Market approach recasts often-hungry Ethiopia as potential bread basket

Imagine if Ethiopia, that land of skin-and-bone children that defined African famine in the 1980s, could turn from the world's largest recipient of food aid into a bread basket, not only feeding itself, but its neighbors also.

It could happen.

Ethiopia actually produces more maize than east African neighbors Kenya, Uganda, and Tanzania combined, but since most Ethiopian farmers are subsistence growers, only 30 percent of that food actually reaches the market.

The quickest way to change this, says economist Eleni Gabre- Madhin, is to bring profit back into agriculture, to give Ethiopian farmers enough information so that they can grow what the world wants and get paid more for growing it.

"Ethiopia is the second-largest maize producer in Africa, and yet Ethiopian farmers are getting poorer and poorer," says Ms. Gabre-Madhin, the head of Ethiopia's soon-to-be-functioning commodities exchange. "We're going to have to do something very dramatically different. The stakes are high."

What Gabre-Madhin is proposing may sound grandiose – she wants to set up a commodities exchange, similar to the Chicago Board of Trade. But her free-market passion has convinced Ethiopia's left-leaning Prime Minister Meles Zenawi to make her proposal his top domestic priority this year. Most Ethiopians earn their livelihoods from agriculture, and anything that promises to increase incomes and help Ethiopia compete on the global stage is welcome.

"You can see in the world today that globalization is a trend, and Ethiopia cannot be a country outside the global effort," says Berhan Hailu, Ethiopia's minister of information. "The government has been following the free market since 1993-94, and now the government is taking concrete means to bring this about in agriculture."

There are 10 million farmers in Ethiopia, a country of 80 million, growing mostly cereals such as wheat, maize, sorghum, barley, sesame, and an Ethiopian grain called "teff." Yet, few farmers travel more than 12 miles from their homes in their lifetimes, so they have very little information about what their food would be worth if they did decide to sell it. When they do sell, they sell to a local trader, who then sells to another trader, and another, adding cost to the food when it finally reaches the consumer in large cities like the capital, Addis Ababa.

"The farmer doesn't know the price – he might get five cents here, but on the other side of the country, where there's a drought, he might get three times the price," says Gabre-Madhin. "So let's imagine the farmer goes to a warehouse where you have constant updates with the latest market prices. Now the farmer starts thinking nationally, not locally."

Similarly, traders in Addis Ababa would never buy product unless they saw the quality themselves. This is understandable. Some farmers have a nasty habit of adding dust and stones to their grain to increase the weight – and, thus, the value – of each sack sold. Under Gabre-Madhin's plan, each warehouse would have an independent neutral party that would test and grade the farmer's harvest, allowing traders in Addis Ababa, and potentially outside Ethiopia, to place bids on food, sight unseen.

Convincing farmers and traders to abandon the only system they've ever known will not be easy, of course. But by making the process of buying and selling food more transparent and predictable, everyone should benefit.

"As an investor, I need stability, and only a commodity market can offer that," says Guruprasad Rao, an agricultural commodities broker from Dubai, on a recent trip to Addis Ababa to buy sesame seed. "Whenever you have a lack of information, nobody knows the size of the crop. If everyone knows the size of the crop, they can predict prices better, and they can make better decisions."

Already, he sees farmers switching from their traditional crops to more profitable export crops. Over the past three years, sesame-seed production has risen nearly 200 percent, from 199,000 tons in 2001 to 380,000 in 2005, says Mr. Rao, even though sesame seeds are not used in local Ethiopian cuisine. All of it is destined for the Middle East. A commodities exchange will only accelerate this trend, he adds.

While most academics applaud Ethiopia's embrace of the free market, some say that there are no easy fixes for a landlocked country that lacks good roads, reliable electricity, and where there is little investment in irrigation for those years when the rain clouds don't provide.

"Ethiopia suffers routine market failures, so possibly this will help," says Ross Herbert, an economic analyst at the South African Institute for International Affairs in Johannesburg. "But the bigger problem is that there is too much peasant agriculture, and too few systems to overcome the vagaries of the weather, such as irrigation and better roads, adequate supplies of fertilizer, and so on."

Rod Gravelet-Blondin, the head of the agricultural-products division at the Johannesburg Stock Exchange, cautions that a commodities market will only work if it is actually used by the majority of the farmers and traders. "It will take time, but ... a market-based economy is a good place to start," he says. "I think Ethiopia looked at Asia and said, 'Those guys got it right, they managed to turn their economy on its head through developing their agriculture.' "

For her part, Gabre-Madhin says she considers her project "a calling."

"Can we pull this off? I believe we can," she says. "This is not just a couple of years of my life. It's a mission."