Ethiopia is a landlocked country split by the Great Rift Valley. It is located in the Horn of Africa, bordering six (6) countries: Djibouti and Somalia to the East, Eritrea to the North and Northeast, Kenya to the South and Sudan and South Sudan to the West. With a population of 94 million (2013) growing at annual rate of 2.5% in 2014, Ethiopia is the second-most populous country in Africa (Moller, 2016). The country is the place of origin for the coffee (Arabica) bean and sometimes referred to as the land of natural contrasts, home to vast fertile West, jungles, and numerous rivers, and also the world’s hottest settlement of Dallol in its North. The real gross domestic product (GDP) growth averaged at 10.9% between 2004 and 2014, which has leapfrogged and positioned the country to become a middle-income country by 2025, after being the second poorest country in the world in 2000 (Moller, 2016). Powered by considerable public infrastructure investment, Ethiopia has witnessed a rapid and stable economic growth, in addition to a decrease in poverty to 30% from 44% in the past decade. Role Agriculture in Ethiopian economy Agriculture is the mainstay of the Ethiopian economy, contributing 41.4% of the country’s gross domestic product (GDP), 83.9% of the total exports, and 80% of all employment in the country (Matousa, Todob, & Mojoc, 2013). Put in perspective, Ethiopia’s key agricultural sector has grown at an annual rate of about 10% over the past decade; much faster than population growth. Other important sectors are service and industrial sectors contributing 43% and 15.6% respectively (The World Factbook, 2016). On agriculture expenditure related metric, Ethiopia has dedicated an annual investment of about 14.7% of all government spending to the agriculture sector since 2003. Ethiopia is among the few African countries that have consistently met both the African Union’s Comprehensive Africa Agricultural Development Program (CAADP) targets of 10% increase in public investment in agriculture by the year 2008 and boosting agricultural production growth by 6% at least by 2015. Although agriculture is one of Ethiopia’s most promising resource, the sector has been slowed down by periodic drought, high levels of taxation and poor infrastructure that often make it hard and expensive to get goods to market. Also, overgrazing, deforestation and high population density has led to massive soil degradation leading to low productivity. The above problems have made it hard for the country to feed itself—best exemplified by the dramatic 1984-85 famine. Since then, the country has experienced similar occurrences that expose a sizeable population to humanitarian needs. As things stand, over 3 million Ethiopians need food and other humanitarian assistance annually (SIDA, 2015). However, a critical look at the sector shows a high potential for self-sufficiency in grains and also for the development export especially for livestock, vegetables, fruits and grains. Further, many other economic activities depend on agriculture. These include processing, marketing and export of agricultural products among others. Sectoral overview Ethiopia has about 51.3 million hectares of arable land. However, just over 20% is currently cultivated, mainly by the smallholders. Over 50% of all smallholder farmers operate on one (1) hectare or less. Smallholder producers, which are about 12 million households, account for about 95% of agricultural GDP. Agricultural production is mainly subsistence, and a large portion of the country’s commodity exports is provided by the small agricultural cash-crop sector. Key agricultural sectors Coffee & tea; Ethiopia has a great potential for coffee production, thanks to the country’s abundant rainfall, optimum temperatures, conducive altitude and fertile soil. Over 60% of Ethiopian coffee is produced as forest coffee, and therefore the use of fertilizers is usually unnecessary as the falling leaves enrich forest floor. Also, the use of chemicals such as pesticides, fungicides among others is limited since the high genetic diversity in the forest creates a balance between parasites and pests (Ethiopian Coffee Exporters Association, 2016). Ethiopia is Africa’s largest coffee producer, and the fifth world’s producer contributing some of the world’s finest coffees. The country accounts for over 3% of the global coffee market. Coffee is by far the country’s largest foreign exchange earner. In 2013/14, Ethiopia exported 190,734 metric tons earning US$ 749 million. Some of the major destinations of the Ethiopian coffee are Germany, Saudi Arabia, Japan, USA, Belgium and France, importing over 70% of the country’s total coffee exports (Tefera, Abu, 2015). While Ethiopia has a potential to grow all types of tea, the country produces only black tea, with a production capacity of 7,000 tons of black tea per annum. According to the country’s ministry of industry, the tea industry has been lacking investment (Ethiopia’s Ministry of Industry, 2016). Thus, investment potential exists in large-scale commercial tea production as well as modern tea packing and blending industries. Cereals; In FY 2014/15, cereals’ overall agricultural production increased by 45% (EUBFE, 2015). Maize, for instance, is one of the most important crop in Ethiopia of which the country is Africa’s second biggest maize producer. Mainly grown in SNNPR and Oromia regions in about 1.77 million ha. Other important cereals are wheat and barley mainly in Oromia and some parts of Amhara Regions in about 1 million ha and 1.4 million ha respectively. There are also opportunities for wheat production under irrigation in the SNNPR, Afar, Gambella and Somali Regions. Livestock & Fishery sector; Ethiopia’s livestock population is believed to be the largest in Africa, and tenth in the world. The sector accounts for about 10% of Ethiopia’s export income, with leather and leather products making up 7.5% and live animals 3.1%. The country is home to about 49 million heads of cattle, 22 million heads of goats, 17 million heads of sheep and 38 million chickens. The country also has demonstrated potential for fishery development in its freshwater lakes, reservoirs and rivers. Other investment potential areas in this sector include fish, milk & meat processing, raising and fattening of sheep, goat, cattle and camel (Ethiopia’s Ministry of Industry, 2016). Ethiopia’s Investment potential Ethiopia’s economy is growing with a wide range of opportunities for investment. However, Ethiopia remains an unexploited market and untapped for investors. Out of the total investment projects approved between 1992 and 2012, FDI’s share accounted for about 15.8%, with China, India, Germany, Italy, Sudan, Turkey, Saudi Arabia, Yemen, the UK, Israel, Canada and the US being the major source of FDI. While that was a great progress going with the country’s history, there has only been a slight increase since 2012 both in the total number of projects and capital invested (Ethiopian Investment Commission, 2015). The country’s continued public investments in infrastructure is remarkable as well as its new industrial policy geared towards diversification and transformation of the economy (EUBFE, 2015). Ethiopia has competitive advantages in agriculture and agro-processing and sugar owing to the country’s favorable climatic conditions and types of soil suitable for the production of a variety of crops. The conditions are suitable for growing major food crops such as cereals, pulses, and oilseeds. Some of the sectors that also have great potential for investment include organic coffee cultivation, sugar cane, tea and spices, cotton (and textile), a broad range of fruits and vegetables and cut flowers. Ethiopia’s competitive market access Apart from a population of around 94 million people (2013) positioning Ethiopia as potentially one of Africa’s largest domestic markets, the above sectors are equally suitable for the fast-growing export market. By virtue of being a COMESA member, bringing together 19 countries with a total population of 400 million, Ethiopia also has preferential market access to these countries. The country’s closeness to the Middle East also gives potential market opportunities in addition to qualifying for preferential access to the EU market under the EU’s Everything-But-Arms initiative and to the US markets under the AGOA and the Generalized System of Preference (GSP). Ethiopian products have access to these markets quota and duty-free. Erickson Oduya, Research Associate at Infomineo – Know more about Erickson References Agricultural Transformation Agency. (2015). Annualy Report, 2013/14: Transforming Agriculture in Ethiopia. Addis Ababa: ATA. Retrieved from http://bit.ly/2anaCE8 Ethiopian Coffee Exporters Association. (2016, July 24). Major Growing Areas. Retrieved from ECEA: http://bit.ly/2agk7WM Ethiopian Investment Commission. (2015). Ethiopia: A Preferred Location for Foreign Direct Investment in Africa. Addis Ababa: Ethiopian Investment Commission. Retrieved from http://bit.ly/2a5fIUw Ethiopia's Ministry of Industry. (2016, July 24). Agricultre Sector Investment Opportunities. Retrieved from Ministry of Industry: http://bit.ly/2aiahov EUBFE. (2015). Ethiopia Economic and Trade Report. Addis Ababa: European Business Forum in Ethiopia. Retrieved from http://bit.ly/2a1uQY6 Matousa, P., Todob, Y., & Mojoc, D. (2013). Roles of extension and ethno-religious networks in acceptance of resource-conserving agriculture among Ethiopian farmers. International Journal of Agricultural Sustainability 11(4) , 301-316. Moller, L. C. (2016). Ethiopia’s Great Run: The Growth Acceleration and How to Pace It. Washington, D.C.: World Bank. Retrieved from http://bit.ly/29HrOTI SIDA. (2015). Ethiopia's Humanitarian Crises Analysis. Addis Ababa. Retrieved from http://bit.ly/29S64Iv Tefera, Abu. (2015). Ethiopia Coffee Annual MY15/16. USDA FAS. Retrieved from http://bit.ly/1FJj345 The World Factbook. (2016, July 11). Ethiopia Country Profile. Retrieved July 15, 2016, from http://bit.ly/1yAYHLA
This article is the second in a series that seek to examine the role of agriculture as a developmental opportunity for Africa. It focusses on Ethiopia and provides a broad overview of some of the key developments in agriculture. It features and analyzes the country’s agricultural progress from 1960s to date, and some future prospects. The paper aims to provide various stakeholders with a deeper understanding of Ethiopia’s dynamics of agriculture, both from a public and private sector perspective. Background Ethiopia is one of the Africa's fastest growing economies. The country’s growth originates from manufacturing, construction and agriculture-related industries. Although periodic drought and massive soil degradation have previously plagued the country’s agriculture, the sector remains the backbone of the country’s economy. Agriculture still accounts for up to 80% of total labor force, 84% of exports and 46.3% of gross domestic product (GDP). Additionally, other numerous economic activities rely on agriculture, including processing, marketing and export of agricultural commodities. Introduction Ethiopia has huge agricultural potential owing to the country’s diverse climate, largely adequate rainfall, its vast fertile lands and a large pool of affordable labor. Unsparingly, the Exports are almost entirely agricultural commodities, with coffee being the largest foreign exchange earner. The country is also Africa's third largest producer of maize.Agriculture remains one of Ethiopia’s most important and promising sector. However, the production has remained subsistence with the bulk of commodity exports coming from the smallholder agricultural farmers. The major crops include coffee, cereals, pulses, oilseeds, potatoes, sugarcane, and vegetables. These crops come from farmers holding an average of 1.2 hectares of land, 55 percent of whom holding less than one (1) hectare. Despite the enormous potential, Ethiopia’s agricultural sector remains underdeveloped. The sector is synonymous with low productivity, low level of technology as well as weak infrastructure. The above problems are exuberated by the ever increasing population which means more encroachment into the potentially agricultural land. The scenario has seen the agricultural underperform over time. A case in point is between 1981 and 1990 when agricultural production consistently dropped while the population grew. The result of which plunged the country into a tragic famine that claimed nearly 1 million people between 1984 and 1986. Factors that contributed to the underdevelopment of Agriculture in Ethiopia There are factors that contributed to the underdevelopment of the country's agriculture during the imperial period, some of which persist to date. Firstly, the neglect of the sector by the government. While significant progress is being made to revamp the sector, agriculture was heavily underfunded in the previous regimes with less than two (2) percent of the national budget dedicated to agriculture. While the current funds allocation is commendable—with the sector currently receiving about 15 percent of the national budget—spending is still insufficient to meet the sector’s needs.Secondly, the tenancy and land reform remained a thorny issue in the country for a long time. The previous regimes failed to implement significant land reform thereby tolerating a perpetuated system in which the church and aristocrats owned large tracts of the farmland. A Large number of farmers were tenants providing as high as 50% of their crops as rent. Thirdly, agricultural productivity remained low in most parts of the country, making the sector largely subsistence. Lastly, there was the lack of technological development in the previous regime, a trend that is slowly changing. Key agricultural sectors There are a number of crops that have remained consistently important in country’s agricultural sector. These include both the staple food and cash crops. Grains Consisting of cereals and pulses—are the most important crops and the main component of the diet of most Ethiopians. The most common grains include: are teff, maize, sesame, wheat, barley, sorghum and millet. All of these crops are mainly rain fed, and smallholders produce up to 94 percent of the food crops, while the state and private large commercial farms produce the remaining 6 percent of food crops. Sesame It's Ethiopia’s 2nd largest cash export crop behind coffee. Sesame accounts for over 90 percent of the total oilseeds’ export earnings and 19 percent of total export earnings, earning more than US$ 200 million annually. The rising global demand for Sesame has seen this previously domestic consumption commodity into an important export crop. In less than a decade, Ethiopia moved from being a minor producer to one of the world’s top five producers of sesame. Ethiopia supplied more than 10 percent of the global raw sesame seeds, making the country one of the world’s leading exporters of the sesame seed. Investment opportunities Up to 95 percent of Sesame seeds are mainly exported raw, due to limited domestic processing capacity in Ethiopia. If all the 320,000 tons of Sesame seeds exported in 2012 were hulled, additional US$ 64.6 million in export revenue would have been generated.The situation presents a significant opportunity for investment in Sesame hulling and other value addition facilities. Currently, consuming markets such as the US and Mexico mainly demand hulled sesame, which leaves the country’s exporters unable to meet the requirements. Teff Touted as the world’s super-food especially in North America and Europe—is indigenous to Ethiopia, mainly used to furnish the flour for enjera, a sourdough bread, the principal form in which grain is consumed. The crop accounts for the largest share of Ethiopia’s cereal area under cultivation. Teff is mainly grown as a cash by most farmers, with Ethiopia and Eritrea being the only producers in the world. Investment opportunities It is estimated that the Teff retails at over 10 times in the US markets than it does in Ethiopia. However, there are no large-scale Teff milling companies, most buyers in the central markets are retailers and small millers that eventually sell to consumers in Addis. Putting up a modern commercial milling or processing company targeting Teff export market could potentially gain from his fast-growing sector. Coffee Ethiopia accounts for 7% of the World's Arabica Coffee production, ranking among the World's largest producers of Arabica Coffee—a species that represents approximately 70% of the world's coffee production. Up to 95 percent of the Ethiopia’s coffee come from smallholders, and mainly grown in three regions: Ghimbi, Harrar and Sidamo.Primarily, coffee is an exportable commodity that earns Ethiopia valuable foreign exchange. Coffee exports were estimated at 235,000 ton in the 2014/2015 fiscal year, with a revenue of US$862 million. Domestically, the coffee market is also vibrant although often affected by high price variations from season to season. Coffee price variations are in most cases caused by surplus production in the country as well as the demand and supply in the global coffee market. Horticulture Most regions of Ethiopia have a favorable climate, adequate land and water resources for the production of wide variety of vegetables, fruits and flowers. The country’s vegetable export products include green beans, lettuce, green chilies, potatoes, melons, white and red onions, beetroots, carrots and tomatoes among others. Exportable fruits are oranges, mangos, guavas, lemons and mandarin grapefruits among others. Cut flower exports are roses, statice, alliums, and carnations. The export volume of horticultural products is growing. The flower industry, for instance, did not exist until 2005 but today, Ethiopia is the second largest supplier of roses globally. In 2004/05, the value of Ethiopia’s horticulture exports was US$ 25.8 million. In 2013/2014, the value of Ethiopia’s horticulture exports reached US 245 million, 760 percent up from the US$ 28.5 million recorded in 2004/05 and created about 180,000 employment opportunities in the country. The flowers make up to 60 percent of the horticultural trade, and over 80 percent of the value of the flower trade comes from the trade with the Netherlands.Fruits and vegetables account for the remaining 40 percent of the horticultural trade with over 30 percent destined for Somalia. Investment opportunities Ethiopia has a diverse variety of flowering plants. Cut flower and vegetable production are fast growing export businesses, which is a great promise. However, only 25 percent of the areas identified for horticultural development is currently developed, meaning that there is still a US$ 750 million untapped export revenue through the development of the remaining horticultural land areas. Livestock Ethiopia is Africa’s leading exporter of livestock, and one of the top ten leading global producers. In 2013, the country was home to over one hundred million livestock, consisting of 54 million cattle, 26.5 million sheep, 25 million goats and 0.925 million camels. Currently, Ethiopia supplies the global market with mainly semi-processed products such as hides and skins. The animal husbandry methods are largely traditional, rendering the output per unit of livestock very low. Investment opportunities Traditional methods of animal husbandry that is currently common in the sector present an investment opportunity for the establishment of modern commercial livestock breeding, production and processing of livestock products such as meat, milk and eggs. Government efforts The Ethiopian Government has put up mechanisms to fast-track reforms in the agricultural sector. The efforts aim to reverse some of the sector’s negative impacts witnessed in the previous decades. For instance, the government has set up a Growth and Transformation Plan (GTP) with the aim of reaching certain goals between 2011 and 2015.The plan targets achieve an 8.1 percent annual growth in the market during the time frame. The plan included programs aimed at augmenting smallholder farmers’ productivity, increasing the volume of irrigated land, upgrading participation of private sector, enhancing marketing systems, and reducing the amount of households with inadequate food. Another key aspect of the transformation plan is to see the production of selected key crops doubled from to about 40 million tons during the period. The road networks are being improved, across the country with the aim of boosting faster market access for rural farmers. Besides, the private sector such as the commercial banks have also come on board to provide annual credit for the purchase of farm inputs to the smallholders. In a shift towards market-oriented agriculture, the government has introduced national business plans for specific export crops. Also, the government has also moved to encourage international investors to set up in the country. The government has moved to encourage the selling of land for setting up flower firms, with policies to generate growth, such as five-year tax breaks and duty-free import of machinery. Source: Netherlands Space Office, 2014. Quick Scan Ethiopia. Retrieved June 11, 2015 from https://bit.ly/1IXZXxa. USDA, 2015. Foreign Agricultural Service: Production, Supply and Distribution. Retrieved June 11, 2015 from https://1.usa.gov/1cjol7M. Zuberi. M. I., T. Gosaye and S. Hossain, 2014. Potential threat of alien invasive species: parthenium hysterophorus l. to subsistence Agriculture in Ethiopia. Sarhad J. Agric. 30(1): 117-125. Retrieved June 11, 2015 from https://bit.ly/1FiMxV0. USAID/Addis Abbaba, 1987. Final Disaster Report: The Ethiopian Drought/Famine for Fiscal Years 1985 and 1986. Retrieved June 12, 2015 from https://1.usa.gov/1cW917k. ACCORD, 2014. Putting Small-Scale Farming First: Improving the National Agriculture Investment Plans of Burkina Faso, Burundi, Ethiopia, Rwanda and Tanzania. Retrieved June 12, 2015 from https://bit.ly/1G88Ddm. Lombardi, Annie 2013. Ethiopia: Managing water and adapting farming practices to provide food security. Retrieved June 12, 2015 from https://bit.ly/1JQ4Loz. Atsbaha Gebre-Selassie, 2012. A Review of Ethiopian Agriculture: Roles, Policy and Small-scale Farming Systems. Retrieved June 12, 2015 from https://bit.ly/1Siis16. Author’s calculation based on FAOSTAT data, accessed on June 12, 2015 from https://bit.ly/QIPNHr. Author’s analysis based on FAOSTAT data, accessed on June 12, 2015 from https://bit.ly/1IyWFxm. The Guardian, (2015). Move over quinoa, Ethiopia's teff poised to be next big super grain. Retrieved June 12, 2015 from https://bit.ly/1eURBn8. FAO, (2013). Analysis of Incentives and Disincentives for Teff in Ethiopia. Retrieved June 12, 2015 from https://bit.ly/1TgdnrB. [11bis] Index Mundi from http://www.indexmundi.com/agriculture/?commodity=green-coffee&graph=arabica-production ECX, (2015). Commodity Briefs: Coffee. Retrieved June 11, 2015 from https://bit.ly/1IwzILn. Ethiopia GP, (2015). New: Ethiopian Coffee Exports to Hit Record in 2015. Retrieved June 11, 2015 from https://bit.ly/1GuZ7pa. Deloitte, (2014). Ethiopia: A growth miracle. Retrieved June 12, 2015 from https://bit.ly/1MvkrLE. Ethiopian Embassy in Brussels, (2015). The 6th international horticulture exposition Conference: 25th - 28th of March 2015 in Addis Ababa. Retrieved June 12, 2015 from https://bit.ly/1C2Fn7e. Author’s analysis based on ITC Trademap data, accessed on June 11, 2015 from https://bit.ly/1INdszS. Analysis based on Ethiopian Horticulture Producers Exporters Association data, accessed on June 11, 2015 from https://bit.ly/1KK2VF1. Analysis based on FAOSTAT data, accessed on June 11, 2015 from https://bit.ly/1MLO4ZG. MoFED, 2010. The Federal Democratic Republic of Ethiopia Growth and Transformation Plan (GTP) 2010/11-2014/15, accessed on June 11, 2015 from https://bit.ly/1J1dbJy.
During my recent 5-day market study in 'Addis Ababa, Ethiopia,' focusing on the beauty and personal care products sector, I uncovered fascinating business insights and aspects of Ethiopian culture that were new to me and are certainly worth sharing. Ethiopia is a landlocked country located in East Africa. It is the 10th largest country of the continent with a total area of 1,104,300 square km. It has a population of more than 85 Million, with more than 50% of it aged bellow 20 years old. Agriculture is the backbone of the Ethiopian economy with 90% of the population earning its living from the land. The country main agricultural export is Ethiopian coffee, for which it is internationally renowned, and the local currency is the Ethiopian Birr (1Euro=26 Birr). (more…)