11 May 2019

Ethiopia: Wheat Intricacies

Debebe Assefa is grain trader from Bekoji East Arsi Zone, Oromia Regional State. He has been involved in the business of buying different kinds of grains from framers and sells it to other wholesalers. As Arsi is known for its high wheat cultivation and production, Debebe would usually buy wheat from farmers and sell it to factories.

He has been doing it for a while where he says despite the fact that the weather and the land in Arsi is said to be suitable for wheat production farmers in the area are always limited by a number of factors not to use their full potential. In fact some studies indicate that more than 50 percent the country's wheat production comes from the highlands of Arsi and Bale.

"For some of the farmers it is always difficult to sell their wheat because of low production; and because of this they use it only for their own consumption instead of selling it."

He mentioned a number of reasons for the aforementioned limitations from the farmers' side.

One could be the government's failure to supply different insecticide and pesticides for the farmers on time and with enough quality, he said. Moreover, the farmers have no other alternatives to get those essential inputs for their yields.

A number of studies indicate that Ethiopia is among the major wheat producers in Sub-Saharan Africa and wheat takes the lion's share of total cereal production in Ethiopia.

For instance, a latest report released by the United States Department of Agriculture indicates that Ethiopia, as of last year, has managed to produce 4.5 million metric tons of wheat. This amount was produced by 4.7 million smallholder farmers who occupy 1.7 million hectares of land. In fact 95 percent of the wheat production comes from smallholder farmers who are majorly dependent on rain whereas the rest five percent is from large commercial farms.

Moreover, other studies show that wheat producers in Ethiopia consume 59 percent of it where as sell 20 percent to the market and retain the rest for seed production.

In relation to this, from the total annual consumption of wheat which is not less than 6.3 million metric tons, 30 percent to 35 percent of the demand is covered by imported wheat which the government have been spending billions of birr to purchase the wheat.

The country is dependent on a complicated wheat procurement process which sometimes is controversial. For instance, since 2010, Public Procurement and Property Disposal Service (PPPDS) purchases no less than five million metric tons of wheat at a cost of 31.66 billion birr. This includes wheat purchased both for market stabilization which is being distributed to factories and bakery houses with a subsidized price and the rest for relief efforts.

It is to be recalled that the government began to distribute wheat to users with a subsidized price since 2008 following double digit inflation and a global food shortage and food hike.

The complex public tender process mostly undertaken by the PPPDS on behalf of the government have been facing challenges which sometimes cause nationwide shortage of wheat.

Since last year, the country has been going through rampant wheat shortage because of problems in the tender process which also proved the fact that the country cannot be self sufficient without the import.

It is to be recalled that, last year tender and retenders involving 400,000 metric tons of wheat have caused nationwide shortage. At the time, the government was also forced to cut wheat quotas distributed to factories by half. Just few weeks back, as the result of recent wheat shortages, a well-known bakery shop like Shoa Bakery, were accused of doubling the prices of bread at the retail end of the market.

However, bakery houses like Shoa were getting their wheat supply from the government of Ethiopia at a subsidized price. Nonetheless, following the failure of the government to supply the wheat on time, the company, in the interest of guaranteeing continued supply of bread in the capital, decided to look into the private sector for sustainable wheat supply. And as a result, the change of supplier has resulted in a significant cost escalation for bakeries and hence leading to the doubling of the price of bread.

Following pressure from the government to supply the wheat, the supplier - Promising International DMCC, a Dubai based company, which is major supplier of wheat to the Ethiopian market - has shipped 75,000 metric tons of wheat back in March, 2019 and delivered it at the Port of Djibouti. However, as the result of shortage of trucks to load the wheat from the port the wheat is still stranded and the country is still suffering wheat shortage.

"Promising also brought additional 30,000 metric tons to the port," according sources. However, the wheat is yet to be loaded and there are still shortages of trucks.

"Over the years I have been involved in the sector I have noticed that there is a serious challenge in the whole procurement process to importing wheat," an industry source whose name has been withheld upon request told The Reporter.

For instance when the government buys wheat they always go for the least price despite the fact that the supplier could be new and may not have the capacity to supply the wheat, a representative of an international wheat supplier company based in Addis told The Reporter.

The whole evaluation process during tenders use low standards which sometimes causes problems, he said.

"For instance when we join the Ethiopian market of wheat supply and began to compete we have to submit a number of documents such as audit report, track records as well as financial documents," according to another source representing a wheat trading company.

At the time no one from the government's side tried to check if those documents are real or not, he recalled. So the procurement process needs to have higher standards in order to avoid obstacles in the procurement process including delays in the delivery of wheat and a failure from suppliers to perform as per the contract they signed to supply.

Contrary to the aforementioned practice of importing wheat from abroad, just recently, the government expressed its intention to substitute the imported wheat with local production. Just last week the executive committee of the ruling party, the Ethiopian Peoples' Revolutionary Democratic Front (EPRDF) boldly expresses similar intents.

"I don't think the government will achieve this goal in two decades," said an international wheat supplier. Ethiopia is by far our major market in Africa when it comes to wheat and we have been supplying for years but none of us have interest to produce wheat here in Ethiopia.

"We know how tough it is to bring our wheat from our farms and sell it in Ethiopia let alone starting investment of wheat production in here," said the same source.

Wheat is usually imported from commercial farms in Russia, Ukraine, Australia and Canada.

"And I don't think there is readiness to have similar farms in Ethiopia and substitute the whole import," according to an international wheat trader.

Despite the pessimism from the traders, experts would argue that Ethiopia has the capacity to achieve substituting the wheat import.

In his recent interview with The Reporter, Demese Chanyalew (PhD), an economist specializing in the agricultural sector says that the status--quo of importing wheat from abroad should change.

"Ethiopia has been importing wheat annually which it was not supposed to do so, yet it is a regional center for excellence on wheat. We seriously echoed that the government should bring capital to agriculture and at some point they did," he said.

From the government's side there have been attempts to introduce capital investments which unfortunately end up being a disappointment.

It can be recalled the global hike in food prices back in 2008 pushed a number of international companies to invest in agriculture particularly in the third world such as Ethiopia. In this regard, Ethiopia has invited number companies to invest in larger scale farming.

By the time, the government identified 3.5 million hectares of land available for agricultural investment which involved both local and international companies. Thousands of investors from both rushed to grab their share of land in regions like Gambella, South, Afar, Amhara and the like.

For instance, by 2015, there were 5,680 local and foreign investors involved in the sector where 2.43 million hectares of land was given to them. However, the result was disappointing where in most cases they fail to perform.

"When it comes to local wheat production, I remember there were a few attempts by the investors with the help of the government to produce wheat in large amounts," commercial farmers told The Reporter and we able to produce from 40 quintals up to 50 quintals per hectare.

However, this could not continue, he said. One could be the support from the government was not good enough where there were problems to get improved seeds as well as standard machines in order to collect the yield and so on.

There was also lack of coordination among government bodies, he recalled.

"The government needs to walk its talk when it comes to substituting the import," argues another commercial farmer. "Instead of spending billions to buy wheat from abroad it can allocate a few millions for research and developments."

"They need to be bold to achieve the goal," he said.

Just last week, the Ministry of Finance (MoF) approved a new directive which leaves the imports of agricultural mechanization, irrigation and animal feed technologies, and equipment to be tax-free.

This tax reform is aimed at enhancing the agriculture sector by removing duty and taxes on imports of farming machinery, irrigation and drainage equipment as well as animal feed ingredients and technologies; providing incentives to invest in the importation and local production of these technologies, reads the statement issued by ATA.

Despite the optimism however, a report from shows that the country this year needs 6.3 million metric tons of wheat which 1.5 of is expected to be imported.

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