Assessing the Preconditions for Commodity Exchange Success: A Guidance Document
Commodity exchanges have proven to be effective institutional mechanisms for enhancing the efficiency and competitiveness of agricultural markets in many countries in Latin America and Asia. However, despite growing interest and attention, they have achieved notably less success in sub-Saharan Africa. Despite the limited success of most commodity exchanges across the continent, the founder and former CEO of the Ethiopian Commodity Exchange (ECX) noted that 18 countries visited the ECX, expressing great interest in setting up additional exchanges. As a rules-based trading mechanism, a commodity exchange relies heavily on a well-functioning business enabling environment to flourish. Without the appropriate conditions in place, commodity exchanges are likely to fail.
This guidance document, developed by the Feed the Future Enabling Environment for Food Security project, presents potential benefits and limitations of commodity exchanges, the conditions for their success, including lessons learned from various countries, and alternative solutions to achieve similar objectives. A general analytical framework is provided to enable USAID Missions, governments, and other interested stakeholders to assess whether investments introducing/expanding a commodity exchange are advisable, or whether investments would could be better directed at addressing critical preconditions necessary for a successful commodity exchange.