Following the decline of hoarding of commodities, the Ministry of Trade and Regional Integration (MoTRI) has decided to lift the price cap on agricultural commodities export. However, experts opine that such moves have the potential to harm the sector.
Slightly over a year ago, MoTRI which is responsible for the follow up of the export sector introduced price caps on the aim to tackle unfair competition on access to commodities at the trading platform of the Ethiopian Commodities Exchange (ECX).
Following the introduction of the caps, the ministry in consideration of the international market has been providing weekly upper caps on the prices for major export commodities such as oil seeds and pulses trading.
Experts recall that price caps were rolled out because exporters we aggressively focused on the foreign currency that they were earning without really paying attention to the market.
“Exporters were giving their own prices left right and center against the international market to get the foreign currency which has affected the market expanding unethical practice on the export business,” experts said, adding, “They exported at lesser prices than they paid at the local market. Exporters major goal was securing hard currency for their import business.”
They said that such erratic practices had contributed to value loss and hoarding, “the export business has not been profitable because of exporters shipping their commodity at lesser price points than they paid at the trading floor, but the cap has been changing this narrative.”
“As a result the government has decided to control the market and has harmonized the prices with international price points,” they added.
They said that lifting the price cap would be disadvantageous to the country since the initial motive was to create harmony and a calm market in the sector.
However, Kassahun Gofe, State Minister of MoTRI, argued that the government introduced the price cap when hoarding was taking place at its peak.
“When exporters buy the commodity at high price points they hoard the commodity, thus the price cap was introduced to mitigate that. Now that the stock has balanced out we have seen it best to lift the cap,” Kassahun told Capital.
“Lifting the cap with the principle of free market will allow exporters to buy products at competitive price points, but if the cap was to continue the trading practice without the ECX will prosper leaving out the platform. So we decided to lift the price cap,” the State Minister who is export responsible for the sector explained.
“We lifted the cap to boost the export market,” he added.
Regarding the concern of mismatch of local market and hard currency sales of the commodities, he said that the country is a price taker and thus, “It will not relate with that.”
Some exporters that Capital interviewed estimate that even if the cap is lifted, the price will not see exaggerated rate as the past.
“This time higher price against the international market will not be given by exporters since they will not access the foreign currency as per the recently introduced directive of National Bank of Ethiopia,” experts opined citing their expectation.
“In the past, we gave exaggerated price points to buy oil seeds or pulses since we would take the foreign currency to import commodities and make a profit from it, but now the government takes 70 percent of the hard currency from export earnings and partner banks take 10 percent. So doing trade with 20 percent of the hard currency is not feasible, because of that exporters shall only target profits from export trade meaning they buy the product at reasonable price points at the trading platform or at contract farming deals,” exporters said.
The new product that has been produced this harvest season is getting into the market from Mid October. Experts said that the result of the new decision of MoTRI will be seen in the near future.
Experts say that despite the challenge in the northern part of Ethiopia, which is a major source of oilseeds particularly for the high quality sesame seeds, the harvest is expected to be higher. Similarly the harvest of pulses is expected to be very impressive for this season.
However experts stated that currently traders are highly engaged on the deal of contract farming to access to commodity as opposed to the trading floor of ECX.
MoTRI noted that exporters who access to commodity through contract farming scheme ought to pass through ECX for quality test and grading.
However experts argue that, “ECX is a trading platform and not an accessing platform.”
Experts pointed out that the contract farming scheme that is not following the proper system is said to indirectly dysfunction the trading platform.