Why are African commodity exchanges languishing? A case study of the Zambian Agricultural Commodity Exchange

Authors: 
Nicholas J. Sitko, T.S. Jayne,  
Publisher: 
Food Policy 

Food price volatility and high transactions costs remain major problems in African food markets. These persistent problems provide a strong theoretical justification for the development of commodity exchanges. However, the majority of African commodity exchanges remain underdeveloped. Through a case study of the Zambian Agricultural Commodity Exchange (ZAMACE), this article explores why agricultural commodity exchanges in the region have thus far failed to develop into sustainable trading platforms and identifies the most important changes needed to enhance their performance.

Drawing on interviews and group discussions with the primary participants on ZAMACE, five main factors that impede volumes traded on the ZAMACE exchange are identified and analyzed: (1) the limited success in attracting financial institutions’ commitment to commodity exchanges; (2) the anonymous nature of trading on a commodity exchange exacerbates the risks associated with contract non-compliance and opportunistic behavior; (3) the potential for conflict of interest among brokers; (4) the potential for market manipulation in a thinly traded market; and (5) the high fixed costs that are imposed on actors trading in a thin market. Exacerbating all these factors is the unpredictability of government intervention in cereal markets.

Publication date: 
1 Juin, 2012