Policy Brief: Building an Enabling Environment for Functioning Commodity Exchanges
The EAT project, in partnership with the Department of Agricultural and Consumer Economics at the University of Illinois, developed a policy brief meant to inform policymakers and donors about conditions necessary for the operation of an effective commodity exchange in a given country.
Agricultural growth and trade in developing countries is often inhibited by the high costs of finding and screening trading partners, determining the quality of goods traded, negotiating prices, enforcing contracts, and coping with price volatility. An active commodity exchange, where multiple buyers and sellers trade commodity-linked contracts, can reduce these transactions costs by facilitating price discovery and managing risk. When commodity exchanges function well they can increase the volume of trade and thereby reduce price volatility. A commodity exchange can be an important element for market-oriented agricultural sector development; however it is not a one-size fits all solution.