ECX, ECTA clash over coffee trading

(Photo: Anteneh Aklilu)

The Ethiopian Coffee and Tea Authority (ECTA) rebuffs against the latest announcement of the Ethiopian Commodity Exchange (ECX) on the disclosure of flexibility on coffee trading by double range. ECX on its part ridiculed the allegation of the authority and insists the Ministry of Agriculture (MoA) to look into the matter.
The authority warns that those who issued the new change will be held responsible.
Early Monday October 11 ECX had announced that it has introduced some major reforms on coffee trading at the modern trading floor.
One of the major reforms emplaced was that it is easing the regulation on price fluctuation on coffee trading to 10 percent above or below of the previous date trading rate to which it had only fluctuated by a 5 percent range in the past.
The five percent range has been static since ECX introduced the coffee bean, which is the major source of hard currency for the country, trading at its floor.
However the exchange announced it set a new range that shall be effective as of Tuesday October 12. ECTA, which is also regulating the vertical integration of coffee trading as additional alternative besides ECX trading platform, has since rejected the idea.
Adugna Debela (PhD), Director General of ECTA, said that the decision that came from ECX was not consulted with relevant bodies. In general it is very sensitive due to its spike in the price locally contrary to the global market.
He said that the authority wrote a letter for all regions that there is not a change from the previous trend and ruled to continue as usual. “The current decision shall distort the market and would make the rate above the international market, meanwhile the global market is also spiking too,” he explains adding that the decision of ECX may hurt the export market which may lead to dis-interested buyers of the expensive commodity against the global coffee price rate.
ECTA said that ECX set the new range without the knowledge of the authority.

3The authority argued that it is its mandate to regulate such kind of issues under ‘coffee marketing and quality control proclamation no. 1051 /2017’ and ‘coffee marketing and quality control regulation no. 433-2018’ that was ratified in 2017 and 2018 respectively.
On the letter that ECTA issued on Tuesday October 12 and copied to the Office of the Prime Minister (OPM), MoA and ECX, it strongly criticized the announcement of the trading floor. “It is illegal and against the rule,” the letter said.
The letter that was signed by Heiru Nuru, Deputy Director General for Market Development and Regulation at ECTA, and sent to the regional trade bureaus and other stakeholders stated that as per its power any changes on the trading shall be emplaced on the modality of consultation with relevant stakeholders that is carried out by ECTA.
“The separate decision of ECX that introduces new practices would not be applicable. Due to that those who are mentioned on this letter shall continue their activity as per the existed practice,” the letter that Capital obtained a copy of, strongly added.
Adugna told Capital that the intention of ECX is targeted to increase the flow of the commodity to its trading platform.
Since the commencement of vertical integration trading, which was introduced about one and half years ago, the volume of coffee traded via ECX has reduced.
He argued that the range for vertical trading is also within, similar to ECX, “that is also regulated by the authority properly.”
“Under the new directive for this coming harvest season, we clearly stated that we will strictly regulate the illegal acts regarding on the trading range,” Adugna elaborated.
On its side ECX has issued a letter on Thursday October 14 a day after of ECTA’s compliant letter. On its letter ECX sent to MoA and copied the OPM, Ministry of Trade and Regional Integration (MoTRI), the recently restructured and ECX’s regulatory body, ECTA, regional trade bureaus and stakeholders including coffee associations saying that the new change has taken place as per the consultation with relevant government bodies including ECTA.
It asked MoA, which is responsible to control ECTA, to look into the matter.
ECX on its letter reminds that on August 17 there was a meeting at OPM’S Export Coordination Committee that endorsed the leadership of Ministry of Trade and Industry, which is now separated to MoTRI and Ministry of Trade, MoA, ECX and ECTA to establish a technical committee that is led by MoA on the aim to come up with a solution in connection with challenges on coffee price estimation.
According to the letter the newly formed committee had conducted several meetings and passed a decision to make changes on the price issues.
Based on that the committee has agreed the weekly price estimation is to be set under the initial selling price of coffee by farmers and adding other related costs and profit margin. “The weekly price that is calculated under the scheme mentioned above is to be set by ECTA to ECX and it would be the base price to trade at the trading floor with 10 percent price fluctuation up or down,” ECX stated on its letter.
The committee chaired by MoA has also agreed ECX to change the contract of unwashed coffee grade, which is now reduced to from one to 5 grades against the previous up to grade nine.
Besides the range change on its announcement, ECX has also introduced new grades on the export coffee quality. As per its announcement the contract has reduced from 1 to 5 grades and UG. It was from 1 to 9 grades and UG in the past.
“As per the direction reached by the technical committee ECX has announced new changes, as mentioned above, for traders and shall be implemented,” the letter ECX wrote added.
It said under Ethiopia Commodity Exchange Proclamation No. 550/2007 and Ethiopia Commodity Exchange Authority No. 551/2007 it has a mandate to set grades with the prior approval of Ethiopian Commodity Exchange Authority on commodities that are traded at ECX.
“Similarly the percentage for trading range is conducted based on the weekly price estimation of ECTA,” it argued.
It claimed that the letter issued by ECTA is improper and does not account the power that is given by ECX’s establishment proclamation, “The ECTA claim has not also considered the direction of the OPM’S Export Coordination Committee and the understanding of the technical committee.”
Due to that ECX asked MoA to look into the issue and ECTA to avert its letter that it sent to the regions.
Some coffee exporters told Capital that the decision that came from ECX was good, while others stated that the range is a bit higher.
Meanwhile the authority argued the range at the vertical market is respecting the ECX range, whilst coffee experts ridiculed the argument. They said that reality at the ground is different.
Coffee experts Capital interviewed strongly claimed at the vertical integrated scheme that the range above the five percent significantly eroded the availability of the bean at ECX warehouses, “It affects exporters’ ability to access the bean at the trading.”
They said the open range at the vertical market is attracting suppliers to sale their product without ECX since it has more benefit than the strictly regulating platform.
Experts and exporters who demand anonymity because of the sensitivity of the issue added that the trading of coffee against the range is not hidden.
“In the reality the alternative coffee market is using ECX’s maximum range as a benchmark for its minimum price tag,” one of the coffee trading consultants said, adding, “It means that the bean is trading over the range of five percent. We have observed that coffee sold about 20 percent above the range and 6 and 7 grade coffees have been also sold on the rate of 5 or 4 grades of coffees.”
He said it is now common to buy coffee based on negotiation manner rather than binding by the range.
Experts said that the authority only evaluated the contract of the two parties, suppliers and exporters, and not the receipt of the trading, “The good thing is that suppliers are issued the receipt for exporters. If ECTA wants to know the case it has to ask for the transaction receipt in addition to the contract agreement.”
Capital has got information from ECX that the new change will be effectively emplaced after this year’s harvest season. The harvest season is set to start from the end of this month.