Grain and Flour Market in Ethiopia

09 October 201416 min reading
The basis of the economy is based on agriculture in Ethiopia; therefore food production constitutes a significant part of the manufacturing industry. As one of the important elements of the food industry, the number of the grain mills in the country is around 210 according to some sources. Having 3,7 million-ton production capacity, these mills supply a part of the wheat they need with imports via government agencies and supply another part from the domestic market. As in all developing countries, the basis of the economy and industry is mainly based on agriculture in Ethiopia. Grains have an important place in the agricultural production. Over 50% of average daily caloric intake of an average household is from wheat, sorghum, and corn. Cereal production accounts for roughly 60% of rural employment and 80% of total cultivated land. Households spend an average of 40% of their total food budget on cereals. According to the World Food Program, 46% of the Ethiopian population is malnourished, underscoring the importance of increasing domestic grain production. The potential of Ethiopia in terms of agricultural production is well known today but the desired production level has not been obtained due to the lack of agricultural mechanization, underdeveloped irrigation system, and low usage of fertilizers, pesticides, and certified seed. However, the plans of the Ethiopian governments regarding the development and their activities in this regard focus on agriculture and provide promising developments. The increase of many grain products over 100% in the last 10 years is considered as an important indicator of this situation. Country economy that is based on agriculture causes that more than 40% of the production in the manufacturing industry consists of food industry production (especially vegetable oil, bakery products and sugar). One of the most important elements of the food industry is grain mills. According to some sources, the number of the grain mills in the country is around 210. Having 3,7 million-ton production capacity, these mills supply a part of the wheat they need with imports via government agencies and supply another part from the domestic market. As a regional product, teff is prominent in the grain flour consumption of the country. However, the recently changing consumption habits and prices have been causing an increase in the wheat flour consumption. GENERAL ECONOMIC OUTLOOK IN ETHIOPIA Starting to follow strategies based on free market economy since the beginning of the 1990s and giving priority to the application of structural reforms, Ethiopia put five-year development plan including the period of 2010-2015 in August 2010. The plan includes important precautions for providing sustainable development and eliminating poverty in Ethiopia. The development and change plan (GAP) conducted during 2006-2010 period before this development plan served as a basis for the application of the last development plan. In those plans; agriculture, industry and infrastructure are handled as priority issues and the understanding of that poverty should be eradicated by increasing the living standards in the country and importance should be given to these industries rather than the service industry is adopted. According to the last development plan; it is aimed that Ethiopian economy would show minimum 11% and maximum 14,9% annual development averagely, agricultural industry would continue to be the locomotive industry of the economy and agricultural industry would show minimum 8% and maximum 14,5% annual development averagely till 2015. In order to reach the goals of the plan; it is stated that new lands should be reserved for agriculture in the agricultural industry, the usage of input should be increased, the infrastructure should be improved and it should be encouraged to market the obtained production in better conditions. It is also aimed to increase the production of some products such as grains, coffee and tea that make great contribution to the country economy. The recent developments in the agricultural industry have been promising until now and the increase in the fertilizer usage provides that the agricultural production has been realized higher than the expected rates in the recent years. GDP of Ethiopia I expected to increase by being accelerated in the following years. The developments in the agricultural and agriculture-based industries are expected to affect the overall economy positively. As a result of that utilizable energy production increases and marketing infrastructure is improved gradually in Ethiopia, more and more producers have started to make production for the market in the country and the number of these producers is expected to increase in the following years. Although there are lots of deficiencies needed to be completed in the country in terms of both infrastructure and legislations; institutional reforms carried out so far, new regulations and improvement of the infrastructure have provided the commercial activities in Ethiopia to be easier and cheaper. The inflation showing decrease gradually in the country declined to 8,1% in 2010. This figure is the best inflation rate obtained since 2004. Tight monetary policy and high agricultural production prevented inflation from increasing by preventing the price increases especially in foods in 2010. However, the inflation that increased then and reached to 33,2% in 2011 is estimated decreasing to 23,3% in 2012 and 14,2% in 2013. THE PLACE AND IMPORTANCE OF AGRICULTURE IN ETHIOPIA Agricultural industry meets 43% of GDP, 90% of the exports and 80% of the employment. Only 1/5 of the arable lands is cultivated in the country and almost all of these lands are irrigated with rain. However, the regions differ from each other in terms of the rainfall amount. Large investments in the irrigation are needed in the country. There are major difficulties in the agricultural industry due to the frequently occurring drought and bad agricultural applications. Mechanization in the agriculture is very limited and the usage of fertilizers, pesticides and certified seeds is significantly low. Agricultural production increased significantly in Ethiopia at the end of the 2000s. With the aim of increasing self-sufficiency by increasing agricultural production in the country, various precautions are taken and applied. These precautions include early warning system for famine, increasing the number of services for agriculture and enabling the usage of various agricultural inputs in wider areas. Large-scale businesses are not widespread in the agricultural industry of Ethiopia. In the country, where agricultural businesses are generally small-scale ones, farmers make their production mainly for their own consumption and thus the production for the market is very limited. There are attractive opportunities in the agricultural industry of the country especially for the foreign investors. Grains, coffee, pulses, oil seeds, sugar cane, fruits and vegetables, cut flowers and cotton have an important place in the agricultural production of Ethiopia. The country ranks 2nd in the world broad bean production, 5th in the sesame production, 6th in the coffee production and 8th in the pulses production. Grain and pulses are used completely for the domestic consumption and oil seeds and some fruits (especially tropical fruits) and vegetables with smaller amounts are exported especially to the neighboring countries and Europe. A great part of the inputs used in the agricultural industry of Ethiopia is met via imports. Therefore; Ethiopia is an important export market for the inputs such as fertilizer, pesticides, seed, feed and farming tools and machines for the agricultural industry and the country provides great opportunities in terms of investment in these industries. GRAINS AND PULSES PRODUCTION AND CONSUMPTION In Ethiopia that has an agricultural production amount lower than its potential due to the lack of agricultural mechanization, underdeveloped irrigation system, and low usage of fertilizer, pesticide and certified seed; the production of grain products such as wheat, barley, maize and sorghum can be realized despite all of these deficiencies. However, grains specific to the region that are not widely known in the world like teff have an important place in the production and consumption of Ethiopia. Teff that can be cultivated at altitudes between 1800 and 2200 meters in the regions with sufficient rainfall is a low-risk product which can endure adverse weather conditions compared to other grains. In most parts of the country, families prefer to use teff to make injera (fermented thin bread) and sometimes to make porridge. Teff can also be used to produce local beer and liquor. Teff straw is an important source of animal fodder and has been shown to be a more nutritious animal feed than other grain by-products. According to some sources; teff cultivation was realized on approximately 2,7 million-hectare area by 6,3 million farmers in Ethiopia in 2011/12 season. This area represents 20% of the total cultivated lands. When the production of other grain products besides teff, it is seen that corn becomes prominent. According to the data of United States Department of Agriculture Foreign Agricultural Service (USDA FAS) and the United Nations Food and Agriculture Organization (FAO); the corn production in the country has increased significantly in the last 10 years. According to USDA; Ethiopia’s corn production, which was 2,5 million tons in 2003/04 season, reached to 4,3 million tons in 2008/09 season. Decreasing to 3,9 million tons in the following season, corn production increased again in 2010/11 season and reached to 6,1 million tons in 2012/13 season and 6,5 million tons in 2013/14 season. Unlike USDA, FAO announced the corn production amount in 2013/14 season as 6,6 million tons. It is foreseen that the corn production in the country will be realized at 6,5 million tons level again in 2014/15 season. Having almost a parallel course with the production amount, the corn consumption amount in the country continues to increase by years and the entire production is used for the domestic consumption. Corn consumption survey data from the Central Statistics Authority (CSA) in Ethiopia shows that out of the total national production of corn, 80% was used for household consumption, 10% for sale, while the balance was used for seed, wages in kind, and animal feed. Because of lower prices compared to other grains, the per capita consumption of corn in the rural area is estimated to be 45 kg/year and 16 kg/year in urban areas. Most of the flour mills in the rural areas mix corn with wheat to lower the price of flour. This method helps bakeries to lower the price of bread and to gain a better profit. Using corn for feed, especially for poultry, is gradually increasing in the country. Farmers also use corn stalks for fuel, cattle feed, and construction material for houses in rural areas. Another widely grown grain product in the country is sorghum. Ranking 6th among the world’s leading sorghum producers, Ethiopia has increased its sorghum production over 100% in the last 10 years. According to the USDA data; sorghum production of Ethiopia, which was 1,7 million tons in 2003/04 season, reached to 2,9 million tons in 2009/10 season, 3,6 million tons in 2012/13 season and 4 million tons in 2013/14 season with a steady increase (Again unlike SUDA, FAO announced sorghum production of 2013/14 season as 4,3 million tons). USDA foresees that sorghum production will be realized at these levels in 2014/15 season. Like in corn, the production is used for the domestic consumption in sorghum. Wheat and barley production in the country is very low compared to other grain varieties but it increases consistently each passing day. According to the USDA data; Ethiopia’s wheat production, which was 1,6 million tons in 2003/04 season, reached to 3,1 million tons in 2009/10 season and 3,4 million tons in 2012/13 season. Decreasing to 3,3 million tons by declining nearly 100 thousand tons in 2013/14 season, wheat production in the country is foreseen to be realized at these levels again in 2014/15 season. The biggest difference between the data of USDA and FAO is for wheat with approximately 700 thousand tons. According to FAO; wheat production amount realized by Ethiopia in 2013/14 season was 4 million tons. Consumption is more than the production in wheat and it continues to increase. The wheat consumption trend in Ethiopia is gradually increasing in urban areas due to high population growth (about 2.6 percent a year), migration of people to urban areas, and changes in life styles. Because of the price escalation of teff compared to wheat and of the ease of preparation of wheat, most middle and lower class populations are shifting to greater wheat consumption. When the consumption amounts are reviewed; it is seen that the production, which was 2,3 million tons in 2003/04 season, increased to 3,9 million tons in 2009/10 season, to 4,3 million tons in 2012/13 season and to 4,4 million tons in 2013/14 season. USDA foresees that the wheat consumption will increase to 4,5 million tons in 2014/15 season. Barley production, which was 1 million tons in 2003/04 season, increased to 1,5 million tons in 2009/10 season and 1,8 million tons in 2012/13 season. Expected to remain at 1,8 million tons level again in 2014/15 season, entire barley production is used for the domestic consumption. Domestic consumption amount is almost parallel with the production. Another important agricultural production field in Ethiopia is pulses. According to the production amounts of FAO’s estimated, official and semiofficial data; Ethiopia’s pulses production, which was 15 thousand tons in 2003, increased to 40 thousand tons in 2006 and 68 thousand tons in 2009. Declining to 65 thousand tons in 2010, pulses production reached to 68 thousand tons again in 2011 and 68 thousand tons level in 2012 and 2013. FOREIGN TRADE IN ETHIOPIA Like in other developing countries, agricultural industry is the only large industry in Ethiopia and the performance of this industry directs the performance of the entire economy. Ethiopia that does not have any other important producing power except for agricultural industry imports almost all of the industrial products. Ethiopia that cannot meet the import of the industrial products with the export income obtained from the agricultural products has a chronical foreign trade deficit. Realized as over 7 billion dollars, foreign trade deficit is expected to increase in the following years. According to the data of Economist Intelligence Unit; Ethiopia’s export, which was realized around 1 billion dollars in 2006, increased over 3 billion dollars in 2011. The export is estimated reaching to 3,3 billion dollars in 2012 and 3,6 billion dollars in 2013. Import of Ethiopia, which was around 5 billion dollars in 2006, reached to 8,3 billion dollars in 2011. The import is estimated increasing to 10,5 billion dollars in 2012 and 10,9 billion dollars in 2013. A significant part of Ethiopia’s export is based on the agricultural products. The most important export products are sesame and coffee. The export of these two products is almost half of the total exports. Fresh vegetables and dried legumes have an important place in the exports. Ethiopia exports sesame mainly to China, Israel, USA, Turkey and Jordan and coffee to Germany, Saudi Arabia, Belgium, USA and other European countries. While fresh vegetables are exported mainly to Somali and Djibouti, dried legumes are exported mainly to Sudan and UAE. A great part of Ethiopia’s imports consists of industrial products. Petroleum oil ranks first and constitutes 15-20% of the total imports with changing by years. Motor vehicles for the transport of goods, fertilizers, heavy machinery, iron and steel products and automobiles are the important industrial products imported in large amounts. Ethiopia imports mostly wheat and palm oil as agricultural products. Import of these two agricultural products has an important rate as 7-8% in total imports. The countries from to Ethiopia make exports are Somali in particular (12.9 percent), Netherlands, Germany, China, Arabia, Sudan and Switzerland. Turkey ranks 18th in Ethiopia’s exports with a share of 1,3%. China ranks first in total imports of Ethiopia in 2012 with a share of 21,4% and Arabia, India, Kuwait, Italy, Japan and Turkey follow this country respectively. Turkey’s share in Ethiopia’s imports is 4,1%. THE PLACE OF GRAINS AND FLOUR IN FOREIGN TRADE The main grain product that has an important place in Ethiopia’s imports is wheat. According to the data of FAO; the wheat amount imported by Ethiopia is around 1,6 million tons. When the country’s wheat import is reviewed by years; the import, which was 1,6 million tons in 2003, remained between 500 and 800 thousand tons between 2004 and 2007 but increased again after 2007. Reaching to the highest wheat import amount of the last 10 years in 2009 with 1,7 million-ton imports, Ethiopia continued to remain at 1,6 million-ton import amounts in 2010 and 2011. Russia and Argentina are prominent in the wheat imports. Wheat flour import differs significantly by years. For instance, according to FAO; wheat flour imports, which was 49,8 thousand tons in 2003, decreased to 89 tons in 2005. Increasing to 9,3 thousand tons in 2008, import reached to the highest level of the last 10 years in 2009 with 99,9 thousand tons. This amount decreased to 6,8 thousand tons in 2010 but increased to 45,6 thousand tons in 2011. Another important import item among grains is sorghum in Ethiopia. Although the country is an important sorghum producer, it makes imports from time to time in order to meet the domestic demand. According to the data of FAO; Ethiopia realized 250-350 thousand-ton sorghum import between 2008 and 2010. This import amount declined to 53 thousand tons in 2011. FLOUR MILLIN IN ETHIOPIA According to the data of the year 2012; there are around 210 large flour mills in Ethiopia with a total of 3.7 million tons of milling capacity of flour per year. The flour mills are able to obtain the required wheat from the Ethiopia Grain Trade Enterprise (EGTE), which controls all commercial wheat imports and makes wheat available to flour mills at a government subsidized rate. These wheat imports account for roughly thirty-three percent of the wheat market. The flour mills get the remainder of the wheat supply from the local market. The Ministry of Trade (MOT) controls the supply chain of imported wheat in urban areas through EGTE. Only 30 percent of the total 210 major flour mills in the country are getting subsidized wheat for their mills, and the price of this subsidized flour is capped by the MOT. Mills located outside of the capital prefer to buy from the local market due to lower transportation. Ethiopia has a large livestock population, but the commercial feed industry is at an infant stage, mostly located around Addis Ababa and slightly to the south. There are about 20 feed mills in the country, but most of them produce primarily for on-farm consumption. The lack of animal feed is by far the biggest constraint to the development of the livestock sector in Ethiopia.
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