Kenya’s Capital Markets Authority (CMA) is working on new rules to govern the trading of coffee and tea as part of wider reforms aimed at getting the maximum value from exports, as the East Africa Community pushes for a joint commodity exchange.
The CMA will regulate the operations of the Nairobi Coffee Exchange and the Mombasa Tea Auction to ensure increased incomes for farmers and higher production of the cash crops.
CMA chief executive Paul Muthaura said the Authority is working on the legal and regulatory framework to manage the operations of the auctions.
“All the markets for securities and commodities will be subject to CMA regulations. We are now putting together the relevant legal framework to cater for the licensing of players and oversight of the trade in commodities,” said Mr Muthaura.
The establishment of national commodities exchanges by the EAC member states is a pioneer to the joint regional commodities exchange that will link Kenya, Uganda and Rwanda as part of the Northern Corridor infrastructure projects (NCIP).
The three countries agreed on the need to run a joint commodities exchange and warehouse receipting system, to ensure transparency in standards and pricing of farm produce.
Kenya has hired a consultant to help set up its national commodities exchange which is expected to be up and running by the end of 2018.
According to the State Department of Trade, the commodities exchange will start trading in maize, wheat, sorghum, millet and coffee in the initial phase followed by tea, cow peas, dry beans, groundnuts and pigeon peas in the second phase.
The exchange will also start trading in non-agricultural products when it is fully operational.
Kenya has been blamed by its regional counterparts for falling behind in enacting legislation to facilitate the establishment of a market to stabilise the prices of agricultural produce.
Rwanda already has a functional commodities exchange that is private sector-driven.
The heads of state of Kenya, Uganda and Rwanda agreed that each country sets up its own commodities exchange but harmonise trading regulations with the rest of the member states.
Kenya’s presidential taskforce on the reform of the coffee sub-sector in 2016 recommended that the National Coffee Exchange (NCE) be regulated under the CMA’s framework, and parliamentarians through the Finance Bill 2016 amended the Capital Markets Act to allow the authority to regulate the commodities markets in the country.
The taskforce questioned the validity of the current trading rules of the coffee auction which has locked out farmers from the market leaving the pricing of their produce to be determined by a cartel consisting of millers, marketing agents and dealers.
According to the report the coffee exchange faces legal, financial and operation constraints that hinder its effectiveness.
“Its legal status is unclear and the validity of the trading rules is questionable,” according to the report dated May 2016.
The taskforce recommended that the NCE be upgraded to a fully fledged commodities exchange under the CMA. This will include licensing of brokers to receive selling or buying instructions from clients.