The tremendous diversity of ecological zones in Ethiopia allows production of a wide variety of crops. The first step in the feasibility assessment was to narrow down the scope
27
from the vast agricultural sector into a subset that could be analyzed in some detail. InfoDev, therefore, examined the literature and engaged Ethiopian value chain and innovation system stakeholders in a discussion to identify the agricultural subsectors they felt have most potential for growth. InfoDev then proceeded to analyzing the Ethiopian market against the parameters outlined in the table below.Table 3Assessing the Potential for Value Addition
What is the scope for high growth value addition in this value chain
Production Status Is there sufficient primary production of adequate
quality to facilitate value addition? Entrepreneurial
Capacity Do entrepreneurs exist within the value chain or a sufficient number of growth-oriented entrepreneurs who could be “recruited” from other value chains?
Availability of Funding What funding is available for product development, commercialization and business expansion?
Clear, Ready
Stakeholders Are there strong stakeholders who are ready and able to affect change in the value chain?
Markets Can markets be identified that are accessible, feasible,
and viable?
Seasonality Is there marked seasonality in supply and demand of
raw materials that can impact negatively on the value addition opportunity?
Industry Leverage Are there existing initiatives that can be leveraged that support the industry and that are likely to affect entry into and exit from the industry and hence value addition potential?
Infrastructure
&Regulatory Constraints
Is there sufficient infrastructure available and does the regulatory environment provide incentives for entrepreneurs to take advantage of the value addition opportunity.
Using the methodology outlined above, seven key value chains (or value chain groupings) were identified as having good potential for growth at this time: bamboo;
28
horticulture (fruits and vegetables); dairy; cotton, textiles, and garments; honey; wheat; and spices.1213All of them demonstrate the following:• Increasing domestic and international market demand.
• Supply side problems in terms of both quantity and quality; issues other stakeholders are addressing and which processors are overcoming themselves. • Only a limited number of processors in any specific value chain and a need for
more to address the increasing market demand. • Poor marketing and management capabilities. • A priority for local stakeholders.
The comparative advantages of Ethiopia common to the seven value chains include the following:
§ Exceptional climatic conditions that make the production of a wide variety of agricultural crops possible.
§ Production by small-holder farmers, who by default use natural and organic farming methods, which causes supply constraints, but which can be an advantage for climate change impacts and as developed countries shift more and more to organic and clean food.
§ A large domestic market and labor force, with a population of 90million people, growing annually by 3percent.
§ A widely acknowledged trainable work force.
§ Comparatively cheaper wages than in other countries. The average wage for unskilled labor generally ranges from Birr 20-30 ($1.58 to 2.37) per day.
§ Acknowledged as priority sectors by the government and hence supported by favorable policy measures.
§ Agreements with the United States, Middle East, and European countries that ensure access to their markets for Ethiopian products.
A summary of the seven key value chains identified is presented below and additional information is at Annex 7, which also includes more details about the value chains studied and those outside the scope of the AII.
12Value chains, such as coffee where a number of stakeholders are already operating, have been left outside the scope of the AII in order to focus on value chains where the AII initiative can have the biggest impact. Details are provided in Annex 7.
13The ATA, leading the drive for transformation and sustainability in agriculture, is focusing on cereal crops initially, which account for 80 percent of the crops grown by small-holder farmers and in particular teff, maize and wheat. Other priorities in the near term are pulses including chickpeas, oilseeds, rice, and livestock. The key value chains identified for the AII differ from the ATA priorities because of subtly different objectives. The AII is to focus on processors, not farmers per se, whereas the ATA’s overall priority is to focus on the value chains that have the greatest potential to achieve productivity growth for small-holder farmers and pastoralists.
29
4.1.1 Bamboo
Ethiopia has the seventh largest bamboo resource in the world. Some 150 plus micro to small enterprises are engaged in low value addition of bamboo, producing such products as fences, toothpicks, and crafts. In response to the growing demand from international markets for industrial grade bamboo products, Ethiopian industrial production of high value panels and flooring is also emerging. Less than five firms exist at the moment (one of them employs 150 full time employees and has a $3million annual turnover), but this is expected to increase in the future. Analysis indicates that Ethiopia can be highly competitive in this market.
Studies from China indicate that the poverty alleviation potential of industrial processing is higher than for the lower value adding products. Bamboo production also has environmental benefits, including rapid growth (bamboo can grow up to 1meter per day) and high water retention. The AII could advance this sector by strengthening the few industrial high value bamboo processors and fostering the transfer of knowledge and technology to smaller value adding bamboo processors.
4.1.2 Dairy
Ethiopia has the largest stock of milk producing animals in Africa, but it imports milk products at a value of 114 billion Birr annually. None the less, the period from 2005–10 saw a subtle transition for the Ethiopian dairy sector. There was an increase in processing capacity, accompanied by an increase in dairy product lines. Improved breeds and extensions services are helping improve productivity and donors. In addition, stakeholders are working to remove supply chain impediments (such as transport, storage, and productivity).
The Ethiopian Milk Producers and Processors Association (EMPPA) recorded 21 members in 2010, including milk producers and processors, milk collectors and distributors, input suppliers, and consultancy services providers. With unmet demand for milk and milk products in growing urban areas, the growth potential is significant for the 18 identified processors (half of them are small to medium-size processors and the biggest one employs 380 people to process 33,000 liters per day). This potential builds on work of stakeholders to improve productivity of primary producers and other supply chain impediments.
4.1.3 Honey
Ethiopia is the largest honey producing country in Africa and the fourth-largest beeswax producing country in the world. The unique climatic conditions allow small-holders to produce different types of honey, depending on the region where they are located. It is estimated that small-holders produce more than 43,000 tons of honey and 3,000 tons
30
of beeswax per year. Traditional beekeeping accounts for more than 90percent of the honey produced and nearly all the beeswax produced in the country. The adoption of more modern and sophisticated beekeeping systems of box and top bar hives is increasing, along with productivity. The Ethiopian Honey and Beeswax Producers and Exporters Association (EHBPEA), which was established in October 2005, currently count 19 members, including producers of honey bee products and exporters of processed honey products.The current situation includes such limitations as a disorganized value chain and limited and inadequate packaging options. The potential for the AII is to support Ethiopia’s honey processors in the domestic and export market, by overcoming these limitations, improving productivity with modern hives and systems, and growing domestic and export market opportunities.
4.1.4 Fruit and Vegetables
Because of the unique climatic and natural resources, almost all types of fruits and vegetables can potentially be grown in Ethiopia. The number of small-scale producers involved in horticulture is estimated at 5.7 million farmers.14 It is estimated that the total
fruit production is today at almost 500 thousand tons and the vegetable production is about 2.86 million tons. The strong support from the government, with incentives for foreign direct investment and exports, continues to encourage increased production of horticulture products.
Established in 2002, the Ethiopian Horticulture Producers and Exporters Association (EHPEA) currently records 39 members who focus on fresh fruits and vegetables. The processing industry is however nascent. The potential for the AII is to support the 15 fruit and vegetable processors identified to date in replacing imports of fruit juices and addressing the growing demand for catering products from the Middle East, nearby countries, and Europe. Ethiopian processors have a demonstrated advantage compared to their competitors from Egypt, Kenya, Morocco, and Tunisia. The five fruit and vegetable processing plants are producing a limited variety of products: mainly tomato paste, orange marmalade, vegetable soup, canned vegetables, and wine. Indeed, they are working below capacity because of the lack of sufficient and regular supply of fruits and vegetables. They are producing for both the domestic and export markets,
The fact that most production at the small-holder level is almost organic by default can be levered as demand for organic foods continue to increase in Europe and other markets. The AII could possibly work on this sector if another initiative was simultaneously working on the supply side.
31
4.1.5 Cotton, Textiles, and Garments
Ethiopia has a long tradition of producing cotton textiles. There is a complete local value chain in the cotton garment sector, which encompasses cotton growing, ginning, spinning, yarn dyeing, weaving, and knitting, as well as confection and garment finishing. Some of the factories in Ethiopia are even fully vertically integrated (for example, spinning to finish the garment or product). However, the number of operating factories and their capacity is comparably low and does not provide self-sufficiency for the demand by Ethiopian garment or home textile industry. (Currently, there are eight large scale textile factories and 13 garment enterprises)
Much cotton production in Ethiopia at the small-holder scale is organic. This offers a market opportunity to enter the organic market where prices for organic cotton increase internationally and an opportunity to link with Ethiopia’s growing design and fashion brands. The potential exists for the AII to support existing and new textile and garment processors through the Ethiopian Textile and Garments Manufacturers Association (ETGAMA) to enter the organic market. In so doing, the AIC needs to help processors to overcome the major challenge that cotton grown in Ethiopia does not meet international market standards (the international market needs cotton with 30- 32mm length fibers to be competitive, whereas Ethiopian farmers produce 25-28mm).
4.1.6 Wheat
With growth in production over the past 10 years (namely, around 8.7percent annual increase because of area expansion and yield improvement), Ethiopia’s wheat production reached 3.147 million metric tons15 in 2011, securing its position as one of the
largest wheat producers among the COMESA countries. None the less, Ethiopia imported in 1.2million metric tons of wheat16 in 2011. The annual volume of wheat
handled by food processors is about 53percent of the total wheat supply to the domestic market, supplied to consumers in the form of flour, spaghetti, and bread. The remainder is distributed in the form of whole grain, which such consumers and retailers as small shops, bakeries, kiosks, restaurants, cafes, and supermarkets process.
With a growing population and urbanization, the demand for wheat and processed food in the form of bread, flour, macaroni, and pasta is expected to increase, offering a real market opportunity for the 180 manufacturers of bakery products and nine manufacturers of spaghetti and macaroni. Export of macaroni and spaghetti started in
15 Source: US Department of Agriculture, available at:
http://www.indexmundi.com/agriculture/?country=et&commodity=wheat&graph=production 16Idem.
32
2007/2008, generating $50,000 export revenues, which reached $121,000 in 2008/2009 and is expected to continue to grow in the following years.4.1.7 Spices
Ethiopia has a long history of spice production. The unique environmental conditions of the country offer the opportunity to produce a wide variety of spices, primarily produced by small-holders. About 244,000 tons are produced annually. There is high domestic demand, and 50 percent of Ethiopian spices are exported to Sudan, while other major export destinations include India, Morocco, Saudi Arabia, United Arab Emirates, and Yemen.
While the GTP now envisages substantial investment in the sector, the potential of spices has been largely overlooked in the past. Only two spice extraction plants exist, producing for the export market, although not at full capacity because of equipment and production problems. The market potential for new processors is high, especially for the growing export markets.