Ethiopia: Alleviating the shortage of agricultural products to meet the inputs of manufacturing industries
In the transition from an agriculture-led economy to an industry-led economy, agribusiness should play a crucial role in linking agriculture to industry through a linkage mechanism in upstream and downstream. In addition to this, it must play an important role in creating a market for farmers and employment opportunities for job seekers.
In order to meet this aspiration, the manufacturing sector which uses agricultural products such as oilseeds and wheat among others as inputs is flourishing, but it also faces a shortage of inputs for various reasons.
According to the recent report of the Ministry of Trade and Industry, there are more than 30 small and medium enterprises engaged in the production of edible oil, but due to the shortage of inputs in the local market, they only produce 35 percent of their production capacity.
In a meeting with stakeholders recently, Trade and Industry Minister Melaku Alebel said that to replace the import of edible oil with domestic production, his ministry is doing its best. Currently, the country’s demand for edible oil is 906.5 million liters per year and a joint venture between the government and private investors has been set up to meet the demand for the past three years. To this end, the number of refineries has increased from 14 to 30 but it is still in vain.
According to Melaku, the annual production capacity of oil refineries has increased from 89 million liters to 1.25 billion liters.
In addition, the total demand for oil increased from 5% to 40% and 4,000 new jobs were created through the extraction of edible oil in the sector. Therefore, to fill the gap, the nation annually spends a significant amount of hard currency on importing products.
Efforts are underway to alleviate the shortage of inputs in the production of edible oil in the country and for this purpose; A study on the major problems of the petroleum industry will be conducted and discussed by the Food, Beverage and Pharmaceutical Industry Development Institute of the Ministry of Commerce and Industry.
Dr Demis Chanyalew is an agronomist and works as a consultant for various institutions. In an interview with The Ethiopian Herald, he said Ethiopia can be a center of excellence on agribusiness in Africa. It has fertile land and suitable agro-ecological zones but unable to use them properly due to lack of technology and funding. As a result, most manufacturing industries import wheat and oil crops for the production of macaroni, pasta and edible oils.
When asked what mechanism should be passed on to meet the challenge, Demis said that in the first place, studying the situation of industries is vital and without investigating whether or not sufficient inputs are available locally, he it is not possible to just develop industries. Before complaining about the scarcity, it is essential to study the value chain from agricultural production to supply and agrifood processing. Moreover, instead of developing giant oil companies, it is better to support cottage industries.
As for him, during the imperial era, the artisanal edible oil industries owned by the Ethiopians were flourishing and used oil seeds obtained in local markets but for unknown reasons they were abandoned. Home industries in most countries have played a crucial role in boosting industrial development.
In Europe, private individuals produce packaged edible and cosmetic oils at home and supply them to the market.
He added that about ten years ago he had conducted studies on edible oil crops with his colleagues and according to their findings the crops especially black and sesame could gain comparative advantages in overseas markets. and get a better price. As a result, manufacturing industries faced a shortage of inputs in the local market.
On the other hand, in Gojjam and Gondar regions of Amhara Regional State, farmers prefer to produce wheat and maize rather than oilseeds because the amount of oilseed products per hectare is less than that of maize and corn. wheat from the same region. This further exacerbates the shortage of inputs for industries.
They also get a better price for their products. Farmers produce 8 to 15 quintals of oilseeds per hectare while they get more than that from wheat and maize per hectare. Because of this, farmers are changing their land use.
The other challenge encountered in the agro-industry is the cumbersome system that extends into the value chain of edible oil crops from farmers to customers.
For example, years ago, an investor who established a factory in Akaki Kaliti went to the Awi area in western Gojjam to obtain oil crops such as sesame and nigger, but he was exhausted to obtain the crops as the value chain was dominated by brokers who amass their wealth through an illicit system by exploiting farmers by setting their own price. There was a huge gap in connecting farmers to the market and to consumers.
Currently, however, in both western and eastern Gojjam, giant oil industries are established that have created employment opportunities for thousands of job seekers. Indeed, they partly use the sesame and the negro produced in the surroundings but in addition to the local inputs, they import from abroad raw materials used as inputs.
Ethiopia will allocate $ 2 billion over the next two years to import unrefined materials used as inputs for the production of edible oil and finished edible oil products, according to media sources. As for Demis, such a sum of money places a burden on the nation’s economy. Therefore, developing a better strategy is essential.
Some argue that local businessmen who have political affinities with the upper echelons have focused on the edible oil import-export trade instead of engaging in production, as it is about a lucrative business. The banks also preferred to grant loans to traders instead of granting loans to producers. Reacting to these phenomena, Demis said there was a mystifying question in this regard and that instead of encouraging local oil producers, financial institutions give loans to importers.
In fact, banks know better which lending system increases their profit margins. He further said it was sad to see oil producers facing challenges in accessing finance due to the onerous requirements, especially the provision of assets as collateral.