New commodities exchanges may help feed more of the starving

THE UN's World Food Programme (WFP) feeds 90m people in the poor world, a fraction of the 800m it reckons still go hungry. Population growth, environmental degradation and bad governments are among those to blame. But a big factor is the failure of food markets in poor countries.

Take Ethiopia, notorious for its recurring famines, with 7m people still on food aid. It happens to be Africa's second biggest maize producer and a big wheat producer too. But then look at Addis Ababa's grimy grain market. Lorries arrive from Ethiopia's south and west, which have food surpluses, and leave for the north and east of the country, which is often famished. Illegal traders run a lucrative extortion racket, their bully boys jumping on the lorries as they arrive, threatening the driver and earning themselves $1.50 on every $20 sack of grain. That margin and other market failings add up to 20% to the cost of every sack.

Even in countries where gangsters and extortion are less common, crop markets rarely work well. Information, crucial to efficient trading, is scanty. But, thanks in part to technology, things are improving. Mobile phones help farmers find out about price discrepancies from which they might benefit. In some cases better market information has encouraged farmers to diversify their crops.

Now the WFP and others are launching the Ethiopian Commodities Exchange (ECEX), which is being promoted as a prototype for other poor countries. ECEX draws inspiration from Chicago's original board of trade. “In fact, conditions in modern Ethiopia are similar to those in 1848 Chicago,” says Eleni Gabre-Madhin, who is setting up the new exchange. She hopes for the first bell to ring in time for Ethiopia's wheat harvest in December.

As well as wheat, ECEX will deal in maize, teff (a local staple), coffee, pea-beans and sesame. It will also control the warehousing and inspection of goods. An electronic signature system, unknown in Ethiopia's backward banking scene, will settle transactions by the end of the day. A trading pit in a swish new building will be linked to trading floors in Ethiopia's regions and from there by mobile phone to traders in villages, chalking up prices on a board.

WFP is already one of the largest buyers of Ethiopian cereals and its new head, Josette Sheeran, a former American government official, thinks the new exchange will help it buy much more efficiently, perhaps even using futures. Market-minded donors are starting to think that commodities exchanges like ECEX could play a big role in reducing hunger across Africa.