An evaluation of exchange driven and non-exchange driven coffee markets in Africa: contrasting Ethiopia with Cote d'Ivoire

To date, many African countries are characterised with challenges of market liberalisation;
high levels of transaction costs and risks within commodities markets; and as such, emphasis 
nowadays has been placed on the establishment of Local Commodity Exchanges (CXs). CXs
have been seen as new market institutions that catalyse equitable and sustainable development 
and growth. Although this may be the way forward for many African countries, conditions 
precedent for CXs success in African countries are not in existence, according to Rashid, et al. 
(2015, 2010). Nevertheless, a broad range of literature has considered CXs to be a successful 
potential market-based mechanism for commodity risk management and for lowering 
transaction costs. Although these studies have provided empirical evidence about the successes
of CXs, the evidence lacks consideration of the impact of CXs on smallholder farmers. 
This study examines the performance of exchange and non-exchange driven coffee markets in 
Africa. Within this remit, a combination of methods including fixed effects, percentage change 
analysis, indexes, an ordered logit approach and a thematic analysis were adopted to provide
empirical evidence to highlight the positive impact of CXs on agricultural commodities trading 
systems in developing countries, using the Ethiopia Commodity Exchange (ECX) and Cote 
d’Ivoire trading system as case studies. Moreover, the empirical foundations of this study 
aimed to elucidate the various levels of impact of the Ethiopian Commodity Exchange on 
smallholder farmers.
The study finds that the ECX has been successful in reducing transaction costs in comparison 
to Cote d’Ivoire. More specifically, the ECX, by organising the Ethiopian trading system has 
reduced the number of intermediaries considerably, thereby improving smallholder farmers’ 
incomes. Also, the ECX has helped farmers organise more collectively. The grading standards 
introduced by the ECX have also yielded positive impacts on smallholder farmers who 
confirmed that these grading standards have improved the quality of their production, the 
pricing and facilitated trading in the industry. The availability of pricing and market data has 
also helped smallholder farmers to be more informed and get better prices for their products as 
well as improving their power to negotiate. Thus the ECX has added value to the Ethiopian 
agricultural marketing system (Eba and Struthers 2018).
However, themes that have emerged from the semi-structured interview analysis suggest that
efficiency in Ethiopia trading system can be improved by improving transparency and 
infrastructure, making use of modern technology for grading while providing access to appropriate services that offer access to storage facilities, credit and training for smallholder 
farmers and their organisations. In Cote d’Ivoire, it is suggested that an efficient trading system 
can be achieved by improving transparency and providing mechanisms for risk management 
while offering access to appropriate services such as storage and credit for smallholder farmers.