Price discovery in the Ethiopian Commodity Exchange (ECX): the role of warehouse receipts

This paper discusses two main functions of the Ethiopian commodity exchange (ECX): price discovery and warehouse receipts (WR) and their subsequent impacts on service users. While disseminating price data to all market actors can help achieve efficiency, this alone seems insufficient to improve the agricultural marketing system. Farmers need a secure storage, and accurate information about the quantity and the quality of their products in order to take advantage of the price information received. This interdependence between price discovery and a WR is what constitute the focus of this paper. It discusses the importance of a WR in empowering farmers to become price-setters rather than price takers, reducing distress sales, rewarding quality and reducing transaction costs through Quality & Quantity certification. Using the ECX as a case study, the author provides empirical evidence that a price discovery mechanism alone cannot improve the agricultural marketing system, thus a well-regulated WR system is also needed to achieve market efficiency and transparency.