Putting the cart before the horse

By Yilma Bekele (30 March 2009) Commodity is one of those terms open to many interpretations. The Marxists have their own definition of what a commodity is. To the Marxist, using the labor theory of value, ‘a commodity is any good or service produced by human labor and offered as a product for general sale on the market.’ In today’s economy a ‘commodity exchange is where farm produces (coffee, wheat, cocoa) or raw materials (oil, metals) are traded.

Commodities exchange trading is where they trade on future products on commodities. A Sidamo coffee farmer can sell a future contract on his coffee beans that will not be ripe for a few months more or an Ada teff farmer can sell a future on his harvest next season. This sort of contract protects the farmer from price drops and the merchant from price rise.

A few of the world famous exchanges are Chicago Mercantile Exchange (agriculture, metals, energy), Kansas City Board of Trade (agriculture), Dalian (China) Commodity Exchange (agriculture), and Brazilian Mercantile and futures Exchange (agriculture, biofuels).

Meanwhile, a stock exchange is where a ‘corporation or mutual organization provides a trading facility for stockbrokers and traders to trade stocks and securities. A stock exchange is used by corporations and companies to raise capital by selling shares, grow by acquiring other companies and generally make money circulate instead of sitting in a savings account or under a mattress.

The Chicago Board of Trade was established in 1848. Up until then most future contracts were not always honored both by the buyer or seller. The new Board was designed to minimize credit risk. The members of the Board set up the rules and run their organization independent of the long arm of the State.

Please note that the common theme in the above story is the founding of the exchange was purely a voluntary act by the traders. It was created to facilitate trade and protect both the farmer and the merchant from unscrupulous individuals.

Now we come to our infamous ‘commodity exchange’ that appeared out of the blue with much fanfare in 2008. Major wire services wrote gushing reports about it. Bloomberg quoted the new director, Reuters sent out alerts and even VOA commented about it. They all agreed it was a giant step for Ethiopian farmers. They dutifully reported what was handed to them.

As usual ‘donor’ countries poured in money (ten million in two weeks were pledged) to help set it up. A building was erected to mimic the Chicago exchange. An electronic system was put in place and warehouses were built. Thus for all practical purpose, the physical structure was in place.

I am glad you can see what I am leading to. We Ethiopians are most familiar with this scenario unfolding in front of our eyes. We know it is not going to work. We have seen this ‘theatre’ before.

The question is did those that set up the system really thought that it would work? When you consider that there are no free farmers in the country, that there is absolutely no trust in the government or its institutions, that there is no law other than the word of Meles Zenawi, the prime minister, and no free media to exchange information how in the world could you have such a purely capitalist enterprise function in a closed society.

If it does not work, why set it up? Simply put, the intention was never to help farmers or merchants. It was just another TPLF mechanism for more control of what is left of the independent business. They said it themselves. The Newsweek reporter Jason McClure quotes the director Exchange Director Eleni Gabre-Madhin as saying: “Traders other than large growers and co-operatives that sell directly to international buyers will be forced to use the bourse.”

So the Ethiopian Commodity Exchange (ECX) was inaugurated with lots of fanfare. Peter Heinlein of VOA wrote again quoting the director: “The opening of the new exchange has unleashed a torrent of entrepreneurial spirit.” So what happened? Let us just say they threw a party, and no one showed up!

They passed a law in August to regulate the coffee industry. In other words to nudge the independent merchants to submit to the authority ECX. The prime minister went to parliament and threatened to ‘cut the hands’ of the merchants that refused to deal with ECX. Again the premier threatened to confiscate all coffee that is not under the control of ECX. Hoarding was the reason given for this draconian action.

Coffee is Ethiopia. Coffee was our number one export during the Emperor’s reign. Coffee sustained the brutal Derg. Coffee is the TPLF regime’s lifeline. Control of the trade of coffee is a must for the minority regime. ECX was a vehicle to take control of the independent merchants and drive them out of the coffee business.

Our merchants and farmers were too smart for that. They refused to be led to the slaughterhouse willingly. No amount of threat and coercion was effective against those that have survived numerous trials and tribulations the last thirty years. TPLF was forced to show its ugly face in broad daylight. The Ethiopian people are not new to government confiscation of property, wealth and their children. It is just another criminal action by a government against its own citizens.

So as usual, we heard the news and we sighed. We are so used to TPLF abuse and disrespect it did not raise an eyebrow, let alone indignation. When they killed [Ethiopian Teachers Association] activist Assefa Maru, we were quiet. When they murdered Professor Asrat Woldeyes, we shrugged it off. When they arrested Bekele Jirata, we were silent. The arrest of opposition leader Judge Birtukan Mideksa did not bother most of us. Thus confiscation of tons of coffee from private warehouses is just another chapter in our saga of humiliation by the illegal regime.

Starting an exchange without the goodwill and participation of the people affected is not rational. Imposing from above is a recipe for failure. Merchants are in business to make money. They buy low and sell high. Selling for less than the cost is suicide. Now the government has the coffee, what is next? International coffee price is depressed due to the market meltdown. What is TPLF’s next move? Of course they can sell it for any price since they did not pay for it. How about next season? The smart merchant is pushed out of the business; what is left is cadre merchants. Good luck Ethiopia.

The writer, Bekele can be reached at yilma@pacbell.net.

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Posted by on March 30, 2009. Filed under VIEWS. You can follow any responses to this entry through the RSS 2.0. Responses are currently closed, but you can trackback from your own site.