Trade ministry re-instates price caps to tame hikes

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The Ministry of Trade and Regional Integration (MoTRI) re-imposes a price cap on sesame seeds trading at the electronic trading floor after only a few weeks of its public market debut. The ministry has strongly underlined that it will closely monitor contract farming trading as some experts express concerns over scheme abuse by illegal actors.
It can be recalled that the ministry had lifted the price cap a few weeks back for commodity trades at the Ethiopian Commodities Exchange (ECX). At the time, it was stated that it lifted the cap due to the decline in hoarding.
However, at the time experts had raised concerns that the decision would have an effect on the export business.
They said that when the government applied the cap about a year ago it was aimed to harmonize the local trading with international markets and in making sure the export business remained profitable rather than targeting to generate foreign currency.
The government similarly bashed exporters citing their involvement on the export business was on the motive of supporting their major business, which is import.
Before the application of price caps, exporters offered high values, much higher than the global market at the trading floor to get the commodity and export it at lesser rates, while using the foreign currency they secured to import commodities that would cover their loss on the export.
Experts said that the hard currency shortage for accessing the letter of credit was the reason that attracted traders to be involved in the export business which allowed them to use the foreign currency to import whatever they wanted.
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 were 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.”
Experts opined 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.”
Experts told Capital that ever since the government lifted the caps, the price at the trading floor has shown a spike on some commodities.
Mid October Kassahun Gofe, State Minister of MoTRI, told Capital that the government introduced the price cap when hoarding was taking place at its peak, “we lifted the caps since the hoarding behavior was eroded.”
On Friday November 4, he told Capital that now the ministry reinstated the price cap on sesame seeds due to price hike occurring in the local trading against the global market.
When the cap was lifted the price of sesame seeds reached up to 2,500 birr per quintal while it was 1,700 birr for Humera and 1,600 birr for Welega types of sesame seeds at the global market.
“The difference of the local market price is very wide compared with global rate due to that we re-imposed the cap,” the minister cited.
“Exporters must not trade on loss, therefore the cap has been re-applied to the seeds,” Kassahun added.
However some experts claimed that other commodities price is also showing an increment at the local market, however the State Minister, who is responsible on the follow up of the export sector, said that other commodities’ trading is pushing on accordingly.
“We have 16 oilseeds and pulses that trade at ECX, the trading of pulses is run as per the demand and supply driven scheme,” he added.
“The price cap is a policy instrument that the government can impose at any time if price hikes occur on other commodities,” he added.
Regarding the contract farming trading scheme some experts and market players expressed their concern that illegal traders and lower government officers may abuse the system.
However, Kassahun said that the ministry has concluded its preparation to manage the scheme smoothly.
“On Thursday November 3, we concluded the registration of contracts that buyers got with farmers. On the registration process, significant number of contracts has been registered by the ministry,” he said, adding, “the registration will allow for the control and supervision of buyers using source-able commodities.”
Besides that he said that 25 ECX facilities will manage the calibration and quality measurement, while additional facilities are also being opened.