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NOTE ON AGRICULTURE AND FLORICULTURE OPPORTUNITIES IN ETHIOPIA

I.        General:         

The Ethiopian economy remains heavily dependent on agriculture, which accounts for 46 per cent of the GDP, 63 per cent of exports and 80 per cent of employment.  In addition to supplying food and export commodities, agriculture also supports the industrial sector by providing raw materials and generates the necessary foreign currency to purchase vital imports.  The agriculture sector, however, suffers from frequent drought and poor cultivation practices.  The Ethiopian Government has taken a number of steps to deal with these crises. Its Rural Development Strategy, Food Security Strategy and Agricultural-Development-Led Industrial Strategy have all been designed against the back drop of agriculture sector problems.  The Government made agriculture its primary priority in 1991, Ethiopia has developed and implemented its agricultural Development Led-Industrialization (ADLI) strategy.  The key concept underlying ADLI is an export-led development strategy aimed at promoting economic growth in Ethiopia while coordinating agricultural and industrial development.  Agriculture and agro-processing industries remain the top priority of the government for investment.  Recognizing that large capital investments are needed to exploit Ethiopia’s resources, various incentives are being provided to encourage foreign investment so that the agricultural sector makes a significant contribution to Ethiopia’s development.  A variety of special incentives, tax holidays, duty free imports are available to investors in this area. 

SECTOR WISE DISTRIBUTION OF GDP (2007/08):

Agriculture and agro-processing:

Ethiopia has the soil and climate for production of a variety of food crops. 146 types of crops are currently grown.  The major food crops are cereals, pulses and oil seeds. The main cereal groups include teff, barley, wheat, maize and sorghum, pulses comprise peanuts, beans, peas, chick-peas, lentils, fenugreek, soybeans, haricot beans. There are also several varieties of oil seeds.  Among major oil crops are sesame, niger seed, groundnut, rape and linseed.  Coffee, cotton, tobacco, sugar cane, tea, spices, floriculture and horticulture are the main commercial cash crops grown in Ethiopia.  The country's rainfall occurs in two distinct seasons: the 'small rains (Belg)' during February and March and the 'big rains (Meher) from June to September. 

Ethiopia has tremendous potential for investment in agro processing.  Many of its agricultural products can be exported without being processed, while others can be processed before they are brought to domestic and foreign markets. While the government encourages the export of unprocessed agricultural products, it has placed a priority on the export of processed products.  Some of the key agricultural sectors include: coffee, livestock products, oil seeds and pulses, cotton, spices, fruits, vegetables and flowers, etc.

II.       Coffee

Ethiopia is one of Africa’s leading producers of coffee Arabica (The word "Coffee" is said to derive from kaffa, a region where coffee has long been a wild crop) with annual production of around 330,000 tones.  The country produces some of the best Arabica coffee in the world.

Till 1974, coffee production, processing and trading were in the hands of the private sector.  During the Derg regime, private farms were nationalized, whereby small coffee producers got neglected.  After the overthrow of Derg regime, private entry into coffee export was encouraged with the herald of the new economic policy of 1991.  As a result, the number of private coffee exporters has

rapidly increased and nearly 90 per cent of coffee export is now in the hands of private exporters.  Coffee remains the single most important export crop, utilizing over 400,000 hectares under cultivation. It is providing 35 per cent of Ethiopia’s foreign exchange earnings, down from 65 per cent a decade ago because of the slump in coffee prices since the mid-1990s and substantial contribution of oil seeds and floriculture to the export basket.  Exports of Ethiopia’s speciality coffee (washed coffee) has grown five-fold during the last few years.  During the last year, nearly one-third of coffee exports were from washed beans. Major coffee exports are to Germany, Japan, Saudi Arabia, USA, Belgium, Netherlands, Italy and France.

The Ethiopian government launched a new coffee brand with a view to boost income of the country’s 15 million coffee farmers. The launch is seen as an innovative and radical new brand management program intended by the government to champion Ethiopia’s fine coffee export industry and the nation’s unique, distinctive coffees. It is the first time that an African nation has undertaken such a contemporary approach to developing its economy through brand management and begins a new era in Africa’s economic development and independence, according to experts in the international coffee market. While coffee professionals are very conscious of Ethiopia’s distinctiveness, there is a significant opportunity to broaden consumer awareness and appreciation of coffee brands such as Yirgacheffe, Sidamo and Harar. The new brand identity comprises a central logo for Ethiopian Fine Coffee, which takes its inspiration from the coffee bean itself, together with individual designs for each of the coffee designations. Licensees are required to feature Ethiopia’s new brand identity in their marketing as part of their licensee agreements.

Ethiopian Exports of Coffee

Source: Ethiopian Customs Authority

III.      Tea:

Tea offers another opportunity for production, processing and export.  Tea was introduced to Ethiopia in the early 1920s.  Since 1980, it has been planted on a commercial scale.  Currently there are nearly 1,500 ha. of land under  cultivation. Tea production and processing, which began with 3 tons in 1974, reached 6,525 tons by 2006, of which exports were 1,700 tons.  The agro-climatic conditions in the south-western parts of the country offer excellent opportunities for the production and processing of tea, especially for export.  There are significant areas reserved for tea plantation which are open to investors. Major tea exports are to Pakistan, Djibouti, UK, Germany, UAE, Israel and USA. The government has identified 500,000 hectares of land where soils, humidity and rainfall are ideal for tea growing. 

The Ethiopian Government announced that the newly designated farmlands for tea development are in Oromia, South Nations, Nationalities and Peoples (SNNP), Amhara and Gambella regional states.  The tea leaves are being grown currently by Ethio-Agriseft and East Africa Holdings with an annual harvest not exceeding 6,000 tons. Of the annual harvest, 4,500 tons are being consumed locally, which further undermines the potentially significant foreign currency earnings from tea. Efforts are underway, however, to boost the volume of tea exports and to increase the number of export destinations for Ethiopian tea. The number of investors, showing interest to engage in the sector, has been growing and numerous investors to engage in tea development in Ethiopia.

The Kanan Devan Hills Plantations (KDHP), an Indian company, has shown interest to invest over US$9 million in Ethiopia to develop 10,000 hectares of tea plantation.  However, the company has raised it’s concern over the subsidy element on labour housing, provision of roads, etc.  The President of Oromia Regional State visited India in March, 2008 and had a discussion with the Kenan Devan Hills Plantation.  Another company is looking at an opportunity at Gambella.

Ethiopian Exports of Tea  

Source: Ethiopian Customs Authority

IV.     Oil Seeds, Pulses and Spices:

Oil seeds, Pulses and Spices, which were insignificant in generating export revenue in the past have now become the second largest source of Ethiopia's foreign currency earning (the first one being coffee) contributing significantly for the achievement of the country's high economic growth over the last three successive years. Coffee's historical place in the Ethiopian economy is being rivaled by oil seeds, and particularly sesame.  Ethiopian sesame seeds are of three types.  Humera type:-Whitish, 50-55%oil content, Wellega type:-with oil content 47-50% and Reddish sesame seeds, content is almost the same with mixed variety.  Ethiopia dominated more than half of the total import of sesame seed to China.  Rapeseed, linseed, groundnut, sunflower, niger seed and cotton seed serve as raw materials for the domestic edible oil industry.  Some oil seeds, including peanuts and sesame are important export crops. Favorable agro-ecological conditions exist for introducing coconut for the production of palm oil.  Ethiopia also has the potential for producing and processing maize.  Production of spices is an important area to cater to the domestic and the export market.  Spice-bearing plants are cultivated in the Southern and South-Western parts of the country.  Ethiopia exports significant quantities of spice such as ginger, cardamoms, red pepper, coriander, etc. to Sudan, Yemen, Saudi Arabia, UAE, Djibouti and Egypt.  Oil seeds, pulses and spices which generated only 122.7 million USD in 2003/04 went up over

Ethiopian Exports of Oil seeds, Pulses and Spices  

Source: Ethiopian Customs Authority

Constraints: 1. According to the Edible Oil Producers Association, the industry suffers from shortage of raw materials, production and market.  Oil seeds like sesame are in high demand in the world market and get exported instead of being processed here at cheaper labor cost. Peanut oil could be exported but there is no facilitating agency for export of this product.

Constraints:   2.Problems in the spices processing industry includes limited supply of raw materials, high prices of ingredients used in processing, and inconsistency in the quality of spices processed.  Use of old machinery in processing caused low productivity and technical problems. There is need for diversification of processed products. There is lack of sustainable market due to low quality of the products and high competition at local level with similar available products.

V.      Cotton:

Cotton is another important crop grown in Ethiopia.  Large scale production under irrigation is carried out in the Awash valley where there are about 50,000

ha. under cotton cultivation.  Small-scale farmers cultivate another 42,000 ha. of cotton.  There is a huge potential for the expansion of cotton cultivation especially in the Omo-Gibe, Wabi Shebelle, Baro Akobo, Blue Nile and Tekeze river basins.  Cotton production is well integrated into the rest of the economy with a large number of textile and garment factories relying on domestically produced cotton.  Thus, there are significant opportunities for the production and processing of cotton in Ethiopia. 

V.      Floriculture:

Floriculture has become a flourishing business in Ethiopia in the past five years.  According to the Ethiopian Horticulture Producers and Exporters Association, Ethiopia’s flower business could one day overtake coffee, its main export commodity.  A score of investors from the Netherlands, Germany, India and Israel have secured licenses for floricultural development. The number of flower growers is expected to increase five fold in the near future due to the migration of flower producers from Kenya to Ethiopia.  Kenya is currently the biggest supplier of flowers to Europe and is closely followed by Ethiopia.  Ethiopia flower exports generated 138 million dollars in 2008/09.  The Ethiopian Horticultural Producers and Exporters Association stated that Ethiopia will earn an annual foreign currency of US$600 million in the coming five years as the demand for the country’s flower is increasing in the global market.

Ethiopian Exports of Flowers

Source: Ethiopian Customs Authority

Ethiopia has the following advantages in floriculture commercial farming:

Climate: The appropriate climate gives Ethiopia the potential to achieve very high growth rates of flower cuttings and to produce very high yields of small roses which meets the European market demand.

Low Unit Production Costs: Ethiopia has a small cost advantage over neighboring countries, although the benefits of these low costs depend on maintaining quality standards. 

Technical and Financial Support: Bank loans are made available for both local and foreign investors.  Land is prepared ahead and it would take investors only a couple of days to engage in production.  Besides, lease prices of land are very cheap and investors enjoy the advantage to get the land in the area of their preference.  Foreign companies engaged in floriculture investment in Ethiopia are exempted from tax for three years after the commencement of their projects.

VII.    Horticulture:

Ethiopia’s exports of fruits and vegetable have been steadily growing. Most fruits and vegetables can grow well in Ethiopia due to the variety of altitudes and microclimates, the long growing season and accessible irrigation sources.  The Ethiopian Government encourages companies with experience in agro-processing to invest in this sector.  Current horticultural crops include citrus, banana, mango, papaya, avocado, guava, grapes, pineapple, passion fruit, apple, potato, cabbage, cauliflower, okra, egg plant, tomato, celery, cucumber, pepper, onion, asparagus, water melon, sweet melon, carrot and green bean. 

Although most of Ethiopia’s fruits and vegetables are grown for local consumption, there are categories for export as well.  Ethiopia, for instance, exports large quantities of fresh fruits and vegetables to Djibouti.  Ethiopia sells some processed fruits and vegetables to Yemen, Saudi Arabia and other Middle Eastern countries.  The two most important products are orange and tomatoes.  However, inadequate and irregular supply of imported packaging materials is a major constraint in this area. 

The most important fruit and vegetable exports from Ethiopia, however, are the high-value fresh produce grown mainly on state plantations and sold primarily to Europe. Most of these products are sold through the government-owned Ethiopian Fruit and Vegetable Marketing Enterprise (Etfruit), which collects the fruits and vegetables from several state plantations and large private farms, transport them to Germany, Italy and the Netherlands.  Major exports are green beans, tomatoes, mangoes and papayas. 

In recent years, new private growers have started exporting vegetables to the Middle East and Europe.  The share of these private sectors is still quite low. 

Constraints:   The horticulture sector suffers from various constraints in the areas of supply, processing and market. Locally produced fruits and vegetables lack the desired quality and are not sufficiently available. There are inadequate research activities to improve productivity of existing varieties.  Poor technology and low productivity of workers leads to high production cost. Capital limitations have hindered efforts to establish modern horticulture processing factories and expand existing ones. There is lack of suitable packaging materials like small cans and jars and convenient storage facilities before the fruits and vegetables are processed. For greater access to foreign markets, there is failure to meet the required quality and standards, lack of market information and networking systems.

Ethiopian Exports of Fruits and Vegetables 

Source: Ethiopian Customs Authority

VIII.   Sugar

Sugar is an area which offers potential for production to meet the local needs and also for export. At present there are three large-scale sugar estates in the country.  They have a combined production capacity of about 280,000 tons per year.  Tirupati Sugar Industries PLC, an Indian company which received a license from the Oromiya Investment Bureau for the construction of a sugar factory, has started planting sugar-cane.  The company received 11 hts. of plot in Sire, in eastern Wollega, 520 km far from Addis Ababa during the year 2003.  New sugar factories and expansion development works are also underway at a cost of US$1.5 billion which, Ethiopian government hopes will secure a 2.5% share of the global sugar market upon completion. India and Ethiopia agreed on a US$640 million line of credit on July 5, 2007 in Addis Ababa during the visit of H.E. Mr. Pranab Mukherjee, External Affairs Minister of India.  India will give the loan in the next five years to support Ethiopia’s sugar industry. H.E. Mr. Mekonnen Manyazewal, State Minister of Finance and Economic Development, visited New Delhi and signed an agreement with EXIM Bank on 4.10.07 for release of US$122 million, representing the first tranche of US$640 million LOC.

A delegation from Rana Sugar Limited and Chada Group visited Ethiopia to explore the possibilities to invest in sugar development in Oromia Regional State. 

Ethiopian Exports of Sugar

Source: Ethiopian Customs Authority

Agricultural development is the top priority of the Ethiopian Government and the country has witnessed sizeable growth in agricultural productivity over the last few years.  The country lacks the technology for agricultural development and also an agricultural marketing system.  The provision of agricultural inputs such as fertilizers, improved seeds and pesticides are also important.  Other agricultural support services such as technical consultancy, agricultural machinery, cold storage transport and marketing services offer considerable scope. 

According to the figures obtained from the Ethiopian investment Commission, one hundred Indian companies have received investment licenses worth US$2.4billion for investment in agriculture sector, of which some are already at project implementation stage.              

India has good scope to enhance its agricultural import from Ethiopia as growing complementarily in Indian demand and Ethiopian supply are emerging, great focus on improved post-harvest management, sustainable supply and improved and standardized quality can engage the interest of Indian importers.

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November 2009

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