Grain sector in Ethiopia

10 August 202011 min reading

Ethiopia is the second most populous country in Africa and has one of the fastest-growing economies in the world. The agriculture sector plays a central role in the country. After livestock, grain production is the second most important sector in the country’s agriculture-based economy.. MY 2020/21 wheat production is forecast to reach a record five million metric tons, while corn is projected to reach 8.6 million metric tons due to government in supplied inputs, good weather and rainfall distribution in grain-producing areas.

With about 109 million people, Ethiopia is the second-most populous nation in Africa after Nigeria. Ethiopia is one of the top performing economies in Sub-Saharan Africa. Ethiopia’s location gives it strategic dominance as a jumping off point in the Horn of Africa, close to the Middle East and its markets.

Over the last decade, Ethiopia has had one of the fastest-growing economies in the world, with an average annual growth rate of 14%. In 2019, Ethiopia’s real Gross Domestic Product (GDP) expanded by nine percent, and growth is expected to fall to 6.3 % in 2020 due to Covid-19, according to the World Bank. Factors of production in Ethiopia such as land, labor, and energy costs are low relative to African and other global markets.

Agriculture is an engine of the Ethiopian economy, employing 80% of the total population, contributing 39% to GDP, and generating 90% of its foreign currency from exports. Ethiopia’s agricultural exports are primarily unprocessed commodities, including coffee, oilseeds, pulses, live plants, and cut flowers. Ethiopia possesses a wide range of agroecological zones, arable land, and access to labor, which allow for a wide range of agricultural systems. In Africa, Ethiopia is a major producer of coffee and barley. Additionally, among African countries, Ethiopian production ranks second in sorghum, third in maize, third in wheat, and fourth in coarse grains. Finally, Ethiopia maintains the largest number of livestock in Africa.

Chinese companies, supported by Chinese export trade and project finance agencies, are active in Ethiopia and pursue projects in the infrastructure and textile sectors. Indian and Saudi Arabian firms are mainly involved in the agricultural sector. Many Indian companies have also begun to invest in the government-sponsored industrial textile parks. Dutch companies play a prominent role in the floricultural industry and Turkish companies are increasingly engaged in manufacturing, particularly textiles and garments, as well as in construction.

Agriculture is the mainstay of the economy. The agriculture sector plays a central role in the life and livelihood of most Ethiopians. The Ethiopian Government has formulated a series of policies, strategies and programs to promote agricultural development to achieve food and nutrition security and build resilience. The government has developed second Growth and Transformation Plan (GTP II) for the period 2016-2020. The overarching objective GTP II is the realization of Ethiopia’s vision of becoming a middle-income country by 2025. In GTP II, the agriculture sector is considered as one of the major sector driving growth. The plan under this sector focused on improving agricultural production and productivity and commercialization; reduce degradation of natural resources and improve its productivity; reduce vulnerability to disaster and build disaster mitigation capacity via ensuring food security.

Overall, the economic reform plan sets out required strategic interventions to boost agricultural productivity and modernization of agriculture in the next 10 years. The reform’s success in supporting Ethiopia’s economic growth in part depends on the development of the agro-processing sector (e.g. processed food, beverages, and livestock products – meat, milk, and eggs), as well as the textile/apparel and leather industries. Agro-processed products, such as chicken, cheese, butter, eggs, biscuits, bread, juice, etc. will supply the domestic market.

Some of Ethiopia's cash crops show potential for growth and offer possible investment opportunities in areas such as coffee, oilseeds, pulses, fruits and vegetables, honey, cut flowers, tea, and spices. Most of these crops are exported to generate foreign exchange. In the future, the government intends to work with the private sector to develop the capacity to process some of these commodities, like fruits and vegetables, in order to add value and capture higher export prices. To meet its agro-processing objectives, the government is building Integrated Agro-Industrial Parks (IAIP) in four pilot areas: Amhara, Oromia, SNNP, and Tigray regional states. The four industrial parks are situated in strategic locations throughout Ethiopia and were selected based on the area’s agricultural potential, infrastructure facilities (water, electricity, etc.), and regional market potential. The government aims to boost exports and trade through $1 billion of annual investment in agro-processing industrial parks to make Ethiopia a top manufacturing hub on the continent.

Commodities intended for processing include coffee, sorghum, maize, sesame, horticulture, meat and dairy, and cereals, among others. The IAIPs will include companies that export value-added agricultural products as well as those producing products for domestic consumption. Major agriculture processing potential includes cattle fattening and processing, chicken production and processing, livestock feed manufacturing, wheat-based food production (e.g. pasta, biscuits), sesame processing (e.g. tahini), soybean crushing (e.g. soybean oil and feed), sugar production and processing, juice and dairy manufacturing, as well as garments and leather goods.

As the economy grows and the population expands, consumer demand for certain types of foods is expected to increase. In particular, demand for cooking oil, sugar, meat, eggs, dairy products, wheat-based products, such as pasta and bread, alcoholic and non-alcoholic beverages, are forecast to climb upward. The increased production coming from existing and anticipated investments in the local agro-processing sector, as well as imports, are expected to help satisfy this growing demand. The expected growth from these agriculture-related industries offers numerous opportunities for agricultural input sales, such as tractors and harvesters, farm trucks, fertilizer, irrigation equipment, grain handling systems, food and livestock processing equipment, as well as cold storage facilities.

AMBITIOUS PLAN FOR WHEAT SELF-SUFFICIENCY BY 2023 After livestock, grain production is the second most important sector in the country’s agriculture-based economy. It accounts for nearly 80 percent of the land under cultivation and employs 60 percent of the rural workforce, most of which work on less than one hectare of land. Grain yields are relatively low due to the country’s rugged topography, poor land management, small-scale landholdings, irregular rainfall, limited mechanization, and insufficient supplies of fertilizer and improved seed. The government and the international community are working together to address many of these challenges.

Grain is an essential part of the Ethiopian diet. In fact, over 50 percent of the daily caloric intake of an average household is from wheat, sorghum, and corn. Households spend an average of 40 percent of their total food budget on cereals. Grain consumption, especially for wheat and wheat-based products like biscuits, bread and pasta, continues to climb as incomes rise and more people move to urban centers. The government has an ambitious plan for wheat self-sufficiency by 2023 by tapping into the huge production potential due to its various favorable agro-ecologies and through expansion of wheat production area under irrigation to achieve self-sufficiency and reduce wheat imports. The government has allocated US$5.98 million to establish agricultural machinery rental service centers in grain-producing regions to capacitate and increase the efficiency of farmers.

All grains increased yields in MY 2019/20 due to improved government extension work, increased mechanization, favorable weather conditions, timely and adequate rainfall in the western and central highlands. There is continued governmental investment in improved seeds, fertilizers supply and mechanization support. In addition, after several dry years, the short rainy season in March/April, known as the Belg, returned last year and this year. The main factor that will influence agricultural production is the long rainy season June through September, called the Meher.

Ethiopia’s grain production is complex with many different types of crops grown across the country’s different regions and eco-systems. Ethiopian grain crops are categorized as cool weather: teff (local small grain); wheat; barley; and warm weather: corn; sorghum; and millet. Most farmers depend on rainfall with a few irrigated plots in the main grain-producing areas of the northern and central parts of the country.

The government is encouraging local and foreign investors to invest in and cultivate large land plots in pastoralist and semi-pastoralist areas of the country. Nearly all commercial farms, most of which have been in operation for less than six years, are producing crops for industrial and export purposes e.g. soybeans, rice, and cotton. The government has provided low lease prices for land as well as other incentives to local and foreign investors to encourage them to develop commercial farms; however, the performance of most commercial farms has not been satisfactory due to security, infrastructure, and financial challenges. Here are some details from USDA’s latest annual Ethiopia report:

SURGE IN DEMAND FOR WHEAT Ethiopia wheat production for 2020/21 is projected to come in at a record five million tons, up by two percent over the 2019/20 production estimate. Production increased steadily between 2016/17-2019/20, while the area remained relatively stable, indicating increased yields due to improved practices, the introduction of irrigation and increased support to wheat farmers. Wheat makes up about 18% of the country’s total cereal production and is a key crop for food security.

FAS/Addis Ababa forecasts wheat consumption in MY 2020/21 to reach to 6.7 million MT, a slight increase over 2019/20 which shows that the upsurge in wheat demand we saw in years past is starting to flatten out. Rapid urbanization and high population growth coupled with a shift in food habits away from traditional foods has resulted in a surge in demand for wheat. Ten to fifteen years ago wheat was not a staple crop in Ethiopia, recently it is becoming important grain especially in the urban and periurban areas.

Ethiopia grain imports are almost exclusively limited to wheat. Nearly all wheat imports, except wheat donated for food and development aid, is done through the Public Procurement and Property Disposal Service (PPPDS) under the Ministry of Finance and includes officials from Ministry of Trade and the Ethiopian Trading and Business Corporation.

Over the past three years (2016/17-2019/20), Ethiopia imported on average 1.2 million metric tons of wheat commercially (excluding the informal import of significant wheat product) which accounted about 30 percent of the domestic consumption. The wheat imported by the government is to stabilize food prices.

All wheat imports except for food aid are purchased by the Ethiopian Government. Only designated flour mills, mostly in and around Addis Ababa can purchase the subsidized wheat at a discounted rate, then mill the wheat and sell flour at a fixed price to select bakeries in Addis Ababa and surrounding towns. Recently the government starts examining partially liberalizing the wheat import market. To do so would require allocating scarce foreign exchange to private companies.

CORN PRODUCTION Corn is the largest cereal commodity in terms of total production and yield and second in terms of area in the country. Corn production for MY 2020/21 is projected to come in at 8.6 million metric tons harvested from 2.34 million hectares. MY 2019/20 corn production is estimated at 8.5 million metric tons. Corn area and yields in Ethiopia have doubled since the early 1990s, with yields reaching more than 3.5 MT/ha, significantly higher than the East Africa average. This change happened due to improved varieties from research, hybrids seeds especially from Corteva- Pioneer and increased investment in extension systems. This has clearly shown that corn production can be a model for scaling up agricultural production through improved agricultural innovations to achieve food security.

Corn is a strategic food crop grown in 13 agro-ecological zones covering 90% of Ethiopian arable land. Smallholder farmers produce over 95% of total corn and the remaining from commercial farms. Corn alone constitutes more than 60% of the caloric intake of a typical household. This indicates the clear significance of the crop in the livelihood of most Ethiopians.

Corn consumption for MY 2020/21is projected at 8.6 million metric tons due to growing demand for food and feed. Since food security is the major development challenge in Ethiopia and corn is one of the major food sources for most of the Ethiopian population, it is one of the strategic crops in the national agricultural development plan of the country. Despite the crucial role of corn for feeding the people, it is not yet well exploited at industrial levels. Recently processing industries have emerged to start producing corn oil, snacks, and breakfast cereals.

Sources: United States Department of Agriculture

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