For many poor rural farmers, getting their products to market is one of the most daunting obstacles they face. Markets in developing countries often have weak integration, characterized by a lack of communication and information-sharing; thus, while markets in one region may offer higher prices for a commodity, farmers in other regions have no way of learning about, and taking advantage of, these price differences. For those farmers and traders who do venture to more distant markets, the difficulties and risks involved -- everything from the payment of bribes at roadside checkpoints to the buyer's default on the contract upon delivery -- often mean a huge loss in profit. Taken together, these factors keep many rural farmers and traders from investing in and expanding their businesses.
A new essay from IFPRI details how the development of a commodity exchange in Ethiopia helped that country begin to overcome the constraints of weak market integration and high transaction costs. "A Market for Abdu: Creating a Commodity Exchange in Ethiopia" describes the birth of the Ethiopia Commodity Exchange, which was opened in April 2008.
Watch IFPRI Senior Research Fellow Shahidur Rashid discuss commodity exchanges in Africa.