20 July 2014

Ethiopia: Closed Seed Market Limits Agricultural Transformation - Just Liberalise It!

Focusing on agriculture is not only a political matter for the ruling Revolutionary Democrats. It also is an issue of numerical understanding. A little over 80pc of the nation's population relies on Agriculture. The sector is also a major contributor to the national gross domestic product (GDP), with its share standing at 45pc in 2013, and growing at an average rate of about 8.5pc for the last decade.

Of course, one could not denounce the weight of the political thread. It almost is obvious that farmers are the kingmakers in the modern electoral democracy of Ethiopia. Assuming power is not possible without having the support of this section of society.

Therein lays the love story the ruling EPRDFites have with the farming population. But there is even more in the history books.

The farming community has been the major guardian of the Revolutionary Democrats in their years of guerrilla fighting. They have passed through the worst of times under the arms of the community - eating, sleeping, crying and dying with it. This affiliation has thought them a lot about the needs, wants and ambitions of the community.

By and large, their struggle against the military might of the Dergue succeeded because of the incessant support from the farming community. Hence, they have a lot to attribute to the benevolence of the Ethiopian farmer.

Their policy level attention to agriculture is, therefore, a resultant outcome of historical affiliation, thoughtful political gambling and wise economic analysis. And if one is to go by the evidences presented by the state, the approach seems to have paid them well. Rapid economic growth, landslide wins in four consecutive elections, strong support base and policy confidence are some of the results the ruling EPRDFites have gained from their love affair with the farming community.

It has not been all smooth, though. Even if the total output of the sector has been growing rapidly over the past decade, productivity per hectare remains very low. The sector continues to suffer from subsistence, rain-dependence and huge redundant labour. Absorption of new technologies is still very low. Little has, therefore, changed in the sector, in terms of structural elements.

One of the structural issues has come to the fore as yet another rainy season started. Not even the elaborate agricultural and rural development policy books of the Revolutionary Democrats seems to have a clear understanding of this issues that relates to the supply of inputs, mainly improved seeds. If at all, the green books of the ruling party seem to take the development of this pillar of agricultural development as given.

Yet, the reality in the ground shows that the issue is far from being given. It rather has appeared to be a key determinant to the envisioned transformation of the sector. There seems to be a huge gap in the current agricultural policy of the ruling EPRDFites in this regard.

As it stands, the improved seeds distribution system of the nation is monopolised by state enterprises and small private operators. But the latter contribute only a miniscule to the sector. All of the improved seed distribution system for cereals is controlled by state parastatals.

There is even no order in the structuring of these enterprises. Their ownership varies between the federal and regional governments. Their operational boundary is not clear. There is no clearly defined complementarity agenda between them.

All of them work with farmers and research organisations. At the same time, all of them claim to work for the farmers. In the meantime, their line of accountability varies with their structure. Even if one is supportive of the intention of their existence, then, their hierarchic, increasingly chaotic and repetitive structure would reduce the plausibility of their presence.

All available numbers witness the inefficiency within the state-controlled improved seed distribution system of the nation. In the six years to 2013/14, the maximum annual supply of improved seeds has only been 2.2 million quintals. With latest estimates of demand for improved seeds in the country standing between 11 million quintals and 18 million quintals, depending on the source of the numbers, the gulf between the demand and supply is huge.

Using the growth rate of the supply and demand, then, it will take for the supply to grow fourfold each year and for the demand to standstill, to converge in 2020. It is indeed a huge limiting factor for the growth of the sector that remains to be the mainstay of the economy.

A thorough analysis of the experiences around the world would show that the power of the markets is the missing element in the improved seeds distribution system of Ethiopia. Lost with the power of the markets is the entrepreneurial capacity of the private sector.

Countries with well developed agricultural sector, from the US to India and South Africa, have all benefited so much from the power of markets in structuring their seed distribution systems. They even have managed to produce national champions with global brands in the ever-growing global seed distribution business.

After all, a progressive seed distribution sector involves various players, including research companies, producers, distributors and retailers, of course, not to mention all sorts of support service providers. A synergetic operation of these players could happen if each of them works for the profit motive.

Each of these activities requires huge financial, human and technological capital. Hence, most of these undertakings could not easily be conducted by small and medium scale enterprises. They rather could only be leveraged by large scale companies.

Closer, however, the case is that the whole value chain is controlled by inefficient state enterprises that lack the inherent incentives to live up to the rising demand of the farming community. Their operation is filled with structural gaps and hence an underdeveloped seed sector.

As much as the seeds sector is important for the productivity of Ethiopia's agricultural sector, which is inching its limit of extensification, now is a vital time for the EPRDFites to reconsider their long overdue resistance to a liberalised seed sector. After all, their two decades of trial and error with state-controlled system has brought little in the form of concrete results.

Going through the history books, one would find two outstanding reasons for the resistance of the Revolutionary Democrats to a liberalised seeds sector. One the one hand, they seem to be concerned about the potential dependence of the farming community on multinational corporations. On the other, they seem to be wary of the price fixing power of the corporations that might join the market with the liberalisation.

But both of their outstanding concerns relate to uncompetitive markets. They have a rare chance of happening in a sufficiently competitive market wherein the state effectively plays its regulatory role.

Under effective competition, markets are able to incentivise key players of the seed value chain to remain innovative, responsive and flexible to the needs of the farmers. And it is by no means easy to fix prices over 80 million farmers, if the government plays its regulatory role effectively.

Surely, the Ethiopian agriculture is in dire need of a transformative system on improved seeds supply. And markets could be these forces, if they are allowed to operate smoothly. What is holding them back is the regulatory restrictions put on the sector.

It is now time for the Revolutionary Democrats to take their love affair with agriculture to an all new state by liberalising the improved seeds market. Doing so will be in favour of the farming community they often declare to stand for and their own political skin.

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