Staple_foods_value_chain_analysis.pdf

April 2010

This publication was produced for review by the United States Agency for International Development. It was prepared by Chemonics International Inc.

STAPLE FOODS VALUE

CHAIN ANALYSIS

COUNTRY REPORT - ETHIOPIA

The author‟s views expressed in this publication do not necessarily reflect the views of the United States

Agency for International Development or the United States Government.

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA III

Acronyms

ADLI Agricultural Development Led Industrialization

AfDB African Development Bank

AISCE Agricultural Inputs Supply Enterprise

ATEP Agribusiness and Trade Expansion Program

CET Common External Tariff

COMESA Common Market for East and South Africa

COMPETE Competitiveness and Trade Expansion Program

CSA Sentral Statistical Agency

DFID UK Department for International Development

ECEA Ethiopia Commodity Exchange Authority

ECX Ethiopia Commodity Exchange

EGTE Ethiopian Grain Trade Enterprise

EIAR Ethiopian Institute of Agricultural Research

EOPEC Ethiopian Oil Seeds and Pulses Export Corporation

ESE Ethiopian Seed Enterprises

FAO United Nations Food and Agriculture Organization

Ha Hectare

IFPRI International Food Policy Research Institute

IHEA U.S. Initiative to End Hunger in Africa

IT Information Technology

JICA Japan International Cooperation Agency kg Kilogram

MoAR Ministry of Agriculture and Rural Development

MoFED Ministry of Finance and Economic Development

MoTI Ministry of Trade and Industry

MT Metric ton

NGO Non-Governmental Organization

OECD Organization for Economic Cooperation and Development

PASDEP Plan for Accelerated and Sustained Development to End Poverty

QSAE Quality and Standards Authority of Ethiopia

SDPRP Sustainable Development and Poverty Reduction Program

SPS Sanitary and phyto-sanitary

UNDP United Nations Development Program

UNECA United Nations Economic Commission for Africa

USAID United States Agency for International Development

VCA Value Chain Analysis

WFP United Nations World Food Program

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA IV

CONTENTS

1. INTRODUCTION

1.1. The Context of the Study

1.2. The Significance, Objectives and Scope of the Study

1.3. The Methodology Used in the Study

1.4. Study Limitations

1.5. Structure of the Report

PART ONE: THE ECONOMY

2. AN OVERVIEW OF ETHIOPIA’S ECONOMY

3. THE STATUS OF THE AGRICULTURAL SECTOR

3.1. The Significance of the Agricultural Sector

3.2. Dynamics of Growth of the Sector

3.3. Main Commodities Produced

3.4. Main Challenges and Constraints

3.5. Agricultural Sector Policies

PART TWO

VALUE CHAIN ANALYSIS FOR SELECTED STAPLE COMMODITIES

4. THE MAIZE SUB-SECTOR

4.1. Maize Production

4.2. Maize Consumption

4.2.1. Domestic Production vs. Consumption

4.2.2. Maize Exports and Imports

4.3. Value Chain Mapping

4.4. Constraints and Opportunities

5. THE WHEAT SUB-SECTOR

5.1. Wheat Production

5.2. Wheat Consumption

5.2.1. Domestic Production vs. Consumption

5.2.2. Wheat Exports and Imports

5.3. Value Chain Mapping

5.4. Constraints and Opportunities

6. THE RICE SUB-SECTOR

6.1. Rice Production

6.2. Rice Consumption

6.2.1. Domestic Production vs. Consumption

6.2.2. Rice Exports and Imports

6.3. Value Chain Mapping

6.4. Constraints and Opportunities

7. THE SORGHUM SUB-SECTOR

7.1. Sorghum Production

7.2. Sorghum Consumption

7.2.1. Domestic Production vs. Consumption

7.2.2. Sorghum Exports and Imports

7.3. Value Chain Mapping

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA V

7.4. Constraints and Opportunities

8. THE MILLET SUB-SECTOR

8.1. Millet Production

8.2. Millet Consumption

8.2.1. Domestic Production vs. Consumption

8.2.2. Millet Exports and Imports

8.3. Value Chain Mapping

8.4. Constraints and Opportunities

9. THE BEANS SUB-SECTOR

9.1. Beans Production

9.2. Beans Consumption

9.2.1. Domestic Production vs. Consumption

9.2.2. Beans Exports and Imports

9.3. Value Chain Mapping

9.4. Constraints and Opportunities

10. THE PULSES SUB-SECTOR

10.1. Pulses Production

10.2. Pulses Consumption

10.2.1. Domestic Production vs. Consumption

10.2.2. Pulses Exports and Imports

10.3. Value Chain Mapping

10.4. Opportunities and Constraints

11. THE GROUND NUTS SUB-SECTOR

11.1. Ground Nuts Production

11.2. Ground Nuts Consumption

11.2.1. Domestic Production vs. Consumption

11.2.2. Ground Nuts Exports and Imports

11.3. Value Chain Mapping

PART THREE

THE BUSINESS ENABLING ENVIRONMENT IN AGRICULTURAL

COMMODITIES

12. THE POLICY ENVIRONMENT

12.1. Pricing and marketing Policies

12.2. Tariffs and Non-Tariff Charges

12.2.1. Tariffs

12.2.2. Non-Tariff Charges

12.3. Regional Structured Trading Systems Platform

12.3.1. The Food Balance Sheet

12.3.2. Warehouse Receipt System

12.3.3. The Commodity Exchange

13. THE REGULATORY FRAMEWORK

13.1. Customs Documentation and Clearance Procedures

13.2. Standards

13.3. Sanitary and Phyto-Sanitary Requirements

13.4. Trade (Import and Export) Restrictions

13.5. Non-Tariff Barriers

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA VI

PART FOUR

CONCLUSIONS, POLICY IMPLICATIONS AND RECOMMENDATIONS

14. MAIN CONCLUSIONS

15. POLICY IMPLICATIONS

16. RECOMMENDATIONS

REFERENCES

ANNEXES

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 1

1. INTRODUCTION

1.1. The Context of the Study

Agriculture has a substantial contribution to Africa‟s economy in terms of employment, aggregate output, foreign exchange earnings, and tax revenue. The continent has abundant natural and human resources which can be translated into increased production, incomes and food security if sound policies are designed and implemented. However, this immense potential could not be put into use because of a number of constraints, including low investment and productivity, poor infrastructure, lack of funding for agricultural research, inadequate use of yield-enhancing technologies, weak linkages between agriculture and other sectors, unfavorable policy and regulatory environments, and climate change (ECA 2009).

Moreover, Africa‟s position in global trade is still insignificant and the continent, as a whole, continues to trade in raw materials, which makes it highly vulnerable to changes in the global commodity market. According to the ECA (2009), Africa accounts for only 3% of world total exports, of which less than 10% is within Africa, indicating a low-level of regional integration.

It is generally believed that regionally integrated value chains and markets offer better opportunities for transforming African agriculture, because they have the potential of expanding market opportunities and enhancing incentives for private investors to undertake long-term investments in agribusiness and agro-processing.

Without a strong regional integration, Africa can not compete in the global economy, because African agriculture is dominated by small-scale producers and markets are small and fragmented.

According to the Economic Commission for Africa (ECA 2009), developing regional value chains for strategic agricultural commodities is essential for African countries to enhance their agricultural transformation and global competitiveness. It is argued that regional value chains are important for various reasons, including the following:

They provide market access for smallholder farmers and agribusinesses, They help in increasing profitability of optimal-sized investments in agro-processing as markets expand, .they help keep jobs and agro-processing industries in Africa, and

They ensure dynamic efficiency of agricultural commodities and high-value exports

In order to help bring about regional integration, the Competitiveness and Trade

Expansion Program (COMPETE) is currently working on regional value chains of staple foods in East and Central Africa. COMPETE is a regional program that is working to improve trade in East and Central Africa by harmonizing regional trade and transit policies and procedures, developing financial markets, supporting private http://www.competeafrica.org/components/tradehub.htm http://www.competeafrica.org/components/reducingbarriers.htm http://www.competeafrica.org/components/reducingbarriers.htm

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 2

sector trade associations, developing value chains in staple foods and cash crops and building capacity of regional businesses to take advantage of preferential trade opportunities. The program is funded by the US Agency for International

Development under the East Africa region. With support through the U.S. Initiative to End Hunger in Africa (IEHA), COMPETE is working to reduce poverty and enhance food security by increasing small holder farmers‟ access to commercial staple foods markets (COMPETE 2009).

At present, COMPETE is undertaking market assessment and baseline studies in selected countries of Eastern and Central Africa, including Ethiopia. This report is the outcome on the market assessment and baseline value chain study of selected staple foods conducted in Ethiopia in October-November 2009.

1.2. The Significance, Objectives and Scope of the Study

The Staple Foods value chain in Eastern and Central Africa is significant, because it has enormous potential to empower and economically liberate the majority of the population in the ECA region. Staple foods include maize, beans, pulses and coarse grains. A majority of the population is involved in agricultural production, particularly production of staple food items such as maize, beans, pulses and coarse grains. People depend on agriculture for food security, income and sustenance.

The biggest challenge to the Staple Foods value chain is to have a chain that is linked and fully integrated at the national and regional levels, anchored on free market principles and is responsive to all players along the value chain including smallholder farmers and the ultra poor.

The full potential of the Staple Foods sector is hampered by the high cost of doing business in the region driven largely by high transportation and other costs along major transit/trade corridors handling the region‟s imports and exports. The key to unlocking the potential of the Staple Foods sector is to devise and implement strategies to reduce transport and transit logistics costs to enhance competitiveness.

The objective of this study is to conduct a market assessment of staple foods in

Ethiopia including a value chain analysis (VCA) that provides a framework for the development of a strategic plan to improve the value and or the volume of staple foods marketed in Ethiopia. The scope of work includes the following:

Synthesize value chain assessment reports (staples and non-staples) by

Governments development partners and map out activities of development partners by identifying who is doing what and where.

Conduct a VCA starting with production/farm gate, and moving through all points of market transfer and value-added including service providers

(input/service suppliers), producers, traders, grain reserves, parastatals, exporters, and processing companies.

http://www.competeafrica.org/components/building%20value%20chains/index.htm http://www.competeafrica.org/agoa.htm http://www.competeafrica.org/agoa.htm http://www.usaid.gov/index.html http://www.usaid.gov/index.html

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 3

List all “players” along the chain by name, location type of entity and contact information; including all major producer organizations, cooperatives, and key corporate (commercial) estates if any; all processing companies, status of operation, i.e. dormant, % capacity, and ownership structure.

Identify and explain all issues, problems and constraints at each transfer point in the chain; i.e. yields, prices, payment systems, transport, quality, frequency of transfers (points of sale); storage limitations; processing limitations, etc.

Identify volume flow between sectors and cover all local use (rural) and consumption of Staple foods and Staple foods by-products.

Identify and explain the value change between transaction points adjusting for measurement differences (baskets to kilograms) and conversions from one type to another type.

Identify and analyze all trade regulations that govern intra-country flow;

exports and imports of Staple foods – Local Authorities regulations, Quality

Standards, Sanitary and Phyto-sanitary and Pest Risk requirements, tariff and other non tariff charges on Staple foods imports, customs clearance procedures.

Assess the status, impact, opportunity for reform and measures necessary to facilitate reform of pricing and marketing policies

Assess the status, effects, policy framework and opportunities structured trading system-Ethiopia Warehouse Receipt System (WRS) and Commodities

Exchange

Provide insight and personal perspective on the issues and problems and make recommendations on interventions at “links” in the value added chain that may assist the industry in general and the smallholder farmer in particular to improve on volume and/or value.

Develop a five year base line of data for volume and value ending with the

2008/2009 for production, exports (disaggregated by destination country), domestic sales, and imports (disaggregate by countries of origin)

1.3. The Methodology Used in the Study

This report is based on secondary and primary data sources. The secondary data sources include CSA annual area and production data by zone, Plant Quarantine

Services of the Ministry of Agriculture and Rural Development, Customs Authority of Ethiopia, Quality and Standards Authority of Ethiopia, and various documents and studies conducted by different organizations. Primary data were collected from focus group discussions and interviews with different key informants including producers, traders and intermediaries, processors, exporters, and cooperatives.

Focus group discussions and interviews were conducted with key informants in selected administrative zones and markets that have significant contribution in the production of maize, wheat, millet, rice, beans, ground nuts and pulses. A total of 12 administrative zones were visited, 87 organizations and individuals were interviewed

(see annex table 3). Various data were collected on the marketing channels of the different crops, the type and role of the different market actors, volume and flow

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 4

pattern of the commodities along the value chain of each commodity considered in the study, the buying and selling behavior of the different market players, and value change along the value chain including buying prices, marketing, handling and processing costs and the selling prices at each stage of the value chain. Data pertaining to marketing and operational constraints were also gathered during the field work.

A range of other data were also collected using the COMPETE Template for Trade

Policy Platform for Selected Staple Foods. These include: tariffs and non-tariff charges, standards specification and application on import and export items, sanitary and phyto-sanitary requirements and their application on import and export items, seasonal import/export restrictions, and pricing and marketing policies.

1.4. Study Limitations

A number of problems were encountered during the field work. The problems include the short time frame allowed to conduct the field data collection work, lack of cooperation by some of the key informants, frequent interruption of power and internet connection. In some areas, interviewees demanded a letter of introduction from relevant government organizations to provide data and in some cases interviewees and discussants were not easily accessible.

The commodities covered in this study are grown in different parts of the country-north-west, east, central and eastern parts, and this required a lot of travel time, which substantially increased the duration of the data collection task. Browsing of basic reference materials and documents via the internet was hampered by the frequent interruption of internet connections.

1.5. Structure of the Report

The report is structured as follows: Part One deals with the overview of the Ethiopian economy and the status of the agricultural sector, including its significance, dynamics, agricultural policies and constraints. Part Two analyzes the value chain of the main staple foods, including maize, sorghum, wheat, rice, millet, beans, pulses and ground nuts. The analysis of the value chain of each commodity focuses on production, consumption, import and export, value chain map, and constraints and opportunities. Part Three has two components: the assessment of the policy environment and the regulatory framework. In the first part, pricing and marketing policies, regional structured trading systems are assessed. In the second section, the regulatory framework: customs documentation and clearing procedures, standards and their application on import and export of commodities, sanitary and phyto-sanitary requirements and their application on import and export commodities; trade restrictions; and non-tariff barriers have been analyzed. Finally, the main conclusions and recommendations are presented in Part Four.

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 5

PART ONE: THE ECONOMY

2. AN OVERVIEW OF ETHIOPIA’S ECONOMY

According to the 2008 World Development Report (World Bank 2008), Ethiopia, with a total population of 73.9 million, is the third most populous country in Africa following

Nigeria and Egypt. It is also the 16 th largest country in the world. About 51.9% of the population is in the working age group (15-64 years). During the period 2001-07, Ethiopia‟s total population and labor force grew by about 2.6% and 2.9% per annum, respectively. These growth rates are slightly higher than those of SSA, which are 2.5% and 2.6%%. While 80% of the labor force is engaged in agriculture, the rest is employed in industry (8%) and government and services (12%) . Nearly 84% of the population is rural. In terms of geographical area, Ethiopia is also the ninth largest country in Africa. It covers a total area of 1,104,300 km , out of which agricultural land is about 33.9%1

Ethiopia is also one of the poorest countries in the world ranking 171 st out of 182 countries in the UNDP Human Development Index Score (UNDP 2009). In 2007 its per capita GNI was US$ 220, which is low compared to that of Sub-Saharan Africa (US$

952). About 23% of the population lives below the international poverty line of US$

1/day and the income share of the lowest 20% is about 9%.

Agriculture remains the leading sector of the Ethiopian economy accounting for about

47.5% of GDP in 2007. The other sectors-industry and services- contribute 12.5% and

40.0%, respectively. During the period 2004-2008, GDP grew by an annual average of more than 10% and the registered growth in GDP has been contributed by all sectors. For example, agriculture grew by 10.4%-13.5% between 2005 and 2007, while the industrial sector showed growth of 9.4%-10.4% during the same period. Similarly, the services sector which contributes about 40% of GDP has been growing by 12.8%-17%

(AfDB/OECD/UNECA 2007). The major drivers of GDP growth were crop production and, expansion of electricity and water supply as well as manufacturing and other sectors, including health and social services (Access Capital 2009).

With regard to external trade, Ethiopia‟s exports also showed impressive expansion in recent years. According to some studies, export grew by an average of about 25% in the past five years mainly due to increase in volume exported and improvement in world market prices of many commodities. Currently, exports are estimated at nearly US$ 1.5 billion or 6% of GDP, solely dominated by the private sector (Access Capita 2009).

State of the Ethiopian Economy by Tekola Hagos (PPT presentation).

World Bank, Data Profile of Ethiopia.

GNI or Gross National Income is defined as the total value added from domestic foreign sources, claimed by residents. GNI comprises Gross Domestic Product (GDP) plus net receipts of primary income from foreign sources. Data are converted from national currencies to current US$ using the WB Atlas Method.

This involves using 3-year exchange rate to smooth out FOREX fluctuations.

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 6

Ethiopian exports have also been more diversified now than before with respect to product and market mix. The country‟s heavy dependence on coffee has gradually decreased from 39.6% of export earnings in 2005 to 35.8% in 2008. On the other hand, the share of oilseeds, pulses, meat and meat products, flowers and gold has shown increasing trend over the past 5 years. For example, earnings from oilseeds increased by nearly 41%, earnings from leather and leather products increased by 12%, earnings from pulses increased by 53%, and earnings from meat and meat products increased by 79%.

Likewise, earnings from non-traditional export commodities such as flowers have substantially increased to become the fourth largest export after coffee, oilseeds, and pulses in 2007/08, accounting for 7.6% in the total merchandise exports

(AfDB/OECD/UNECA 2007).

The AfDB/OECD/UNECA African Economic Outlook Report also shows that Ethiopian imports grew at an average annual rate of 30% during the past five years due mainly to the rising price of oil imports. Fuel imports surpassed consumer goods to become the second largest import, next to capital goods, in 2007/08, accounting for 23.8% of total imports. The substantial growth in imports in 2007/08 was also due to rapid growth in imported raw materials and semi-finished goods.

The above report further shows that Ethiopia‟s intra-Africa regional trade relationship is weak. For example, over half of Ethiopian exports in 2006/07 went to European countries, mainly Germany, Switzerland, the Netherlands and Italy. About a third of exports went to Asia, mainly China, Saudi Arabia and Japan. Within Africa, neighboring countries such as Somalia, Djibouti and Sudan were the largest importers of Ethiopian products. Likewise, close to three-fifths of Ethiopian imports came from Asia-mostly from China, Saudi Arabia and Japan. Over a quarter of imports came from Europe-mostly

Italy, Germany and France. Close to a tenth of imports came from African countries.

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 7

3. THE STATUS OF THE AGRICULTURAL SECTOR

3.1. The Significance of the Agricultural Sector

Several reports and studies show that agriculture has been and would continue to be the backbone of the Ethiopian economy for many years to come. It is estimated that the agricultural sector contributes about 48% to GDP, employs more than 85% of the rural population, contributes about 90% of export earnings, and provides about 70% of the raw material requirement of the country‟s agro-industries. Consequently, the agricultural sector is crucial for the overall performance of the Ethiopian economy.

The smallholder sector is the main source of employment, agricultural GDP, export earnings, and food and raw materials supplies to urban areas and food industries.

Crop production contributes more than 60% to agricultural GDP, while livestock represents about 30% and the other sub-sectors account for about 10% of agricultural

GDP (Mulat, Fantu, and Tadele 2006). About 28% of the smallholders cultivate up to

0.50 Ha of land, 53% have between 0.51 Ha and 2.00 Ha, and 17% have 2.01-5.00

Ha. About 80% of the smallholder produce is destined for home consumption and seed.

Poverty rate in the rural and urban areas is significantly high-45.8% and 37%, respectively (IFPRI 2005) and more than 50% of the rural poor are found in the food deficit zones, where the staple food availability per household is half the national average level-530 kilograms per household, even in good years. On the contrary, food availability per household in the food surplus areas averages 1,800 kilograms, which is 70 percent above the national average (IFPRI 2005). Given the substantial share of the agriculture sector in the national GDP and the high incidence of poverty in both rural and urban areas, the sector is expected to play a central role in decreasing poverty and increasing growth in Ethiopia.

The above mentioned IFPRI study shows that agricultural growth primarily focusing on staple crops and livestock could reduce poverty by half by 2015. Moreover, the study reveals that a 50% increase in national staple availability by 2015 would significantly help to reduce poverty in Ethiopia and indicates that productivity has to be significantly increased through irrigation, increased use of productivity enhancing technology, and provision of road and marketing infrastructure.

As regards irrigation, the country has immense potential. According to a recent report

(Seleshi et al. 2006), Ethiopia possesses 12 river basins with an annual runoff volume of 122 billion m of water with an estimated 2.6 billion m of ground water potential that can put up to 4.0 million Ha of land under irrigation. However, due to lack of investment on water storage facilities, farmers could not be able to produce more than one crop per year. Currently, some 180,000 Ha of land is irrigated by 1.2 million smallholders (CSA 2008), producing mainly staple foods.

Another important factor for enhancing the productivity of agriculture is fertilizer and improved seed use. However, the utilization of such inputs was low; in 2008, about

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 8

280,000 metric tons of chemical fertilizers (DAP and Urea) was applied on 1,725,000 hectares of land or only 15% of the total cultivated land and 18,728 metric tons of improved varieties of seed were used on 432,107 hectares or about 4% of the total cultivated area (CSA 2008).

Thus, despite the country‟s vast potential for irrigated agriculture and the crucial role of agricultural inputs in enhancing productivity, the agriculture sector is currently rain-fed and uses traditional inputs. Presently, agricultural production is mainly concentrated in the highlands where annual rainfall ranges from 800 to 2200 mm. The highlands represent 43% of the country and accommodate 88% of the human population, over 65% of the livestock, comprise 90% of the cultivated land and nearly

100% of the industrial forest cover (Bekele 2001 quoted in Seleshi).

With appropriate development policy and sufficient investment in agriculture and related sectors, therefore, the agricultural sector could play a significant role in bringing about speedy socio-economic development and poverty reduction.

3.2. Dynamics of Growth of the Sector

As mentioned above, in spite of the current and potential significant contribution of agriculture to the national economy, its performance is largely determined by weather and rainfall conditions, and consequently the country faces severe food shortages during drought years. Even during good harvest years, some 10% of the population faces food shortages, and food aid has been a major source of supply which helped narrow down the deficit. In the chronically food insecure areas, in particular, food aid, through the Productive Safety Net Program (PSNP), has been an important intervention tool that helped many vulnerable households to have access to food.

In the past 12 years (1997-2009), the performance of the agricultural sector has significantly improved; according to government statistics, production of grain

(cereals, pulses and oilseeds), in particular, has increased by about 6.3% per annum on average, mainly because of increase in area cultivated and improvement in yields.

Area under cereals, pulses and oilseeds increased by 3.7% per annum, while yield increased by an annual average of 2.5%. Production of the major staple food, including cereals and pulses, increased by 5.9% per year, area under increased by

3.1% and yield increased by 2.6%. See figures 1a-1d.

Over the past five years, in particular, production of cereals reached 15.2 million metric tons in 2009 from only 9.7 million metric tons in 2004. The growth achieved in cereal production was due to an increase in area (3.1% per annum) and

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 9

productivity improvement (2.6%). Similarly, production of pulses increased from 1.0 million metric tons in 2004 to 2.0 million metric tons in 2009. This was also achieved because of increase in area cultivated (5.5%) and increase in yield (2.9%).

As a result of the overall growth in the production of staple foods (cereals and pulses), the per capita consumption increased from 137.4 kg in 2004 to 196.6 kg in

2009. Out of the total cereals and pulses made available for domestic consumption, food aid accounted for about 3.4-9.8%.

Figure 1a: Area, Production and Yield Trends of Cereals (1997-2009)

Figure 1b: Area, Production and Yield Trends of Pulses (1997-2009)

Area, Production and Yield Trend of Cereals in Ethiopia (1997-2009)

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

Year

P ro d u ct io n

M T

A re a

H a

0.75

0.85

0.95

1.05

1.15

1.25

1.35

1.45

1.55

1.65

Y ie ld

M T

/H a

Cereals (Yield) Cereals (Production) Cereals (Area)

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 10

Figure 1c: Area, Production and Yield Trends of Oilseeds (1997-2009)

Figure 1d: Per Capita Consumption of Staple Foods (2004-2009)

Area, Production and Yield Trend of Pulses in Ethiopia (1997-2009)

500,000

700,000

900,000

1,100,000

1,300,000

1,500,000

1,700,000

1,900,000

2,100,000

Year

A re a

H a

P ro d u c ti o n

M

T

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Y ie ld

M T

/H a

Pulses (Yield) Pulses (Production) Pulses (Area)

Area, Production and Yield Trend of Oil Crops in Ethiopia (1997-2009)

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Year

A re a

H a

P ro d u c ti o n

M

T

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

Y ie ld

M T

/H a

Oil crops (Yield) Oil crops (Production) Oil crops (Area)

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 11

3.3. Main Commodities Produced

The major crops produced include cereals, pulses and oilseeds. During the period

2004-2009, cereals accounted for about 86.8% of total production, whereas, pulses and oilseeds had 9.9% and 3.1% share, respectively. Of the cereal crops produced, maize represented about 30%; whereas sorghum, teff, barley, and wheat had 17%, 19%, 11.4% and 18.7% share, respectively. The share of millet and rice was insignificant -3.3% and 0.1%.

Horse bean (faba bean) is the most important pulse crop produced in Ethiopia, accounting for nearly 39% of total pulse production in 2004-2009. Haricot bean, with

17.8% share, is the second most important pulse crop, and it plays a crucial role in foreign exchange earning. Chick peas and field peas follow haricot beans with 14.7% and 15.4% share in total pulse production. Lentils are also important pulse crops for domestic and export market and accounts for about 4.8% (see annex table 1).

Other crops produced include vegetables (345,000 metric tons), root crops (1,410,000 metric tons and fruit crops (460,000 metric tons).

3.4. Main Challenges and Constraints

Per Capita Consumption of Staple Foods in Ethiopia

0.0

50.0

100.0

150.0

200.0

250.0

2004 2005 2006 2007 2008 2009

Year

P e r c a p it a c o n s u m p ti o n k g

/y e a r)

0.0

2.0

4.0

6.0

8.0

10.0

12.0 o f to ta l

A v a il a b le f o r d o m e st ic C o n su m p ti o n

Food Aid As % of Total Available Per capita cereal consumption Per capita pulse consumption Total cereal and pulses per capita consumption

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 12

There are several challenges and constraints facing the Ethiopian agricultural sector, of which the following are critical.

Environmental degradation: land degradation, the most important feature of environmental degradation, is one of the principal challenges and constraints that have negatively affected the performance of the agricultural sector.

According to the 1986 Highlands Reclamation Study of Ethiopia, water erosion, which has been the most important process of land degradation, some

27 million Ha or almost 50% of the highland area was significantly eroded, 14 million ha seriously eroded and over 2 million Ha beyond reclamation.

Erosion rates were estimated at 130 tons/Ha/year for cropland and 35 tons/Ha/year average for all land in the highlands (Berry 2003). It has also been indicated in the same report that rate of deforestation was about 62,000-

150,000 Ha/year.

The root causes of land degradation include population growth, inappropriate land use practices, inappropriate land policy, overgrazing, deforestation, low level of investment in agriculture and animal husbandry, poor rural infrastructure and markets and low levels of technology, etc. The limited availability of arable land and lack of other employment opportunities outside the agricultural sector in particular, have increased pressure on the forest and grazing land resource in Ethiopia (Girma 2001), Some estimates indicate that about 62,000 Ha of woodland is cleared every year and the direct loss of productivity due to land degradation is about 3% of agricultural GDP (Berry, 2003).

Recurring drought: the dependence of agriculture on weather and rainfall patterns has made production highly variable from year to year, because of the erratic and unpredictable nature of seasonal rains. A study by Z.G. Alemu

(2005) shows that production instability in Ethiopia was caused more by increased yield instability than instability in an area or other variables such as technology or policy. The instability in cereal production is again directly reflected in increased market and price instabilities and therefore directly influences the welfare of farmers.

Other sources (DFID 2000) also show that agricultural production in Ethiopia is highly variable and unpredictable, due mainly to erratic weather, which has triggered famines in some years. The report indicated that a 10% decline in rainfall below its long-term average reduces national food production by

4.4%. Thus, since the entire Ethiopian economy is dependent on low productivity rainfed agriculture, and rainfall is the single most important determinant of Ethiopia‟s economic success or failure from year to year, recurrent droughts greatly affect the performance of the entire economy.

Low level of utilization of modern agricultural inputs: Although studies show that the adoption of basic technologies such as fertilizers and improved seed

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 13

varieties can double cereal yield in Ethiopia, the current utilization pattern is low. For example, utilization of improved seed varieties covers not more than

4% of cultivated area and the utilization of improved seed mainly focuses on few crops like maize and wheat. The majority of the Ethiopian farmers use local seed. Similarly, chemical fertilizer use covers about 15% of the total cultivated area.

Lack of alternative employment opportunities: off-farm employment opportunities outside agriculture are limited in both availability and income-generating potential. Although some of the rural population is sometimes engaged in non-farm employment, income generated from such employment activities is not more than 10% of household annual income.

Inadequate infrastructure: although infrastructure including roads, storage, processing and marketing as well as information, is crucial for the transformation of the Ethiopian agriculture, it is currently inadequate. For example, according to the Ethiopian Economic Association report (2006/07), the total road density in the country is about 38.6 km/1000 km , which is low compared to the situation in Sub-Saharan Africa. The density of all-weather road in rural areas is even much lower-about 8 km/1000 km -and farmers have to travel 40 km before they reach all-weather road network. The inadequacy of road infrastructure, therefore, has impacted negatively on the competitiveness and efficiency of the market.

Market information service is also deficient in Ethiopia. Although the CSA collects and publishes price data regularly, there is no established mechanism for their dissemination and utilization.

3.5. Agricultural Sector Policies

Since poverty and hunger are the country's main social and economic problems, the

Ethiopian government‟s development policies are centered on the Poverty Reduction

Strategy. Accordingly, since 2003 two Poverty Reduction Strategies: i) the

Sustainable Development and Poverty Reduction Program (SDPRP) - 2002/2003-

2004/2005 and, ii) the Plan for Accelerated and Sustained Development to End

Poverty (PASDEP)-2005/06-2009/10), have been formulated and implemented.

The focus of the SDPRP was on improving rural development and food security through the transformation of the agricultural sector. The effort to address the poverty problem rests on three major directions: rapid economic development, elimination of the countries dependence on food aid, and making the poor the main beneficiary of economic growth.

Although the first Poverty Reduction Strategy (SDPRP) had four building blocks, including the Agricultural Development Led Industrialization (ADLI); Justice system reform and civil service reform; Governance, Decentralization and Empowerment;

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 14

and Capacity building in public and private sector, major emphasis was given to the agricultural sector because of its crucial role in the livelihood of the majority of the population and its potential to generate surplus to stimulate the growth of other sectors of the economy.

The second Poverty Reduction Strategy (PASDEP) is a five-year strategic framework that builds on the strategic directions pursued under SDPRP but also includes some new directions including a major focus on growth with particular emphasis on commercialization of agriculture, private sector development, and the scaling up of resources to achieve the Millennium Development Goals. PASDEP is linked to the

Millennium Development Goals but gives due emphasis to agriculture.

In addition to implementing more general policies addressing poverty, the

Government of Ethiopia has also adopted a policy response specific to Ethiopia's food security and agricultural productivity challenge. The most important agricultural development policy is the Agricultural Development Led Industrialization (ADLI) strategy. The ADLI strategy is the Government's central policy response to Ethiopia's food security and agricultural productivity challenge. According to the policy document, the agricultural strategy will revolve around a major effort to support the intensification of marketable farm products -both for domestic and export markets, and by both small and large farmers. Elements of the strategy include the shift to higher-valued crops, promoting niche high-value export crops, a focus on selected high-potential areas, facilitating the commercialization of agriculture, supporting the development of large-scale commercial agriculture where it is feasible, and better integrating farmers with markets -both locally and globally.

Although the private sector, including smallholders, is expected to play a crucial role in implementing the strategy, the Government envisages a range of public investments and services to initiate the development process at the initial stage. The instruments to achieve this under PASDEP include the following:

Constructing farm-to-market roads, Development of agricultural credit markets, Specialized extension services for differentiated agricultural zones and types of commercial agriculture;

The development of national business plans and tailored packages for specialized export crops (such as spices, cut flowers, fruits and vegetables);

Supporting small-scale irrigation and area irrigation through multi-purpose dams;

Measures to improve land tenure security, and to make land available where feasible for large-scale commercial farming;

Reforms to improve the availability of fertilizer and seeds; and, Better-functioning agricultural markets for both inputs and outputs, and institutions, including improved value chains, information flows, quality and standards support, and cooperatives that strengthen the position of farmers in the market

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 15

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 16

PART TWO

VALUE CHAIN ANALYSIS FOR SELECTED STAPLE COMMODITIES

4. THE MAIZE SUB-SECTOR

4.1. Maize Production

According to the FAO (FAOSTAT), Ethiopia is the second most important producer of maize among the COMESA member countries with 15% share of the total maize production in the region. Average area under maize during the period 2004-2009 was about 1,994,294 hectares and accounts for 22% of the total area under cereals.

Average annual production of maize was also about 3,683,077 metric tons or nearly

30% of the national cereal production. Maize is second to teff in terms of area, but it ranks first among cereals in production. Yield levels vary from 1.56 metric tons/Ha to

2.08 metric tons. The area under maize, production and yield during the period 2004-

2009 is shown in table 1 below.

Table 1: Area Under Maize, Production and Yield (2004-2009

Because of its large geographical coverage and the scale of production, maize plays a critical role in the food security of the country and particularly the poor. It is a widely grown crop in Ethiopia; although the extent of cultivation varies, maize is cultivated in some 74 important maize producing administrative zones, of which 20 contribute almost 80% of the national production. Marketable surplus is mainly produced in these high potential zones, and the production in the other zones is mainly for subsistence. The largest surplus producers of maize include: West Gojam (11.3%), Jimma (7.9%), East Shoa (7.8%), East Wellega (6.4%), West Wellega (5.5%), Illubabor (4.3%), Arssi (4.3%), West Shoa (4.2%), East Hararghe (3.5%), Agewawi

(3.4%), West Hararghe (2.9%), and Sidama (2.9%). The other important maize producing zones are West Arssi, East Gojam, North Gondar, Horo Gudru, Bale, South Gondar, Silti and Kelem (see map-figure 2). At the national level About 8 million smallholders, one state farm and 12 private commercial farms are engaged in maize production. Holding size of total cultivated land considerably varies from less than 0.5 Ha to over 10.0 Ha. Almost 30% of the households own up to 0.5 Ha, 26% from 0.51 to 2.0 Ha, 16% between 1.01-2.00 Ha, and 1.3% over 5.0 Ha.

Maize production in Ethiopia has been increasing since 1997, reaching a high of

4,577,619 metric tons in 2009. In 2003, it substantially decreased to 1,794,697 metric

Description 2004 2005 2006 2007 2008 2009

Area (Ha) 1,626,456 1,831,297 1,961,612 2,144,992 2,204,751 2,196,658

Production (MT) 2,792,232 2,849,821 3,960,711 4,432,735 4,379,887 4,577,619

Yield (MT/Ha) 1.72 1.56 2.02 2.07 1.99 2.08

National Cereal Production (MT) 9,646,142 10,763,518 12,371,122 13,946,756 14,395,425 15,194,923

Share of Maize in National Cereal Production (MT) 28.9 26.5 32.0 31.8 30.4 30.1

Source: CSA

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 17

tons due to the sever drought the country faced. During the period 1997-2009, maize production increased by 5% per annum due to area expansion (3.2%) and yield improvement (1.8%). Although there has been an increase in the adoption of improved technologies, maize yield did not show much change in 2004-2009.

Figure 2: Major Maize Producing Zones of Ethiopia

These zones produce about 80% of national maize production

4.2. Maize Consumption

4.2.1. Domestic Production vs. Consumption

Overall net maize supply from domestic production and net import was in the range of 2.3-3.8 million metric tons, the largest share being that of domestic production. In most of the non-drought years, domestic production has been the most important source of maize for domestic consumption (see table 2).

Table 2: Supply and Consumption of Maize in Ethiopia (2004-2009)

N. GONDER

S. GONDER

W. GOJAM

AGEW AWI

E. GOJAM

E. WELLEGA

WEST SHEWA

JIMMA

ILLUBABOR

W. WELLEGA

E. SHEWA

SELTI

SIDAMA

ARSI

W. HARERGE

E. HARERGE

BALE

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 18

Source: CSA (production), WFP (food aid import), Customs (Commercial import/export)

As shown in table 2, the national per capita consumption of maize has substantially increased from 34 kg/per capita in 2004 and 2005 to 46 kg in 2006, 50 kg in 2007, 48 kg in 2008 and 49 kg in 2009. Maize constitutes about 24%-

31% of national cereal consumption and is mainly covered by domestic production. Maize is consumed as a staple food in different forms, including: injera

(alone or mixed with teff), porridge, bread, grits and nefro. It is also consumed roasted or boiled (especially at green stage) and grits. Moreover, it brewed into tella, araki and other local spirits.

4.2.2. Maize Exports and Imports

Food aid import has been the main source of cereal supply in Ethiopia, and wheat has been the most preferred commodity by donors and the recipient country.

Consequently, there has not been much import of cereal food aid other than wheat. However, since 1996 some donors - particularly the EU and WFP in collaboration with the Government have devised a system for the local purchase of food aid, focusing on certain crops including maize, sorghum and wheat from high production areas.

The system of local food aid purchase put in place has been an important market intervention mechanism for stimulating maize producers in the high potential areas as well as traders. During the period 2004-2006, total local purchase of maize by donors was about 79,000 metric tons/year, but it substantially decreased after 2006 because of the high cereal prices in the domestic market. This has forced donors to import some 31,792 metric tons of maize in 2008.

As can be seen from table 3, there was some 30,488 metric ton maize commercially imported in 2004, but since then the quantity imported has been negligible. Commercial export of maize was also the highest in 2004 but became insignificant after 2004. Some maize cross-border trade with neighboring countries has been mentioned in a recent MoARD study, but its magnitude is not documented. Maize based processed food such as cornflakes are also commercially imported, but there is no data on the quantity imported.

Description 2004 2005 2006 2007 2008 2009

Gross domestic production (MT) 2,792,232 2,849,821 3,960,711 4,432,735 4,379,887 4,577,619

Net domestic production (MT) 2,317,552 2,365,351 3,287,390 3,679,170 3,635,307 3,799,424

Commercial import (MT) 30,488 251 378 1,952 6,131

Commercial export (MT) 11,840 1,921 22 2

Food aid import (MT) 31,792

Net maize available for domestic consumption (MT) 2,336,200 2,363,681 3,287,746 3,681,120 3,667,099 3,805,555

Population 68,440,172 70,219,616 72,045,327 73,918,505 75,840,386 77,812,236

Actual consumption (kg/capita) 34 34 46 50 48 49

Share of Net Domestic Production in Total Supply (%) 99 100 100 100 99 100

Share of Maize in Total Cereal Consumption (%) 27 24 31 31 27 28

Actual consumption (kg/capita) 124.16 139.22 146.69 162.93 179.51 172.67

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 19

Table 3: Import and Export of Maize 2004-2009 (MT)

Source: WFP and Customs Authority of Ethiopia

4.3. Value Chain Mapping

As the first largest crop among cereals, the importance of maize as a consumption item is obvious. It is the most important staple food in many parts of rural and urban

Ethiopia. Hence, most of the maize production is primarily used for on-farm consumption and seed. The marketed quantity of maize from the smallholders represents about 18% of national production, but it varies from area to area depending on their production potential. Marketable surplus from the state and private commercial farms, however, could reach up to 80% of their annual production.

Overall the quantity of maize marketed by smallholders and commercial farms is estimated at about 895,916 metric tons. Of the total quantity of maize marketed, nearly 96% comes from the smallholder sector and the balance from state and private commercial farms. The marketed quantity of maize accounts for nearly 28% of all cereals marketed.

Maize is customarily sold in grain form and is processed at household level using traditional means or using the services of small grain mills; only 6% of the marketed quantity is processed by medium and large-scale processors. Producers of maize have alternative marketing channels through which they sell their product. As shown in figure 3, the key players include rural assemblers, cooperative unions, wholesale grain traders and retailers. The role and significance of each market participant and the volume of maize that passes through the different channels is discussed as follows.

Input Suppliers

Inputs suppliers consist of the Government owned Agricultural Inputs Supply

Enterprises (AISCE), Ambassel, Wondo, and 10 farmer owned cooperative unions.

While AISCE, Ambassel and Wondo are engaged in the fertilizer import business, the cooperative unions are involved in both the importation and distribution of fertilizers.

Although 10 unions are engaged in fertilizer import, there are more than 60 cooperative unions that distribute inputs to about 800,000 farm households organized under 1,200 primary cooperatives. Another government organization-the Ethiopian

Seed Enterprise (ESE)-and one private company called Ethiopian Pioneer Hybrid Inc.

deal with the production and marketing of improved seed varieties.

Commercial import 30,488 251 378 1,952 6,131

Commercial export 11,840 1,921 22 2

Commercial net import 18,648 -1,670 356 1,950 6,131

Food aid import 31,792

Total net import 18,648 -1,670 356 1,950 31,792 6,131

STAPLE FOODS VALUE CHAIN ANALYSIS - ETHIOPIA 20

The 13 input suppliers handle about 521,000 metric tons (including stocks and new purchases) annually, of which the share of cooperative unions is about 56% and

AISCE, Ambassel and Wondo handle 23%, 12%, and 9% respectively. According to the CSA, a total of 74,000 metric tons of DAP and Urea was distributed to 1.1 million smallholder maize growers in 2008. The quantity of chemical fertilizers used by the state and private commercial farms for maize production is also estimated at 2,500 metric tons. Some 8,660 metric tons of improved maize seed varieties were also distributed to 990,000 maize growers. The area covered by chemical fertilizers and improved seed varieties is about 25% of the total area under maize.

Agricultural inputs are normally distributed to maize growers on credit through their cooperatives and the source of the…