if anything happens to the stored commodities. According to this source the
exchange will take the risk for stored commodities, not the participants. But 31.5 % of the
respondents were found not confident enough in the warehouse for risky causalities like theft
and fire. According to Gideon E. Onumah (2010) finding shows network of secure, well-run
warehouses which are accessible to various depositors is essential prerequisite for a successful
accomplishment of commodity exchange. The research result of the paper concurs‟ with above
researchers result.
As the finding of the research found the relatively higher percentage of the respondents (61.6%)
revealed the Ethiopian commodity exchange warehouses were equipped with quality control
specialist. In line with this, key informant interview also confirmed that the ECX warehouses
have well equipped grading laboratories and quality control specialist. On the other hand a
considerable percent of the respondents (38.4%) replied as the exchange lacks well equipped
quality control specialists although they are a pre requisite for successful commodity exchange.
Even if the ECX have grading laboratories and quality control specialist, about 67.1% of the
respondents as depicted above indicated that the members were not satisfied with the grading
and sampling of commodities conducted in the warehouses. As results of the study portrayed in
the above table indicated 37 % of the respondents responded as the grading and sampling
specialists of the ECX warehouses were made bias while quality grading and taking samples of
the commodities. Consistent with this, 20.5% of the respondents showed that the exchange was
prone to corruption. And the other 34.2% verified there was lack of knowledge in sampling and
grading. In contrary to this, key informant interview indicated that the exchange was free from
bias and corruption and added that the quality and sampling system of the exchange is done
through coding; the specialist did not know whose commodity is while giving quality grading
and taking sample of the commodities of the participants. In addition the interviewee verified
that the main problem of the Ethiopian commodity exchange participants were lack of
awareness in quality grading and sampling system of the exchange.
A research conducted by Alemu et al (2010) showed that exporters in Ethiopia face several
quality problems in terms of quality grading, sampling representation of commodities and
adulteration especially by mixing sesame seed of different origin. As per the finding, this has
lead to difficulty in setting prices for certain quality grades. Quality grading of the Ethiopian
Quality and Standard Authority (EQSA) takes a long time as well as prone to corruption. More
over the result of the research match with above scholars result.
A t-test analysis for equality of means between full and limited participant of ECX for the
aforementioned warehouse and quality grading variables revealed that adequacy of warehouses,
recording and management system, storage cost, penalty cost for the delay to withdraw,
security, presence of quality control specialist, grading and sampling system and reasons for
unsatisfactory quality grading were not found as such significant. Unlike the aforementioned
variables, the two variables under consideration, full and limited participant, have shown a
significant difference with regard to the time given to store and transfer commodities,
4.3.4 Liquidity
As result of the study verified in table 6, about 82.2% of the respondents replied that credit was
not easily available and the requirements to take credit were difficult to apply and time
consuming to the participants. Whereas 17.8% of the respondents replied that credits were easily
available if needed by the participants. Inconsistent with this majority of the respondents
confirmed source credit were banks and the interest rate that the participants paid for the
aforementioned financial institution was fair and affordable.
The result of the study revealed 74% of the respondents replied that the Ethiopian commodity
exchange did not provide fully articulated and managed warehouse receipt system or in store
credit for the participants. Besides, key informant‟s interview verified that the exchange did not
fully applied WRS. Only United bank of Ethiopia was started to provide in store credit for the
member participants and this was not enough. In contrary to this (26%) of the respondents
verified the exchange was provided in store credits. Furthermore, according to Gideon O. E.
(2010) “Liquidity in the agricultural trade can be enhanced if lenders aversion to the provision
of inventory finance is addressed through the development of credible warehouse system which
allows stored commodities to be used as collateral for loan”. And the finding of the research was
found coinciding with Gideon‟s‟ result.

Table 6: liquidity Characteristics of ECX
Credit availability Easily available
13 17.8
Not available
60 82.2
Total 73 100.0
Availability of in store credit Yes 19 26
No 54 74
Total 73 100.0
Matching up of each buy and sell Yes 66 90.4
transaction No 7 9.6
Total 73 100.0
Ability to manage funds flows in Yes 58 79.5
volatile days No 15 20.5
Total 73 100.0
Coordination of exchanges and Yes 61 83.6
members No 12 16.4
Total 73 100.0
Availability of Adequately Yes 60 82.2
equipped ECX clearing and No 13 17.8
settlement system
Total 73 100.0
As the above table 6, shows more than 90.4%of the respondents revealed the Ethiopian
commodity exchange clearing and settlement system was well equipped in providing effective
and efficient services for the participants in assuring payment to the seller, matching up each
buy and sell transaction, and integrating the market place of the exchange. In line with this, key
informant interview verified that ECX is well equipped and adequate enough to provide the
clearing and settlement service.
In connection with the above findings 79.5%show that the ECX banking settlement provided
responsible service for the members in order to manage their fund flows in volatile days and

83.6% of the respondents revealed that the banking system of the exchange was good in
coordinating members and the exchange for the effective transaction and in providing service
for the participants to manage their working capital. In addition to this the results portrayed in
the above table 6, indicated that about 82.2% of the respondents were satisfied with the
infrastructure, technology and trained manpower of the ECX banking settlement. Consistent
with this, key informant interview also confirmed as the ECX were working with seven banks
which provided a liquidity (banking settlements) and day to day transaction service for the
members.
4.4 Regulation
As results of regulation related analysis of the study depicted in the table 7, verified about
78.57% of the respondents confirmed the sole control of dishonest and irresponsible practice in
the exchange process by the ECX authority. In contrary to the aforementioned result, 21.43% of
the respondents replied that the authority did not control the irresponsible and dishonest act of
the exchange. In addition, according to the results of the study 75.71% of the respondents
verified that dishonest or irresponsible practice by counterparties, intermediaries or banks
effectively controlled by the exchange authority and the remaining percentage (24.29%) were
not satisfied with the controlling of dishonest and irresponsible practice by the counter parties,
intermediaries or banks. This also confirmed by key informant interview. According to
information obtained from key informant interview, all the illegal acts of the participants and the
exchange are controlled or supervised by the ECX authority.
As results of the analysis revealed 81.69% of the respondents were confident enough in the
Ethiopian commodity exchange in enforcing contracts that were made among the participants

while only 18.31%were portrayed the ECX did not enforce contracts that were made by the
participants in the exchange. In contrary to findings of this study, findings of Shahidur etal
(2010) verifies that the real challenge in African commodity exchange is not the development
of grades but the enforcement of contracts that use those goods.
Concerning the arbitration mechanism of ECX, about 70.42%of the respondents were satisfied
with the Arbitration mechanism for dispute settlement of the Ethiopian commodity exchange. In
the other side 29.58% of the study result was verified that the Ethiopian commodity exchange
did not provided arbitration mechanism for dispute settlements.
Table 7: Regulation of ECX

Do the regulations made to the following to Response
protect the members is satisfactory?
Dishonest or irresponsible practice by the Yes 53 75.71
exchange No 17 24.29
Total 70 100.00
Dishonest or irresponsible practice by Yes 55 78.5.7
counterparties , intermediaries or banks No 15 21.43
Total 70 100.00
Enforcing contract Yes 58 81.69
No 13 18.31
Total 71 100.00
Arbitration mechanism for dispute settlement Yes 50 70.42
No 21 29.58
Total 71 100.00
ECX regulators market price truly reflect the Yes 56 80.00
information known about the market No 14 20.00
Total 70 100.00
ECX regulator Constrains speculative excess Yes 57 80.28
No 14 19.72
Total 71 100.00

As the table 7, above verified 80% of respondents said that the ECX was committed in
regulating the market to truly reflect the market price information known about the market.
And 20% of the study respondents revealed that the ECX did not regulate the market to truly
reflect the market price information known about the market.
As in table 7, depicted majority (80.28%) of the respondents portrayed that the ECX authority
regulates the speculative excess of the member participants. In contrary to this, 19.72% the
respondents replied that the ECX authority did not control the speculative excess of the member
participants. The key informant interview verified that the regulator was used 5% up and down
price ceiling in order to control the exchange market.
4.5 Determinants of membership participation category
4.5.1. Results of the Binomial Logit Model
Analysis carried out on the membership category revealed that a significant proportion of ECX
participants were found to be participating in a category in which they are not interested. Hence
the need to exert extra efforts so as to make them participate in their interest is incontestable.
But any effort intended to achieve the aforementioned objective needs to sort out the relative
strength of the expected influencing variables. To this end, binary logistic regression was used
to pinpoint the variables that really matters and hence, needs to be considered in future
intervention. Multi-collinearity test is made prior to the logistic regression (annex 1) to validate
the use of the explanatory variables. The pair wise correlation result indicates that there exists
no problem of multi-collinearity.

As portrayed in table 8 , Hosmer and Lemeshow chi-square test statistics of this research was
found to be significant (with p-value of greater than 0.05), ascertaining that the model is pretty
fit in terms of predicting and describing the data adequately. Consistent with the goodness of fit,
the classification table confirms that binary logistic regression model managed to predict about
89 percent of the response correctly.
A range of socio-economic and institutional variables was found to have influence on ECX
participant‟s decision to participate in different categories. The relative strength and direction of
effect of the variables on the status of participation through their estimated coefficient are
described as follows.
Table 8; Binary Logistic Regression Result for Determinants of membership category
Dependent Variable: membership status

Variables in the Equation B S.E. Wald Sig. Exp(B)
Level
Education -.402 .356 1.277 .258 .669
Occupation -1.991 1.109 3.223 .073* .137
Time of participation -1.679 .470 12.748 .000*** .186
Credit availability -1.261 .876 2.073 .150 .283
best membership category -.318 .674 .222 .637 .728
Limited membership seat
-2.492 .878 8.057 .005*** .083
Membership requirement -.476 .825 .333 .564 .621
Membership seat fee -1.606 .836 3.691 .055* .201
Constant 2.923 .000
R-square (Pseudo R2 ) 0.8915
Hosmer & Value 4.096

Lemeshow Chi- 0.848
square ( 2) p-value

Enormous literatures and findings verified as education status of commodity exchange
participant is a key variable in the overall participation. In light of this it was hypothesized that
those participants who have secured tertiary level of education have better chance of being full
participant than the otherwise might be. Contrary to the expectation, results of the binary
logistic regression model analysis revealed as it is not a significant variable even at the higher
level significance. However the relationship between the two variables was found to be positive
as hypothesized. This suggests that the probability of educated ECX participants to be full
member participant were found to be higher as compared to those who have low level of
education.
Concerning the occupational status of participants, it was hypothesized that those participants
who committed their time and resource for the business activity (full timer merchants) have a
better chance of being full members than those of par timers. As expected the coefficient for the
variable, occupational status of the participant, was found significant at 10% level of
significance. It indicates that as the participants devote their time and resource in the exchange
activity they have higher chance to become a full member than those of the participants who
consider participating in the exchange as par timers.
Similarly the coefficient for time of participation was found to be a statistically significant
determinant of member participant in the exchange at level of significance of 1%, which shows
as the participants started to participate in the exchange earlier by one year they have a higher
chance of being a full members than the others. It was expected that members who started to
participate in the ECX earlier have better chance of becoming a full member participants than
the otherwise might be.

It was hypothesized that the higher the credit availability the higher will be the participants
entering in to full membership participation. This was due to the chance that credit availability
increases the financial strength of participants because membership is acquired through bid
agreements. Likewise the result of the model verified that credit availability was found to be
anon significant variable. However the relationship between the two variables was found to be
positive as hypothesized. This indicates that the probability of getting a higher credit by the
participants were found to have a chance to be full membership participants as compared to
those who have low level access of credit.
The other determinant variable in the logistic regression analysis was limited membership seat.
And it was expected that the higher the full membership seat the then participant‟s chance of
participating in full membership category will be higher than in limited membership. In line
with this the result of the regression model revealed that the variable was positive and highly
significant at 1% which indicates limited membership seat has its own impact on member
participates to participate in to the full membership participation. In other way the higher the
membership seat the better the participants will participate in full membership categories than
the other.
On the other hand the other variable which determines the membership category was the
membership requirement. And it was hypothesized that the membership criteria‟s are expected
to have an impact on the participant‟s membership category choice. As the results of the
regression analysis revealed that membership requirement was found to be insignificant to the
choice of membership categories: means that membership requirement criteria was not as such
pre -request to participate in to the full membership category. However the relationship between
the two variables was found to be positive as hypothesized. This suggests that the probability of
membership requirement criteria of ECX have positive relation to be full member participant.
It was known that the ECX membership seat was sold to the participants through bid
agreements. Even though it was a bid, the participants were complaining about the membership
seat fee as higher. And the expectation of the study was the higher membership seat fee the
lower the participation in to the full membership categories. In consistent with this the logistic
regression model result verified that the variable had positive and high level significant at
1%.this indicates that membership seat fee is highly determinant factor to participate in to the
full membership category. The higher the membership seat fee the lower the participation of
members in to full member category or the higher the fee the higher the participants will shift to
participate in to limited membership category.

CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATION
5.1. Conclusion
The Ethiopian Commodity Exchange was established to revolutionize Ethiopian agriculture and
transform the economy through a dynamic, efficient and transparent marketing system. Properly
implemented and regulated, commodity exchanges can contribute greatly to the achievement of
a country‟s economic and developmental goals and strengthen the bargaining power of farmers
and other participant‟s.
Practically the exchange is employing open outcry trading system and spot contracts. To this
end, ECX and the authority was found playing an important role in enforcing of contracts, in
controlling dishonest or irresponsible practice by counterparties, intermediaries, banks
constraining speculative excess and arbitration mechanisms for dispute settlements.
In addition to the above as the finding of the study found the bank clearing and settlement of the
exchange was adequately equipped with technology ,infrastructure and man power in matching
up of each buy and sell transaction ,coordination of members and the exchange.
As a perusal of the overall analysis revealed that higher transaction cost, price fluctuation,
difficulty of network access, lack of adequate warehouses that accommodate ECX participants
request ; poor recording and management system of the warehouses; higher penalty cost
imposed for the participants for not withdrawing their commodity from the warehouses, in
efficient and inadequate in store credit; expensive membership seat fee and exposed and non
transparent quality grading and sampling system of the exchange, bias, corruption were found to
be amongst the fore front bottlenecks/constraints to the development and success of ECX.

According to the results of binary logistic regression model occupation, time of participation,
limited membership seat and membership seat fee were found to be highly significant variables
and were found to be the most determines factors the hinder ECX participants to participate in
to the full membership category.
5.2. Recommendation
Even if ECX is not evolved in to a mature and competent commodity exchange, results of the
finding revealed that it was gaining a promising progress and positive momentum towards
achieving its intended goal. In light of this and other important findings of the study, the
following priority areas are forwarded for consideration for future intervention endeavor
 As results of the finding revealed most of the participants/members were participated in
the membership that they did not want to participate. So ECX need to consider and
overlook the membership criteria to allow limited members to participate in the
membership that they want to participate. And should increase its full membership seat
in order to accommodate higher number of participants which were participating in the
limited membership.
 Membership seat fee paid by the member participants was very high and if this
continued the purpose of its establishment will be in question. With the current trend the
exchange membership will be dominated by richer families excluding farmers and other
middle income participants. So ECX authority and the exchange should evaluate the
financial membership criteria effectively and should adjust it to include all the
participants from all parts of the region without income discrimination.

 The ECX currently used spot contracts due to these participants /members of the ECX
were faced a price fluctuation in buying and selling of commodities. So as to minimize
the aforementioned problem, ECX should try to apply a future contracts/derivative in
addition to that of spot contract to reduce price risk. Futures contract market in
commodity exchange is largely used as risk management or hedging mechanism.
 The exchange system was carried out using open outcry trading however it should use
electronic trading in addition to the open outcry. Since electronic trading system
reduced price movement, it would lead to lower volatility, lower risk in the market and
higher liquidity by increasing the speed of transactions and lowering transaction costs,
limiting informational asymmetries between trading interests, and increasing access to
markets regardless of one‟s geographical location.
 ECX warehouses were not adequate for the accommodation of the request of the
member participant‟s commodities; the ECX should build or rent adequate warehouses.
In addition to this the exchange should have trained man powers warehouse operators,
and it should give training to the operators and participants in handling commodities and
capacity building in order to keep storage losses at minimum.
 As most of warehouses were found in the regional areas of the countries or out of Addis
Ababa, ECX should evaluate effectively and efficiently the time given to the member
participants to store and transfer their commodities. Since the penalty cost for not with
drawing of the commodities from the warehouses was much higher, it should apply
reasonable penalty cost for not withdrawing commodities on time.

 One of the important obstacles in participating in the ECX was quality grading and
sampling system. The quality grading specialists of the exchange should treat all
participants equally (without bias) and should be free from corruption. In addition to this
training and capacity building should be given for the quality grading specialists in order
to upgrade their knowledge and skill.
 The warehouse credit system (in store credit) of the exchange was inefficient and
practically nonexistent. For the higher liquidity of the exchange it should apply in store
credit by all licensed banks of the exchange and should give a higher concern and
commitment in effectively and efficiently using of WRS.
 As results of the study verified, starting time of participation were found to be the most
determinant factor to participate in to full membership category. Thus reconsidering the
preset waiting time by ECX is incontestable, if ECX wants to increase the number of full
member category participant, which is by far considered as a key for successful
exchange in the existing system.

REFERENCES
Adebusuyi, B.S (2004). Stabilization of Commodity Market of Interest to Africa: Paper
Presented at the Workshop on Constraints to Growth in Sub-Saharan Africa,
Organized by the Intergovernmental Group of Twenty-Four in Pretoria, South Africa,
November, 2004
Alemu D. & M. Gerdien, (2010).The Ethiopian Commodity Exchange an Over
View,Working Paper, 3.Wagningen University, joint publication of Ethiopian Pulses,
Oil seeds, & Spices Processors Exporters Association (EPOSPEA) and Public Private
Partinership on oilseeds (PPP)
Bose, S. (2009). Commodity Futures Market in India: A Study of Trends in the Notional
Multi-Commodity Indices Money & Finance, ICRA Bulletin, Vol. 3, No. 3.
Celeste Aida M. F. (2010).Trading Coffee through the Ethiopia Commodity
Exchange: Social Embeddedness and Performativity of markets; Partial Fulfillment of
the Requirements for the Masters of Arts in Development Study, Netherlands, 2010.
Chicago Mercantile Exchange “trading in future contracts”(www.cme.com.retrived5thApril 2011).
ECX (2008).Directive of the Ethiopia Commodity Exchange Authority,2nd Edition. Addis
Ababa, Ethiopia
Fabozzi,F.J. and Modigliani,F.(1996).Capital Markets Institutions and Instruments ,2nd
Edition, Prentice-Hall International, Inc, US
Francesconi G.N., (2009) Cooperation for Competition: Linking Ethiopian Farmers to
Markets / PhD thesis/ Wageningen University, Netherland.
Gebremedhin, E. Z.and Goggin I.(2005). “Does Ethiopia Need a Commodity Exchange?
An Integrate Approach to Market Development”, EDRI-ESSP Policy
Working Paper, 4

Gebremedhin, E.(2007).Why do people trade? Actors on a commodity exchange: Understanding
a Commodity Exchange; Addis Fortune, January, 2007, 2nd edition
Getahun Seifu (2010) .Revisiting company law with the Advent of Ethiopia Commodity
Exchange (ECX): an overview. Mizan Law Review Vol. 4 No.1, Addis Ababa, Ethiopia
Gideon O.E (2003).Promoting Agricultural Commodity Exchanges in Ghana and Nigeria:
AReview Report to UNCTAD
Gideon O.E. (2010). Implementing Warehouse Receipt Systems in Africa: Potential and
Challenges: Paper prepared for the Fourth African Agricultural Markets Program
Policy Symposium, organized by the Alliance for Commodity Trade in Eastern and
Southern Africa (ACTESA) of the Common Market for Eastern and Southern Africa
(COMESA). September 6-7, 2010, Lilongwe, Malawi
Goggin Ian. (2006).What can African Governments do to Facilitate Agricultural Commodity
Exchanges? The World’s Commodity Exchanges: Past - Present – Future. A
Publication Prepared for the 27th International SFOA Bürgenstock Conference,
United Nations Conference on Trade and Development and Swiss Futures and
Options Association. pp 39 – 42.
Lerner L.R. (2000), the mechanics of the commodity features markets: what they are and how
they function, Future Investment Series, Special report no.2.
(http://www.mtlucas.com.)
Mukhebi A. W. (1998). The Challenges and Opportunities of a Young Commodity Exchange in
an Emerging Market Economy: The Experience of the Kenya Agriculture
Commodity Exchange, a Paper Prepared for the First Summit of Partners for
Development Organized by the UNCTAD

Meijerink,G.W. Alemu, D., Mheen-Sluier. J.,Van Der, Wijnands J. (2010). Institutional
Innovation in African Markets: Can Commodity Exchanges Address Sustainability
Issues?
Mheen-Sluijer, J.Van.Der. (2010). Ethiopian Commodity Exchange and Contract Farming
Arrangements: Complementing Institutions, Development Cooperation Ministry
of Foreign Affairs, Wegeningen University
Newman, S.A. (2008).The Role of International Commodity Exchanges in the Formation and
Transmission of Prices and Price Risk Along International Coffee Chains: Working
Paper No 2008/12, London
Noursis, J. Marija (1994). SPSS Advanced Statistics 6.1. SPSS Inc, U.S.A.
Parvez, Asif (2009). A Report on “the Prospect of Commodity Exchange for Bangladesh: An
Internship Report Presented in Partial Fulfillment of the Requirements for the
Masters of Business Administration, Bangladesh.
Rashid S, Winter-Nelson .A and Garcia P. (2010). Purpose and Potential of Commodity
Exchanges in African Economies, IFPRI,Washington DC.
Ross Stephen A., Westerfield Randolph W., Jordan Bradford D.(2002). Fundamentals of
Corporate Finance, Sixth Edition, Alternate Edition he McGraw−Hill Companies,
Americas, New York,
Sarkar, Asani, M. Tozzi. (1998). Electronic Trading on Futures Exchanges, Current Issues;
Economics and Finance vol. 4 No1.
Sahadevan, K. G. (2002). Sagging Agricultural Commodity Exchanges: Growth Constraints
and Revival Policy Options; Economic and Political Weekly vol.37No.30 Pp53–60.
Thomas, Robin. (2008).The Impact of Electronic Trading on the Basis at Winnipeg Commodity

Exchange; In Partial Fulfillment of the Requirements for the Degree of Master of
Science. University of Minnesota (2008)
Tse, Yiuman, Tatyana V. Zabotina,( 2001).Transaction Costs and Market Quality: Open Outcry
versus Electronic Trading; Journal of Futures Markets, , vol.8,p23-46
Tollens, E. F. (2006). Market Information Systems in sub-Sahara Africa Challenges and
Opportunities: paper prepared for presentation at the International Association of
Agricultural Economists Conference, Gold Coast, Australia August 12-18
UNCTAD, (2005).Progress In the Development of African Commodity Exchanges
Www.Africaunion.Org/Arusha/Commodities/Unctadexchanges.pdf
UNCTAD, (2007) “Development Impacts of Commodity Futures Exchanges in Emerging
Markets” Expert meeting on Trade and Development Implications of Commodity
Exchanges working paper – UNCTAD

Annexes
Annex 1: Pair-wise Correlation Results

| Education Occupation Time Credit Best M. M. seat Seat fee Requirement
-------------+------------------------------------------------------------------------
Education 1.0000
Occupation -0.0232 1.0000
Time | -0.1061 -0.1607 1.0000
Credit | 0.1077 -0.0408 0.0735 1.0000
Best m. -0.0327 -0.2741 0.0017 -0.0007 1.0000
M. seat -0.1584 0.1519 0.2624 0.0308 0.0486 1.0000
Seat fee | 0.1368 -0.0570 0.2048 0.0735 0.0265 0.2714 1.0000
Requirement -0.1004 0.0391 -0.0212 0.1330 -0.0575 0.1210 -0.2535 1.0000
Where education = participants education status

Occupation = major occupation of the participant
Time = time of participation of participants
Credit = credit availability of the member
Best M. = best membership category
M. seat = limited membership seat
Seat fee = membership seat fee of the participant
Requirement = membership requirement

Annex-2. Questionnaire (English version)

Addis Ababa University
Faculty of Business and Economics
Survey questionnaire for ECX participants1
Dear respondent
The researcher is a student of Addis Ababa University, participating in graduate program in
MBA program. As a partial requirement for the completion of the MBA program, the researcher
is undertaking a research on Trading in commodity exchange and challenges of the
participants: the case of ECX.
The overall objective of this questionnaire is to gather first hand information on the
aforementioned issue at the grass root level. I would like to assure you that the information you
are going to provide will be exclusively used for academic purpose and will remain confidential.
Therefore you are kindly requested to respond to the questions freely and to the best of your
knowledge.
 ‘Thank you in advance for your cooperation’ 
NOTE please use √ mark or circle your answer
I. General Information
Enumerator name ……………Date of interview…………Questionnaire Code No……
1. Demographic information
Respondents Sex1 Age2 Educational3 Major 4

Identification code Status occupation
Sex 1= male 2 = Female

Age 1 = 15 – 30 2 = 31 – 65 3 = > 65
1 ECX participant means any person recognized as a member by the authority who engages in
the business of buying and selling exchange trade contracts for others or for his/her Owen
account.

Educational status 1= Illiterate 2=Read and write 3= Primary level 4=Secondary level
5= Tertiary
Major occupation 1=Marchent 2= 3=government employee 4= other, specify
1. When did you started to participate in ECX?

1. 2000 2. 2001 3. 2002 4. 2003
II. MARKET INFORMATION RELATED QUESTIONS
2. Do you have access to market related information?

1. Yes 2. No
3. If your answer to question No. 2 is yes from which source do you get the information?
1. Information Kiosks
2. Mobile phone short message service (SMS)
3. Internet based data base system
4. Mass media
5. News paper and magazine
6. Others, please specify------------------------------------------------------------------
4. If your answer to question No. 3 is SMS and internet based data base system, are
You satisfied with the network?
1. Yes 2. No
5. Do you quickly understand and interpret the information displayed by the ECX?
1. Yes 2. No
6. How often do you go to ECX with domestic commodity market prices, quality, and quantity
information?
1. Always 2. Occasionally 3. Rarely 4. Never
7. is the actual price at the time of sale or buy usually the same as the information you have in
the local market?
1. Yes 2.No

8. If your answer to question no 7 is no why do you think are the probable reasons? --------------
--------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
9 Do you satisfy with the following major characteristics of market

information that ECX have/providing? Yes No
9.1 Accuracy of markets information
9.2 Time lines of markets information
9.3 Accessibility of markets information that ECX have
9.4 ICT facility
III. Warehousing and Grading related questions

10. Do you think that these warehouses are adequate enough to accommodate all the requests
from ECX participants?
1. YES 2.NO
11. Do the quality of the service of the warehouse satisfactory?
1. YES 2. NO
12. Do the warehouse storage cost fair and affordable?
1. YES 2. NO
13. How do you evaluate the penalty cost for the delay made to withdraw the commodity on
time from the warehouse?
1. Low 2. Fair 3.High
14. Do you think that the time given to store and transfer your commodity is adequate enough?
1. Yes 2. No
15. Are you satisfied with the recording and management system of the warehouse?
1. Yes 2. No
16. Do you feel that the warehouse is secured for risky casualties like theft and fire?
1. Yes 2. No
17. If your answer for question No.16 is no who will bear the risk and responsibility?
1. ECX 2.Seller/buyer 3. Warehouse owners 4.others
18. Is the warehouse operation independent from government intervention?
1. Yes 2.No

19. Have you ever been forced to sell the commodity you have in the warehouse in relation to
problems associated with the warehouse system?
1. YES 2. NO
20. If your answer to question No. 19 is yes, what was the problem?
____________________________
____________________________
____________________________
21. Is the warehouse equipped with grading laboratory?
1. Yes 2. No
22. Does the warehouse operate with quality control specialist?
1. Yes 2.No
23. Are you satisfied with the grading and sampling system of the exchange?
1. YES 2. NO
24. If your answer to question no 23 is no what do you think is the problem?
1. Bias 2.Lack of knowledge 3. Lack of accurate measuring equipment 4.other
25. What do you think should be done to improve services at the warehouse for effective and
efficient commodity exchange?
1._______________________________________________________________
2._______________________________________________________________
3._______________________________________________________________
IV. LIQUIDITY RELATED QUESTIONS
26. From which source did you get credit?
1. Government 2.Microfinance institution 3.Banks 4. Friends or relatives
27. How do you describe the interest rate that you pay for the aforementioned financial
institution?
1. Low 2.Fair 3. High
28. How do you describe the credit availability if needed?
1. Easley available 2. Not available
29. Do you get in store credit (warehouse receipt) if you need?
1. YES 2.NO
30. If your answer to question no 29, is yes from which source do you get?

1. ECX 2.Warehouse owner 3.Private institution and individuals 4. Government

institution
31. If your answer to question no 29 is no what do you think are the reasons for not providing of
such service ?------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
32 Do the ECX clearing and settlement provide satisfactory service of the following?
Yes No
32.1 Assures payment to seller
32.2 Matching up of each buy and sell transaction
32.3 Protecting the integrity of the market place
33 Do the banking settlement systems of the ECX provide the following service?
33.1 Ability to manage fund flows in volatile days

33.2 Coordination of exchanges and members
33.3 Service for members in managing their working capital management
34 Do the ECX clearing and settlement system equipped adequately by the following?
34.1 Infrastructure
34.2 Trained manpower
34.3 Technology
VI.TRADING PRACTICES RELATED QUESTIONS

35. In which categories of membership did you participate?
1. Full trading member 2. Full intermediary member
3. Limited trading member 4. Limited intermediary member
36. Which membership category do you think is the best?
1. Full trading member 2. Full intermediary member
3. Limited trading member 4. Limited intermediary member
36. (a) why you think That is the best? --------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
37. What are the major factors that affect you in participating full membership of ECX?
1. Limited membership seat 2.shortage of capital 3.other, reason please specify

38. What do you think the membership seat fee of the ECX?
1. Expensive 2.Cheap 3. Fair
39. The membership requirement of the ECX is
1. Encouraging 2. Discouraging
40. What type of exchange trading contract do you use currently?
1. Organized spot trading 2. Future contract trading
3. Forward contract trading 4. Others
41. If your answer to 40 is organized spot trading how do you hedge against price fluctuations
and risk? --------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
42. How do you describe Ethiopian commodity exchange in terms of transaction costs?
1. Reduced transaction cost 2.Increased transaction cost
3. No difference with the traditional trading system
4. Others, specify-----------------------------------------------------------------------------
42(a) if your answer is increased transaction cost what you think are the reasons--------------------
--------------------------------------------------------------------------------------------------------------------
V. REGULATION RELATED QUESTIONS
43 Do the regulations made to the following to protect the members is

satisfactory? Yes No
43.1 Dishonest or irresponsible practice by the exchange
43.2 Dishonest or irresponsible practice by counterparties , intermediaries or banks
43.3 in enforcing contract
43.4 Arbitration mechanism for dispute settlement
44 Do the ECX regulators ensure the following major characteristics of the
exchange markets?
44.1 The market price truly reflect the information known about the market
44.2 Constrains speculative excess
44.3 Free and transparent dissemination of data
44.4 Reducing risk of default to acceptable level
44.5 Ensuring the system as whole is sufficiently flexible to withstand with shocks

Annex-2- Questionnaire (Amharic version)

አዱስ አበባ ዩ ኒ ቨርሲቲ
የ ቢዝነ ስ እና ኢኮኖሚክስ ፊኩሌቲ
ሇኢትዮጵያ ምርት ገ በያ ተሳ ታፉዎች የ ተዘ ጋጀ መጠይቅ
ውዴ የ ኢትዮጵያ ምርት ገ በያ አባሊ ት

የ ዚህ ጥና ት አጥኚ በአዱስ አበባ ዩ ኒ ቨርሲቲ በን ግዴ አስተዲዯር የ ሁሇተኛ ዱግሪ (MBA) ትምህርት
በመከታተሌ ሊ ይ ይገ ኛሌ፡ ፡ እና ም እን ዯመመረቅያ ተማሪው ይህን ጥና ት “የ ግብይት አሰራር እና
የ ተሳ ታፉዎች ተግዲሮቶች በኢትዮጵያ ምርት ገ በያ ” በሚሌ ርእስ በማካሄዴ ሊ ይ ይገ ኛሌ፡ ፡
የ ዚህ መጠይቅ ዋነ ኛ ዓሊ ማ የ ጥና ቱን ርእስ የ ተመሇከቱ የ መጀመርያ ዯረጃ መረጃ ከዋና ተሳ ታፉዎች ማግኘት

ነ ው፡ ፡ በመሆኑም የ ምትሰጡት መረጃ ሇትምህርት ተግባር የ ሚውሌ እና ሚስጥርነ ቱም የ ተጠበቀ መሆኑን
ሊ ረጋግጥሊ ችሁ እወዲሇሁ፡ ፡ ስሇዚህ በነ ፃ ነ ት እና የ ምታውቁትን ያ ህሌ እ ን ዴትመሌስለኝ በአክብሮት
እጠይቃሇሁ፡ ፡
 ሇትብብራችሁ በቅዴምያ አመሰግና ሇሁ 
መሌስ ሲሰጡ የ √ ምሌክት መጠቀም ወይም ማክበብ ይችሊ ለ
I. አጠቃሊ ይ መረጃ
የ መሊ ሾች መሇያ ኮዴ ፆ ታ1
እዴሜ2 የ ትምህርት ዯረጃ3 ዋና ው ስራዎ 4
ፆታ 1= ወን ዴ 2 =ሴት
እዴሜ 1= 15-30 2 = 31-65 3= 65 በሊ ይ
የ ትምህርት ዯረጃ 1= ያ ሌተማረ 2= መፆ ፍና ማን በብ 3= አን ዯኛ ዯረጃ
4=ሁሇተኛ ዯረጃ 5= ኮላጅና ዩ ኒ ቨርስቲ
ዋና ውስራዎ 1=ነ ጋዳ 2 =ተማሪ 3= የ መን ግስት ሰራተኛ 4=.ላሊ
1. በኢትዮጵያ ምርት ገ በያ መሳ ተፍ የ ጀመሩት መቼ ነ ው?
1. 2000 ዓ.ም 2. 2001 ዓ.ም 3. 2002 ዓ.ም 4. 200

ዓ.ም
II. የ ገ በያ መረጃን የ ተመሇከቱ ጥያ ቄዎች
2. ገ በያ ን የ ተመሇከቱ መረጃዎች ማግኘት ይችሊ ለ?
1.አዎ 2.አና ገ ኝም
3. ሇጥያ ቄ ቁጥር 2. መሌስዎ አዎ ከሆነ የ መረጃዎቹ ምን ጮች የ ትኞቹ ና ቸው?
1. በተዘ ጋጀው የ መረጃ ማእከሌ (ዳስክ) 2. አጭር የ ሞባይሌ መሌእክት 3.ኢን ተርኔ ት
4.መገ ና ኛ ብዙሃ ን 5.ጋዜጣ እና መፅ ሄት 6.ላሊ ከሆነ ያ ብራሩ-----------
------------
4. ሇጥያ ቄ ቁጥር 3. መሌስዎ አጭር የ ሞባይሌ መሌእክትና ኢን ተርኔ ት ከሆነ ባሇው ኔ ትዎርክ ዯስተኛ
ነ ዎት? 1.አዎ 2.አይዯሇሁም
5. በምርት ገ በያ ው የ ሚሰራጩ መረጃዎች በቀሊ ለ ተረዴተው መተን ተን ይችሊ ለን ?
1.አዎ 2.በመጠኑ 3.አይገ ባኝም

6. የ አገ ር ውስጥ የ ምርት ገ በያ ዋጋ፤ ጥራትና ብዛ ት የ ተመሇከቱ መረጃዎች በመያ ዝ ወዯ ኢትዮጵያ ምርት
ገ በያ በየ ስን ት ግዜው ይሄዯለ?
1. ዘ ወትር 2. አሌፎ አሌፎ 3.ቡዙ አይዯሇም 4.ሄጄ አሊ ውቅም

7. ሲገ ዙና ሲሽጡ ያ ሇው የ ዋጋ ተመን እና እርስዎ ከአከባቢዎ ገ በያ የ ሚያ ገ ኙት ዋጋ ተመሳ ሳ ይ ነ ው?
1.አዎ 2.አይዯሇም
8. ሇጥያ ቄ ቁጥር 7. መሌስዎ አይዯሇም ከሆነ ምክን ያ ቱ ምን ዴነ ው ብሇው ያ ስባለ?
1. --------------------------------------------------------
---------------------------
2. --------------------------------------------------------
---------------------------
9. ከሚከተለት የ ኢትዮጵያ ምርት ገ በያ ከሚሰጣቸው ዋና ዋና የ ገ በያ አዎ አይዯሇም
መረጃዎች ወይም አገ ሌግልቶች በየ ትኞቹ ረክተዋሌ?
9.1 በገ በያ መረጃው ትክክሇኛነ ት
9.2 ግዝያ ዊ መረጃ በማግኘት

9.3 እን ዯፇሇጉት የ ገ በያ መረጃ የ ማግኘት
9.4 መረጃና መገ ና ኛ ቴክኖልጂ አውታር
III. መጋዝን ና የ ጥራት ዯረጃን የ ተመሇከቱ ጥያ ቄዎች

10. ያ ለት መጋዝኖች ከተሳ ታፉዎች ሇሚቀርቡ ጥያ ቄዎችን ሇማሰተና ገ ዴ በቂ ና ቸው ብሇው ያ ሰባለ?
1.አዎ በቂ ና ቸው 2.በቂ አይዯለም
11. በመጋዝኖች የ ሚቀርበው የ አገ ሌግልት ጥራት አርኪ ነ ው?
12. የ መጋዝኖቹ የ ማከማቻ ወጪ ተመጣጣኝ እና አቅምን ያ ገ ና ዘ በ ነ ው?
13. ከመጋዘ ኖቹ ምርቱን በግዜው ባሇማን ሳ ት የ ሚጣሇውን ቅጣት እን ዳት ይገ መግሙታሌ?
1.ዝቅተኛ ነ ው 2.ተመጣጣኝ ነ ው 3.ከፍተኛ ነ ው
14. ምርትን ሇማከማቸትና ሇማስተሊ ሇፍ የ ሚሰጠው ግዜ በቂ ነ ው ብሇው ያ ስባለ?
15. በመጋዝኖቹ መዝገ ብ አያ ያ ዝና አስተዲዯር ስርዓት ረክተዋሌን ?
1.አዎ 2.አሌረካሁም
16. መጋዝኖቹ ከስርቆት እና ቃጠል ከመሳ ሰለ ስጋቶች የ ተጠበቀ ነ ው ብሇው ያ ስባለ?

17. ሇጥያ ቄ 16 መሌስዎ አይዯሇም ከሆነ ሇሚዯርሱ አዯጋዎች ሃ ሊ ፉነ ቱን የ ሚወስዯው ማነ ው?
1. የ ኢትዮጵያ ምርት ገ በያ 2. ሻጭ እና ገ ዢ 3.የ መጋዝኑ ባሇቤት 4.ላሊ
18. የ መጋዝኖቹ አገ ሌግልት አሰጣጥ ከመን ግስት ጣሌቃ ገ ቢነ ት ነ ፃ ነ ውን ?

19. ከመጋዘ ኑ አሰራር ስርዓት ጋር በተያ ያ ዙ ችግሮች የ ተነ ሳ በመጋዝኑ የ ሚገ ኝ ምርትዎን ሇመሽጥ

ተገ ዯው ያ ውቃለ?
1.አዎ 2.አሊ ውቅም
20. ሇጥያ ቄ ቁጥር 19 መሌስዎ አዎ ከሆነ ችግሮቹ ምን ምን ና ቸው?
1. --------------------------------------------------------
--------------------------
2. --------------------------------------------------------
---------------------------
3. --------------------------------------------------------
---------------------------------
21. መጋዝኖቹ በተዯራጀ ቤተ-ሙክራ የ ተሟለ ና ቸው?
1.አዎ 2.አይዯለም
22. መጋዘ ኖቹ የ ጥራት ቁጥጥር ባሇሞያ አሊ ቸው?
23. በምርት ገ በያ ው የ ዯረጃ አሰጣጥ እና ና ሙና አወሳ ሰዴ ስርአት ረክተዋሌ?
1.አዎ 2.አሌረካሁም
24. ሇጥያ ቄ ቁጥር 23 መሌስዎ አሌረካሁም ከሆነ ችግሩ ምን ዴነ ው ብሇው ያ ስባለ?
1.ማዲሊ ት 2.የ እውቀት ማነ ስ 3.የ ትክክሇኛ መሇክያ መሳ ርያ እጥረት 4.ላሊ
25. ምርት ገ በያ ው ቀሌጣፊ እና ውጤታማ እን ዱሆን በመጋዝኖቹ ሊ ይ መሰራት ያ ሇባቸው ነ ገ ሮች ካለ
ይዘ ርዝሩ? 1. ---------------------------------------------------
---------------------
2. -----------------------------------------------------
--------------------------------
3. -----------------------------------------------------
--------------------------------
IV. ብዴርን የ ተመሇከቱ ጥያ ቄዎች
26. የ ብዴር አገ ሌግልት የ ሚያ ገ ኙት ከየ ትኛው ምን ጭ ነ ው?
1.ከመን ግስት 2.ጥቃቅን ና አነ ስተኛ ተቋማት 3.ባን ኮች 4.ከጓ ዯኛ/ከዘ መዴ
27. ሇሚያ ገ ኙት ብዴር የ ሚከፍለት ወሇዴ እን ዳት ይገ ሌፁታሌ?

1.ዝቅተኛ ነ ው 2.ተመጣጣኝ ነ ው 3.ከፍተኛ ነ ው
28. የ ብዴር አቅርቦቱን እን ዳት ያ ዩ ታሌ?
1.በቀሊ ለ ይገ ኛሌ 2.አይገ ኝም
29. ምርትዎ በመጋዝን ውስጥ እያ ሇ ወይም የ መጋዝን ዯረሰኝ በመያ ዝ ብዴር ማግኘት ያ ችሊ ለን ?
1.አዎ እችሊ ሇሁ 2.አሌችሌም
30. ሇጥያ ቄ ቁጥር 29. መሌስዎ አዎ ከሆነ ከየ ትኛው የ ብዴር ምን ጭ ነ ው የ ሚያ ገ ኙት?
1. የ ኢትዮጵያ ምርት ገ በያ 2. የ መጋዝኑ ባሇቤት
3. የ ግሌተቋማትና ግሇሰቦች 4. ከመን ግስት ተቋማት
31. የ ኢትዮጵያ የ ምርት ገ በያ ው የ ምርት ርክክብ እና ክፍያ የ ሚከተለት አገ ሌግልቶች አዎ አይዯሇም

በአርኪ ሁኔ ታ ያ ቀርባሌን ?
31.1 ሇሻጩ የ ክፍያ ዋስትና ይሰጣሌ
31.2 ርክክብ በገ ዢ እና ሻጭ በየ ግዜው እን ዱካየ ዴ ያ ዯርጋሌ
31.3 የ ገ በያ ትስስር እን ዱጠነ ክር ያ ዯርጋሌ
32. የ ኢትዮጵያ ምርት ገ በያ የ ባን ክ ክፍያ ስርዓትን የ ሚከተለት አገ ሌግልቶች ያ ቀርባሌን ?
32.1 ባሌተረጋጉ የ ገ በያ ቀኖች የ ሚኖሮው የ ገ ን ዘ ብ ፍሰት የ መቆጣጠር ብቃት

32.2 የ ምርት ገ በያ ው እና የ አባልች ትስስር እን ዱኖር ያ ዯርጋሌ
32.3 አባሊ ት የ ራሳ ቸው ገ ቢ እና ወጪ አን ዱቆጣጠሩ ያ ዯርጋሌ
33. የ ኢትጵያ ምርት ገ በያ ምርት ርክክብና ክፍያ በሚከተለት በበቂ ሁኔ ታ የ ተሟሊ ነ ውን ?
33.1 መሰረተ ሌማት

33.2 የ ሰሇጠነ የ ሰው ሃ ይሌ
33.3 ቴክኖልጂ
V. የ ግብይት አሰራርን የ ተመሌከቱ ጥያ ቄዎች
34. እርሰዎ የ ሚሳ ተፈት በየ ትኛው የ አባሌነ ት ዓይነ ት ነ ው?

1.ሙለ ተገ በያ ይ አባሌ 2.ሙለ አገ ና ኝ አባሌ 3.ዉሱን ተገ በያይ አባሌ 4.ዉሱን አገ ና ኝ አባሌ
35. (ሀ) እርስዎ የ ተሻሇ የ አባሌነ ት ዓይነ ት ነ ው ብሇው የ ሚያ ስቡት የ ትኛውን ነ ው?
1.ሙለ ተገ በያ ይ አባሌ 2.ሙለ አገ ና ኝ አባሌ 3.ዉሱን ተገ በያ ይ አባሌ 4.ዉሱን አገ ና ኝ አባሌ

34. (ሇ) የ መረጡት አባሌነ ት ዓይነ ት ሇምን የ ተሻሇ ሆነ ?
1. ---------------------------------------------------
------------------------------
2. ---------------------------------------------------
-------------------------------
36. ምርት ገ በያ ው የ ሚያ ስከፍሇውን የ አባሌነ ት የ ወን በር ክፍያ እን ዳት ይገ ሌፁታሌ?
1.ከፍተኛ ነ ው 2.ዝቅተኛ ነ ው 3.ተመጣጣኝ ነ ው 4.ላሊ
37. የ ምርት ገ በያ ው የ አባሌነ ት መስፇርት እን ዳት ያ ዩ ታሌ?
1. ሇተሳ ታፉዎች አበረታች ነ ው 2. አበረታች አይዯሇም
38. በሙለ አባሌ እን ዲይሳ ተፈ የ ሚያ ረጉ ምክን ያ ቶች የ ትኛው ነ ው ብሇው ያ ስባሉ?
1.ውሱን ወን በር መኖሩ 2.የ ካፒታሌ እጥረት 3.ሇሊ ---------
39. በአሁኑ ግዜ የ ሚጠቀሙት የ ግብይት ውሌ ሰነ ዴ የ ትኛው ነ ው?
1.የ ተዯራጀ የ እጅ በእጅ ሽያ ጭ 2.የ ወዯፉትየ ውሌ ሰነ ዴ ግብይት 3.ላሊ
40. ሇጥያ ቄ ቁጥር 37 መሌስ ዎ የ ተዯራጀ የ እጅ በእጅ ሽያ ጭ ከሆነ የ ሚከሰተው የ ዋጋ አሇመረጋጋት
እን ዳት ይከሊ ከለታሌ?
1. --------------------------------------------------------
--------------------------
2. --------------------------------------------------------
---------------------------
41. የ ኢትጵያ ምርት ገ በያ የ ግብይት ወጪን እን ዳት ያ ዩ ታሌ?
1. የ ግብይት ወጭው ቀን ሰዋሌ 2. የ ግብይት ወጭው ጨምረዋሌ
3.ከሌማዲዊ ግብይት ሌዩ ነ ት የ ሇውም 4.ላሊ
VI. ቁጥጥርን የ ተመሇከቱ ጥያ ቄዎች
42. በምርት ገ በያ ው አባሊ ትን ሇመከሊ ከሌ ተብል የ ሚዯረገ ው ቁጥጥር አዎ አይዯሇም

ከሚከተለት የ ትኞቹ አርኪ ና ቸው ብሇው ያ ስባለ?
42.1 በምርት ገ በያ ው የ ሚፇሙ ታማኝነ ትና እምነ ት የ ጎ ዯሇው ስራ መቆጣጠር
42.2 በላሊ ወገ ን ፡ በአገ ና ኞችና በባን ኮች የ ሚፇም ታማኝነ ትና እምነ ት
የ ጎ ዯሇው ስራ መቆጣጠር
42.3 ዉልችን የ ማስፇም ስራ
42.4 አሇመግባባትን ሇመፍታት የ ሚወሰደ የ ግሌግሌ ዲኝነ ት መን ገ ድች
43. የ ኢትዮጵያ ምርት ገ በያ ተቆጣጣሪዎች የ ሚከተለትን ዋነ ኛ የ ምርት ገ በያ መገ ሇጫዎች
43.1 የ ዋጋ ተመኑ በትክክሌ የ ገ በያ መረጃን እዱያ ሳ ይ ከማረግ አን ፃ ር

43.2 ያ ሇ አግባብ ጥቅም እን ዲይገ ኝ ከመቆጣጠር አን ፃ ር

Gebrekiros Gebremedhin

Uploaded by

Copyright:

Available Formats

Gebrekiros Gebremedhin

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Gebrekiros Gebremedhin

Uploaded by

Copyright:

Available Formats

Trading practice and challenges of participants: The case of ECX .

ADDIS ABABA UNIVERSITY

Trading in Commodity Exchange and Challenges of Participants:

A Thesis Submitted to the School of Graduate Studies of Addis

G/Kiros G/Medhin Page i

ADDIS ABABA UNIVERSITY

Trading Practices and Challenges of participants: the case of Ethiopian commodity

Approved by Board of Examiners

G/Kiros G/Medhin Page ii

Advisors name: VENKATI PONNALA (PhD) Researcher: G/Kiros G/Medhin

Signature ------------------------------ Signature -----------------------

Date --------------------------------- date. -----------------------------

G/Kiros G/Medhin Page iii

Gebrekiros Gebremedhin Berhe, ID NO.GSR/0453/02 who carried out under my

award of masters of business administration.

Advisors Name: VENKATI PONNALA (PhD)

G/Kiros G/Medhin Page iv

supervision, insightful comments and suggestions of my academic advisor Dr.Venkati Ponnala

Last but not least, I am greatly indebted to my friends Ato Haile,Girmachew,Ahferom,Demile

G/Kiros G/Medhin Page v

G/Kiros G/Medhin Page vi

3.1 Source of Data ..................................................................................................................29

G/Kiros G/Medhin Page vii

Table1: Socio-Demographic Characteristics of ECX Participants-----------------------------------35

G/Kiros G/Medhin Page viii

ICT Information communication Technology

KACE Kenyan Agricultural Commodity Exchange

SMS Mobile Phone Short Message Service

SPSS Statistical Package for Social Studies

UNCTAD United Nations Conference on Trade and Development

UNDP United Nations Development Program

USAID United States Agency for International Development

WRS Warehouse Receipt System

G/Kiros G/Medhin Page ix

G/Kiros G/Medhin Page x

1.1 Background of the Study

since 1990, commodity exchanges have mushroomed around the world.

The Ethiopian Commodity Exchange was established in 2008 to revolutionize Ethiopian

G/Kiros G/Medhin Page 1

challenges of the participants of the commodity exchange. As findings of Tollens, (2006)

1.2 Statement of the Problem

concern in most developing countries.

G/Kiros G/Medhin Page 2

value for the last consecutive decades.

found to be an area of difference.

G/Kiros G/Medhin Page 3

1.3 Objectives of the Study

1.3.1 General objective

participants of the Ethiopian commodity exchange.

1.3.2 Specific objectives

 To describe the regulation system of the exchange

 To identify the challenges of Ethiopian Commodity Exchange participants

 To provide relevant recommendation that could significantly contribute for ensuring

commodity exchange system for participants in Ethiopia

1.4 Research Questions

1. What does the ECX trading practice looks like?

2. Does the ECX or authority effectively regulate the exchange?

3. What are the major constraints/challenges of the ECX member participants?

functioning of the exchange?