Ethiopia: Mitigating Shortfall of Agricultural Products to Meet Manufacturing Industries’ Inputs
In the transition from agricultural led economy to the industry led one, agro-industry is highly expected to play crucial role by connecting agriculture with the industry through forward and backward linkage mechanism. In addition to this, it needs to play sounding role in creating market for farmers and employment opportunity for the job seekers.
In order To meet this aspiration, the manufacturing sector which utilizes agricultural products such as oil seeds and wheat among others as inputs is flourishing but it also faced shortage of inputs due to various reasons.
According to the Ministry of Trade and Industry’s recent report, there are more than 30 small and medium size enterprises engaged in edible oil production but due to the shortage of inputs in the local market, they produce by only 35 percent of their production capacity.
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While conducting a meeting with the stake holders recently, the Minister of Trade and Industry, Melaku Alebel said that to substitute the importation of edible oil with domestic production, his Ministry is trying its level best. Currently, the country’s demand for edible oil is 906.5 million liters a year and a joint venture between government and private investors undergone to meet the demand over the past three years. To this end, the number of refineries has been increased from 14 to 30 but it is still in vain.
According to Melaku, the annual production capacity of oil refineries has been increased from 89 million liters to 1.25 billion liters.
In addition, the total oil demand has increased from 5 percent to 40 percent and 4,000 new jobs have been created through the extraction of edible oil in the sector. Hence, to bridge the gap, the nation spends significant amount of hard currency for the importation of products annually.
Efforts are underway to alleviate the shortage of inputs in the country’s edible oil production and to this end; study on the major problems of the oil industry will be conducted and discussed by the Food, Beverage and Pharmaceutical Industry Development Institute of the Ministry of Trade and Industry.
Dr. Demis Chanyalew is an agriculturalist and works as a consultant for various institutions. While he made an interview with The Ethiopian Herald, he said that Ethiopia can be a center of excellence on agro-industry in Africa. It has fertile land and conducive agro-ecological zones but unable to utilize properly due to absence of technology and finance. As a result, most manufacturing industries import wheat and oil crops for macaroni, pasta and edible oil production.
Asked what mechanism should be forwarded to address the challenge, Demis said that in the first place, studying the industries’ situation is vital and without surveying whether sufficient input is locally available or not, simply expanding industries is not feasible. Ahead of complaining about the shortage, studying the value chain from producing agricultural products to supplying and agro-processing is vital. Besides, instead of expanding giant oil producing firms, it is rather better to support cottage industries.
As to him, during the imperial era, cottage edible oil industries owned by Ethiopians were flourished and utilized oil seeds obtained from local markets but because of unknown reasons, they were abandoned. Cottage industries in most countries played crucial role as impetus for industrial development.
In Europe, individuals produce packed edible and cosmetics oils at home and supply them to the market.
He further said that a decade ago, he carried out studies on edible oil crops with his colleagues and according to their findings, the crops particularly nigger and sesame could get comparative advantages in foreign markets and obtain better price. As a result, the manufacturing industries faced shortage of inputs in the local market.
On the other hand, in Gojjam and Gondar areas of Amhara Regional State, farmers prefer to produce wheat and maize instead of oil crops because the product amount of oil crops per hectare is less than that of maize and wheat from the same area. This again aggravates shortage of inputs for industries.
They also get better price from their products. Farmers produce from 8 to 15 quintals of oil crops per hectare while they get more than that from wheat and maize per hectare. Because of these, farmers change their land usage.
The other challenge witnessed in agro-processing is the cumbersome system which is prolonged in the value chain of the edible oil crops from farmers up to customers.
For instance, years ago, an investor who established a manufacturing in Akaki Kaliti went up to Awi zone in western Gojjam to get oil crops such as sesame and nigger but he was exhausted in getting the crops because the value chain was dominated by brokers who amass their wealth through illicit system by exploiting the farmers via setting their own price. There was a huge gap in connecting farmers to the market and consumers.
Currently, however, both in western and eastern Gojjam areas giant oil industries are established and created job opportunities to thousands of job seekers. In fact, they partially utilize sesame and nigger produced in the surrounding areas but in addition to local inputs, they import unrefined material used as inputs from abroad.
According to media sources, Ethiopia in the coming two years will allocate 2 billion Dollars for the importation of unrefined materials utilized as input for edible oil production and finished edible oil products. As to Demis, such amount of money imposes burden on the nation’s economy. Hence, crafting better strategy is essential.
Some argue that, local businessmen who have political affinity with higher echelon dwelled in import-export business of edible oil instead of engaging in production, because it is a lucrative business. Banks also preferred to provide loan to merchants instead of providing loan to the producers. Reacting to these Phenomena, Demis said that there is a mystifying matter in this regard and instead of encouraging local oil producers, financial institutions provide loan to importers.
In fact, Banks know better which loan scheme raises their profit margins. He further said that it is sad to see oil producers’ face challenges to get access to finance due to cumbersome requirements particularly bringing asset for collateral.