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Marketing Mix Practices and challenges with special focus on Sesame

Product the Case Ethiopia Commodity Exchange
By:
Abuye Gedefa

A Research Proposal
Submitted in Partial Fulfillment of the Requirement for the Award of Degree of
Masters of Business Administration (MBA)

Principal Advisor: Afework Kasa (PHD)

June, 2017
Addis Ababa, Ethiopia
 Abbreviation and Acronyms

ACDDCs Agricultural Commodity Dependent Developing Countries

ADLI Agricultural Development Lead Industrialization

AMC Agricultural Marketing Corporation

CBE Commercial Bank of Ethiopia

DFID Department for International Development

ECEA Ethiopian Commodity Exchange Authority

ECX Ethiopia commodity exchange

EGTE Ethiopian Grain Trade Enterprise

EICTDA Ethiopia information and communication technology development

agency

EOPEC Ethiopian Oil Seeds and Pulses Export Corporation

EQSA Ethiopian Quality and Standard Authority

ETB Ethiopian Birr

EWR Electronic Warehouse Receipt

GDP Gross Domestic Product

ICAs International commodity agreements

ICT Information and communication technology

IM Intermediary Member

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IVR Interactive Voice Response

KACE Kenyan Agricultural Commodity Exchange

LIM Limited Intermediate Members

LTM Limited Trading Members

MoFED Ministry of Finance and Economic Development

SMS Short Messaging Service

TM Trading Member

UCE Uganda Commodity Exchange

UNCTAD United Nations Conference on Trade and Development

ZAMACE Zambia agriculture commodity exchange

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 CHAPTER ONE
INTRODUCTION
1.1. Back ground of the study

Production of agricultural commodities play a major economic role in many developing

countries, especially in the least developed ones (Paul, 2011). Because of commodity
production and trade are the primary means of livelihood for millions of households,
commodity sector development is essential for poverty alleviation and overall economic
development. Faced with both price volatility and high marketing costs, many see
commodity exchanges as an alternative way to manage risks and increase efficiency in a
liberalized market environment (Morgan, 2001).

Agricultural Commodity Dependent Developing Countries (ACDDCs) often depend on

revenue gained from exporting only one or two specific agricultural commodities, so
declining and volatile prices are risky to both individual producers and governments, both
of which face reduction of returns and high risk (Paul, 2011). Volatile and falling
agricultural commodity prices can also aggravate the ratio of debt to exports,
undermining debt sustainability (Department for International Development [DFID],
2004).

Ethiopia is a developing country where agriculture is the backbone of the economy and
the source of livelihood for the 84% of the population (Census, 2007). Nevertheless the
sector is not well developed and much of the produce is produced by small holder
farmers. The farmers produce food for their household and sale the rest which is left from
the house consumption in the nearby market places. The main agricultural products are
Coffee, Teff, Maize, Wheat, chat and Sesame (Ethiopia Information and Communication
Technology Development Agency [EICTDA], 2010)

The bulk of the country's merchandise export earnings are from the agriculture sector and
this sector accounts about 80-90 percent of the total export while the share of
manufactured products was eleven percent in 2001/02 and 12.5 percent in 2002/03
(Teshale, 2005).
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Commodity dependent economies are deemed to have lower growth prospects. This
happens as a result of both the unfavorable world demand side and the low-income
elasticity of demand for primary commodity. On the supply side, the combined effects of
lower skill and technology contents of commodity production and its negligible linkages
with the rest of the economy would result in lower growth (Bonaglie and Fukasak, 2003).

Hence, designing an appropriate mechanism to protect declining and volatile agricultural

commodity prices would help to all stakeholders to get the right profit from what they
produce, and enhance both the quality and quantity of exports (Paul, 2011). Among such
methods organized commodity exchange market is the most viable one (Paul, 2011).

Today there are various types of public or private market information and commodity
exchange systems that are backed up using modern ICT to provide information to market
participants. Following the liberalization of the agricultural market in most of sub-
Saharan African countries market information and commodity exchange systems are
introduced. Such as Kenyan commodity exchange, Malawi commodity exchange,
Zimbabwe Agricultural commodity exchange, and Uganda commodity exchange. The
establishment of such institutions makes markets work better for all market actors by
providing information on what commodities to produce, what technologies to apply,
when to produce, for whom to sell, when & at what price to sell, how to find willing
buyers, and to plan for the future and make better decision etc ( Tollens , 2006 ).

The Ethiopia Commodity Exchange (ECX) is a new initiative for Ethiopia and the first of
its kind in Africa (ECX, 2008). The ECX was formed in 2008 to address the problems of
market access and market infrastructure primarily for grain farmers, and subsequently
became the sole body responsible for managing trade in coffee (ECX, 2008).

Growing interest in commodity exchanges on the part of governments, donors, and the
private sector in developing countries reflect a drive to reduce transactions costs and a
need for new commodity risk management tools. Improvements in the institutions
helping commodity markets are especially important to African countries that remain

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heavily dependent on a small range of commodities for export revenues (Rashid, Winter-
Nelson and Garcia, 2010).

As the findings of Tollens (2006), revealed that market information and commodity
exchanges can be powerful instruments to inform participants about market conditions
and prices, to find willing buyers, to empower them by making the transactions more
equal and fair, to inform them about the optimal timing of buying and selling, to induce
them to store optimally and to plan ahead, making better informed optimal production
and marketing decisions.

The important roles of a commodity exchange in a free market economy for price
discovery, dissemination of market information and commercialization of the agricultural
sector has become much more apparent (Mukhebi, 1998).

As exports of oilseeds, pulses, and cereals grow, there is rising demand by exporters
facing international markets for an organized domestic market. Thus, export firms are
interesting an increasing share of the domestic market (Gabre-Madhin and Goggin,
2005). However, these firms’ competitive edges depend on the availability of supply in
appropriate grades and in adequate supply in a timely manner.

According to Gabre-Madhin & Goggin(2005), export firms can maximize profit and
increase market share with “JIT (just in time)” delivery, minimizing/reducing/ their
inventory and storage costs. This is only achieving with an organized domestic market
which can provide accurate information on available supplies, and allow them to contract
forward at low cost.

It is evident that the role of exporter in exporting agricultural marketing can be enhanced
through the Government support activities which include provision of necessary
infrastructure, appropriate technologies and relevant market information. Despite the
importance of commodity exchanges to participants most developing country commodity
exchanges constrained by infrastructure, marketing information, quality and lack of
contract enforcement. Export commodities were not in line with quality standards of the

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international market, which in effect caused in the minds of distinguished international
buyers bad image to African agriculture.

As explained by Mukhebi (1998), Kenyan Agricultural Commodity Exchange faced

several constraints that impede the KACE from the successful accomplishment are ;first,
poor quality of produce that farmers deliver combined with the fact that most small-scale
farmers find it difficult to deliver in bulk which is ideal for an exchange; and secondly,
most of the commodities in Kenya are greatly regulated by boards and are grown and
marketed in an environment of struggling cooperatives, which are ineffective,
mismanaged and have bulky internal bureaucracies. In addition, the other major factor
revealed in the study was intervention of Kenyan government, in grain markets distorts
prices and discourages private sector participation in commodity markets.

Hence, a commodity exchanges depends on a number of linked institutions which are

critical to provide its function to its members. These core institutions are a market
information system, a method of product grading and certification, a regulatory
framework and apt legislation, an arbitration mechanism, and producer and trade
associations (Paul, 2011). In addition, a warehouse receipts system is a very important
related institution (Gabre-Madhin and Goggin, 2005). Most Africa commodity
exchanges failed to serve the core institution of a commodity exchange efficiently to the
participants. Solving the problems of commodity exchange is very important for Africa
at large and to Ethiopia specifically.

Despite its establishments, there were not adequate studies that identified the marketing
mix practice and challenges with special focus on sesame in the case of ECX. The
previous studies mostly focus on the challenges of ECX and the roles of ECX to
smallholder farmers. Therefore, the main purpose of this study is to assess the marketing
mix practice and challenges with special focus on sesame in the case of ECX.

1.2. Statement of the problem

The development of the agricultural market in Ethiopia is based on old traditional

methods (ECX, 2009). It is characterized by insufficient market information, unstable

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price, poor quality, lack of trust among trading partners, and uncoordinated markets
(Gabre-Madhin & Goggin, 2005).

ECX which started trading operations in April 2008 is a new initiative for Ethiopia to
revolutionize Ethiopians tradition bound agriculture through creating a new marketplace
that serves all market actors, from farmers to traders, processors, exporters, consumers.

A commodity exchange in a developing economy serves many benefits to its members.

Through enhanced communication, market access is improved and market
intelligence/information is more readily available. It also encourages competition and
higher quality standards. It provides a secure space for conducting business since all
transactions are transparent and prices are made public. Contracts are written and
enforceable and a dispute resolution mechanism is provided (United Nations Conference
on Trade and Development [UNCTAD], 2007).

A well organized and managed commodity exchange market has many benefits. An
exchange reduces transaction costs by facilitating contact between buyers and sellers and
enables centralized grading of products ensuring that contracts are enforceable. It
provides mechanism for price discovery which simplifies transactions with standard
contracts and transmits information about prices and volumes. An exchange provides a
mechanism for rising market liquidity enabling transfer of price risk and creates trust,
order, and integrity in the market (Gabre-Madhin, 2006). A Commodity Exchange is
fundamentally designed to provide service and add value to all market actors. If markets
function as to reward quality, decrease transaction costs of market participation thus
increasing returns to market activity, facilitate quick capital turnaround thus increasing
market volumes, and minimize the risk of market participation, then markets will
serve/provide/ the needs of buyers and sellers and contribute to the well-being of all who
participate in the market economy (ECX, 2008).

However, as a result of many constraints commodity exchanges have not lived up to

expectation anywhere in Sub-Saharan Africa, apart from South Africa. Rashid et al.
(2010) identified three primary constraints to the development of vibrant commodity

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exchanges in the region: (i) market size; (ii) weak infrastructure and underdeveloped
financial services; and (iii) lack of supportive legal and regulatory frameworks.

According to Alemu & Gerdien (2010), limited availability of international market

information in terms of prices and production levels, which is reflected in poor linkage /
transmission of price trends with the national market, is expected to be another challenge
significantly affecting the competitiveness of the Ethiopian sesame in the international
market and this is expected to make disincentives for sesame exporters to engage in the
sesame market through ECX.

Transaction costs play a key role in the performance of an economy. In Ethiopia, there is
evidently higher transaction cost in commodity market transactions that seriously
hampered market performance. These costs are seen in Ethiopian situation in terms of
“the lack of enough market coordination between buyers and sellers, the lack of trust
among market actors, the lack of market information, the lack of contract enforcement
and the lack of grades and standards” (Alemu & Gerdien, 2010 as cited in Abdurezack,
2010).

According to Alemu & Gerdien (2010), exporters in Ethiopia face various quality
problems in terms of quality grading and sampling representation commodities and
adulteration especially by mixing sesame seed of different origin and the Ethiopian
quality and standard authority , quality grading and certification which has been reported
to take a long time as well as prone to corruption.

The Ethiopia government has been taken different measurement to alleviate the
bottleneck of the export trade but still the Ethiopia export constrained by different
problems. like Lack of export marketing skills and market promotion schemes;
inadequate trained manpower in international marketing intelligence, limited managerial
and technical capabilities of the business sector, insufficient promotional supports,
inefficient of clearing houses, transport organizations, higher prices due to long inland
transportation to the ports, high freight rates, high Port charges, inefficient operations,

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lack of standardized quality packaging that meets the importers requirements, lack of
storage ( International trade center , 2001).

A commodity exchanges provide various opportunities to its members. However, still a

commodity exchange in developing countries faced a lot of problems that hinders to
operate its functions to the members in a better position. ECX is one of a commodity
exchanges that found in developing countries. Hence, the Ethiopian development
strategy has been given to promotion of export, find out the marketing mix practice and
challenges within ECX is essential in order to help the country in sustainable economic
growth and to alleviate the poverty of the country.

Many firms, who use ECX exchange floor, are diminishing every time in numbers.
Because pricing of commodities exchanged here are not as per the law of economics. It
has been observed that while export price is falling, local price is increasing at ECX.
What is the reason behind this paradox? No one wants to operate his business at loss.
Coffee and sesame followed this trend repetitively. As a result of this, weaker exporters
with lower capacity to fight the challenge are evicted from the game.
ECX posts the daily bid prices of commodities on its website for the benefit of any one in
the business. Domestic buyers and sellers are affected repeatedly since external importers
of the crop use it to fix their buying price.

Production method is not trained to farmers and sesame is produced on a plot of land
continuously. Loss of land fertility to the crop is the cause for sesame quality loss which
is revealed every year. Quality of the product is seen deteriorating.
The quality of sesame brought to ECX is not controlled but rather manipulated by both
the supplier and the ECX quality control staff. The consideration of buyers’ standard for
quality is ignored. This results in reputation loss for the country as a whole.

The problem of transport charges is the other point everyone talks about. It is not fixed or
stable. Increase and decrease are interchanged phenomenon every time without any cause
for the effect. This affects distribution of the seed adversely.

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As the best knowledge of the researcher there were very limited researches has been done
regarding to challenges and opportunity of ECX but there were not study made on
marketing mix practice and challenges with special focus on sesame in case of ECX.
Therefore, this study attempts to fill this gap of the ECX Actor and contributes to the
literature on the commodity exchange aspects of projects in Ethiopia. In order to achieve
the intended objective as well as the research problem, the researcher formulate the
following research questions and attempts to assess thought out the research course

1. What were the challenges faced by ECX in the ongoing functions of the
organization?
2. What are the ways of price control for the product?
3. Who benefits from the daily market price information posted?
4. What is to be done so that ECX can achieve its objectives?
5. What should be done to control transportation charges?
1.3. Objective of the study
1.3.1. General objective

The main objective of the study is to assess the Marketing mix practice and challenges
with special focus on sesame seed in case of Ethiopia commodity exchange.

1.3.2. Specific objectives

 To identify the challenges faced by ECX in the ongoing functions of the

organization
 To identify the ways of price control for the product
 To identify the actors that benefited from the daily market price information
posted
 To suggest some possible solution for ECX to achieve its objectives and to
solve the problem.
 To suggest the solution to control transportation charges

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 1.4. Significance of the study

The growth of ECX was impressive after its establishment in 2008. Despite this, there
was little attention given to marketing mix practice and challenges in case of ECX.
Hence, the finding of this study may be very important for the success of lately emerged
ECX to solve the challenges of ECX actors and to give a service in a better position.

This study also may have an importance to the exporter because the challenges are
recognize and solve by the concerned body.

The outcome of the research study enables in solving the problems of companies
participating in the export activity from being evicted out from the market due to
some unknown actions done secretly.

Accordingly, this study assessed the marketing mix practice and challenges of ECX.
Therefore, Policy makers and planners may also get a lesson on the issue and to make a
better decisions regarding ECX.

Lastly, the finding of this study may be contributes to the literature of the country on the
subject and the output of the study will give information for development practitioners
and donors interested to operate and strengthen ECX. Furthermore, it serve as a reference
for other researchers who are volunteers to undertake further investigation on similar or
related topics.

1.5. Scope of the study

The study is delimit conceptually, geographically and methodologically. Conceptually,

this study will focus on assessing the marketing mix practice and challenges with special
focus on sesame in case of ECX.
The study is delimit to only focus on sesame (oil seeds) transaction at ECX. The scope of
the research can be unreachable if other crops are included but the problems are more of
the same kind. Therefore, the researcher focus on sesame as a representative study to the

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matter. The scope of the study though limited to sesame, still the size of population which
is within the business activity for study is very wide.

Methodologically, this study applied descriptive type of research. In addition, this study
will employee cross sectional design. Relevant problems issues studied in the past are
limited since the prevailing types of obstacles in the business are new which came in to
existence with ECX even though some were as old as the business

1.6. Organization of the paper

The paper was organized in five chapters. The first chapter includes background of the
study, statement of the problem, objective of the study, research questions, significance
of the study, scope and limitations of the study, and organization of the research paper.
The second chapter dealt with the review of related literature. The third chapter dealt with
methodology of the study. The fourth chapter includes result and discussion. Finally,
conclusion and recommendation were presented in chapter five.

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 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1. Operational definitions of key terms

 Commodity: Commodity Product, which is interchangeable with another product

of the same kind.
 A commodity exchange is an institution or system where people who desire to sell
can come and make an offer of product that they want to sell. At the same time,
people who want to buy are also making bids. The exchange as an institution agrees
the buyer with the seller. This matching process results in the market price that
becomes recognized to all (Gebre-Madhin, 2006).
 ECX: - Ethiopia commodity Exchange,
 A broad market platform
 A flexible market platform
 A powerful market solution
 Clearing institution: The Exchange or Clearing House or domestic bank or
Settlement Bank or similar financial institution recognized by the Authority.
 Actors: These are the participants in the market platform as buyer, sellers and
brokers
 Contract: Standardized agreement to purchase or sell a specified commodity,
detailing the amount, grade and price of the commodity and the date on which the
contract will mature and become deliverable for aim of trading on an Exchange.
 Grading: The inspection and assignment of certain quality parameters as
specified by the Exchange for each commodity class.
 Member: Any person recognized as an Exchange Actor by the Authority that
fulfills the requirements of the Exchange.
 Membership seat: A permanent, freely transferable, and exclusive right to trade
on the Exchange.

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  Spot contract: Exchange traded contract for payment on the same day and
physical delivery within a maximum of 10 working days from the date of
transaction.
 Futures: Contracts more regularly used as financial instruments for hedging,
speculation and arbitrage, which may result in the future delivery of commodities.
 Trading floor: A physical trading facility where Floor Representatives make
bids and offers via open outcry or other system provided by the Exchange.

2.2. How commodities exchange work?

According to Gabre-Madhin and Goggin (2005), the key to a successful exchange is to

bring about the needed highest possible concentration of buyers and sellers into a single
market mechanism in an efficient, low-cost, manner. To do so needs that the market
operates with certain basic rules and with certain types of actors. These features or
operating modalities are precisely what distinguish what is known as a commodity
exchange from a typical central wholesale or terminal market.

2.2.1. A system that creates integrity and trust

A commodity exchange operates with a certain set of rules or conventions that are widely
known. These rules concern to four key dimensions of the market: the product, the
actors, its price determination and the contractual relations that bind them. These rules
and modalities together make much needed integrity and trust in the system

Second, an exchange operates a given system of price bidding that is aimed at publicly
displaying buy and sell offers in a low cost and transparent manner. Some exchanges
work on the basis of an “open outcry” system in which market actors in on the exchange
floor cry out their price offers/bids in a public fashion. Instead, an exchange may operate
with an actual or a virtual “bulletin board” on which buy and sell offers are posted
openly. The key is that the price bidding is done publicly rather than privately.

Third, in order to ensure that the rules are followed, exchanges work with membership-
based trading, where membership is founded on the ability to fulfill with the rules of the

14
exchange and to meet certain standards. This ensures that members have a stake in the
performance of the market and thus uphold its trust and integrity.

Fourth, the exchange’s regulations and directives usually make it mandatory for members
to make use of standard contracts developed by the exchange to which they belong.
Thus, members are obligatory to strictly bind to the terms and conditions laid down in the
contracts, to maintain appropriate records of their transactions; and to submit to be bound
by the disciplinary rules of the exchange (Gabre-Madhin and Goggin, 2005).

2.2.2. A system that generates market information

As explained by Gabre-Madhin & Goggin (2005), a core attribute of an exchange,

implied within the four dimensions distinguished above, is that it enhances market
transparency through generating and distributing information. Through its own
functioning, the exchange produces market information about the underlying supply and
demand conditions in the economy. Thus, opposing to popular view, a commodity
exchange does not need an external market information system as a pre-requisite to its
proper operation. An exchange goes the market information system as it performs its
function of price discovery based on the public posting of buy and sells orders.

When the volumes of trade on the exchange are sufficiently large to justify that price
discovery according to true market fundamentals is occurring, then the distribution of that
information of market prices provides a great service to the market, and the broader
economy. This fact alone is a compelling reason to justify an exchange.

2.2.3. A system linked to warehouse receipts

By storing their products in a reliable warehouse, the farmers can use the warehouse
receipt that is issued as loan collateral and thus access finance without selling their goods.
Clearly, a negotiable warehouse system is highly complementary to the functions of the
exchange. The receipts system goes together with a commodity exchange in that:

Grades and standards are necessary to warehouse operations as well as to a

commodity exchange with standardized contracts;

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 Price transparency: If receipts indicate a specific grade, this gives price
information that can also be used on the exchange;
Transfer of risk: by selling receipts on the exchange, receipt holders
involved in forward transactions and reduce risk for farmers; and,
Integrity and order: the official enforcement of quality and of the
negotiability of the receipt is important for both the warehouse receipts
system and the functioning of the exchange (Gabre-Madhin and Goggin,
2005).

2.2.4. A system that increases market volume and liquidity and

reduces risk

According to Gabre-Madhin & Goggin (2005), a successful commodity exchange

provides transactions for its participants --farmers, processors, food aid agencies, large
consumers, traders, parastatal agencies, and others-- in a low-cost situation. The
lowering of costs is passed on to market player who can then directly advantages from a
higher share of the final price. This in turn generates incentives for raised market
volume, and furnishes an incentive for increased participation in the market.

Additionally, particularly when linked to a negotiable warehouse receipts system, the

increased liquidity as market transactions raise, over time evolving to futures trading,
means that the thinness of markets lessens, and the market can be expected to allow the
transfer of risk from market factors such as farmers to those who are keen to absorb risk,
such as speculators.

2.3. The purpose of commodity exchanges

The purpose of a commodity exchange is to provide an organized marketplace in which

members can freely buy and sell various commodities in which they have an
interest/sake. The exchange itself does not operate for profit. It is just provides the
facilities and ground rules for its members to trade in commodity futures and spots and
for non-members also to trade by dealing through a member broker and paying a
brokerage commission (Lerner, 2000).

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The purposes served by a commodities exchange depend in part on the nature of the
specific contracts that are traded. Just by centralizing trade in a commodity an exchange
can facilitate title transfer, price discovery and market transparency. Transaction costs are
decreased because coordination through a centralized exchange can decrease costs
associated with identifying the market outlets, physically inspecting of the product
quality, and finding purchaser or sellers. By decreasing transactions costs and enhancing
information flows an exchange can improve returns to market agents while reducing short
term price variability and spatial price dispersion. Such contracts command little capacity
to address inter annual price uncertainty. More sophisticated contracts allowing exchange
in futures can enable further risk management, but such contracts require a well
developed exchange and cannot address maintain spot prices in bounds that might be
desired.

Trading contracts for future delivery, commodity exchanges can assist strengthen market
liquidity, increase profit, improve price discovery and facilitate price risk management
(Leuthold, Junkus, and Cordier, 1989). According to Rashid et al. (2010), an exchange
can improve liquidity because a futures contract is a fungible financial instrument which
buyers and sellers are willing to hold and exchange. While futures contracts efficiently
remove price level risk, they do not eliminate the risk. Instead they replace price risk with
basis risk, where the basis is the difference between the spot market and futures market
prices. Unexpected shifts in the basis can result in losses or gains, and the degree of basis
risk can highly influence the effectiveness of the exchange in risk management.

As explained by Rashid et al. (2010), providing the services of a commodity exchange is

expensive. The costs include physical investments in warehousing, operational space and
communications as well as operational costs involved in screening participants and
enforcing contracts. Moreover, an exchange typically must provide clearinghouse
services which allow buying and selling the commodities traded at the stated prices with
limited fear of default for participants. These services disclose the exchange to both
working capital costs and risk. For an exchange to succeed its services must be
adequately valued by users that they are willing to pay fees to cover these costs

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According to Rashid et al. (2010), market failures, including inadequacies in physical
infrastructure, asymmetry in information, inadequate supporting legal and financial
institutions can all impede the formation of futures exchanges.

2.4. Functions and benefits of commodity exchanges

A well organized and managed commodity exchange market has the following benefits.
An exchange reduces transaction costs by facilitating contact between buyers and sellers
and enables centralized grading of products ensuring that contracts are enforceable.
According to Gabre-Madhin & Goggin (2005), a commodity exchange provides
mechanism for price discovery which simplifies transactions with standard contracts and
transmits information about a volume and prices. An exchange provides a mechanism for
increasing market liquidity, enabling transfer of price risk and creates trust, order, profit
and integrity in the market.

Functions Possible benefits arising

Price Discovery More efficient price

formation

Price risk Management Effective transfer of price

risk

The Commodity Investment Venue Improved investment

Futures Environment

exchange Generates accurate &

Facilitation of Physical trade transparent
Spot reference prices

Facilitation of Financing Enable bank lending and

other methods

Market Development Education and capacity-

building

Figure 2.1: Exchange functions and benefits (Source: UNCTAD, 2009)

A Commodity Exchange is fundamentally designed to provide service and add value to

all market players. It adds value to the market by addressing two types of risk namely

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contract performance risk and the risk of contract default on physical delivery or
payment. Market risk is the risk of adverse unforeseen price movements or changes in
supply and demand in the future (Paul, 2011).

2.5. Contribution of commodity exchange for agricultural

development

Agricultural commodity futures are market-based instruments for managing risks and
they help in orderly establishment of efficient agricultural commercialization. Future
markets are important to hedge commodity price risks. It also serves as a low cost, highly
efficient and transparent mechanism for discovering prices in the future by providing a
forum for exchanging information about supply and demand conditions. The hedging and
price discovery purposes of future markets promote more efficient production, market
storage and agro-processing operations, and help in the enhancement of overall
agricultural marketing performance (UNCTAD, 2008). The basic purpose of a futures
contract is to provide price-change protection.

Commodity exchange can also play an important role in empowering the farmers, the
buyers, and traders. As a result they are able to perform efficient agriculture marketing
system. This service provides relevant and timely marketing information and a
transparent and competitive market price discovery mechanism for the buyers and the
sellers (Koranchelian, 2005). Additionally, it can be used as a basis for comparison of the
price of a commodity with the prices within different countries market (Paul, 2011).

2.6. Conditions enabling the development of a commodity exchange

According to Rashid et al. (2010), there are three broad categories of conditions that
allow the development of a commodities exchange. 1st, the commodities to be traded on
the exchange must have certain physical and market characteristics. Lack of such
commodities leaves an exchange irrelevant in a country. 2nd, given appropriate
commodities, the contracts traded in the exchange must be appropriate to the economic
conditions. Failure to properly specify contracts will make an exchange unattractive to

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potential users. Lastly, given apt commodity and contract features, an exchange requires
to be supported by a facilitating market and market and policy environment

As explained by Rashid et al. (2010), commodity exchanges have historically developed

under private initiative, but they require supportive public policies. The main function of
an exchange can be achieved only if a country has adequate infrastructure, a sound
macroeconomic and financial environment, efficient flow of information, rule of law and
effective contract enforcement. Additionally, public policy supports commodity exchange
development by refraining from controlling commodity markets and by allowing
producer organizations and other entities to emerge as intermediaries between farmers
and exchange.

2.6.1. Physical infrastructure

Communications and transportation infrastructure is critical to a functioning exchange.

First, trade at a futures exchange requires a communications network that can provide
traders with spot market information in order to estimate the basis. A commodity
exchange also requires to be supported by a reliable system for distribution and
transportation, so that delivery location can be clearly specified in the contract.
Furthermore, the transactions costs must be constant enough for traders to evaluate the
spread between the spot and futures contract price.

Infrastructure must not only support the exchange, but it must also connect various spot
markets if the exchange is to function. The physical and communications infrastructure
will ensure information on product quantity, quality, form, and price in all relevant
markets is available across various spot markets. In the non-existence of this information,
price discovery in the spot markets may be erratic and price risk will not be manageable
in a futures exchange. According to Rashid et al. (2010), countries with successful
exchanges have far more developed communications and/or transportation infrastructure
than other. Public investment in both transportation and information infrastructure may
be needed for the development of a successful commodity exchange in countries where
they do not exist.

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 2.6.2. Legal and regulatory infrastructure

A commodity exchange must be supported by appropriate legal infrastructure,

particularly (i) a system of grades and standards, (ii) a reliable system of contract
enforcement, and (iii) governance in spot markets. In most of the African cereals markets
such a system of standards and grades is not likely to evolve without government
participation. However, the real challenge in African markets will not be the development
of grades but the enforcement of contracts that use them (Rashid et al., 2010).The legal
system must ensure a regulatory system and contract enforcement must ensure that
warehouses do not issue multiple receipts for a single lot. For futures contracts, player
must have confidence that contracts will be recognized by the legal system and that
contract obligations will be enforced.

2.6.3. Commercial and financial sectors development

According to Rashid et al. (2010), a limited financial sector with few commercial agents
will have a reduced capacity to support a futures exchange. For an exchange to function
successfully there must be an adequate number of potential hedgers and speculators in the
economy. These individuals must understand risk-taking and trading and must have
financial capacity. Moreover, an exchange must have access to a clearing house with
sufficient capital to serve as a guarantor of all transactions. These requirements mean a
generally well functioning financial sector. Available indicators suggest that financial
sectors in most countries in Africa including Ethiopia are either shallow or constrained by
repressive regulations.

2.7. A brief overview of the Ethiopia commodity exchange

Agriculture is the backbone of Ethiopia’s economy. To make millions of Ethiopians out

of poverty requires a fundamental change in the way agriculture is done. Substance
agriculture economy should be replaced with technology-driven and market-oriented
production.

21
As Ethiopia is ready to transform its agricultural economy, so too must Ethiopia’s
marketing system take the country into the new millennium. It is time to go into the
modern age of globally connected trading systems, depending on technology and
knowhow, while adapted to Ethiopia’s realities and conditions. It is time to create a new
partnership between the private and the public in the new arena created by market
liberalization (Mesay, 2007).

The Ethiopian Commodity Exchange is designed to be a marketplace where buyers and

sellers meet to trade, assured of quality, quantity, delivery and payment. It will control a
system of daily clearing and settling of contracts. It will improve market efficiency by
operating a trading system where buyers and sellers use standardized contracts. Market
transparency will be accomplished by distributing market information in real time to all
market players (ECX, 2008).

The Ethiopia Commodity Exchange (the “Exchange”) is established by the Ethiopia

Commodity Exchange Proclamation No.550/2007 as one of the basic ingredients to
transform the country’s agriculture to market oriented production system.

As per its establishing proclamation, the Exchange is created to accomplish the following
purposes:

To create an efficient, transparent, and orderly marketing system that serves the
needs of sellers, buyers and intermediaries, and that promotes increased market
participation of Ethiopian small scale producers;
To give a centralized trading mechanism in which offers to sell and bids to buy
are coordinated through a physical trading floor with open outcry bidding or an
electronic order matching system or both;
To provide automated back office operations to record, monitor, and publicly
disseminate information on Exchange transactions;
To offer standardized grade-specific contracts as the basis of Exchange trading;
To perform trading on the basis of product grade certificates and guaranteed
warehouse receipts;

22
 To clear and settle all transactions performed on the Exchange to minimize
default risk;
To provide/render/ a mechanism for dispute resolution through arbitration to the
members
To provide real timely market information to the public;
To perform market surveillance to ensure the integrity of the members and of the
market; and
To prevent the occurrence of contingent risk to the market through implementing
risk management by employing proper management mechanism.

To effectively perform the above purposes, the Exchange is established as a demutualized

corporate entity with clear separation of ownership, membership and management. Thus,
although the Exchange is wholly owned by state of Ethiopia, it has an autonomous and
professional management that shall be neither related to the ownership of the Exchange
by government nor to the Membership of the Exchange.

The Exchange has members that have been recognized as Exchange Actors by the
Ethiopia Commodity Exchange Authority and who have the right to trade only for their
own account or either for their own account or the account of clients. At a sale of
membership seat in ECX, any person who fulfills necessary requirements set under the
Rules of the Exchange and other pertinent laws can acquire membership of the Exchange
that shall, among other things, confer a right to trade at the Exchange.

The Ethiopia commodity exchange has a Board of Directors, Chief Executive Officer,
who shall, among other things, organize, direct and administer the Exchange, and the
necessary officers and staff.

The composition of Board of Directors, which oversees the management of the

Exchange, is designed to keep a healthy balance of owner and member interests. Thus, it
is composed of 11 members, of whom 6, including the chairperson, are representatives
nominated by the owner and 5 are elected by the members of the Exchange.

23
The Exchange has created a marketplace, where sellers and buyers come together to
trade, assured of quality, quantity, delivery and payment, by implementing its
establishing proclamation, the rules of the Exchange and other pertinent laws that
governs its day to day operations (ECX newspaper, 2011).

2.8. Operation of the commodity exchange in Ethiopia

The Ethiopia Commodity Exchange started live trading on April 24th 2008. ECX
provides a market place where buyers and sellers can come together to trade and be
assured of quality, payment and delivery. The vision of Ethiopia commodity exchange is
to transform the Ethiopian economy by becoming a global commodity market of choice.
Ethiopia commodity exchange’s mission is to connect all buyers and sellers in reliable,
efficient and transparent market by harnessing innovation and technology, and based up
on continuous learning, fairness, and dedication/commitment/ to excellence. Ethiopia
commodity exchange will manage a system of daily clearing and settling of contracts.
ECX will enhance market efficiency by operating a trading system where buyers and
sellers use standardized contracts. Market transparency will be accomplished by
disseminating market information in real time to all market players (ECX, 2008). The
exchange is a private-public undertaking with capital investment from its main promoter,
the Ethiopia government, and membership seats privately owned by trading and
intermediary members. The Exchange is jointly regulated by private – public Board of
Directors and managed professionally by an internationally recruited team.

The Ethiopian Commodity Exchange Authority (ECEA) is controlled by the Ministry of

Agriculture and Rural Development. It was established by a capital budget amounting to
194 million US dollar financed by the government and donor agencies and its head office
is located in Addis Ababa. ECX has a board of directors of 11 members, 6 members
including the chairman are appointed by Ministry of Agriculture and Rural Development
and the rest are selected by members (Paul, 2011).

24
 2.8.1. Membership

ECX members are the core actors of the Exchange. Only ECX members can trade on the
exchange which means that non members use the services of a member to conduct
trading. A membership seat is a permanent and transferable right to trade on the
Exchange. Members can be any individual, public enterprise, company or cooperative
that meets the membership requirements.

Owners of membership seats, or Members, are required to follow in the article 4.6 of the
Rules of the Ethiopia commodity Exchange and thus maintain the integrity of the ECX
marketplace. Members are responsible for the transactions they conduct through ECX.

Members are those who use the market regularly and frequently either as producers,
intermediaries, or buyers. As to the composition of members, 99% is from private sector and
12% of the membership is owned by cooperatives representing more than 250,000 farmers
(Gabre-Madhin, 2009). ECX offers two types of membership:

 Full Members, whose membership seat is permanent, freely transferable, and who
can trade in any commodity in the exchange.
 Limited Members produced/created/ to accommodate smaller actor, whose
membership seat is limited to one year, to one commodity, and to one position
(either buy only or sell only).

For each type of member, there are two classes of membership:

 Trading Member (TM) trades only his or her own account

 Intermediary Member (IM) trades either on his or her own account or on behalf of
Clients

According to the law of ECX they are eligible for commission of 0.5% up to 2%
payments for the task they perform from their clients of limited trading and trading
members respectively.

25
 2.8.2. Criteria for membership

In order to be a member in Ethiopian commodity exchange one has to fulfill

requirements. As to the financial requirements, audited financial statement by an
authority-approved auditor, net worth of 500,000.00 Ethiopian Birr (ETB) and
1,000,000.00 ETB for trading and intermediate members respectively, capable to pay
membership seat price of 50,000.00 ETB and 5,000.00 ETB annual membership
maintenance fee after one year. Furthermore, provision of refundable security deposit of
200,000 ETB for trading, 300,000 ETB for intermediate, 50,000 ETB for limited trading
member and 100,000 ETB for limited intermediary trading members in ECX Settlement
Guarantee Fund for the duration of membership. Limited member are expected to pay
annual fee of 5,000 ETB. The financial requirements are necessary to ensure that all trade
through the ECX can be paid for and that payments are cleared immediately. Additional
requirements include the recognition by the ECX Authority as an Exchange Actor. ECX
members should have a tax registration and maintenance of tax clearance according to
Ethiopian law, where applicable. For different entities like (individual, cooperative,
private limited company, public enterprise) there are different requirements. Members are
necessary to successfully complete an Authority-approved Ethiopia commodity exchange
Certification examination. Lastly, a personal interview with the Exchange, and in case of
Share Company, with all authorized signatories is applied (Paul, 2011).

2.8.3. Rights and duties of Commodity exchange members

Members have the right to transfer their membership, to trade in the Ethiopia commodity
exchange, and participate in the Board of the Commodity Exchange. They are responsible
to pay net payment directly through the market, able to open bank account in a
recognized bank by the Ethiopia commodity exchange, and keep the proclamation, rules
and directives of ECX authority (Paul, 2011).

2.8.4. Integrated physical delivery management

ECX offers an integrated Physical Delivery Management System from the receipt of
commodities on the basis of industry accepted grades and standards for each traded

26
commodity by type to the ultimate delivery. The commodities are deposited in
warehouses operated by Ethiopia commodity exchange in major surplus regions of the
country. The ECX warehouse is where commodities are sampled, weighed, and graded.
The deposited commodities are stored using global standards of Inventory Management
which is based on first-in-first-out rules/principles/, rotation, and careful environmental
control. The Ethiopia commodity exchange inventory management system guarantees the
quality and quantity of the commodity throughout the pre-determined period of storage.
Further, warehouses are insured at maximum coverage to protect against loss and damage
of deposits.

At the warehouse, deposited commodities are issued an electronic goods received note,
which is electronically transmitted to the ECX central depository, where the electronic
warehouse receipt is created and securely maintained. The central depository possess a
central automated registry of warehouse receipts of the whole depositors, similar to any
asset-holding account, which can be debited in decrements when sales are made on the
ECX trading floor. This system avoids the risk of fake or loss of paper receipts, gives
flexibility in selling partial amounts of the deposited commodity, and raises the efficiency
of physical delivery. At sale, the Ethiopia commodity exchange central depository debits
the seller’s account and automatically transfers title of the commodity to the buyer and
issues a delivery notice, on the basis of which the commodity can be issued to the buyer.
Ethiopia commodity exchange experts regularly conduct surveillance on market trends as
well as conduct audit and investigations on market operations to protect the market from
manipulation, fraud, excessive speculation, or other misconduct (Paul, 2011).

2.8.5. Trading and contracts

ECX offers standardized trading contracts in white and mixed maize, processed and
unprocessed haricot beans, hard and soft wheat, coffee and sesame. The Ethiopia
commodity exchange trading system initially start as a physical trading floor located in
Addis Ababa and now transition to an electronic trading platform over time. The trading
floor has been using “open outcry” price bidding where all interested sellers and buyers
verbally negotiate simultaneously during trading hours. Trading is conducted for each

27
commodity class based on the grade given for the specific class of commodity by the
commodity exchange warehouses like; Soft Wheat grade 2, White Maize Grade 1, etc.
The transaction orders for sales and purchases are transmitted to ECX members using
telephone and recorded on order tickets. Once an order is performed, meaning a deal is
made; the order ticket is electronically entered and reconciled in the Ethiopia commodity
exchange automated back office system to make sure the existence and validity of the
warehouse receipt backing the sale, the availability of buyer funds in a deposit account,
and the validity of the member-client agreement. This automated reconciliation takes just
minutes and is key to giving all market actors/participants/ confidence in the market.

To date ECX undertakes contracts for both spot and future contract trading. The presence
of standardized contracts on the ECX Trading Floor eliminates the costs and risks
associated with contract negotiation. It specifies the grade, payment terms, lot size, price
quotation (currency and unit), dispute settlement, tolerance and other parameters for any
commodity. Thus seller and buyers only have to agree on the quantity and price.

ECX contracts are designed to enable a broad reach of the market to small and large
players alike. The standard lot size of an ECX contract is 50 quintals or 5 tons for all
commodities, tailored to current situations of small truck transport in rural Ethiopia.
Ethiopia commodity exchange contracts are designed to create a national marketplace
where all buyers and sellers meet to determine the national reference price. Thus, all
Ethiopia commodity exchange contracts are quoted as “arrived Addis Ababa” and a
location differential is applied (based on the transport tariff from Addis Ababa to the
delivery location) at the settlement of the transaction depending on the actual location of
the physical commodity at delivery. Ethiopia commodity exchange frequently updates the
transport differential and makes this information known in advance (Paul, 2011).

2.8.6. Clearing and settlement

In order to eliminate risks of contract defaults in the exchange, all payments have been
cleared and settled in the market through Ethiopia commodity exchange internal clearing
house. This means that it takes the role of receiving payments for all transactions from

28
buyers and transferring these funds to all sellers of the commodities, and receiving all
Warehouse Receipts from all sellers of commodities and transferring them to all buyers.

The Ethiopia commodity exchange Clearing House works closely with the central
depository and with Ethiopia commodity exchange approved settlement banks. Ethiopia
commodity exchange demands that all members maintain both a pay-in and a pay-out
account in these banks where Ethiopia commodity exchange also maintains a settlement
account. At the end of every trading day, the Ethiopia commodity exchange clearing
House calculates the net obligations of all its active members to determine whether funds
need to be transferred from the members’ pay-in account to the Ethiopia commodity
exchange settlement account or vice- versa to the members’ pay-out account. All pay-in
transfers to Ethiopia commodity exchange are made on the same day as the transaction
and all payout transfers are made on the following morning. Likewise, all transfers of
warehouse receipt to the buyer are made by the central depository the following day after
pay-in has been made to the seller (Paul, 2011).

2.8.7. Market information dissemination

One of the benefits of Ethiopia commodity exchange in transforming an age old

traditional agricultural marketing is through providing reliable, accurate and timely data
on a continuous basis to all market players. ECX uses the might of modern information
and communication technologies to create access to market information to all its actors
including the general public. The Exchange uses rural based Market Information Tickers,
mobile phone Short Messaging Service (SMS), Interactive Voice Response (IVR)
service, Mass media (TV, Radio, and Newspaper) and Website to disseminate market
information. Market information on commodity prices in different markets and
commodity offer to sell and bids to buy, and others are collected, processed, updated and
disseminated to market actors.

2.8.8. Risk management

Despite the reduction in risk involved in its operation due to the use of spot exchange
than a futures exchange, ECX goes beyond risk avoidance to identifying and managing

29
an acceptable level of risk. The exchange, within its domain, manages different types of
risks like: operational risk, credit risks, liquidity risks, and reputation and image risks. In
order to maintain integrity of the price discovery process and to safeguard the quality of
the market, the exchange has a market surveillance team that detects and prevents market
manipulation practices, insider trading and misstatements (false information to mislead
the public).
2.8.9. Compliance

The formulation and enforcement of the Rules of the Exchange and other laws that affect
the Exchange’s operation are mandated to the Compliance Division. To this end, the
division has four units with specific responsibilities: the Rules and Regulations Unit, the
Compliance Monitoring and Investigation Unit, Discipline and Enforcement Unit and the
Arbitration Tribunal.

2.9. Empirical evidence literature

Price of Commodities
Undeniably, the fact about demand and supply works in the price formation. Price of the
commodity is influenced by different factors. The major once are, cost of production,
demand of the product and supply. Other factors as psychological sensitivity, elasticity,
social impact of the consumer towards the product, degree of the product at which it is
transformed or value added and finally the economic standard of the people or nation
who come across trading and consuming of the product contribute whether to accept a
level of price attached to the commodity in question.
When we look in to the commodities traded at ECX, transaction cost matter a lot. The oil
seeds and coffee transaction chain are generally very high. The reasons can be listed as
follows.
1. The chain that connects the farmer, collector, broker in a repeated manner extends
the duration it takes the commodity to ECX.
2. Information deficiency, what price and quantity prevails in the market for the
product.

30
 3. The producers and other actors negotiating on contractual agreements on price,
purity,
quantity, delivery time, etc.

Other than the factors determining prices formation, world prices determine prices for
export products. Ethiopia has to compete with many similar product suppliers. This is
another huge task to consider while participating in the international market. Each link in
the process has cost which reduces the share of previous link in the chain.
Contrary to the existing situation in Ethiopia, (Seifu, 2004) writes, “The price of oilseeds
at farm gate will be the end result. Low world market prices will result in very low farm
prices.”
This is not so currently. The research will give more emphasis in its last chapters on this
issue. (Wijnands, Biersteker, Hiel and Schuttelar& Partners 2007)
PRODUCTION
Ethiopian Sesame - Production and Potential
Due to its importance as a major export commodity the area coverage and production has
increased in the last consecutive years. There is an enormous potential to expand sesame
seed production in Ethiopia through cultivation of additional new land.
The government is enhancing the investment in the oilseeds sector with an extended
package of incentives. Hence with the transfer of technology and the provision of inputs,
the increment of production and yield will be achieved strongly. Availability of Virgin
fertile new areas which can be cultivated on large scale plus cheap and abundant labour is
the key indicators of the future potential. (EPOSPEA 2015) The Oilseeds sector
production has shown significant increment since the 2010/11 year of production.
Though Sesame Production has shown remarkable increment in the 2010/11 year of
production and slight decrement since from that year
According to data of CSA the production of year 2012/2013 has a record of -25.9 % of
the pervious production year.
Sesame production in Ethiopia
Farmers engaged in producing sesame are highly dependent on the income from the
commodity. (USAID, 2010). This crop is not for local consumption. More than 95% of
the whole production is meant for export. (Jennie 2010). Currently, Ethiopia stands fourth

31
place among the top five countries that produce sesame. World total sesame production
reaches about three million tones and steadily growing. (USAID, 2012). Ethiopia’s share
covers 8.18% of the total world production. (FAOSTAT, 2012).
Next to coffee, sesame seed is the second largest agricultural export revenue source for
Ethiopia. This has contributed a lot to the farmers for their living. (CSA, 2011).
According to Central Statistics report of 2011, 763,893 small holder farmers were
engaged in sesame production in the year of 2010/2011. In year 2011/2012, the number
increased to 893,883 private peasants. This can be concluded as that the sector can
involve even more small holders in the future which are possible to link them with
domestic and international markets. (CSA,2011)
Ethiopia produces different variety of sesame of which Gondar, Humera, Metema and
Wollega are the major once. The first three mentioned are used for bakery, confectionary
and cosmetics while Wollega type is well known for its high oil content, (50%-54%)
which gives is a superior competitive advantage to be used as edible oil production.
(USAID, 2010). Sesame seed is an important export crop in Ethiopia which has made the
country play the export role in the world market other than coffee, leather and Chat.
Ethiopia is the third world exporter of the crop after India and Sudan. (Alemu and W.
Meijerink, 2010). In this regard, in the last few 18 years, sesame production and
marketing has confirmed highly significant growth. In 1997, the total area under sesame
production was about 64,000 ha (Aysheshm, 2007).
In 2010/2011 cropping season, the total area under sesame production reaches 384,682
hectare and about 327,740.92 ton of sesame seed has produced in the country (CSA,
2011).
Despite, these trends in2011/2012 production year sesame production and area under its
cultivation has declined by about 25.31% and 12.26% respectively, compared to the
preceding year.
Accordingly, only 337,505.41 hectare of land has cultivated under its production and
only about 2,447,833.59 quintal of output was produced, (CSA, 2012). This indicates that
not only the size of land allocated to sesame and its production volume was decreased,
but also the crop yield too decreased from 8.52 quintal/hectare in 2010/2011 to 7.25
quintal/hectare in 2011/2012, by about 14.9% (CSA, 2012). (Geremew2012)

32
 The Oilseeds sector production has shown significant increment since the
2010/11 year of production.
 Though Sesame Production has shown remarkable increment in the 2010/11 year
of production and slight decrement later since from that year
 According to data of CSA the production of year 2012/2013 has a record of -
25.9 % of the pervious production year

33
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1. Data type and source

This study will employee both quantitative and qualitative types of data that obtained
from primary and secondary data sources. The reason being, the researcher will gather
and analyze qualitative primary and secondary data to complement & elaborate the
quantitative type of data.

To generate valuable and relevant data, the researcher will depending on both primary
and secondary sources of data. The primary source of data will be collected through a
questionnaire. In addition to this, for background discussion and theoretical explanation,
the researcher is depends on secondary source of data. Secondary sources of data will be
obtained from ECX, ECX reports, ECX newspapers, ECX magazines.

3.2. Research strategy and design

This study will employee survey strategy. Choosing this design helped the researcher to
collect relevant data from the target population. Both qualitative and qualitative
approaches will be used to assess the marketing mix practice and challenges in ECX.
This study is descriptive in nature hence; it intended to describe the marketing mix
practice and challenges of ECX. Moreover, this study is cross sectional survey design.
According to Zikmund (2000), a cross sectional survey design is the type of survey
design in which necessary data is collected at one point in time from particular set of
population. This research design will be utilized because of resource and time limitation
to undertake longitudinal survey.

34
 3.3. Population and Sampling Techniques

Population is the total group of people or entities from which information is required
(Tustin et al., 2005). The population on marketing of sesame (oil seeds) is so large that it
is difficult to include all for the purpose of information gathering. The population consists
of all those who are engaged in the production, distribution, middle men, exporters and
stake holders of the business.

For populations that are large, (Godden, 2004) developed the Equation to yield a
representative sample proportions. The following sample size formula for infinite
population is used to arrive at a representative number of respondents (Godden, 2004):

Where:
SS= Sample Size for infinite population

Z = Z value (95% confidence level)

P = population proportion (expressed as decimal) (assumed to be 0.5 (50%) since this

would provide the maximum sample size).

M = Margin of Error at 7% (0.07)

The researcher preferred 7% margin error because the population is so large that if
smaller percentage for error in the formula is selected, the larger the sample size will be.
That would be difficult to distribute and collect response within the given frame of time

This being the fact, from the said large population relevant to the study, the total number
of sample representatives for the various members of the population as per the formula

35
set above is 196. The breakdown of the total into the different actors of the business
activity is depicted below.

Sample breakdown

Source: The researcher, 2017

One hundred ninety six members of the infinite population are selected as per the formula
to calculate sample size provided their accessibility for communication in order to
distribute the questionnaire. From the total sample thirty of the organizations which are
directly or indirectly related to the marketing procedures are selected for interview. These
are from public and private banks, MOT, MOA, ECX, and ERCA, Inspection agencies,
shipping agents and forwarders. Marketing, as has been looked from different
academician’s outlook is shown in Chapter two of this research. Components of the
marketing mix, according to Kotler were Price, product, promotion and place. McCarthy
in holistic marketing included, people, process, programs and performance (Kotler and
Keller, 2012). With these in mind, the research has attempted to
individually consider points of marketing problems in relevant format to the problem
statement shown in chapter one.

Procedures of Data Collection

This study will uses structured interview and questionnaire for collection of primary data.
Questionnaires will be availed to those actors directly involved in the marketing process.
It is obvious that the research won’t be able to get all concerned since the number of
members in the marketing of oil seeds is so large and widely spread in all directions of
the country. It is costly to cover the whole universe directly connected to the oil seeds
transaction. The universe is so wide and large.

36
The best place to meet with most actors except the stakeholders and the farmers is at the
ECX trade floor. Brokers, exporters, ECX staff, some cooperatives representatives,
sellers and buyers in general do not miss the procedures at the ECX trade floor. Summary
of the transaction for the day is available from ECX website.
The researcher will prepare questions which are open ended to the respondents both in
the questionnaire and structured interview for precise and direct reply. The questions is
not of a guiding type but open with options to choose from which the analyst think are
relevant and important for the study. Explanation and elaboration together with personal
observation on the questions provided were requested from respondents during the
interview in particular. The sample size is as per the formula stated by Cochran (1963:75)
for infinite population as discussed in sample size determination formula.
Secondary data is abundantly available for the research too. The researcher intends to fill
the gap of information from primary data from literatures, articles, timely bulletins,
previous research works of scholars and leaves the remaining to futures research works
by those interested to the issue. Research is not one time work or something which can be
concluded overnight. It is continuous business.
Primary data is collected from actors involved in the marketing of sesame seed. It is
shown that structured interview questions and questionnaire are distributed to the group
and individuals who are in the vicinity of the research area. That is, those who can be
accessed easily with minimum effort and cost. The target population as shown in the
above body of the research is all participants in the sesame business activity.
A. Farmers and cooperatives – These enable us to get information regarding the
production of the crop, an answer to the supply part of the market. Quality, quantity,
time to avail the seed at the trading floor or for the use of buyers from exporters is
determined when and how these groups can make it available. In marketing sesame,
most complaint arises from quality and time of shipment. Disturbances and conflict
between the importer of the seed and the exporter basically begins here. In the case for
which this research is prepared, end user of the crop will be the external buyer since
domestic consumption of the seed in the local area is so insignificant. Price for the crop
is estimated and put into action by farmers with some information they gather from ECX
and also from brokers. This price does not put the selling price of exporters into

37
consideration. Information related to how price is formulated can be gathered from the
farmers and cooperatives for the purpose of the analysis.
B. Brokers or agents – These people are the intermediaries between the producer
(farmer) and the exporter who sells to buyers abroad or to the international market. They
charge fees for their fees for acting between the two. Bringing the producer and the
supplier together earns them some money which gives a rise to the selling price of the
seed at the ECX trading floor. Even though the base price for the crop is the farmers
production cost which the farmer does not know in figures, additional mark-up is
included by the agents as well. Most farmers and agents only run for more money on top
of the level ECX has announced as the last transaction price. Usually ECX has regulation
that the next day’s price will be lower than or higher than by plus or minus 5% of the
previous day’s level. That does not hold true for farmers or agents offer.
C. Ethiopia Commodity Exchange – This is the organization that was established for
the good of commodity exchange. Causes for the establishment are shown in chapter one
and two of this research paper. The loss the farmer used to face because of luck of
information, the timely payments to middle men and farmers and market knowledge gap
were some of the reasons ECX was there for. It is unfortunately, there still exists a wide
gap as the establishment study neglects the exporters in large. Marketing of commodities
take place at ECX trade floor. Well-organized data base releases quantity, grade, price
and actors involved in the transaction every day to all on the internet on the company
website. It has gone far enough in disseminating information to interested group through
mobiles, mass media, and the web for the good of those who have utilized what they got
at hand easily while the exporter is found to be the victim
D. Exporters – The major role players who are equally important with the farmers to the
ongoing economic activity are this group. They are financially strong but highly
dependent on financial institutions. Most trade activities of exporters are run with bank
loans which bear a large amount of interest. Exporters expect profit from their
transaction. They watch the market moves closely. Many have lost the game and were
evicted from the market already while some are still struggling to survive. Members of
this group are rich in information over all the marketing process beginning from the
farm gate to the sea port.

38
E. MOA, MOT, ERCA, Chamber of commerce, Inspection agencies, and freight
transporters are also active participants in the market of oil seeds. None of them work
without collecting service charge from exporters. They are stakeholders. Even though
their share in the activity is limited, they have a lot to say about the market.
F. NBE, CBE, EIC and other private financial institutes. All are under the category of
financial institutions except that the NBE is a regulatory body for them. Marketing of all
export items is closely controlled with these organizations. They have a lot to say on this
issue as every step of the transaction passes within the range of their services.
G. Regional Administrators have some knowledge of oil seeds marketing. According to
facts compiled in Chapter two, Ethiopia consumes less than 10% of sesame produced in
the nation. Because of this, local transaction is so limited. But in production areas where
the crop is produced, the administrative region has sufficient information on production
and marketed quantity
3.4. Data collection and instrument

In social science there are a lot of data gathering techniques: questionnaire, interview,
focus group discussion, observation method etc. In this study, the researcher will be used
both structured questionnaire and unstructured interview methods of data collection. The
questionnaire is used because it has the advantage of participating large respondents over
other data gathering techniques; it limits inconsistency and also saves time. In addition,
gathering data by using interview is very important to supplement the information
gathered thorough questionnaires. The questionnaires and interview questions will be
designed in English language. The researcher will select 3 data collectors to effectively
collect data from the potential respondents through questionnaires and appropriate
training will be given for the enumerators.

The following procedure will be pursued to administer questionnaire to respondents.

First, the researcher and data collectors will approach potential respondents to ask their
cooperation in filling the questionnaire and explained the purpose of collecting data, how
the questionnaire will be filled and the confidentiality of to be obtained information.
Then, the questionnaires will distribute and respondents will be asked to furnish
information honestly and return the filled up questionnaire. .

39
Pilot test of the questionnaire will be carried out in Addis Ababa (Ethiopia commodity
exchange) and the Feedback obtained from the pilot test will be incorporated in the
questionnaire.

The data collection will be held according to the time table and 196 questionnaires will
be distributed to the potential respondents.

3.5. Data processing and methods of data analysis

The data collected using structured questionnaire will be edited, coded and analyzed with
great care. Both in-house and field editing will be undertaken to detect errors that had
been committed by respondents during completing the questionnaires. The coding of the
possible alternatives in the questionnaire will be made in advance of administering the
questionnaire to the target respondents.

The qualitative method of data analysis will be employed for the analysis of data that is
collected through personal interviews. Data collected through questionnaires will be
analyzed quantitatively by utilizing statistical tools such as tabulation, bar charts, and pie
charts to present data. In addition, descriptive statistics such as mean, frequency and
percentage will be used to analyze and interpret data. After data is presented and
analyzed, conclusion and recommendations will be drawn from the findings.

40
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