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Competitiveness of the Ethiopian Agriculture with Emphasis on Selected Products: Pulses, Oil crops F

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Title: Competitiveness of the Ethiopian Agriculture with Emphasis on Selected Products: Pulses, Oil crops F


1
Competitiveness of the Ethiopian Agriculture with
Emphasis on Selected Products Pulses, Oil crops
Fruits Vegetables and Flowers
  • Prepared for the National PSD Conference on the
    Competitiveness of the Ethiopian Private Sector
    New Challenges and Opportunities
  • Organized by the AA Chamber of Commerce and
    Sectoral Association, June 30, 2009, Addis Ababa.
  • Berhanu Adenew

2
Outline
  • Background
  • motivation and methods
  • Concepts and Tools of Analysis
  • Ethiopian Agriculture overview
  • Competitiveness of selected commodities
  • Pulses
  • Oil crops
  • Fruits
  • Vegetables
  • Flowers
  • Summary and recommendations

3
Background motivation
  • Evidences show that an increasing number of
    developing economies have benefited from
    integration into the global
  • economy through export growth and
    diversification.
  • Why focus on these selected export commodities?
  • They are (except flowers) has been among
    traditional export items
  • These are primary commodities that could be
    easily produced and exported
  • Ethiopias potential for export commodities
    development
  • Ethiopia being among 8 countries of high
    potential for crop diversification (rich in
    bio-diversity),
  • favorable climate, moisture,
  • large arable land (50 of land mass)
  • However, export products quantity and quality not
    adequate
  • Volume .??
  • Value .??
  • Share in total agric. production efforts.??

4
Background motivation
  • The country could have earned better income from
    export through value-adding/processing,
    diversification.
  • Even for the traditional commodities like coffee,
    the largest share is exported as a primary good.
  • the question of
  • what is lacking, hindrances?
  • How would the private sector engage to improve
    the sub-sectors for higher benefit?
  • How would similar policy and technical supports
    in other commodities, as in floriculture, be
    facilitated?
  • The quest for competitiveness is not the private
    sector issue alone, rather also public.

5
Objectives and methods
  • The objectives of the study are
  • To assess the competitiveness of selected
    agricultural export products and
  • To propose strategic direction that the organized
    Ethiopian private sector should adopt in its
    engagement with policy makers.
  • Methods and data The approaches employed by this
    study are
  • Extensive desk review,
  • Interview of experts and stakeholders
  • Managers and experts
  • Pulses and oil crops producers and exporters
    association
  • Horticultures producers and exports association
  • Horticulture Development Agency (Gov.)
  • Producers, individual traders.
  • Pulses, oil crops, Flowers
  • The concept of Porters diamond, and value chain
    analysis were assessed.

6
Methods and data .
  • Exploration of secondary data from various
    sources
  • 1. Volume and value of export (1980 -2009) for
  • pulses, oil crops, fruits and vegetables and
    flowers (for flowers from 2004 2009)
  • Compiled by the Eth. Customs Authority
  • International trade centre data on Trade
    Competitiveness Map (2002-2006).
  • The CSA statistics
  • Others
  • The secondary data used in the study were
    analyzed using tabulations, graphs and
    descriptive statistics.

7
Other sources of data and information
  • Literature various studies
  • Reports and documents of producers and exporters
    associations, Horticulture Development Agency.
  • Ethiopia Regional trade potential (Transaction
    costs, grain production and comparative)
    advantage (EDRI, Nov. 2005).
  • Study on business opportunities in the Ethiopian
    vegetable sector, 2009.
  • Ethiopia Trade and Transformation, diagnostic
    trade integration study, 2004.
  • Constraints and opportunities of Horticultural
    Production and marketing in Eastern Ethiopia,
    2007.
  • Ethiopia Investment and Innovation policy review
    (incl. comparative international position of Eth.
    Economy, case study of Horticulture) (UNCTAD,
    2002).
  • UNCTAD Export competitiveness and development in
    LDCs policies, issues and priorities for least
    developed countries for action during and beyond
    UNCTAD XII, 2008.

8
Concepts and tools
  • Michel Porters Competitive Advantage of nations
    Diamond Model
  • The model helps to understand the competitive
    position of a nation or geographic regions in
    global competition.
  • Traditionally, Land, Location, Natural Resources
    (mineral, energy), Labour, and local population
    size are considered as factors of comparative
    advantage,
  • However, Porter argues that abundance of these
    factors can undermine countrys competitive
    advantage.
  • Because these factor endowments can hardly be
    influenced, this fits in rather passive
    (inherited) view towards national economic
    opportunity.
  • He introduced the concept of
  • Clusters or groups of interconnected firms,
    suppliers, related industries, and institutions
    that arise in a particular location.
  • As a rule competitive advantage of nations has
    been the outcome of four interlinked advanced
    factors and activities in and between companies
    in these clusters.
  • This can be influenced in a proactive way by
    government.

9
Michel Porters Competitive Advantage of nations
Diamond Model
10
Concept diamond model.
  • Firm strategy, structure and rivalry dynamic,
    direct competition that impels firms to work for
    increase in productivity and innovation.
  • Factor conditions Porter argues that key factors
    (specialized factors) of production are created
    not inherited. Specialized factors of
    production are skilled labour, capital and
    infrastructure (examples of countries UK, Japan,
    others).
  • Non-key factors (general use factors) like
    unskilled labour, raw materials, etc can be
    obtained by any company and do not generate
    sustained competitive advantage.
  • The specialized factors involve heavy and
    sustained investment, and are not easy to
    duplicate. This leads to competitive advantage as
    others may not easily obtain these factors.

11
Concept diamond model
  • Related and supporting industries spatial
    proximity of upstream and downstream industries
    facilitates the exchange of information and
    promotes continuous promotion of ideas and
    innovation.
  • Demand conditions the more demanding the
    customer in an economy, the grater the pressure
    facing the firms to constantly improve their
    competitiveness via innovative products and
    quality.
  • Government the role of government is to act as
    catalyst and challenger. It (must) encourages
    and even pushes companies to raise their
    aspirations for higher competitive performance.

12
Concepts
  • How would value chains create competitive
    advantage?
  • Cost competitiveness
  • Quality
  • Time to satisfy customer orders
  • The capacity to make minor and frequent changes
    (through continuous improvement)
  • The capacity to make more fundamental changes to
    products and processes

13
Concept diamond model
  • Lesson and implications for the private sector
  • Need for change in mind set.
  • That it is possible to create competitive
    business environment, out of the traditional way
    of thinking (not constrained by natural resources
    basis).
  • Dynamism, institutional engagement needed.

14
Factors that Contribute to Ethiopias
Competitiveness
  • The UNCTAD study report (2002) summarizes, in
    general,
  • Political environment
  • Government committed for private sector
    development, economic growth
  • Weakness Regional instability
  • Macro-economic environment
  • Market reforms since 1991
  • strong growth in recent year, (inflation ??),
  • Liberalization of trade, financial and monetary
    policy
  • Strong donors support
  • Weakness
  • Low domestic saving
  • Recent growth dependent on weather conditions
  • Bottlenecks in the implementation of policies due
    to weak administration and institutional
    structure at lower levels

15
Factors of Ethiopias competitiveness
  • Market potential
  • The second most populous country in Sub-Saharan
    Africa
  • Member of a regional trading, block, COMESA
  • weakness Low purchasing power (with GDP per
    capita of 110, one of lowest in the world)
    (250??)
  • Natural resources
  • Abundant agricultural resources with potential
    irrigated land of about 3.5 million hectares
  • The largest cattle population in Africa and tenth
    largest in the World
  • Big water potential nine major river basins
  • Rich in some mineral resources.
  • Weakness
  • to date only 4 per cent of potentially irrigated
    land developed
  • (NR degradation still a major threat)

16
Factors of Ethiopias competitiveness
  • Human resource development
  • Relatively young and disciplined labour force
  • Competitive wage structure
  • Weakness High level of illiteracy, shortage of
    skilled technical personnel.
  • Infrastructure
  • Reputable national airline linking to the world
  • Weakness The lowest road densities in Africa
  • Limited railway service
  • The lowest levels of energy consumption in the
    world (only 5 of the population has access to
    electricity 9inreased after UAP??)
  • Limited access to telephone services
  • Investment environment
  • attractive investment climate, opportunities for
    FDI in many areas including agro-business,
    manufacturing, tourism, infrastructure.
  • Weakness The cost of doing business is still
    high due to remaining bureaucratic procedures.

17
Ethiopia Trade Performance Index For Fresh Food
(2006)(source International trade center.
product competitiveness with trade flows)
18
Role of Ethiopian agriculture overview
19
Value of exports of selected commodities (000
Birr) (source of data Customs Authority)
20
Share of selected commodities in total export
value ()
21
Table 1 Structure of the export sector average
growth rates of major export items
Source Kassahun (2009) based on the NBE
22
Table 2 Share of major export commodities
Source Kassahun (2009) based on the NBE
23
Analysis of Competitiveness of Selected
Commodities
  • Ethiopians diverse climate or agro-ecology
    provides a big potential for growing diverse
    agricultural products.
  • Vegetables
  • are produced by smallholder farmers, largely for
    domestic market (5.7 million hortic. Producers)
  • for export are grown under irrigation during dry
    season.
  • This coincides with winter in Europe (attractive
    competitive position).
  • Known vegetable growing areas include
  • Eastern Hararghe, Eastern Showa (both fruits and
    vegetables)
  • West showa, Arsi, Gamo Gofa, Wolaita,
  • Southern Tigray, West Gojam, Dire Dwa
  • Produced volume
  • 2.1 million tons from 260,000 ha (small farmers)
  • 18,000 tons from 880 ha (State farms)
  • Few private farms (green beans).

24
Trends of production of some vegetable crops
(source CSA data)
25
Analysis of Competitiveness.
  • Fruits
  • Production 500,000 tons (10 from state farms)
  • Some private commercial farms also produce
  • Potential big out-growers potential for
    vegetables (small farmers)
  • Challenges and weaknesses in vegetables and
    fruits
  • Fragmented and non-constant supply with limited
    quantities
  • Limited varieties, knowledge,
  • Low quality of local packaging materials
  • Limited technical know-how for production
  • Limited research and extension for export type
    products
  • (Source a study by Agric. Nature and Quality
    Ministry of the Netherlands, 2009).

26
Analysis of Competitiveness.
  • The fruits and vegetables sub-sector is at low
    level of development
  • Producers (smallholders, private, state) do not
    give sufficient attention right technology
    (research), quality seed supply, agronomic
    practices
  • Scope for expanding and diversifying export of
    Fruits and vegetables is large.
  • As Demand for fruits and vegetables is growing in
    nearby international markets, like the Middle
    East.
  • Expanding fruit and vegetable production and
    trading at the international level, however,
    needs refrigerated transport means to remain
    fresh and of good quality on the way to
    destinations.
  • costs of transportation for Fruits and vegetables
    is a crucial factor that determines the
    competitive position in export markets.
    (Source a study by the Wageningen University
    Team, Wiersinga, et al, (2008)

27
Analysis of Competitiveness
  • Flowers
  • Production of flowers has quickly increased in
    few years time (four to five years) and covered
    over 1200 hectares of land under cultivation.
  • The number of producing farms more than 80.
  • Currently export reached as high as 2 billion
    stems a year (source Exports Association)
  • Competitive advantaged
  • Ecology is suitable
  • Cheap labour
  • Private security for foreigners is good
  • Geographic location near to Europe, middle east
  • Price is very competitive, open market.
  • But Eth. gets low due to low packaging quality
  • Sector is young low impact on environment
    compared to other producing countries.

28
Analysis of Competitiveness
  • Value margins of flowers (average)
  • Cost of production packaging 25
  • Air transport cost 50 and more
  • Marketing costs, auction 15 -20
  • Auction prices (average) Example for Roses
  • Small headed 10 -11 Euro cents
  • Medium headed 14 euro cents
  • Big headed 20 euro sects

29
Analysis of Competitiveness
  • Major challenges of the flower sector
  • Difficult cold chain management from farm
    truck airport
  • Current global financial crises demand (prices)
    declined by as much as 50.
  • Public resistance to new ideas/things image and
    perception about the sector
  • More work on environmental, labour and social
    issues
  • Unfair trade relationship dependence on few
    (single) outlets, high cost of sales
  • Unfair relationship and contract
  • Intervention needed to improve relation with
    trading partner
  • Need for diversification of market outlets
  • Breeding, varieties and intellectual property
    rights
  • Breeders take the lions share of benefit
  • Lack of domestic breeding system in the country
    (needs to create one)

30
Analysis of Competitiveness
  • Challenges to flower sector (cont..)
  • Customs is a weak link
  • Need for training throughout the supply chain
  • Marketing lack of adequate price information
    (learning time ? Locating? ).
  • Low input provision new industry, problem of
    forex
  • People skilled in computerization, refrigeration,
    etc. lacking.
  • cargo plane services
  • old, and noisy not allowed to access Schipol
    airport (Netherlands).
  • big competition from other cargo services (other
    airlines) others undercut the price
  • return cargo plane empty costly.
  • Need enhanced engagement of the domestic private
    sector

31
Analysis of Competitiveness
  • Pulses
  • Major types exported are haricot beans, lentils,
    faba bean, green pea, chickpea,
  • Export destination
  • EU (Germany, Switzerland, Itally, France),
  • South Africa,
  • Middle East Yemen, SaudiArbia, ArabEmerets
  • Competing exporters
  • China, Egypt, Kirgistan, Syria, India, Iran, etc.
  • India, Pakistan, Tanzania are strong competitors
    for Chickpea

32
Analysis of Competitiveness
  • Nature of production and supply, system
  • Major producing areas the rift valley, Gojam,
    parts of Gonder, West Shoa, Illubabor.
  • Example, dominant Haricot producing areas are
    Rift valley and Gojam areas
  • In general, production is seasonal,
  • Supply shortage,
  • Supply challenges
  • Quality grain size matters, specially for
    chickpea and haricot beans - small sized,
  • Research and breeding challenges
  • Marketing challenges
  • Although fragmented, difficult local collection,
    traders consider collection not a major problem
  • Also supply through some primary coops
  • Poor road infrastructure makes collections
    difficult

33
Analysis of Competitiveness
  • Challenges to business of export of pulses
  • Domestic cost, especially transport cost .e.g
    cost moving products from producing areas to
    central warehouses/market (AA, Adama).
  • Transporting products to Addis Ababa, Adama
  • (Izuzu of 3.5 tons),
  • Local purchase cost. ??
  • From Nifas Mewcha (Gojam), 550 birr/tn
  • From rift valley areas 395 birr/tn
  • Transport to Dijibuti, transit, customs
    clearance, inspection of standard cost 1000
    birr/tn
  • F.O.B. Dijibuti was (recently) 500 USD/tn
  • Profit margin ???

34
Analysis of Competitiveness
  • Oilseeds
  • Major types are Sesame, Niger seed, Sunflower
    (limited), Flax (not exported)
  • Some unexpected high demands sometimes Problem
    of demand forecast
  • Example, flax was suddenly highly demanded this
    year, (offer by Canadian importers)
  • While Cif price Rotterdam was 450 USD/tn, this
    was equal to farm gate price in Ethiopia
  • Cost of production is expensive, low yield, low
    cultivation
  • Major producing areas of oil seeds (Sesame)
  • Humera commercial level by investors,
  • Wellega smallholders
  • Gonder,
  • Yield ranges 0.5 to 0.7 tons/ha (compared to
    others)

35
Analysis of Competitiveness
  • Supply challenges
  • Low quality specially for products from
    Wellega colour, purity..
  • Research and breeding challenges
  • Cleaning machine local is of low quality,
    importable
  • Export destination example for Sesame
  • China, EU, USA, Japan, Korea, Mexico,
  • Egypt, Middle East, Turkey, Israel, Korea
  • Competing exporters
  • India, Sudan, Nigeria, Burkina-Faso
  • Mozambique, Tanzania, Uganda

36
Analysis of Competitiveness
  • Challenges to business of export of oil seeds
    high transport cost
  • Example Sesame from Humera
  • Purchase 14,000 Birr/tn
  • Transport to Port Sudan transit 800 birr/tn
    (To AA, Adama 900 birr to Djibouti 1350 birr/tn)
  • Cleaning cost 160 birr/tn
  • Cost of reject 400 birr/tn
  • Packaging cost (incl. labour) 150 birr/tn
  • Total 15,510 birr/tn
  • Profit margin ???

37
Analysis of Competitiveness
  • Export environment activities and challenges
  • No export tax,
  • Loan is accessible, not a major problem
  • Low and difficult transport capacity a major
    problem
  • means of mass of transport like railway needed.
  • Difficult road conditions to Sudan in rainy
    seasons
  • Resulting in high transport cost
  • Lack of larger warehouses
  • Lack of processing plants
  • Lack of efficient and low cost port service
  • Unpredictable price (cost of service) of Port of
    Djibouti
  • Poor communication and documentation
  • Some hope recent dry port initiative may
    improve the situation.

38
Summary and conclusions
  • Ethiopia has a huge potential for growing and
    exporting diverse commodities however,
    achievements to date are very low.
  • The share of pulses, oilseeds, fruits and
    vegetables in the total land under cultivation
    and improved inputs use is very small.
  • The share of pulses, oilseeds, fruits and
    vegetables in the export earning is at low level,
    but rising in recent years.
  • Moreover, product marketing and export
    requirements volume, predictability of supply
    and quality are among the major challenges.

39
Summary and conclusions..
  • Expanding fruits and vegetable production and
    trading at the international level, from its
    current low level, needs refrigerated transport
    means to keep fresh and of good quality on the
    way to destinations.
  • costs of transportation for fruits and vegetables
    is a crucial factor that determines the
    competitive position in export markets.
  • Although products like sesame, and pulses have
    high export demand and even reputed brands that
    could fetch higher prices, competitiveness is
    affected by high domestic cost (road, small
    transporting capacity, warehouses, packaging
    efficiency, etc).

40
Summary and conclusions .
  • Due to the high ecological competitive advantage
    and following the favourable investment
    environment created by the policy, the flower
    sector is growing at an impressive and fast rate.
  • Although an emerging sector, the flower business
    has some challenges including
  • fair access to selected plant varieties
    (compliant that the lions share of the benefit
    goes to breeders who have kind of monopoly
    right),
  • weak or low domestic logistics services including
    packaging materials, lack of adequate service
    skill,
  • unfair trading partnership with importers sales
    agents, and limited market outlets and
    dependence.

41
Implications and recommendations
  • The private sector has a big role and opportunity
    to engage in production of fruits and vegetables
    (also through outgrows scheme) and enhance the
    exportable supply from the current low level.
  • To raise the competitiveness and benefit from
    fruits and vegetables, adequate attention in
    improving production through better research and
    agronomic practices remains to be the critical
    role of government and producers as well.
  • As costs of transportation for fruits and
    vegetables is a crucial factor that determines
    the competitive position in export markets, the
    private sector is encouraged to invest in
    refrigerated means of transport.

42
Implications and recommendations
  • The private sector has an opportunity in
    investing in packaging system and services, some
    processing and value adding of export
    commodities.
  • It needs a significant public investment support
    in improving road connections to areas (remote)
    that have high potential of producing and
    supplying export commodities like oilseeds,
    pulses, fruits and vegetables.
  • Public-private partnership is needed to improve
    the managerial as well as technical capacity of
    human resources to improve the logistics and
    handling services of the export sector.

43
Implications and recommendations
  • The privates sector needs public support in
    bilateral negations regarding fair trading
    partnership with importing agencies in other
    countries in order to sustainablly enhance the
    private and national benefits from the growing
    flower sector.
  • Public support and investment is needed to create
    and strengthen a domestic flower plants breeding
    system as well as biological crop protection(
    e.g. insect predators) so that
  • fair benefit sharing among breeders, multipliers
    and growers will be possible,
  • Sustainable and environment friendly crop
    protection will be ensured.

44
Implications and recommendations
  • Public private partnership is desired in
    investing in public education, media works and
    information dissemination in order to establish
    the right image of the emerging floriculture
    business.

45
  • Thank you !!
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