Competitiveness of the Ethiopian Agriculture with Emphasis on Selected Products: Pulses, Oil crops Fruits & Vegetabl

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 • Ethiopia’s 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 Porter’s 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 Porter’s 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 country’s 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 Porter’s 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 Ethiopia’s 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 Ethiopia’s 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 Ethiopia’s 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 lion’s 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 lion’s 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 !!