IMPERIAL ETHIOPIAN GOVERNMENT
AWASH VALLEY Al THOR UY ADDIS ABABA
MELKA SADI-AxMIBARA PROPOSED IRRIGATION PROJECT
FEASIBILITY STUDY
PART 11
STUDIES AND SURVEYSCONTENTS
PART I -
PART H -
GENERAL REPORT
STUDIES AND SURVEYS
VOL. I HYDROLOGY AND CLIMATOLOGY
VOL. 2 - SOIL SCIENCE
VOL 3 - GEOLOGY AND HYDROLOGY
VOL 4 - IRRIGATION ENGINEERING
VOL. 5 - AGRICULTURE AND LIVESTOCK
VOL. 6 . ECONOMIC AND FINANCIAL ASPECTS VOL. 7 - SOCIOLOGICAL AND HEALTH ASPECTS
PART Rl-        OUTLINE OF THE PROJECTIMPERIAL ETHIOPIAN GOVERNMENT
AWASH VALLEY AUTHORITY
ADDIS ABABA
MELKA SADI-AMIBARA PROPOSED IRRIGATION PROJECT
FEASIBILITY STUDY
PART II
STUDIES AND SURVEYS
VOL 6 - ECONOMIC AND FINANCIAL ASPECTS
Rome, July 1969CONTENTS
1       INTRODUCTION
2.
THE PRESENT ECONOMIC SITUATION: IMPLICATIONS
ON THE COST OF INPUTS AND PRICE OF OUTPUTS
3.      MANPOWER AVAILABILITY
4.       MARKET ANALYSIS
4.   1 INTRODUCTION
4.   2 MARKETING IN ETHIOPIA
4.   3 CROPS CONSIDERED IN THIS STUDY - SUMMARY
TABLES
4.   4 TRANSPORT COSTS
4.   5 COTTON
4.           5. 1 The World Market Situation
4.           5. 2 The Situation in Ethiopia
4. 5. 3 Projection of Cotton Demand
4. 6 TOBACCO
4. 6. 1 The World Market Situation
4. 6. 2 The Situation in Ethiopia
4. 7 OIL SEEDS
4.    7.    1    The    World    Market    Situation    for    Fats    and    Oils
4. 7. 2 The Situation in Ethiopia
4.     7.     3     Projections     of     Domestic     Demand     for     Vegeta
ble Oils
4. 7. 4 The Groundnut Market
4. 7. 5 Cotton Seeds
4. 8 CEREALS
4. 8. 1 General
4. 8. 2 The Maize Market
Page
1
2
6
8
8
9
1 0
1 1
16
16
18
25
26
26
32
38
38
39
43
45
46
47
47
494.    9 PULSES
4. 10 FRUITS
4            10. 1 General
4.10.2 The Export Market: Bananas and Citrus Frui 4. 10. 3 Conclusions
4. 11 VEGETABLES
4. 11. 1 General
4. 11.2 Tomatoes
4. 11.3 Onions
4. 11. 4 Chillies or "Berbere"
4. 12 LIVESTOCK PRODUCTS
4. 12. 1 Beef
4. 12.2 Milk
4.13 SUGARCANE
5.      PROCESSING INDUSTRIES
5.         1 INTRODUCTION
5.        2 COTTON GINNING
5.         3 TOBACCO DRYING        PLANTS
5.        4 SEED-OIL MILLS
5.        5 VEGETABLE CONDITIONING
5.   6 CONCLUSIONS
6.      CREDIT SITUATION
6.   1 INTRODUCTION
6.   2 SHORT TERM CREDIT
6.   3 MEDIUM TERM CREDIT
6.   4 SUPPLIERS’ CREDITS
6.  5 CREDIT TO THE SETTLEMENT SCHEME
.
Page 53
57 57 57 60 61 61 69 69 69 70 70 72 73
75
75
77
77
78
79
80
S’Page
7 .       DETERMINATION OF          FEASIBLE       FARM SIZES
7. 1
INTRODUCTION
84
84
7. 2
CREDIT PRACTICES
7.2.1  Medium and Long-Term Credit
84
85
7. 3
7.2.2 Short-Term (Crop) Loans
TAX POLICIES
85
7. 4
MANPOWER AVAILABILITY
86
86
7. 5
UNIT COSTS
7. 6
CONCLUSIONS
92
tables
1  - TREND IN LABOR COSTS
2   - PRESENT AND FUTURE AVER-AGE EX-FARM PRICES OF SELECTED PRODUCTS
3   - ESTIMATE FUTURE DEMAND OF AGRICULTURAL PRODUCTS IN THE PROJECT AREA, 1985 ONWARDS
4   - DIRECTION OF EXPORT TRADE (%), AVERAGE 1966-67
5  - SOME ACTUAL AND EXPECTED AVERAGE TRANSPORT COSTS
6   - COTTON: AREA, PRODUCTION AND AVERAGE YIELDS. 1962/1963 TO 1967/1968
7   - ESTIMATED PRODUCTION OF SEED COTTON IN 1967/1968 - ACCORDING TO AREAS AND PRODUCERS
8
COMPARISON     OF     PRICES     OF     ETHIOPIAN     COTTON     EX FACTORY AND PRICES OF IMPORTED COTTON
-TEXTILE9
SUPPLY     AND     DEMAND     OF     COTTON     AND     ARTIFICIAL
1967/1968 AND PROJECTIONS FOR 1972/1973, 
1995
1975,      1985 AND
10
- PROJECTIONS OF COTTON PRODUCTION IN ETHIOPIA AND
ROOM FOR FURTHER IMPORT SUBSTITUTION, 1975-1995
11   - TOBACCO: CONSUMPTION BY ZONESAND MAJOR AREAS,
1961-63 - AVERAGE AND DEMAND PROJECTIONS FOR 1975
12   - PRODUCTION BY ZONE - PAST TRENDS AND FORECASTS
13   - EXPORTS OF SOME DEVELOPING COUNTRIES
14   - TOBACCO: PRODUCTION, CONSUMPTION AND NET IMPORT
BALANCES      OF      LEAF,      1961-63      -      AVERAGE      AND      PROJECTIONS FOR 1975, (FARM SALES WEIGHT)
15   - SOWN AREA, PRODUCTION AND AVERAGE YIELDS OF OIL SEEDS, 1962/63 - 1966/67
16   - ITER OF OIL SEEDS, 1967/68
17
18
19
20
21
-    SUPPLY AND DEMAND OF OIL SEEDS AND SEED OILS, 1967 AND PROJECTIONS FOR 1975, 1985 AND 1995
-    PRODUCTION OF CEREALS, 1948-1952 (AVERAGE), I 52-
1956 (AVERAGE) AND 1962-1967
SUPPLY     AND     DEMAND     OF     CEREALS, FOR 1975, 1985 AND 1995
9
1967 AND PROJECTIONS
- SUPPLY AND DEMAND OF MAIZE, FOR 1975, 1985 AND I995
- PRODUCTION OF PULSES,
(AVERAGE) AND 1962-67
22  - SUPPLY AND DEMAND OF
FOR 1975, 1985 AND 1995
1967 AND PROJECTIONS 1948-52 (AVERAGE), 1952-56
PULSES, 1967 AND PROJECTIONS23
24
-   SUPPLY AND DEMAND OF FRUITS, 1967 AND PROJECTIONS FOR 1975, 1985 AND 1995
-   CALCULATION OF CIF. PRICES EUROPEAN PORTS FROM EX-FARM PRICES
25    -   SUPPLY AND DEMAND OF VEGETABLES, 1967 AND PROJEC TIONS FOR 1975, 1985 AND 1995
26
27
28
29
MACHINE
FLEET.
CROPPING
CROPPING
CROPPING
PATTERN
PATTERN
PATTERN
"A” -
1 st
PERIOD
MACHINE
FLEET,
"B" -     1 st
PERIOD
MACHINE    FLEET,
"G" -
1 st  PERIOD
OVERHEAD PERSONNEL EXPENDITURES FOR DIFFERENT SIZE
FARMS OF
FIGURES
1
2
- MACHINE FLEET REQUIREMENTS PER ha FOR DIFFERENT FARM SIZES
ANNUAL OVERHEAD PERSONNEL EXPENDITURES
FOR    DIFFERENT    FARM    SIZES    WITH    OR    WITHOUT CURING PLANTS
PER ha
TOBACCO
3
- ANNUAL MACHINE FLEET COSTS AND OVERHEAD PERSONNEL COSTS, FOR DIFFERENT CROPPING PATTERNS AND DIFFERENT FARM SIZES, PER ha1. INTRODUCTION
In this volume, all the analyses and data are presented which are neces sary for a correct definition of the economic problems of the proposed project. The general economic situation of Ethiopia is analyzed only for the purpose of illustrating its relevance to the project; the reader is not provided with a full description of either the economy or of the agricul tural sector, as these have already been given by other bodies (e. g. Plan ning Office). A brief discussion on manpower availability follows, in so far as this factor of production can represent a bottleneck./A complete analysis of the market position and prospects for a number of commo dities that can be produced in the Project Area is then added. This anal ysis is central to the whole study, as it defines the price and quantity conditions to the sale and the production of different crops. After the market analysis, a brief review of the processing industries likely to
be needed in the Area is undertaken. Another section gives an apprais al of the credit situation in Ethiopia, which is basic to the financial ac- counts in Part III of this report} Finally, a section is added which anal yses the feasible size of farms that will occupy the Project Area.
fa- 2 -
2          THE      PRESENT      ECONOMIC      SITUATION;      IMPLICATIONS      ON      THE COST OF INPUTS AND PRICE OF OUTPUTS
Ethiopia has a predominantly agricultural economy, surprisingly -
encumbered by Government intervention. Thus, current price o in
puts and outputs of agriculture bear at present a rather strict relation
ship with market determined prices. The exceptions are few: sugar,
which is heavily protected through custom duties; cotton, protected,
although to a lesser extent, by custom duties on^both imported cotton,
and imported artificial fibers; and a few industrial commodities. Price
controls are not operative, and policies of subsidization or incentive to
domestic production are not yet making a significant dent in the eco
nomics of agriculture. The Grains Corporation, which originally had
the task of buying the output of subsistence farming at prices which
would stimulate a rise in productivity, has limited its policy to that
of reducing the monopsonistic character of the market by curtailing
the size of speculative marketing, traditionally in the hands of a few
traders. Non-agricultural inputs are sold by a relatively large num
ber of suppliers, mostly of foreign nationality, in lively competition,
and the market appears relatively free of distorsions.
Substantially  the same observation is valid,  on a  more general level, when the cost of aggregate factors of production is considered.  Ethi opia's balance of payments has witnessed serious drawbacks in recent
years, the result of low coffee prices on the world market and of the closing of the Suez Canal. Foreign exchange reserves have declined drastically in 1965 and in 1966, but have remained ample in relation to Ethiopia's import trade (equivalent to nearly six month's imports as of June 30, 1968). Moreover, the first indications for 1967 appear to indicate that the erosion of reserves has slowed down considerably, if it has not stopped altogether. Thus, the present official exchange rate can be considered an equilibrium rate, even though exchange con-
ro s are enforced. This conclusion is also borne out by the fact that of b«thltal 7tflOW iS reCOrded’ bey°nd the unknown but normal reflux
assumedTh t th
thM /
remittances- tbis study, therefore, it is present exchange rate is an equilibrium rate; and
at such rate will obtain throughout the life of the project.  This is —  st likely  an unrealistic assumption,  since in the long  run the eco nomy of Ethiopia will undergo substantial changes in its structure,present one.
are slightly less expensive, 
.
this study, the cost of capital does not play a part directly, since fea sibility will be proven on the basis of the project's internal rate of re turn; but naturally, the internal rate of return, to have any meaning, must be compared with even rough guesses for the cost of capital.
The present cost of short-term borrowing is used here as such a guess. In any case, the high cost of short-term money gives confidence that the current cost of capital for the economy is strictly related to its economic value, and that no significant distortion in the relative price structure should stem at present from the cost of capital.
Labor costs are low in Ethiopia. Common laborers in the Awash Vai- / ley are paid Eth. $ 1. 25 per working day (US$ 0. 50 per day), one of
the lowest wage rates in Africa today. However, it would be incorrect to calculate labor costs at even such rates in a feasibility study. Un skilled manpower in the Awash Valley is composed largely of immi grants from the overpopulated Southern Highlands, where underem ployment conditions prevail. When a project relieves underemploy ment, the real cost of labor in that project is in strict relationship with the (low) ma rgi.nal_productivi.tie s of labor in the underemplov -
n~ “cost of labor can thus be taken at r-tn. u. 
------------------
the value taken to represent the real cost of unskilled labor at present.
Skilled labor, which is scarce and basically fully employed, cannot be
subjected to a similar analysis and the current market salaries^ will
be assumed to represent the real cost of labor at present.
In an equilibrium situation through time, wage rates must increase at
the same rate as productivity (output per man employed), while both
the cost of capital and the foreign exchange rate remain constant.
Throughout the life of the project, therefore, labor costs will have a
rising trend. The extent of the increase will be related to a hypothesis
of growth in productivity for the economy as a whole in the long-run.
In the absence of a model developed to cover the long-run, recourse
must be had to growth projections covering a shorter period. For the
economy as a whole, the 1968/69 - 1972/73 Five Year Development
Plan projects an increase in output per man of 3. 7% per annum, or
nearly 20% over the five years. On the other hand, the World Bank
has projected total GDP  growth at 4.  5%  per annum over the same pe nod,  implying  a  rise in output per man of only  12%  over the next five years. A choice between the two models iB difficult, but as the re-TREND IN LABOR COSTS (Eth» $ per day)
Ye^ rs
Real Rate of Unskilled Labor on World Bank A9sumptions of Rise
in P roductivity
------------------------------------------------1 Market Rate for Unskilled
Labor on World Bank Assumptions of Rise
in Productivity
196B
1969 - 1973
1974 - 1978
1979 - 1983
1984 - 1988
1989 - 1993
1994 - 1998
1999 - 2003
0. 05
0. 95
I. 06
1.19
1. 33
1.49
I. 67
1. 87
1.25
L40
1.57
L 76
1.97
2.21
2. 48
2. 70
■JI
k
H
p
cr
1
r— n- 6 -
j MANPOWER availability
Tt    is    understood    that    the    Ministry    of    Labor    will    increase    the    numbero. regional offices (one is to be opened in Nazareth), through which labor
Even for certain types of semi-skilled and skilled manpower no supply
problem appears to exist; watchmen, drivers, foremen and clerks
seem to be available immediately or may only require modest on-the-
job training. For clerks, in particular, the Commercial School in
Addis Ababa and the Asmara Vocational Trade School have a remark
able output of graduates.
On the other hand, ascertaining the future availability of technicians,
agronomists and agricultural supervisors, irrigation and civil engi
neers and farm managers, is much more difficult since all these cat
egories are at present in short supply in the country. In outlining
manpower     requirements     in     Part     III     of     this     report,     recourse     to     foreign personnel will be assumed for a number of key positions in the project- 7 -
develops- This implies that a smaller number of people will be able to undertake the job in the future than in the past. With the increase in labor productivity, the total wage bill should increase at a lower rate than the unit wage, taking the Project Area as a whole. This phenomenon, however, has not been considered in the calculation of labor costs, since any assumption as to labor productivity is bound to be ve ry a rbitrary, ThuSi while the wage rate increases in time, labor productivity in kept constant. This, of course t introduces a conservative bias in the calculation of cultivation costs on the project, and has not been corrected. Again, the stress is here on prudence in a s sumptions.4. MARKET ANALYSIS
INTRODUCTION
In this section . an analysis is made of marketing prospects of
the crops Listed aS ecologically possible. Not all the possible crops are examined, since for some, the basic marketing information is missing or they cannot be marketed altogether. This applies to sorghum, sisal, and a number of vegetables*
a)      World demand and supply
b)      Past trends in demand and supply in Ethiopia
c)       Present demand situation
d)      Projections of future demand and supply
e)      Ex-farm prices, present and projected.
Following a recommendation by the Steering Committee, the alter natives of the Suez Canal open and closed are considered, where relevant.
□ ata have been obtained from: Ministry of Agriculture, Central Statistiea t Office, Awash Valley Authority, FAO publications and interviews with traders and producers in Ethiopia and in Europe.
To reduce the effects of abnormal agricultural years, the base period taken for projections has been the average of the last three agri cultural years,
Projections have been referred to  1975  - by  which ti
expected     that     the     irrigation     area     will     have to 1985 and to 199 5.
It is assumed;
s ta rte
/ • <v A*
prcrfi ti nTT^ 'N, 
t; k 
A* 
- z
that     the     country's     population     will     inc per annum from the basic period;
rease atR rale’of Z.2%
' <>. VI.1-'”to 1905.
It has been deemed advisable for the sake of simplicity, to con
struct the demand projections according to a single hypothesis,
Consumption projections are the result of weighing  a  higher rate of growth in consumption by  the urban population (6  to  8  »  during theperiod covered by  the projections) vis-a-vis that of the rural population*
The income-elasticity coefficients of consumption have been esti mated by taking into account FAO studies (I), suitably adjusted on the basis? of the present investigation and of the most recent trends. The same applies for the type of demand function adopted for the estimate of future per-capita consumption for each product (the most frequent, for the selected products, are the logarithmic and semi-logarithmic functions).
MARKETING IN ETHIOPIA
Most of the Ethiopian economy is of the subsistence type. Espe cially in the agricultural regions and outlying zones. th? re is al most total absence of money exchange, barter generally being used (2). Monetary exchanges are above all in evidence in the ur ban centers (Addis Ababa and Asmara),- 10 -
However, the relations between these two cities and the rest of
the country are at present undergoing a change, while the radius
of trade around the larger centers is extending. Trade in cereals, pulses and oil seeds has for some time been regulated by a special organization (the Grain Corporation). With the growing weakness
o£ the coffee export business, traders are looking with greater interest to dealing in new crops.
Furthermore. the closing of the Suez Canal has encouraged ex porters and shippers to find new routes and means of transport
more suited to the distribution of products on the international markets. Thus the number of ships with refrigeration equipment capable of making the trip around Africa has increased, while
fruits and vegetables have also been sent to Europe by air cargo.
The Red Sea-Suez-Alexandria-Medite rranean route has been opened-
At present the possibility of using containers on the Massawa (or As sab)-Aqaba-Haifa-European ports route and on the Middle East runs is also being studied-
In general, the marketing sector is sufficiently developed to rapid ly become aware of the emergence of new crops to be sold on the home market and abroad.
CROPS CONSIDERED IN THIS STUDY - SUMMARY TABLES
In the following pages, the products analyzed (1) are:
cotton
tobacco
sugar cane
(1)     The market analyse will often have to refer to groups of products, as a result of lack of data and information on indi vidual products.11
reals (in particular maize)
berbere etc* )
livestock for slaughter.
milk.
Table 2 shows the ex-farm prices which have been used through out the study > and which result from the product-by-product analy sis below. Table 1 gives the projections of consumption, in
70,000, by the time the project reaches its full production stage* The table has been used lo determine the quantities on which ex- farm prices appropriate to sales in the area should be applied. This is a well-known procedure, based on the argument that if Chose products were not produced in the area, they would have to be brought in from elsewhe re. Thus, sales to the area bear prices generally higher than Males outside the area.
A summary table (Table 4) shows the direction of Ethiopian ex port trade in recent years.
4,-1 TRANSPORT COSTS
Table 5  gives some present and expected future transport costs for different means oi transport,  for main products and for the most important destinations. Data have been obtained from in-
sh basin, with the exception of cattle, which is not at pre sent produced in the area.PRESENT AND FUTURE AVERAGE EX-FARM PRICES OF SELECTED PRODUCTS
(Eth. $fll)
Pre*on      Prices
Future Prices: [972/73 onwards (1)
Products
For     Sales     in he Domestic
Ma rke t
For Sales in
Foreign
Market
For Sales in
the Project
Area
Far     Sales     in the Domestic
Market
For Sales in
the Foreign
Market
Cotton
Tobacco (2)
Vegetables (3)
Maine
Groundnuts {4)
Beans (5)
Livestock
- Bulla
- Cows
- Heifers
- Calves m4
Milk
59. 0
130. 0
19. 
11. 5
30. 0
27. 0
-
130. 0
19.0
i
-
19. 0
15. 5
54. 0
1 30, 0/190. 0
19 0
24. 0
-
-
25. 0
-
21. 0 (a)
130. 0/190. 0
19. 0
-
22. 2
21, 0
40 0
35, 0
60. 0
60. 0
25. 0-30, 0
-
-
-
-
-
40. 0
35. Q
50. 0
so. 0
37. a
■L—
-
-
-
-
-
-
-
20. 0W
-
(1) Taking into account trends un world market price a and irnpro vbiiidiiI of qualities
{2) Prices paid by the Monopoly (average of the »sx grades}! both [or domes Litz and foreign market.
(3)     Average price of eggplanta and sweet peppers.
(4)    Unftheltad.
(5)     Prices referred to export quality only (net dry wei glut
H
□-
•—
(a) For output in excess of the Project Area demand.
n
hj- 13 -
Table 3
ESTIMATED FUTURE DEMAND OF agricultural PRODUCTS IN THE PROJECT AREA, 1985 ONWARDS
Crops
(a)
Demand in the Project Area J 985     Onward s
(b)
(c)
Cereals
Potatoes, other root crops
155. 0
9, 420
I 9. 5
1,260
Vegetable s
Pulse s
13. 0
20. 0
Fats and oils
- vegetable oil s
- butter and ghee
- others
Fruits
- citrus
- bananas
- others
Meat
- beef and veal
-mutton, lamb, goat
- poultry
- other (pork, camel, game)
Egfi q
Milk
Sugar
5. 1
(3-8)
(0.6)
<o. ?)’
2. 0
(0.2)
( 1-2)
(0.6)
27. 0
(13. 8)
(6. 0)
(2.3)
(4. 9)
2. 4
5 1. 1
3. 2
157. 0
21,0
14. 0
24. 0
5. 9
(4. 5)
(0. 7)
(0- 7)
2, 5
(0.3)
(1.5)
(0. 7)
27. 0
(12.0)
(7. 0)
(2.6)
(5.4)
2. 7
53. 0
2.0
840
1,440
354
(2 70)
(42)
(42)
150
(IB)
(90)
(42)
I. 620
(720)
(420)
(156)
(32 4)
162
3. 180
120
(•  (I  Elhi&pL*n,  a  Banda  rd  per  capita  cun  Burn  pilon  {kg/fear  -  Averager  1967-  I  966).
fb) Per capita. cantumpiiQn (kg/yw*r},
(c| Total demand (metric ton«).
Note: - Afeaumad; population <?i Project Are* 60, DOG
-    A]] data are axpreiBed in termi oi food caniumpiiofi (c»r«ala in term* ol flour, equivalent
meat in itrmi of ctTdu weight,  milk includes dairy  product! other than builir,  rapreiaed in terma  of (reeh equivalent,  fruita  and V4|4i*blae m termi of (reflh equivalent net of watte,
etc)
Source: Fur Ethiopian Standards: FAQ - Agricultural Cammoditlea - Projccdonf for 1*775 and J9B5 (data adjusted according tn recent analysis And trends); for Project Arc* can sumption: Italcflfl.au] I a it L ma Lea..14
Ta-blej*
DU
UXTtO   OF EXPORT
Produet*
W
Red 5e*
Persian
Gulf
Kr nyi eic.
95
too
40
65
2®
89
20
70
25
90
90
20
6
18
35
25
10
15
2
SQ
50
too
100
7S
—
12
10
5
W- AVERAGE 1,66-67
Oth«r
African
Caixrtlr left
♦ ■
-
•
-
fr ■
•» a
-
-
-
-
-
-
A
-
2
5
5
1
Middle
Enat Caiwitei**
2
-
-
JO
West Ecir<ip«*n Countries
Other
Asiatic
Cnuntriea
Centrally Planned
Coaniriea
_3
■
40
64
35
_1
10
70
20
70
a
to
is
85
ao
5
40
5
bl
45
40
40
•
-
6
—
30
90
45
10
100
10
70
10
50
96
-
IJyaatock and meat
Lireitdek H i'
>'iDF«n beef Canned meat
Orca! i 12)
Fruits
-  Oran gee
-  Mandarin® B
- La mini
RananJiP
- Other fresh fruits
-
*
-
-
-
Harr ic®f bp an a
- Dry peal, mixed pea* Horae beam
ErVlltlll^
- Chickpeas
V^fet*bLs ■
-   Whale pepper®
-  Chilly peppers
Oth«r fresh vegetable Frozen vagvtablea
Starchy rooti (3]
Ground   pepper   a   nd other ftpicei
Oil iceji
’ GrOundhiUs
~ Linseeds
-  Cotta n Heed■
-  CasiarhiEt.iii
‘ Snaai-ne seed* Nlfer (fisugi l#ed|
‘ H*p® isedla * Other oil h«a j
_J_
10
10
5
2
- j_5
6
-
15
5
2ft 2
- 2 5
25 00
I
-
5
5
-
3
2
-
2
• ♦
-
-
-
-
* *
2
z
-
■ *
22
(B
-
2o
45
*
20
16
i
pit awed Chku
30
2
2
30
1
f
3
- *
7
25
_
_ 45 25
1 85
1
3
(U
12)
(n
SjOttrcfl;
hlaiujy sheep <nd Mainly durr h and milUt.
4
Mainly potato,,
Central Statistical Of(|,CDPRESENT AND EXPECTED AVERAGE TRANSPORT COSTS
(Elh, S/t)
Present Costs (I)
Expected Costa (I)
DaicpipLian
C® reals. Pulses.
Oil Seeds
Fruits, Vegetables
(3)
Raw Cotton
Live Cattle
Tobacco
(Dryleaves)
Cereals.
Pulses
Oil Seeds
Fruits
Vegetables
(5)
Raw Cotton
Live Callie
Tobacco
(DryLeavae)
Sea freight* (4)
- Short distance
- Middle distance (Vis Sues)
- Middle distance (Via Tran shipment in Egypt)
- Leng distance
Dy road
- Project area • A««ab
- Project area - Addis Ababa
- Addis Ababa - Aa.eb (5)
Railway tariffs
li
35
.-,
-
50
35-5D
50-75
iao
70-100
3 -u‘<
17
-
54
a - ♦
-.,
r■a
♦■+
20
30-50
16. 0
25-35
50-40
5Z. 0
w
10-15
-
25
35
-
50
15-20
15-10
20-15
16 0
55-50
50-75
180
70-100
10-30
20-30
35-50
52 0
37
-
54
10
10
20
40. 0
a■ i
aIi
■,•
♦ r »
.,T
.-♦
-
-
30
-
-
25
*
-
- Addis Ababa - Djibouti
Air freight"
- Addis Ababa/AsrrMFa-Pane/ Milan/ F rankforl
40 D
16. 7lb|
■1■
b
lb, 7< >
+    4■v
-
600-90C^
-
-
-
500^’
-
-
tl)
(«
(3}
Suez Canal open (via Cape 40-50% additional freigkilh pre■ ent road system co&dltious.
1972/7 J onwards; Sfcer Canal open; naw Addis Ababa - Asseb highway
According to kind of vegetable tod preservation system (air cqollng, air conditioning. IreecLng. ate. }.
0)    Short  distance:  Red  Sea,  Persian  Gulf.  North-East  Alrk^Coaataj  middle  distance;  Europe  (na  Sues  I,  South  Asia.  South  Africa.  etc  j  long  4*«(ante  *  Europe  (▼»*  Cape) Americas. fhrEast. otc.
(5) AL presto! via Desrik.
{a) Per head (minimum for sheep and goals, maximum for eattla),
(b)   Per square meter,
(c)    By cargo □/ passenger aircraft. Praaem tariffs art : ELh. S 2. 39 when the ratio package wkLuma/7, 000 <45 kg] Eth, t 1. SO when this ratio>45 kg.
(d)    Expected special tariff for regular cargo.- lb -
pe and Mediterranean countries is via the Cape,
4. 5 COTTON
4,5.1 The Wot Id Market Situation
World cotton production has increased at an annual rate of about 2,  5%  since the mid-fifties,  due to  an increase in average yields pc r ha (2. 2-2. 3%) and a limited increase in cultivated area (0. 1 -
partly     following     a     temporary     decrease     in     U.     S,     production,     supply has tended to keep in step with demand.
The result of these trends on world cotton prices has been a con
siderable      decrease,      in      particular      for      medium      and      short      fibers (represented by the American 1"^ whose average prices (spot
prices, the average of quotations on IS U* S. markets) dropped from 33.60 USS per 1 00 lbs in 1962. to 23. 00 US$ in 1967, with
a minimum quotation in the 2nd quarter of the year of US$ 22. 30 and with a tendency to rias in the first half of 1 968 (around 25 USS)
Pricei for Sudanese long fiber proved more resietent although they oscillated considerably (J 42. 9 in I960. 35.6 in 1963, 43, 2 in 1964 and 34.2 in J 967. with a minimum quotation of 33. 7 i  the
n
2nd quarter). In the firm half of 1%6 there was a slight improve
ment (to over 35 S).
Of   1968   (about   57   S).   as   against   an   average   of   $   5   3.   2   in   1967   and of 5 41.8 in 1962 and 196 3 ( I 960; $ 49).- I? -
Forecasts for the period up to 19W0 indicate a relative balance
in world demand and supply o£ cotton as from 197Z/1973. Supply- should be more limited in the U.S. (continuation of the policy oi reducing the cultivated area) and in other producing countries (including Egypt and Sudan), where priority will be placed on increasing food crops. Production in developing countries should increase at a rate of 2.8% a year (especially due to further im provements in yields), and at a rate of 2. 5% in developed countries. In this way the share ol the developing countries in world cotton output should rise from 43-44% (average of 1965/ 1967) to som** 48% (1980).
The per-capita consumption of textile fibers of all sorts (it bring necessary to consider the effect of substitution between cotton and artificial fibers) should rise at an annual rate of about 1%, l. e. slightly lower than in the past, due to the envisaged reduction in per-capita income growth (from 3. 4% to 2* 5 according to the average of low and high assumptions as adopted by FAO). In dev eloped countries, pcr-capita consumption should rise from 11.1 to 12. 3 lbs, while that in developing countries should remain more or less unchanged, around 4. 4-4. 5 Ibs/annum, However, due to the increased competitiveness of artificial fibers (especially non- Cellulose fibers), rhe average per-capita consumption of cotton should drop from 7. 6 to 7. 4 lbs/annum.
On the basis of the preceding assumptions, it is estimated that
the price of short or medium fiber cotton will decrease yet fur ther (reaching a level of about 21 cents/lb by 1 975); that of long and extra-long fibers will probably tend to decline* although more mode rately (I ).
U ) Recent technological processes dlings to a greater extent even (and fabrics) of higher quality,
rnally required.
make it possible to use mici-
in the manufa ctu, re of yarns
for which long fibers are nor-- 18 -
4. 5. 2          The Situation in Ethiopia
Areas under cotton in Ethiopia have increased rapidly in recent
years, in the last season (1 96 7/1968) reaching 60. 000 ha. with
an output of over 32. 000 tons of seed cotton (Table 6).
The territorial distribution of cotton growing  last season,  accord ing  to  an estimate made by  the Awash Valley  Authority,  is set out in Table 7,
Cotton-growing areas baaed on more advanced criteria in irrigated
areas are located in the Middle Awash Valley (National Resource
Dev, S.C., Montanari, A. V. A. , H. S. I. Foundation), in the Lower Awash Valley (T. P. S. C. , at Tendaho) and in NW Eritrea (Barattolo,
at Tesseney). In these concessions the highest average yields arc
obtained. It should be noted that two-thirds of the area cultivated
extensively is in the hands of small growers (Sctit Humera, As-
sayta-Ausa): average yields vary between 3 and 10 ql/ha.
In 1967/1968 there were 8 ginneries in Ethiopia: 4 in Addis Ababa,
3   in   Asmara   and   1   in   Tendaho   (the   only   one   situated   in   the   grow ing area and belonging to the growers).
Their capacity varies between 120 tons/24 hs (T. P. S. C. ) and
20 tons/24 hs, Near-maximum capacity is attained only from
November to March inclusively. The overall capacity is far
higher than the present work load, which is about 25. 000 tons
of seed cotton (196 7/1 968), The difference between the volume
harvested (32, 000 tons) and this workload may largely be at
tributed to the cotton for the cottage industry*
The average yield of lint is about 36% (between 32 and 39% . ac
cording to the concession)^. Thia high yield is the result of hand
picking.
In    1967/1968    about    9.    000    tons    of    lint    were    produced,    used    entire ly by the local textile industry.
The    cotton    is    purchased    by    the    ginneries    at    a    price    varying    be- t^en 550 and 625 Eth, $/ton, according to quality and above
*       1 CT le"gCh’ F°r the Purpcs of this study, an average weight- prxce Of 600 Eth. $ may be taken as representing the presentCOTTON • AREA. PRODUCTION AND AVERAGE YIELDS, 1%2/1963 TO 1967/1968
|           Description
Area
(thousand ha)
Production
(thousand tons)
Yield
(ql/ha)
1962/1963
1 963/1964
1964/1965
1965/1966
1966/1967
1967/1968
30
34
40
50
60
27
1
4. 6
5. 1
6. 8
14.4
27. 0
32.6
1
1. 7
J. 7
2. 0
3. 6
5. 4
5.4
Source : Central Statistical Office.
TableoTable 7
ESTIMATED PRODUCTION OF SEED COTTON IN 1 967/1968
ACCORDING TO AREAS AND PRODUCERS
Area*
Producer e
Sown Are*
(h4)
Production
(ton*)
Average
Yield*
(ql/ba)
Middle and bow Awaah Valley
Nur* Bra
Abadi r
Awn fa .Melba
Keiiem Kebena
Amibara
Ambaih
Dubti
Dit Bahri
Barga
Logi*
Dubii
Aaaxita-Auaa
Eritrea
Tenancy
Eritrea.
Rohl
Set it Humeri
W B |l 1fid SrmJh
Arbt. Minch,
Abel*
Gibe
Montana ri
National Re*. Dev,
Mania mt 1
H. S. 1. Foundation S. C. Aw«*h Valiev Authority
Settle Scheme
Ambaih Priv. C. Lido.
T. P. S. C.
T. P. S. C,
Joint Venture
Joint Venteire
Out-growe re(AVA)
Smail, producer■
Barattcla
Small producer*
Privonera1 Farm
Small producer*
1A 3™ L 200
360 3 DO
240
80
45
3. 500 1. 600
405
40
] 0D 5. 000
*»■
3, 000 8j M0
180 35, COO
735 1 35 500 100
14. 880 900
800 200 560 130
80 4. 310 z. jao
500 90
30
5. 000 16. 710
3. 500 2. 530
180 10. 500
1.01.0
11.7
7. 5
22. II s; 7
23. 3
16a 3 17. B 12. 3
IS. 2
12.4
22.6
3.0 10.0
IxA 11.7
3. 0
10. 0
3. 0
13. 7
Mini atry of Community
Development
Small producer*
Small producer a
Total
160
750
100
1 1 Cl
15. 0
10. 0
60. 225
32. 600
5. 4
“ —-------------- .------ ,—
Source: Aw..h V.U.y Authority (Study of November. 1 968).. 21
price, corresponding, by and large, to type I”. Bearing in
mind that costs of packing and transport from the growing areas
to the ginneries are about 10 Eth. $/ton, the correspon ing aver_ age ex-farm price for cotton is 590 Eth.$/ton.
The sale price of the fiber to the textile industry varies from
1.680 to 1, 850 Eth.$/ton, oscillating round the price of imported cotton, but is about 20% higher than that of imported artificial fibers (l).
Cotton seeds (62 kg on average per ton of cotton processed) were almost all exported, mainly to Japan and Western Europe. Since the closure of the Suez Canal, they have been sold mainly to Asian countries (Japan, China, Lebanon), Since prices appear more un stable and less remunerative, the ginneries tend to sell the seeds
to domestic oil production plants or to set up their own plants.
Over 90% of the lint obtained is in the middling staple category, and 10% in the long-staple category. Distribution may be indi cated approximately as 35% of 15/l6M, 30% of 31/32”, 20% of I”, 5% of 1. l/l6M and 10% of greater length, up to 1. 1/4”,
In 1967/1968. the overall demand for cotton fibers and artificial fibers (rayon) by the Ethiopian cotton industry exceeded 24.000 tons, as follows:
Local production
Cotton imports
Variations in stocks and other sources
Total supply of cotton
(1) In the textile industry, rayon i, compared with average - length cotton (15/16- and 31/32"). In l 65/l 66 its FOF
tons
9, 000 5, 500
930 15, 430
99
r:
137 Eth $/ton  a8ainat
-         to
(16 SVh* 1? 7d fib6TS i”P°rted Qr produced at home (16-23% higher). In 1967/1968. with import duUes in creased from 10 to 45 Ftk C /♦ 
.       /
1. .Imo., th. same ~ th»,' f
Sime as that of cotton (165-175 Eth. $/ton).
.T" 0 72 Eth'Total supply of rotton
. Cotton exports
Domestic demand for cotton
. Imports of artificial fibers Domes Lie demand for fibers
430
15. 000
9. 540
24,540 ■>
40% (1967/1968).
In all, in 1967/1968 some 60% of all fiber consumption (cotton plus rayon) was imported.
Concerning the distribution in consumption of cotton lint accord ing to category of length, another imbalance is noted between the supply structure and industrial demand, Without going into fur ther details, it has been noted that medium-length fibers (between 15/16" and I") account for the great majority (70%) of fibers taken by industry, that 20% approximately are medium-long fibers (be tween 111 and 1» l/l 6") and only I 0 % long fibe r s (ove r 1. 1/ 1 6”), whereas local producers offer 45, 40 and 15% respectively. Bal ance is only partly restored by imports, with an overall supply of 50-55, 30-35 and 10-15% per type of fiber respectively. The
since in Ethiopia the demand for higher-quality cloth feen^^ii„From these summary indications it may be noted.
that the Ethiopian market is not yet sufficiently selective
and reacts but little to the different types of fibers (l);
that under present conditions the possibility of exporting mid dling is conditioned by a decrease in sale prices more or less equal to the difference between export prices (or prices FOB American ports) and prices ex-Ethiopian factory;
on the other hand, that the possibility exists of exporting long fibers.
Cotton imports take place both freely and under the PI. 4fi0 Agree- ment (2); with payment CIF Djibouti. On the CIF price, which includes 1 % bank dues, some 10-20 Eth. $ per ql are payable for sale costs and municipal dues. 1 0 Eth. $/ql in excise. 8-10Eth.$Xjl- 24 -
Table B
COMPARISON OF PRICES OF ETHIOPIAN COTTON EX-TEXTILE
FACTORY AND PRICES OF IMPORTED COTTON
(in Eth, $ per kg)
Staple Length
Domestic
Prices
Paid (1)
Price of
Imported
Cotton
%
Difference
I" and less
I. 1/52”
1. 1/16"
1. l/b”
I. 3/16"
1. 1/4"
1 6R-1. 75
L 75-1. 80
1. 80-1.85
1. 87
1. 90
1. 90 (a)
1. 62
1. 69
1. 75
2. 15
(2. 20)
(2. 40)
3-8
3-6
2-5
-13
(-14)
(-20)
(a)
In   genial   the   higher   price   wa«   paid   to   T.   P.   S.   C. Tor modest amounts.
*SSSAw.,h Valley Au  „
th   rity. upThe isale exports were made by G . . ■
. marlp hv T PS C. - which - after for
i r warding samples of liber 1. 3/
1 l/lfi11 to London - placed 430 tons
,
O f thl. fiber on that market. With the gradual .. tiling of th world market (onload.ng of .Leek., further rrduutton m area
in the USA), it i. eW.M.rri that the export flow of E.hrop.an
long-fiber cotton * that in exc*M of specific lot*l require
ments - could develop favorably.
Pro icc Lion of Cotton Dem.-, nd ..nd Product ion
As a first approximation, the total consumption of cotton and arti ficial fibers are considered. In the 1967/1960 season fallowing
the raising of the import tax on a rtifitial fibers from 10 to 45 Eth.S per ton, out of a total amount of 31-32, 0 00 tons of fiber, 6Q% was represented by cotton.
For 1972-1973 it is eatimalcd that the dome si te demand for fiber (cotton plus artificial fibers) will be about 40, 000 tons, equal to more than 1 . 5 kg per capita (1967-1968: 1.3 kg).
Considering the rapid development of cotton growing in Ethiopia
- according to the target figures of the 3rd Development Plan - and the capacity of the national textile industry, domestic out put should be able to satisfy almost the whole of the demand for cotton up to 1 975, imports should be limited to modest amounts of cotton (medium-length fiber )  to quality supplements and to
t
yarns and fabrics of "fine" quality. Imports of artificial fibers will represent Only 1/4 of total consumption. For the period after 1975 a cotton deficit is bound to reappear.
A choice will be open to producer b as to the disposal of longer staple cotton: on the one hand, competitive exports appear possible; on the other hand, Longer staple cotton can be sold domestically at the lower prices of middling. In this report,
for rcaSonB of prudence, the second alternative has been con- Sider ed,
Expurt prices (ClF) in the foreseeable future have already been
The V™ PHCC’ f°r d°meSliC
in
X'd ihk J;?'', 'G “ “
gard the protection a  present afforded to domestic cotton.
mpli... and di.-
t- the per capita consumption of cotton and
for the coming years th P* ■ P rayon has been forecast a.lot
1. I. *lth loearlthm“ 
in 1995. This consump™  “8“ 
n
income-elasticity of
wouId thus reach 2. 5 kg
Hgure would involve a total input
of  over 100. 000 tons ot fiber (tables 9 ana
TOBACCO
The World Market Sitoation
d 10).
From 1953-1955 to 1964-1 965 world tobacco production increased at an average annual rate of 2. 5%, reaching 3. 7 million tons tn 1964-1965. During the same period, world exports of tobacco leaf increased at a rate of 3. 5^. from 630, 000 to 890, 000 tons.
In the past fifteen years, the part played by underdeveloped coun- tries in the world production and trade of tobacco has increased steadily so that in 1964-1965 these countries accounted for more than 40% of total world production.
Two assumptions have been made far the projection of the demand for tobacco to 1975. The first, with mirurnum values, takes par ticular account of population increase while the second, with maxi mum values, considers other factors such as the rate of urbaniza tion and industrialisation and the spread of smoking habit, especial ly among women. On the basis of these two assumptions, an annual increase of 2.6% and of 3. 2% has been estimated for the demand in tobacco up to 1975. It han been estimated that consumption will increase more rapidly in underdeveloped countries (see Table ll)
it is not possible to give details on the trend in Oriental tobaccos compa son with the others (mainly Virginia, Burley, etc 1,
tl
cos? 
9tatCd that whereaB the <»™and for Oriental tobac-
m tending to drop, that for other tobaccos remains firm|M«r r4p*1»«
. HY/JTM
LiTj/im
(il
A-MlU»| t JLa.1 b J
Cha^a
j#ti Mr
ITM/Ift*
1
L4J5
A HU *4*4    | Rnta   *1
<* hoof a
L445
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*«
Lula cJ 141% 4 445
Amiun.
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J<< ?< L-llTW
(UmiIm ir*r r«ni*
La4 trfl
U
Vf                   t ■Boot F If |1?
br.-m*
- Callon Mhl
Cot    ton    juradod*    Ultra
■aqulraJunO | J?
- Arimcbi
A   riiflc   Ltl   dha   r   H<J“<
Iflbar                     1ft
liMttU
rattan Lint
C ation . talirL> ■ £4lM«
rnftllMlMl) fl|
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jllffusXM.
thnnmiL UstlbUfl]
- Cai Io*
fur Caalil* LmImjIff
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AflaHkMl lateen*
if wit Id STTH*rtiBmmJMI
etetftiu? |4fc*~«dr
- A£ ri< »U«-PB4
Nad! *|rl<uliwr»l
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r
,        i.!«
IL Hl
1. Vbu
L 10U
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1 % ft!              J Ek 5l P (J T 110;
|L1M>             U TH? II.’’**©                1. Mo
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ft., w
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(1. MB?              [4. lib?
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t-1 w I Lxlr uranu.l
« nd ■! Jl>o r il I uli«, m lla Vb«I|> uf btCl cl *L ilAiJPROJECTIONS OF COTTON PRODUCTION IN ETHIOPIA AND ROOM FOR FURTHER IMPORT SUBSTITUTION, 1975-1995
1 metric loni)
Annual Rate of Change
Dree nptaan
Planned (1) 1  1972/1973
Annual Rat* of Change
1967/^8-72/71
(%)
Projected
1975
Annual Rate
of Change 1972/73-1975
(%)
Projected
1985
Annual Rat*
oi Change
I975-I9R5
(*)
Projected
1995
19851995
(%)
967/68-1995
(%)
SecrfcvlLon output
Cotton lint output
Export ■
Damrihc demand (cotton lint)
Room for imporl iubatitulionL
- Cotton lint
- Seed cotton
Poeeible                 pruductlonofieedcol- tca at Nfclk* Sadi-Amibara (2)
64. SOO
21.300
1.490
30.5X0
15. 1
15 1
HZ.700
Z9.70Q
1 . 500
34,810
5. 0
5 0
IOS,600
37,900
1.500
51.640
5 0
5. 0
134,600
48.400
1.500
81.050
5. 0
5, 0
5. 5
5. 5
8. 700
24. 186
-
4,610
18. J7t
IB,000
17.260
47,983
18,000
34,150
94.937
J 9, 000
{!) A* per Third Five-Year Development Plan. excluding the planned output from Mclka Sadi-Amibara, (Z) Baerd on Cropping Pattern A; approximate.
Sources Bee Tabled.
67 rTODACCOj CONSUMPTION BY ZONES and MAJOR AREAS, 1961-63 AVERAGE AND DEMAND PROJECTIONS FOR 1975
High
• £9 -
Table IL
CT ■o ©
1
n 1 -■   AJ
CT    ■S
•m
-r
r-
CT
oi
■tf : -
O       m      rJ
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s
0
to 
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to
■M
rtl
ft!
TT                       ■■I1 '
in       in
CT
"1
£
c
J
I-
rt
to 
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to
EL
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u
u
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«
P-
O 1 “F         r-     CT-     n-        ©
0O
cM 1 ■“      •—<     O       rr        f             CT 1 rn        CT                     I
X -i
1 35
CT                 j*i       CT        rJ
ct in ■CT
1 **
-X
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oO     CT-              Lfl
•CT     o      ■CT.    in
X
24)
£
LF|
CT
FJ      r-        *      r—     1—•          ufi
1
6 CT - ’t
CT           Ct
)     pT        O
F-      •X               MJ
o’
a
to
u
fi
■=’
IF-
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CT-
X         50
MD
CT
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s£
CT
CT
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CT
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rj
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m       CT              CT-                m                  O                           LFI
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CT
to
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m       CT                         o
MS     tn
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T
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ct      CM     to        f-        M>           xO ’F     lE>    F-'     o'
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r-     LTl"     O        CT                      m       30                  x                 r-       MJ        nJ
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i
■For production (sec Table 12) the projection to 1975 has been made on the basis of two assumptions. The minimum annual rate of increase (2. 4%) is mainly based on past trends, and might give rise to a slight deficit with respect to demand* while with maximum values (3,4%). on the contrary, thfcre could bi a s lit plus of about 4. 0 - 4, 5 %. equal to approximately 15-20 of Lhe world exportable production.
In the first assumption, it is estimated that the increase in world tobacco production will be mainly due to that of under developed countries, which will cover the increase of the in ternal demand for relatively poor quality tobacco, The highly developed European countries will continue to be the main im- uorters and will later be able Lo reduce their own tobacco pro duction, which, even now, only covers a very small part of their total consumption.
With the second assumption, the situation is different. An in crease in income could stimulate the demand for better quality tobacco, especially in underdeveloped countries. In this case, there would be a trend to increase the production of better quality tobacco in the more highly developed countries, which at present cover almost the entire world demand. Consequent ly, there would be a surplus of poorer quality tobacco, which predominates tn underdeveloped countries
About a quarter of the world tobacco production reaches the in ternational market. The United States is the largest producer and exporter, but in recent years its share of the internationa 1 market has been reduced from 40% to 20%. This is partly due to keen competition from large quantities of cheaper tobacco produced in underdeveloped countries, and partly to a change in demand from the manufacturing industries in the importing countries, Due to its high quality, leaf tobacco is usually ex pensive in the USA, not least because of US internal policy of artificial support to growers. The change in demand from the manufacturing industries is. however, due more to the fact that the production of filter-tipped cigarettes and blended tobacco, requiring a smaller amount of high quality leaf, j  constantly
s
on the increase, than to price.PRODUCTION BY ZONE - PAST TRENDS AND FORECASTS
(thousand tons)
1975
'1961-1963/75
Zone
1953/55
Average
1961/63
Average
1964/65
Average
|965/66 (a)
Average
min.
tnax.
Average Annual Rate
of Increase
min.
max.
Developed Countries
Centrally Planned
Countries
Developing Countries 1 WORLD TOTAL
1,606
142
1, 115
2, 863
1, 663
351
1,438
3, 452
1,751
301
1,600
3, 652
1,574
231
1,673
3, 478
1.977
650
2,076
4, 703
2. 265
728
2. 344
5, 337
1. 3
4. 9
2. 9
2. 4
___________
2. 4
5. 8
3. 8
3. 4
(a)                Evaluations.
Source: Agricultural Commodities - Projections for 1975 and 1985 - FAO Production Yearbook - 1966 - FAO.
Table 12- 32 -
In 1961 -1963, underdeveloped countries in all exported about
l/4 of their production (see Table 13), 
72% of these exports
(77% in 1964-1965) come from Rhodesia, India, Brazil, the Philippines and Indonesia.
Not only the relatively low prices, but also special trade agree ments and a constant improvement in the quality of the tobacco leaf, are the reason for the favorable position of these coun
tries on the international market. It is estimated that their
exports will increase further to play an ever more important
role in the international tobacco trade.
Present estimates indicate that, assuming minimum values, 
there will not be any appreciable imbalance between supply and demand in 1 975 (see Table 14).
Assuming maximum values, the projections show that production exceeds demand by about 250, 000 tons. In this case, it is to be expected that there will be a slight drop in price, which could have the effect of both increasing consumption (although the in fluence of the price cn consumption is marginal) and of lowering production in non-competitive areas (underdeveloped countries).
On the game conservative lines, which are the basis of the pre sent report, it is estimated that the future price will drop by a- bout 10%. Taking India as a basis for flue-cured leaf, it is as sumed that the price will drop from S 51. 1 per 100 Lb (1962- 1965 average) to $ 48. 0 per 100 lb export weight.
4, 6. 2 The Situation in Ethiopia
The climatic and ecological conditions in certain regions of Ethiopia - including the Awash Valley - appear favorable to the development of cultivation of Virginia tobacco. At pre sent, the cultivated areas are mainly around Robi and in the Middle Awash Valley (Nura Era. Awara Melka). although they are still of an experimental nature.- 33 -
Table 13
EXPORTS OF SOME DEVELOPING COUNTRIES
(thousand tons)
Countries
1961-63 Average
1964-65 Average
Rhodesia
India
Brazil
Philippines
Indone sia
96. 7
5 9.8
45.0
21. 9
13. B
122. 3
77. 3
57. 6
20. 2
16. 1
Total
Total Developing
Co untri e 5
WORLD TOTAL (a)
237.2
32 9. 6
833.2
2 93. 5
383. 9
890, 5
------ ----- - ----------
,a ) Excluding Mainland China,
Sou£ce : Agricultural Commodities - Projections for 1975 and 1985TOBACCO: PRODUCTION. CONSUMPTION AND NET IMPORT BALANCES OF LEAF, (961-63
AVERAGE AND PROJECTIONS FOR 1975, (FARM SALES WEIGHT)
(thousand tan*)
1951 - fa J Average
1975 Low
1975 High
Dts eruption
Prud'ic Hon
Demand
NeE Import Balances
Production
Demand
Net Import
Bn Li need
Pr oduction,
Demand
Net Import Balanced
Developed Countries CenE rally Planned Countries Drvrl oping CoUntrlc*
WORLD TOTAL (excluding Mainland China)
1, 663. 1
351 J
L 4 JU. 0
3. 452. 4
1.815 tl
190. 3
I. 190, 4
I, 39b. 5
152. 7
19. 0
-247. ti
-55. 9
1.977, 5
650. 0
2.075, M
4, 701 3
2. lift. 6
614. J
i.soa. i
371 E
-15 7
-467 7
2,265 7
72B. 0
2. Hl 7
2. 442. 6
657. 6
1,9*2. 1
176. 9
-70 4
-361. 6
4.771. 0
5. 137 4
S.OB2 3
-255, 1
Source: Agricultural CoTTimodihe* - ProjectionsL»r 1975 arid 3?B5 - FAO.
Table 14In  Ethiopia,  tobacco  is a State Monopoly,  so  that cultivation  iq controlled  and  production  is purchased  by  the Monopoly  at fixe prices, depending on quality and grade.
According to data provided by the Monopoly, in the 196 7 *-1968 
season about 200 tons of "Virginia" tobacco were produced as
dried leaves (first drying), at the following prices (in Eth. S
per kg): 1st quality, 2. 20; 2nd quality* 1.90; 3rd quality: 1.60, 
4th quality, L. 00; 5th quality, 0. 50; and 6th quality, 0. 30,
Taking account of the quantitative distribution of the grades
(over 50% of all production is accounted for by the first three
grades), it has been calculated that the average weighted price
of tobacco paid to growers in the Awash Valley by the Monopoly 
was 1. 30 Eth. $/kg in 1967-1968.
The Monopoly intervenes in various ways to support and en
courage production: distribution of selected seeds to growers^
free or at reduced prices, particularly to small growers (who 
are obliged to deliver green leaf instead of dried leaves), tech
nical assistance, etc.
In      Ethiopia,      the      level      of      domestic      tobacco      consumption      is      still very     low.     Potential     demand,     on     the     other     hand,     should     be     con sidered      much      higher      (l).      In      1967-1968,      the      total      domegtic      con sumption     of     tobacco     (dry     leaves     equivalent)     is     reported     to     be     a     - bout      300      tons.      Imports      to      supplement      production      (of      dry      leaves and       processed       products,       such       aa       cigarettes,       cigars,       etc.)       come from      the      US      (the      highest      qualities),      Canada,      Malawi,      Korea      and a few other countries.
Due to the increased supply and an estimated more widespread distribution of tobacco manufactured within the country, it has been calculated that domestic consumption could increase over the next few years at an annual rate of 15-20%. exceeding 500 tons in 1971 -1972.
(1) The real value of the income-elasticity in this sector of consumption is difficult to pinpoint. Estimates of future consumption are based on reference data provided by the Monopoly Administration.- 36 -
These quantities are hardly large enough to justify the cultiva - tioxi of tobacco on a large scale in the Melka Sadi-Amibara area. Thus, any program for large-scale cultivation would be geared almost entirely to the export market. Considering that the possi - ble export quantities from the irrigation area (some 16, 000 tons between 1975 and 1986; 25, 000 onwards) would represent only some 1.3% of total world exports of tobacco, and some 3% nf
total exports by developing countries, they are not such as to significantly influence the present outlook for world trade in tobacco, Thus, if prices of Ethiopian lobacco are competitive
on the world market, there should be no serious marketing limitation.
The mechanics of marketing the new crop, however, require a serious organizational effort on the part of Ethiopian Authorities and, in particular,of the Tobacco Monopoly. There exist, basic ally, three marketing channels on the world trade:
a)       direct buying from consuming countries in developed or developing countries, based on price of supply, continuance of the source of supply, quality of supply;
b)       buying by trade houses in London, Amsterdam and Bremen* based partly on price and quality considerations and partly on the possibility of selling merchandise against tobacco;
c)       bilateral agreements between Governments,
The Ethiopian Tobacco Monopoly is already exploring avenue (a) above; work on channels (b) and (c) should start well in advance of the first year of production at Melka Sadi ~ Ami ba ra.. First reactions to Ethiopian tobacco samples sent to Japan and Italy are reportedly good. Further tests, requested of the
Italian Tobacco Monopoly, have again proved quite satisfactory. It appears that the Virginia Tobacco now grown in the Valley is ideally suited for Virginia Type cigarettes, as it requires an ad dition of a modest percentage of other tobaccos for taste and color qualities. Nicotine content is not yet low (I, 3%), but this is due to current cultivation practices. On the whole, the out look is optimistic, and, provided the Monopoly gives assurances on its interest in large-scale production and exports and orga nizes a selling organization, and provided that the nicotine con tent can be kept lower than at present, no major obstacle appears to exist to profitable tobacco cultivation in Mclka Sadi-Amibar?- 37 -
The Ethiopian Monopoly Virginia Tobacco classification fol* lows closely that used by the Italian Monopoly, and agree’ with most classifications of other producing countries. Its buying prices for untied leaves, when increased by the cost of further processing for reaching the export grade, are comparable to the Indian flue-cured, and the resulting ex port prices - for comparable qualities - should be similar , However, and for the sake of prudence, average cx-f.irm prices for untied tobacco have been kept for the first 10 
years of production at the low levels experienced in 1967- 1968, namely Eth.$ 130/ql (corresponding to USS 24/100 lb 
at the farm or to US $ 34/100 lb, export weight). Such low levels were due to particularly low quality (it was only the second year of cultivation). For the rest of the life of the project, the ex-fa rm price has been assumed at Eth.S 19CPql for US S 34/1 00 lb at the farm or US $ 48/1 00 lb, export weight).
Furthermore, as already commented on above. in crop
ping pattern B - which is heavily tobacco based - for the first 10 years tobacco cultivation has not been pushed to its limits but has been kept within a more prudent 90% of the double cropped area. Only in the ensuing years has full tobacco cultivation been assumed, The lower level of to bacco growing during the first period was adopted - intor alia - in order to take account of presently unforeseeable difficulties in the Tobacco Monopoly'* organizational ef fort.
Outside the Awash Area, there .ire no known plans or pro jects for growing Virginia Tobacco. In the rest of the Awash Area, expansion of cultivation could not be ruled out. In any case; the possible output from the existing irriga
tion areas in the Awash basin would not be large enough to endanger the world market position cl the output of Mclka Sadi -Amibara,* 1 .
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i*Lm aU, grciuiulr
nut     oil,     coconut     <ui»     llnitwt     otl.     *n     »nmi4l     drnp     d     t     %•- ?wmn 196? Mil I9?i h*< ha«nart F N A R, t A, l*HOD*J C TJON A ND A V EP A GE Y IE LUS QF O LL 5 E E DS. IN ETHIOPE A 14 52/13-14 it/ i?
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OU 5««di
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{■ham. he 1
ProducEian |ihau». * )
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(ql 'b*)
Ar**
iih.au.fl. b* |
Production
(lhDU.1 t)
Yield
Area
(th4UN. he)
^udurT lien
(lltawi. I)
Yield
(flL'h-)
Ari*
|U»4*. hi)
PteductLan
(ihaui. tl
Yield
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(thaui. ii*>
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(Lhuu*. i)
Yield
fql/he)
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1
Seurct aflicitl pu^liobduii AVA- 41 -
As an effect of the progressive increase in domestic demand, especially of industrial oil plants, the surpluses earmarked for
export have declined constantly over the past four year a.so that the development of oilseed crops is one of the aims of the Govern
ment's agricultural policy (l).
Last season, of the 410,000 tons of oilseeds produced. ZI.000 tone were used as reproducing seed, as direct feed (2) and for other similar uses; 57. 000 tons were exported and the remaining
332, 000 tons processed into oils (see Table 16).
At present, less than 20% of the oils are produced by a dozen 
oil plants, using processes which are not wholly rational. The remaining oils are obtained using family or cottage systems, on 
the farms themselves and in smaller centers. It ie to be noted 
that the latter types of oil ape still preferred by consumers, 
due both to their better taste and to the lower price,
Cakes are practically all exported, Holland continues to be the chief purchasing country (about 22.000 of the 32,000 tons in
1 967)> followed by Germany and other West European countries. Quotations for the cakes remained remunerative, especially due
to the high residual oil content, and the small traces of chemical substances (3).
In Ethiopia the per-capita consumption of edible vegetable oils
has increased significantly over the last few years. In 1967 
this was estimated as being 4,3 kg/year, against 3.5 kg in about
I 960.
(1)     In 1963, exports touched their highest level, with 85,000 tons. In 1964, 76, 000 tons were exported? in 1965, 67, 000 tons; in 1966. 54, 000 tons and 1967. 58, 000 tons. The value of oilseed exports dropped during the same period, from 13 to 8% of total exports.
(2)     About 4. 000 tons of sesame and 3, 000 tons of groundnuts,
(3)     This because the most widely used process of oil produc tion is simple crushing, without solvents. For this reason foreign buyers, before distributing the cakes as animal feed, recover a considerable part of the oils by solvents.ITER OF OIL-SEEDS, 1967/68 
(thousands of metric tons)
—
Oil -Seeds
Output
(Average
1962-66)
Output
1967/68 
Estima te
Waste j
Seeds and
F ood
Exported
Seeds
Processed
Seeds
Extraction
Rate
Oil
Produced
(1)
N tug
Linseed
Castor
Groundnuts
Sesame
Cottonseed
Rapeseed
Sunl’l ower
Total
220. 0
55. »
10. 6
17. 5
32. 0
9. 0
5. 3
27. 4
230
60
1 2
ZD
3 6
1 6
6
30
9. 2
2. 1
0. 3
3. 0
5. 0
0. 3
0, 2
0. 9
8, 8
9. 7
I. 9
1. 6
19. B
11. 2
4. 2
0. 2
212 0
48 2
9. a
15. 4
IL 2
4, 5
L 6
28. 9
35
27
40
27
42
IS
32
27
7 4. 2
1 3, 0
3. 8
4. 2
1. 7
0. 7
0. 5
7. 8
*
i
376. 8
4J0
21. 0
57. 4
331. 6
X
iOH. 9 (a)
(1)                Mainly crude oil (not refined).
(a)                Of which about 4. 9 for non food uses (castor oil and a tew linseed oil)*
Source:       Ministries       of       Agriculture,       Planning       and       Development       -       Awash       Valley       Authority       special research.
Table 16- 43 -
4 /7 1 2 3
projections, of Domestic Demand for Vegetable Oil
projections have been based an an increase in pcr-c.ipita con sumption according to an income-elasticity of 0, 8 and a type of logarithmic function. It has not been thought necessary to take
any price-elasticity into consideration, even if - as noted in the foregoing - world prices of fats and oils are trending downwards. In fact, it is probable that domestic prices of vegetable oils will
not undergo any substantial variations compared with the general direction of prices (1). It has also been assumed there will be a certain increase in the demand for non-edible oils (castor oil, linseed for industrial uses, waste oils for soap factories, etc.
The increase i n per-capita consumption of vegetable oils for edible uses has therefore been estimated, from the present (196 7) figure 4. 3 kg to 5  0 kg in I 975. to over 6. 0 kg in 1 985 and to 7. 3 
r
in I 995. Considering also the demand for oils for non-food uses, a total domestic demand for vegetable oils of over 147. 000 tons would be obtained in 1975. and of over 330. 000 tons in 1995 + Moreover, taking account of the direct consumption of seeds for food uses, of the re-using of seeds for reproduction and of wastes the corresponding demand for Oil seeds would be 443. 000 tons in 
1 975 and 970. 000 tons in 1 995 (Table 1 7).
No firm projection concerning supply can be advanced at this stage. for the medium and long run. However, the room for expansion seems very large and it can be concluded, at least prelimina rly. that cropping patterns in the Project Area can without doubt include those oil seeds which, within their profi tability Limits, are able to reinforce supply.
(1)     This assumption derives from the fact that industrial oil plants will tend to limit their sale prices, in order to ex tend the radius of marketing in competition with lower priced oils produced on a cottage-industry basis.
(2)     One laundry soap plant is already in construction, with a capacity of 7,000 tons/year (destined largely to supplant imports). Over 1, 000 tons of vegetable oils will be used, in addition to animal tallow. nr MA ND OF OILSEEDS AND SEED OH J. 174? AND PROJECTIONS TOR 1F7S. J?»SANI> !?»*
5
r.ivPL.'t AND
ur
(thousan^af metric tai«)
1975
1905
1995
D ..criP“°"
^isLiiUse <»•*’
1967
(adjust.)
Annual Rates
of Glowth
1967-75
Annual Rales of Growth
1975-85
AnnualRafes of Growth
1985-95
Annual JUle*
of Growth
1947-95
410.0
17. 0
6. 0
58. 0
329. 0
105. 0
(100.0)
(5.0)
0.3
0.5
0. 1
6. 0
100. 6
5. 1
337, 0
4.280
23,500
616
25
148
4.6
789
32
110
2. 5
2. 5
3. 3
w»u •“<* ,,ed' 
(of
food              0)
fT
•«Port"
( urp»o« °
(seeds)
ProerM«d seeds
Olli produced (2)
. tdibk oils
• nan edible oils (3)
Imperil
- oil seeds (4)
•   vegetable edible oils
•   vegetable non edible oils
temtjtk de IP* nd
• oil aecde lor food uaee(1)
- vsgetable>edible oils (5)
• vegetable non edible oils
£mi*MQdgnt net domei-
dtn^nd of g>ll_«aiAs (6)
Pen-opita   consumption   of
1 009
41
2
,<hble
(kg/ye.r)
J’opuletion (thousands)
0.9
140.0
7. 5
443, 0
5.010
27.970
5. 0
4.2
5.0
KJ
2. 0
2.2
14.2
210. 0
11.6
647, 0
6.050
34.770
4.8
4. 1
4.5
KJ
1.9
2.2
21.4
315. 0
18. 0
970a 0
7.250
43. 220
4.2
4. 1
4.5
KJ-
1.9
2. 2
4.7
4. 1
4.6
KJ
1.9
2.2
(11
ft
ft
ft
(5)
ft
^eluding confectionery usee.
‘“‘•Hu. of erode oils.
and other oils for industrial uses (mainly for soap).
,. M ur r producttoo
..
^ lu,s,«i Oil. from
lrnport<d
aeede.
irn ^ovedht,d averM« fate of extraction increasing tn the projection period from 3 2 to 35% cm account of _ Pro<©swing methods (including use of solvents).
■■umed por-opiu GDP rates of growth: 2. 5 from 1967 to 1975: 2.6 from 1975 to 1 985;and
|g
9   5 to 1995.
^med income-el*sticityi 0. 8 (logarithmic function).
lnd
wii7y°  " °*  °
Q
nD
v *I«t*bl« ©Ue demand have been estimated taking account of development of soap
■ mates and elaboration on the basis of official data.- 45 -
4.7.4
Among different oil seeds, groundnuts appear to be most in keeping with present and future prospects of the domestic and foreign market.
The Groundnut Market
The major exporting countries are all African: Nigeria. Senegal, Niger and Sudan (over 40% entering world trade). The major importers are at present EEC countries and the UK.
CIF prices, European port, of shelled groundnuts from Nigeria, after hitting a peak in 1965 (about 210 US $/long ton) dropped to 
182 US $ in 1967. The trend is to decrease even more, and it
has been assumed that prices should reach 1 72 US $ within 5 years (1973). Concerning customs tariffs, it should be noted that, with the adoption of the common EEC external tariff, cer tain preferential agreements with associate African countries (Senegal, Niger) have been abolished. Nigeria nevertheless con tinues to benefit from special treatment under the Commonwealth preference. The competitive position of African exporting coun tries not enjoying any particular facilities - including Ethiopia and Sudan - now appears to be improved (1).
On the basis of the world prices quoted above and of the relevant cost elements (transport, etc.), it would be necessary to produce groundnuts at present at an average ex-farm price of about 240 Eth. $/ton (shelled), corresponding to a price CIF European ports of 180 US $/metric ton(unshelledl Bearing in mind the trend to a further decrease in this last quotation, in 1972/1 973 the ex-farm price could be 315-320 Eth. $/ton (220-225 Eth.$/ton( unshelled).
(1) Groundnut seeds whatever their origin.are exempt from duty in EEC countries; they are subject to a 10% duty in the UK (exemption for Commonwealth countries); Japan applies a 20% duty only on seeds for confectionery pur poses.- 46 -
Concerning domestic market possibilities, it is to be noted that
the great majority of present oil-producing plants use neug and otton seed, both because of their low price, and because consu
mers’ tastes are not yet accustomed to better oils. However, it
9  foreseen that there will be a relatively rapid increase in the demand for vegetable ghee; in this case groundnuts would con stitute one of the most convenient inputs, if regular supply can be gUaranteed. For the present report, the ex-farm price for exports has been taken.
4 7  5 Cotton Seeds (1)
At present, cotton seeds, the production of which is increasing rapidly in relation to the development of cotton cultivation (in 
1967/1968 approx. 16, 000 tons), are mainly exported (Japan, Lebanon, United Kingdom, etc.) and the remainder sent to the oil plants. With the envisaged increase in supplies, both uses could be developed (2).
The import price of cotton seeds CIF European port is 88 US $/ long ton, corresponding to 1 75-180 Eth. $/metric ton FOB Djibouti or Assab. The price ex-Ethiopian ginnery should be between 135 and 140 Eth. $/ton to be competitive.
At present, the ginners obtain prices below this level (125-130 Eth. $/ton), so there is already a margin to meet the likely reductions in the world price, over the medium term (for 1972/73, 83 US $ per long ton CIF, equal to 122-126 Eth. $/ton ex-gin). In the chief importing countries, including Japan, cotton seeds, are exempt from duty. To Japan, freight undergoes a 15% in crease (Eth. $ 49 instead of 32 per ton), while the CIF price is
no  different from that ruling in European ports. This circum- stance indicates that, with the reopening of the Suez Canal, the ^ajor part of Ethiopian cotton seeds will be able to be placed rn °re profitably in Europe, as occurred prior to the closure of the  Canal.
(2)
In the event of a crushing plant being set dp in the area.
*he time of the field work by the Consultant! a new o»l plant with a capacity of some Of*h^° lOn*/ycar °* mu< d oils - neug. cotton, groundnut!. etc. - wai underway. Half
*«r« to be proceeded into vegetable ghee!. There la alio a project for °* <r oil plant which would be baaed wholly on cotton ieedi.
c- 47 -
CERealS
4.8
j General
In      1966-1967,      according      to      the      latest      estimates,      Ethiopia      produced over     5.     4     million     tons     of     cereals.     The     most     common     is     teff,follow ed     by     barley,     maize,     wheat     and     other     coarse     grains     such     as     millet, sorghum, durrah, etc. (Table 18).
A considerable part of the crops is grown on the high plateaux 
under rainfed conditions. Latterly, crops have been planted on 
irrigated lands (maize, wheat, barley).
Between 1952-1 956 (average) and 1967, domestic production de
veloped at a rate of between 2. 2 and 2. 5%, or more than the rate
of population growth.
This practically  satisfies domestic demand.  Cereal-based  im ports (flour,  food  pastes,  biscuits,  etc.) at present account for
1-2% of this demand.
Per-capita consumption - expressed in terms of flour, net of waste, seeds and the very modest proportions of cereals for other uses: barley for beer, distilling, animal feed - exceeds
157 kg/year and its income elasticity appears low. Over the medium term there will probably be a situation close to satura tion, following the expected expansion of consumption of foods based on proteins and fats (meat, milk, eggs, vegetable-oils, etc.) to the detriment of foods based on carbohydrates.
As already stated in the introductory notes, cereal consumption, especially in the rural areas, occurs largely on the farms. Some Marketing, at more controlled prices, occurs in the urban cen ters, especially since the establishment of the Grains Corpora tion and the setting up of various silos.
While teff is still the most common cereal, over recent years there has been a relatively quicker increase in the consumption
maize and wheat.PRODUCTION OF CEREALS, J948-I952 (AVERAGE). 1952-1956 (AVERAGE) AND 1962-1967
(thousands of metric tons)
Crops
I 1948/52 
(Ave rage)
1 1952/56 
(Average)
1962
1963
I
1964
1 1
1965
r
1966
3
1967
Wheat
Barley
Maize
Teff and other
coarse grains (1)
Total
179
62 3
160
1,714
2, 676
184
62 6
345
1,873
3, 028
260
760
682
2. 905 4, 607
266
774
695
2,959
4, 694
282
785
720
3. 047
4, 834
292
805
727
3, 032
4, 856
315
822
756
3. 097
4, 990
330
840
770
3, 150
5. 090
(])                Millet, sorghum, durrah, etc.
Source: FAO; Ministries of Agriculture. Planning and Development. Most of these data were recently modified. In 1967 the wheat output was reported to be 740, 000 tons and the total output of cereals 5,420,000 tons.
• <•
Table 18- 49 -
For the projections of domestic cereal demand on the whole, 
an income-elasticity of 0.4 has been assumed with per-capita consumption tending toward saturation and, over the longer term, to decrease (type of function selected: log-log inverse). 
0n the basis of these assumptions, the annual per-capita con sumption should rise to just over 164 kg in terms of flour in 
1975, and to 170 kg in 1985, reaching saturation in the sub sequent period. In 1995 a per-capita consumption of 168. 5 kg has been assumed (Table 16).
To meet these consumption levels, domestic production of cere als should rise from the present 5.4 million tons to 6.8 million tons in 1975 (annual rate of increase 2.8%), to 8. 7 million tons in 1985 (2.6%), and to 10. 7 in 1995 (2.1%),
Official projections on cereal production in Ethiopia, foresee
an annual growth rate in output between 1967 and 1972 of about 2.9%. It appears reasonable to assume that, in the long run, 
this rate of growth will decline somewhat (2.5%). Since domes tic consumption is expected to rise at a lower rate (2.45%), an export surplus is likely to develop towards the 1990's (see
Table 19).
^•8.2 The Maize Market
The maize produced in Ethiopia, in areas generally not irri
gated, is almost all consumed in the areas of production, partly because the cost of transport forms a considerable part of the
final price. The ex-farm price has oscillated between 100 and 
120 Eth. $/ton.
On the international market, taking the yellow American No. 3 type aB the basis, quotations rose until 1966 and thereafter fell.
1967 the average price was about 64US$/long ton CIF London, a nd it is estimated the price will go on falling until 1969, to be come stabilized at a level of about 58 US$ per long ton.
Ethiopia in 1963/1965, the per-capita consumption of maize was 32 5 kg/year, in 1967 it was 32.8 kg/year. According to 
a n income-elasticity of 0.4 and an inverse log function, this consumption should rise to about 34 kg in 1972,50 -
Tabic 1.9
suPpljY
AND
DEMAND of CEREALS. 1967 AND PROJECTIONS FOR 1975. 1985 AND 1995
(thouaancbof metric tone)
l
De.criptiO"
1967
(Adjusted)
1975
Annual
Rates
of Growth
1967-75
1985
Annual
Rates
of Growth
1975-85
1995
Annual
Rates
of Growth
19B5-95
Annual
Ratsn
of Growth
1967-95
5.400
6. 788
2. 9
8.689
2. 5
11.123
2. 5
2. 6
wir1
action in flour
Utkalea’ (1)
|     ls(floar
Bpar
ifnivilent)
Sarpl^c for exports (do.) Domeitic consumption
(4s)
hr-opea food con- nm ption (do. )
Wiser)
T^Ul demand
(®  sereair
3.670
4.613
2.9
5. 905
2. 5
7,559
2. 5
2. 6
33
3
13
•
10
-
-
-
-
-
•
•
279
-
-
3.700
4.600
2. 75
5.915
2. 55
7.280
2. 1
2 45
157. 4
164. 4
0 55
170. 1
0. 35
168 5
-0. 1
0. 25
r
Nation (thousands)
5.450
23. 500
6.760
27.970
2.75
2. 2
8.700
34.770
2 55
2 2
10.700
43.220
2. 1
2. 2
2 45
2. 2
Net of waet
• eeede and non food consumption
A *"" ’d pwr-captu CDP rate, of growth: 2. 5 from 196? to 1975. 2. 6 from 1975 to 1985. 2. 7from I985to 1995.
n
‘"come-,1a,ticUy. 0 . (lo| lo| lBv.r,e function, additional parameter for a maximum level of eon-
.
P ,7> 6 in 1988)
,u, 'oneuit ....
■“mate. . d elaboration..
n- 51 -
h  rnai
e           ze market is slightly different from the overall cereal market, as consumption is likely to grow faster than production, 
has creating a small deficit to be supplemented by imports (see Table 20). Any new production in the Melka Sadi-Amibara area, therefore, may well be directed to satisfying domestic demand. 
g eCently, ike Grain Corporation has given a warning about an 
un due accumulation of maize stocks. Since it is expected that
t he area may produce around 20, 000 tons of maize, of which about one half would be consumed in the area itself (in the form of maize or of other cereals from the Highlands exchanged for maize), even though no marketing problems would appear to exist in the sale of the surplus output at least over the long run and for overall quan tities, it is not unlikely that surpluses may from time to time appear. In these conditions, since maize produced in the Melka Sadi-Amibara area would bear the same prices - delivered to Addis Ababa - as the maize produced in the Highlands, and since it would be of substantially better quality, the Project Area would win in the scramble and replace traditional producers. Such an occurrence is likely to appear again and again in the future devel opment of new projects in agriculture, and is a constant feature of the effects of improved technology in all countries. In any case, a possible export market, yet to be explored, exists in Saudi Arabia. Its size is not large at present (5, 000 tons), but
it could represent an interesting outlet for any surplus that may accumulate for the Grain Corporation.
Prices to be imputed to maize produced and consumed in the area should equal the price of maize produced elsewhere in Ethiopia and delivered to the area. Wholesale prices at Addis Ababa oscillate between Eth. $ 130-140 per ton, for a lower quality grade than that produced in the area. Assuming that tastes will not differentiate among maize qualities, the ex farm price in the area should average Eth. $ 155 per ton.
F °r sales to the Addis Ababa market, the ex-farm price is of bourse, lower and should average Eth. $ 115 per ton. Thus, fbe average ex-farm price of maize can be taken at Eth. $ I 35 per  ton, since about one-half of total output would be sold or. the Addis Ababa market.SUPPLY AND DEMAND OK MAIZE, 1967 ANU PROJECTIONS FOR 1975. W* ANU 1935 (thousands of metric tons)
Descritpion
1967 (Adjusted)
1975
Rates      of Growth
1967-75
1985
Rates of 1 Growth
1975-85
1995
Rates ofl Growth
1985-95
Rates of ' Growth |
1967-95
Production
Imports
Surplus for exports
Domestic demand 
(in terms of grains)
Per-capita consumption
(1)(kg/year)
Population (thousands)
770
• •
• •
770
32. 8
23, 500
976
-
8
968
34. 6
27.970
3. 0
-
-
2. 9
0. 7
2. 2
1.249
16
-
1. 265
36. 4
34. 770
2. 5
-
-
2. 7
0. 5
2. 2
1. 599
31
-
1.630
37. 7
43, 220
2. 5
-
-
2. 6
0. 35
2. 2
2 6
-
-
2. 7
0. 5
2. 2
(1)                      For the purpose of the present preliminary research, the consumption - in terms of grain and not of flour - is assumed to be only for food uses.
Notes:                 - Assumed pcr-c^jitaGDP rates of growth: 2.5 from 1967 to 1975; 2. 6 from 1975 to 1985; and 2. 7 from 1985 to 199$.
- Assumed income-elasticity: 0. 4 (log-log-inverse function). Source:              Italconsult estimates and elaborations.
Table 20- 53 -
4.9
PULSES
pulses growing is widespread throughout Ethiopia, especially on 
the high plateaux under rainfed conditions. In 1967. output was
estimated to be about 600. 000 tons. Over the last decade, out
put is reported to have increased more or less parallel with 
population growth. The most common pulses are chickpeas
(28% of the total), peas (19%). horse beans (19%). lentils (16%)
and haricot beans (11 %). The growing of horse beans and chick-
peas has increased at a higher than average rate (Table 21).
As already  noted  for cereals,  the majority  of the pulses are con sumed  on  the farms.  Barely  10% of the pulses are exported  (60- 70, 000 tons). Horse beans figure in first place, with almost
25, 000 tons in 1967, mainly destined to Arab Countries and Japan. Next come haricot beans (18, 000 tons), sold especially in Europe (10, 000 tons to West Germany alone); lentils (15, 000 tons) export ed also to Europe (especially the UK). Ceylon and the Middle East; and chickpeas (about 1 1,000 tons), mainly for Ceylon. The ex port of other types of pulses is negligible.
World trade in these products increased at annual rates exceeding considerably those of population growth. World prices have been fairly stable. Demand for Ethiopian pulses is still high. It is estimated in this respect that, over the medium and long term, 
the amount of surpluses will not rise substantially.
In 1967 the per-capita consumption of pulses is estimated to have been about 22 kg/year. According to a fairly low income-elasticity (0. 4, also in conformity with the FAO studies) and a semi-logarith mic type function, this level should rise to just over 23 kg in 1975 and to 26 kg in 1995, corresponding to a total domestic demand of 6^0, 000 and 1, 130, 000 tons respectively (Table 22).
In the long run, domestic output is likely to rise at approximately Ihe same rate as domestic demand, leaving a constant export sur plus (see Table 22). Any production of pulses from the Melka Sadi- Amibara area over and above the Area own consumption, wouldPRODUCTION OF PULSES, J948-5Z (AV. ). 1952-56 (AV. ) AND 1962-67 (thousands of tons dry weight)
I                 Pulses
1948-52 (Average)
!1952-56 (Average)
1962
—
1963
—
1964
1965
--------------- r
1966
1967
Haricot beans
Peas
Chickpeas
Horse beans
Lentils
Others (1)
T otal
69
1 34
154
96
71
6
72
150
155
100
75
8
61
112
1 62
101
91
8
62
113
165
103
93
7
63
116
169
105
95
7
63
115
168
113
96
6
65
118
172
116
98
6
67
120
175
118
100
5
530
560
535
543
555
561
575
585
(I)                Unspecified pulses excluded.
Source: FAO, Ministries of Agriculture, Planning and Development.
-4*
Table 21SUPPLY AND DEMANDOF PUL.S.ES, 1967 AND PROJECTIONS FOR 1975, 1985 AND 1995 (thousands of metric tons, dry weight)
f---------------------------------------
Description
1------------------ 1       1967
1975
Annual
Rates of
Growth
1967-75
1985
Annual
Rates of
Growth
1975-85
1995
Annual
Rates of
Growth
1985-95
Annual
Rates of
Growth
1967-95
Production
Imports
Surplus for exports
Domestic demand
Per-capita consumption
(kg/year)
Population (thousands)
585
70
515
21. 9
23. 500
759
-
109
650
23. 2
27,970
3. 3
-
-
2. 95
0. 75
2. 2
972
-
112
860
24. 7
34, 770
2. 5
-
-
2. 8
0. 6
2. 2
1.244
-
114
1. 130
26. 1
43,220
2. 5
-
2 8
-
-
2. 75
0. 55
2. 2
-
2. 8
0. 6
2. 2
Notes:         Assumed per-capita. GDP rates of growth: 2. 5 from 1967 to 1975; 2. 6 from 1975 to 1985, and 2. 7 from 1985 to 1995 Assumed income-elasticity: 0. 3 (semi-logarithmic function).
Source: Italconsult estimates and elaborations.
■- 56 -
therefore have to be marketed outside Ethion reason* indicated elsewhere in thia re pia- However> for
does not appear to be as remunerative 1 CUltlvation
 of beans
e ^that of other crops (1).
The present export flow is based on the foil Eyuf_210-2.5JLfor_haric.ot beans; Eth $ j
Prices-
Eth.$      200-220      for      lentils;      Eth.      $      160-170      f      °l°r         horse         be™s;
Eth. $ 145-160 for dry peas. 
m general, pulses traded inside the country are
farm at average prices about equal to th J Purchased ex- markets, for the same qualities Th’ °B€ °eBtlned for {°reign Addis Ababa region, where with the seV^*’ eSpeciaI1f to the poration, prices appear to be relati^i “  °f th* Grains Cor-
° r cbickpeas; and
P
paot. 
relatively more stable than in the
On the domestic market, however, the re exists a greater diversi
fication of types and therefore of prices. In general, more ordi
nary qualities of pulses are consumed domestically than are ex
ported. In this case the ex-farm prices are also considerably 
lower.
The consumption  of pulses by  the population  based  on  the area when  full production  is attained  (50-70,000  inhabitants) has been estimated at around 1, 500 tons/year.
In the case output in the Project Area does not excee
assumed
consumption.     an     ex-farm     price     of     EUr.     $     250/tun     Ira.     been     ...umed, corresponding to the price to be paid for beans o comp
quality imported from Addis Ababa.
malae:
Maia*. Cultivation coate (I 96S) per ha
241 Eth. $
Output per ha (average let lOyaara)
Price per ql
30 ql 135   Eth.S
Total revenue
405 Eth $
Revenue-cultivation coala
B *’na C
s
ultivation coati (1968) per h*
164 Eth.S
224 Eth.S
Output per ha (average lat 10 year*)
Price per ql
16 ql
230 Eth.S
Total revenue
368 Eth. $
Revenue-cultivation coati
3
144 Eth.S
p 'Ue.
**e baaed, In both caeea. on 50^ of output a old I
a'a market.- 57 -
FRUITS
4.1°
4l0 .l General
According to official statistics fruit production in Ethiopia is reported to have reached 72, 000 tons in 1967, with an annual rate of increase of almost 5% since 1961. Moreover, two-
thirds of the production is now accounted for by bananas whose cultivation, especially in Ethiopia, has extended rapidly during the last few years. The other fruits are paupaws. citrus crops, melons, various kinds of tropical crops, beside small quantities of table grapes, strawberries and other temperate climate fruit widely grown in Eritrea.
Imports amounted to more than 6, 000 tons (weight expressed in terms of fresh fruit) in 1967, including fresh, dried and various ly conserved fruits (dates, bananas, oranges, apples, raisins, jams and juices).
Exports - more than 20, 000 tons in 1967 - consisted mostly of bananas (17, 500 tons), the rest being citrus crops (mainly lemons) and various other kinds of fruit.
Domestic demand projections have been estimated assuming an income-elasticity of 0. 7 and according to a semi-logarithmic function which presupposes adrop in this coefficient, without reaching, however, a saturation point. A per-capita consump tion of 2. 8 kg is thus obtained in 1975 and one of 3.4 in 1995, corresponding to levels of domestic demand of about 80, 000 and 149, 000 tons respectively (Table 23). These quantities
are  too small, taking also into account supply from the alterna- tlve  areas (e. g. Eritrea), to consider fruit as one of the crops lo  be produced on a large scale in the Project Area.
4  10. 2
—-hS—Export Market: Bananas and Citrus Fruit
ex-farm price of bananas to enable them to be competitive ,1B e*Ports in the countries bordering the Red Sea and Persian^U^LY AND ORMAND OF" 1- RUITti,
ANT> F»R.OJECTTONS FOK 1975, 
A.T41->
(mrtric Iona, fresh weight)
/            'Description
/    1967 / (adjusted
1975
Rates of
Growth
1967-75
1985
Rates of Growth
1975-85
1995
Rates of!       Rates of \
Growth 1        Growth \
1985-95 1967-95 1
Production
Imports
- fresh and dried
nuts
- dried fruits (fresh
equivalent)
- preserved and pro cessed fruits (do. )
Exports (fresh equiv.) Domestic demand
Per-capita             consump- lion (1) (kg/ycar) Population {thousands)
74, 000
6, 300
(1, 320) (2, 500)
(2, 480) 20. 300
60, 000
2. 55
23, 500
i
79,715
2. 85
27, 970
3. 6
1. 4
2. 2
110,570
3. 18
34,770
3. 3
1.1
2. 2
149.110
3. 45
43, 220
3. 0
0. 8
2. 2
-
3. 3
1. 1
2. 2
(0                    For the purpose of the present preliminary research and due Co the lack of exhaustive data (lose and waste
between     harvesting     and     consumption,     calculation     of     not     output     (or     food     uses,     conversion     factors     Into     fresh equivalent, etc. ) the pen-capita consumption io expressed in raw terms.
Notes:            - Assumed per*c^ata GDP rates of growth: 2. 5 from 1967 to 1975; 2. 6 from 1975 to 1985. and 2. 7 from
1955 to 1995.
- Assumed Lncoms-elasticity: 0. 7 (semi-logarithmic function). Source:         Italconsult estimates and elaborations.
Table 23- 59 -
G ulf is Eth. $ 150/ton during virtually all the months of the year To  be able to export bananas to Europe, via the Suez Canal, it
^ould be necessary to produce them at about Eth. $ 120-130/ton. directing the crops towards the quality in demand (which would also enable losses to be reduced) and concentrating the consign ments into the winter months (during the summer the demand for bananas drops because supplies of many other kinds of fruit reach the market).
As a result of the closing of the Suez Canal, exports of bananas to European countries, which could be effected at competitive prices, has practically dried up. At present Saudi Arabia is almost the only importing country. This situation, added to the fact that the type of banana grown in Ethiopia is hard to sell in most developed countries, represents a serious obstacle to further cultivation.
Even in the hypothesis of the Canal being open, however, export prospects are uncertain. To bring about a substantial change in the varieties grown and to bring down ex-farm prices to about Eth. $ 120-130/ton seems to constitute a practically insurmoun table obstacle (cultivation costs per ton are about Eth. $ 100). Moreover the necessary varieties require further experimenta tion. Finally, the marketing of bananas in the present situation 
of world over-production requires the presence in Ethiopia of one of the large international banana companies: a very uncertain condition.
The exportation of oranges to European countries in the summer- autumn months was difficult even before the closing of the Canal °  account of the growing competition especially from South 
n
Africa and, to a lesser extent, from overseas Spanish Territories (Canary Island).
Moreover, i  comparison with the Awash Area, Eritrea would 
n
PPear to be on the whole in a more advantageous position for e  growing of oranges during the summer months (exploitation 
a  number of climatic strips). In this region, the ex-farm
P rice is around 100 Eth. $/ton in the months of greatest pro- Uction (November-March) and up to 300 Eth. S/ton during the
summer months (July-November). At the present time these
make it possible to export to countries bordering the Red ea  and Persian Gulf.- 60 -
The prospcCts exPorting mandarines or tangerines would 
pear to be more favorable. Ex-farm prices are about 170-
200 Eth. $/ton for October and December and up to Eth. $ 300/ton between June and October. At present exports are directed, as
is the case for bananas and oranges, to the nearest countries, 
but it is felt that an ex-farm price of between 250 and 280Eth.$ 4on 
z
vvould enable the fruit to be sold in a number of European countries, \vith shipment via the Suez Canal, Large quantities of first qua
lity mandarines could be sold in this way at CIF prices which would be competitive with those obtained by other countries (the Canary Islands. Italy, Spain and Israel). On the contrary, shipments via
air would not be profitable, even in the event of air rates being reduced.
The prospects of extending the sale of lemons and grapefruit to abroad appears less likely. In fact the first European markets
are already supplied throughout practically the whole year, while the consumption of the second is still relatively small (1).
4.10. 3 Conclusions
It has not yet been ascertained whether the production of citrus fruit in the Middle Awash can, in fact, coincide with the dead season for Mediterranean and South Africa producers. There
is, therefore, insufficient evidence for introducing these crops into the cropping patterns for the Project Area, while the market- mg prospects for large productions is quite uncertain.
The demand for grapefruit, especially in the form of canned juice, appears to be rapidly increasing in the Arab countries-
The ex-farm price of this citrus crop is, in Eritrea, 1 00- 1 20 Eth, $/ton in the months of greatest production. Small c °nsignments of iemons were sold in Italy and Switzerland
1967.VEGETABLES
According to available data, about 330, 000 tons of vegetables were produced in Ethiopia in 1967/1968 (excluding spices, ’'gesho”,  musa ensete” roots, potatoes, yams and other
n
starchy roots). Between 1961 and 1967. this production devel oped at an annual rate of increase of 2.5to2.8%. Imports have been estimated at slightly less than 3, 000 tons,including pro cessed and canned vegetables, in terms of fresh equivalent. During the last few years, exports have increased amounting, in I 967 to 11-12, 000 tons. About 9-10, 000 tons were exported to Europe (despite the difficulties arising from the closing of
the Suez Canal),the remainder to the Arabian peninsula. Ship ments of fresh vegetables to Europe during the winter months, as already noted for several fruits (bananas, citrus crops) now encounter greater difficulties. However, some exporters - especially Eritreans - are in a position to sell several types of fresh crops in the major European markets, using air transport and refrigerated ships.
Ethiopia exports to Europe mainly sweet peppers (64% of the total), eggplants (18%) and green beans and other vegetables (18%). To Arabia go mainly tomatoes and peppers.
a ) European Markets
A complete analysis of the winter vegetable demand in Eu rope is practically impossible, under present conditions, due to the uncertain effects of marketing frozen vegetables on the demand for fresh vegetables. Experience is too recent to provide an indication on the future size of the market for fresh vegetables. In other countries (e.g. the United States) with longer experience it has been shown that fresh vegetables maintain a sizeable share of the mar ket at premium prices throughout the year. However, t e applicability of US experience to European conditions still remains to be tested.- 62 -
filter interviews with traders, transport firms, and pro ducers in Ethiopia and Eritrea; interviews with importers and firms specialized in the study of agricultural trade in Italy; and a 3tudV avail bl  data, it was possible to 
ae
identify the main points which are strategic to a projection 
o
f he European market for fresh vegetables in the medium
t
term, They are:
the income-elasticity of fresh vegetables demand is not very high, and the future size of the winter market will probably be determined by the price borne by winter vegetables;
ii)       if prices of winter vegetables were comparable to those of summer vegetables, urban per-capita consumption in the winter would rise at approximately the same level as summer consumption, and a logarithmic price elasticity function can be assumed;
iii)     open-air vegetables bear a premium over glass-house vegetables.
The analysis which follows has been based on France, Germany, Italy and the United Kingdom. Other European countries - although important in the aggregate - could not be investigated individually.
For sweet peppers, European producers drop out of the market in November. Thereafter, sales of imported pro ducts in recent years have averaged some 12, 000 tons, at an average CIF price of Eth. $ l.52/kg. It may be estimated that, if the CIF price were lowered, the market could grow as follows:
Price /kg (Eth. $)
1. 52 1.36 1.20
. 88
Tons Sold
12, 000
14. 700
20. 000
33. 000- 63 -
Taking account of population growth incomA income-elasticity of 0. 5, at the lower Dri ?r0Wth an total market for this product in 1 974/1 
tons. If Ethiopia’s share in the total r WOUJd ***  °' 
°, e Uat-the
4
000
the low 1967/1968 level (30%).Ethiopia'"uM? "’'*"
0           1 at
12, 000 tons. However, it is by no 
Ethiopia's share could rise a great deal™ 'mpo’8,bIe 'hat Ethiopia enjoys a natural advantage over it. th‘8 product> Cuba and Canary Islands over the fir.t
time and better overall quality over th»   ’ or,er transport
3
duciion season. better quaiity 
water. Moreover, the Canary island, ha„ w h
input costs and relatively smaller culti„bIe J
fore appear, rea.onabie to assume that other countries „n tncrease the.r sale, a. a (probably generous) rat. of l0,T per annum (to 17. 000 ton,, from B400t.„i. |%7<8). le* 
th. remainder to be covered by Ethiopia, or 23.000 ton. „ 1,7^5
For eggplants, cucumbers and squash, European producers enter the market in March and April (glasshouse products from Holland). Sales of imported produce in recent years have averaged some 60, 000 tons, at a CLF price of about Eth. $ 1. 08/kg. If the CIF price is lowered, the market could grow as follows:
ex port some cornPetitor*
"Z"' ' °'
’
Price/kg
(Eth, $)
Tons Sold
1. 08
60,000
. 92
87, 000
. 76
145, 000
.64
190, 000
Taking account of income an pop reach 234.000 tons market at the minimum price® cou 
by 1974/1975. If Ethiopia's share in 
ilation growth, the total
total remains con some
start at its 1967 level (?%)> Ethiopl
Ethiop a
i 's share is
5.     000     tons     by     1974/1975.     .HoW*VCr;a9        are        at     present     suit- low mainly because only limit e
able for cultivation of these produc- 64 -
Since the Melka Sadi-Amibara area could grow them in large quantities, the present limitation to output should not con tinue in the future. Deciding on Ethiopia’s possible future share, however, is a difficult task. Ethiopia's competitors are Bulgaria. Spain and the Canary Islands. Some natural advantages exist for Ethiopia (longer growing season, lower labor costs), but they are difficult to assess with precision. On the other hand, could the competing countries increase their production for exports to Europe at a rate of over 21 % per annum between 1967/1968 and 1974/1975 implicit in a n ew market of 170, 000 tons; this appears an unreasonably high rate. With a rate of 15% per annum, for example, total sales of competing countries would rise from 59, 000 tons in 1967/1968 to some 160, 000 tons in 1974/1975, leaving some 74, 000 tons for Ethiopia.
For other vegetables, the analysis cannot be as detailed as for the products above. Taking only few (green beans main ly), the market could grow from 20, 000 tons in 1967/1968 at a CIF price of Eth. $ 1.20/kg, to some 55, 000 tons at a CIF price of Eth. $ 0. 80/kg. Taking account of income and population growth, the market by 1974/1975 at the lower price could be as large as 67,000 tons. Ethiopia's share, at present, averages about 5%. By 1974/1975. the same share over the larger market would permit sales of at
least some 4, 000 tons.
In conclusion, at the lower prices of the ranges indicated above, the total market in Europe for Ethiopian vegetables could reach, by 1974, some 100,000 tons under these rather prudent assumptions.
These quantities are expressed in weight, net of handling a nd transportation losses which may be calculated, on average, to be about 22% of the gross weight. Thus gross ^^ight of ex-farm sales could total some 128, 000 tons.
Frorn this total, it is necessary to subtract present exports to  Europe for the types of vegetables discussed above (some ’ °00 tons) and the prospective production out of new areas ln the Awash Valley itself (Nura Era and Abadir farms) and ,n  Eritrea (Ghinda). The latter are estimated to produce- 65 -
some 20. 000 tons by I 974/i 975 Qth
to develop in still other areas by that7 PrOducers *re likely bee n estimated at another 20, 000 tons a"d the,e have
Sadi-Amibara area, the potential is about 80, 000 tons. To be prudent
f °F the Mell«
gF °SB wei8^t)
nature        of        these        calculations,        it        has        be^11           hyP°thetical
tables     will     cover     only     10% by commercial farms for a total
o
f     the     ir~i     60       aS’Umcd       tha*     vege. 
40. 000 tons depending on the area ocTcum farms and on the yield considered Pied Cornrnerc^l
' Xploile<i
25
Production  of vegetables could  be apportioned  among  sweet peppers,  eggplants,  and  other vegetables as follows: 50%. 40% and 10%.
The relevant weighted average CLF price works out, there fore, Eth. $ 0. 78/kg. The corresponding ex-farm price depends, to a large extent, on the means of transportation. Table 24 shows the calculation of the ex-farm price accord ing to whether air-cargo, Suez Canal, or Red Sea - Egypt - Mediterranean routes are considered.
As can be seen, even with the Suez Canal closed, ex-farm prices for vegetables remain at a satisfactory level. Wit the Suez Canal open, of course, with the same ex-farm price, a considerably larger market could be created, CIF prices would decrease substantially (12%). In 
report, the size of such a large market has not been con sidered both because of the uncertain nature of these pr
jections and because of the possibility of the Suez Ca being opened cannot be expressed, at present, in y meaningful terms.
The question may arise, at this stage, as to why production of vegetables for export - having a large and profitable mar ket - has not been pushed more strongly in the past by t e Private sector. In fact, the private sector has been active - Particularly in Eritrea - wherever water and entrepreneur - ship were available The possibility of extending 8 C
Ovation in the Melka Sadi-Amibara area becomes rea s Precisely because water is available and entrepreneurship 
eer ns to be forthcoming.- 66 -
Table 24
OF   C1F        PRICES EUROPEAN PORTS FROM EX-FARM PRICES (Eth. $/ton)
D e.cripti°n
Sweet
Peppers
Eggplant
Other
260
100
190
50
50
50
40
200
580
Red Sea-Egypt-Mediterranean
200
Pr‘  ’
ce
.         weight
lrt r»P Price
^diag. unl°*   8
to port
jubitituHon of loise® conditioning
•xnmiifioni,   export   taxes, nr.pi, etc.
ujorteri' profit
FOB price
height
^agenciee
Weighted
^£l£rice
din
Air Cargo
500
20
1. 100
Saez Canal
180 90
20 20
780 690It  is clear, however, that such an enterprise is feasible only 
in so far as the area is connected to the sea by a good road- without it, vegetable growing would be restricted to the domestic market.
The Domestic Market
Winter vegetables can also be marketed in Ethiopia. Here, uncertainties on the share of the market that could be occupied by output from Melka Sadi-Amibara arc basically those relat ing to alternative supply areas.
During 1967/1968 the domestic demand for vegetables was estimated at 320, 000 tons, corresponding to about 300,000 tons in net terms, equivalent to slightly less than 13 kgfyear per capita (of which about half in the winter months).
For 1975 and 1995 the expected consumption will be 14. 2 kg and 1 7. 3 kg respectively, on the basis of an income-elasticity of 0. 6 tending to decrease during the period, according to a function of semi-logarithmic type. The corresponding levels of gross domestic demand would rise from 420,000 tons to 790, 000 tons, showing during the whole period covered by the projection an average annual rate of increase of 3. 3% (Table 25). Winter consumption would remain at about
half these levels.
There appears to be little scope for sales from the Melka Sadi-Amibara area. Such rates of growth can be obtained under rainfed conditions in farms surrounding the main urban centers.
Xbg Arabian Market
The Arabian Market is rather an unknown, due to the lack °f data on imports, consumption and local production. Eri tre a i 8 a traditional supplier of vegetables, but a large m-
Cre ase i  quantities sold seems problematical. For this
n
Reason, any growth of this market may well be covered by r itrean prod ucers.SUPPLY AND DEMAND OF VEGETABLES (1). 1967 AND PROJECTIONS FOR 1975. 1965 AND 1995 (thousand of metric tone, fresh weight)
Description
1967
(adjusted)
1975
Annual
Rates of
Growth
1967-75
1985
Annual
Rates of
Growth
1975-85
1995
Annual
Rales of           | Growth
1985-95
Annual
Rates of Growth            , 1967-95
Producti on
Imports (2)
Exports
Domestic demand
- in raw terms
- net of wastes
Per-capita net consump
tion (kg/year)
Population (thousands)
330
3
12
320
303
32. 9
23.500
420
397
14. 2
27.970
3. 4
3. 4
1. 2
2. 2
580
549
15. 8
34. 770
3. 3
3. 3
1. 1
2. 2
790
748
17. 3
43,220
3. 1
3. 1
0. 9
3. 3
3. J
1. 1
2. 2
■-------------------------------------------------------
(1)                Excluded, potatoes end other starchy roots. Onions. garlic, aweet peppers, chi the a are included.
(2)               Including processed vegetables (frosh equivalent).
Note st - Assumed par-capSta G DP rates of growth: 2. 5 from 1967 to 1975. 2. 6 from 1975 to 1985; and 2. 7 from 1985 to 1995.
. Assumed Income-elasticity: 0. 6 (semi-logarithmic function). Source■ lialconsult estimates and elaborations.
Tiblt 25r
- 69 -
foniatoes
orts  to Europe are virtually non-existent. Those by air
famine selling prices to the consumer that are absolutely 
t of proportion with those of canned "peeled" tomatoes, with ° Ue result that the few sales made interest very small quantities. Tomatoes sent by sea arrive at their destination considerably altered by "freezing” (this also occurs if they are sent through the Suez Canal).
Hence the present few sales are made at short distances (in the countries bordering the Red Sea), apart from those on the home market, where .absorptive capacity could increase provided prices were reduced. Another alternative to boost supplies has been indicated with the creation of a canning factory. The pro fitability of this, however, must be looked upon with many re servations.
Present ex-farm prices range widely during the various periods; from 70 to 130 Eth. $/ton in Eritrea, from 100 to 200 Eth. $/ton, in other regions.
Onions
Prospects of exporting onions to Europe (at present almost nil) are  uncertain. Exports could, however, be made from October
by sea (air-conditioning is sufficient on board), mainly *° the United Kingdom and to North-Central Europe, where the
e mand tends to increase, starting from an ex-farm price of
(whT°re than 140-180 Eth- $/t°n for thc 9ualitym09t in demand
dit io
c
n  e8ent tEe Lillies grown on the plateaux, under_ 
'-ported to many countrie. into tarn •<
he,' 8' '■> their natural „at. i. e. ..mi-dry- A foreign 
'*.ed”n,1V invested in a plant for oil «tracuon near Addie «e»       * Ptsteau production. Marketing prospect, o
diction do not appear favorable.- 70 -
jjvestock products I?
Because of the health-nutrition situation of the animals in Ethiopia
.   death-rate is high. Thts circumstance, added to the need to 
e
uS e the animals for agricultural work and other unfavorable fac ers. is reflected in a small rate of increase in total numbers (about I % Per *ear over the last ten yearB- and 0- 5% during the
last five-year period).
From these factors derive the need to find methods aiming at giving priority to the qualitative improvement of the species, and at providing greater meat supply for the home and foreign market as well as greater supplies of milk, which at present
are not sufficient to meet the demand.
In the last few years the total demand for meat has in fact risen not least because exports - above all of canned meat - are under going favorable development (1 16-130, 000 head slaughtered be sides 5-100. 000 head of cattle and 60-100 thousand head of sheep or pigs sold on the hoof) (1).
(1) There are at present some ten or so firms which export canned meat (and a small quantity of frozen meat) to coun tries where imports from Ethiopia are not forbidden. Three of these have a slaughtering capacity of more than 20, 000 h ad/K£ar. According to the programs approved by the
e
Authorities, it is expected that for 1972 the present exports canned and frozen meat will be doubled. More limited 
a Ppear8 the exportation of live animals, which will almost ex dusiveiy consist of sheep and goats for countries bor
Red Sea.- 71 -
animals from the stockraiser to the shujhter-
sag  °i
c
gu rner takes different forms from region to
fhe
to d»e
are  likewise differentiated (I). The lack of
3                  rlcC
w                      a9 guc
hjle P            h prevents reliable and unambiguous
;egiOaani7-cd ^.Livestock and Meat Board", recently set up at
^'»’ A ba. »>’
e     The
a
the
Midi* AO
^et*
lated 
th
at
each 
year
;t    is
calCBearin
g 
in
min
d 
^“Id 
meat),    it
has
be
en 
o{ controlling and regulating this
2.   3-2.   4   million   head   of   cattle   are exports     (in     the     form     of    frozen    or
estimated    that    the    present    per-capita
canned m
< onSUin.P^
era
, g , j_14 kg per year in terms of carcass- g  weight 130 kg). Per-capita consumption of all
e
* elght f imeat is estimated at about 27 kg. a level which is
type
among *nc ®
’
hiohest encountered in developing countries,
Assuming the income-elasticity calculated by FAO (2), i.e. 0. 7. and admitting that this coefficient tends to decrease in the medium long term (thus using a semi-logarithmic function), in 1985 per- capita consumption of meat would not be less than 34 kg. This would presuppose an increase in the supply of meat for the do mestic market and an annual rate of increase of about 3.5%. 
This rate would not be easy to reach without an adequate pro gram for the reinforcement of the livestock population.
(I) Al a gold. only, below ar. listed aom. price
Ababa market (In Eth.
•     price paid to the •tockral.er by
Industrial daughter-houac or on tn
liveweight
•     aelUng price, at th. central • laught.r-houK.
. boaf quoted l» Addlf
from 0. 32      0 50
’ retail .oiling prices applied by Supermarket lo the quality a"d
•d from the central .laughter-houa«) acco
cboaen
r *Ull aelling price, applied by oth.r local • 
“bUin.d from the central . laughter-hou.e ”
..lling price, applied by th. •«“» "‘'“‘J*, oo .M <'* ( »e«t obtained from the central .laugher
0<uSl O-Z 00 (me*1 ob<*4n'
0
t
40-1 20 (»••’
( <t market)
0 50*0. 40
n
by     quarter or by carcaea.
* ,,lCul'ur*l ommodilie. - Projection, (or lSl» »
C
od *’- 72 -
consumption of meat in the
a total population of 50-TOJXiO inhabitant, .  "'L' 
h
«’■’ reiiminari ly and as a guide, at about 1.600 
‘"'“^er-eapita consumption nt 27 kg). half ol -.hieh is
Seattle meat, accord,ng to the present distribution ol gumption by type..
urpose of calculating the value of production in the for the P‘reat an average price of Eth. $ 0. 35-0. 50/kg, live- Pr °^C has been taken’ calculated from a ?rice of Eth S 0 40 
weigh  ■ cweight. at the central abattoir in Addis Ababa 0. 50, kg
tit  ''
1
j Milk
There is no precise information on the overall production of milk in Ethiopia. On the basis of the number of milking cows and on average unit production - about 1.25 liters/day - total production has been estimated at 1.4 million tons. To this must be added 140 thousand tons of sheep's and goats' milk. Overall production would thus be about 1, 540, 000 tons at pre sent.
Including imports (powdered milk, condensed milk, milk, butter, ghee and cheeses) expressed in res
valent, a total domestic consumption of more
is obtained and an annual per-capita gross consumption °fmilk for all uses (1).
ofl0ton,
P
^ »ter
lr
10 ^bsolm  rr»
e
s       kj     aJ° ty 
° CcQrs
ri            of     the     milk     produced     is     consumed     by     the ar ^etingt as for the other agricultural products.
exclusively in the zones centred on Addis Ababa
(1) P -----------------*___ ____ _______ _________________
nece
* °  the
ssa P
r
Ur ?Oses °f the present study it has not been felt
^ ClassifieH tO deduct the
feedi
n
processed into butter and ghee ^ ts among fats and oils) or that used
s
c
l
d ° Uxr entn8 llve®tock, or the wastes. According to FAO
C ^ es
e
es
S * net consumption of milk as a foodstuff, including
° QJd amount to 54 kg per capita in 1965 in Ethiopia.- 73 -
,„d Asmara and, to a lesser extent. in lh, non rura[
.
of °thcr min°r center’- >" th' >»« cities named ,lbove
h e milk is delivered to the respective depot, lor
and pasteurization.
On the Addis Ababa market, the farmers are paid about 0,25-
0  30 Eth. $ P<^ l^er and the milk is sold to the collecting depots a * o. 50 Eth. $ (losses and waste account for about 15%).
The pasteurization milk is sold in half-liter bottles, for a price of 0. 50 Eth. S (bottle to be returned) and thus at Eth. $ 1 per liter, a price which is undoubtedly* high if referred to the low incomes of the country.
Milk requirements for the future population of the irrigation area have been estimated at 3, 200 tons on the basis of a per-capita consumption of 53-54 liters/year. Should local production not be in a position to meet consumption, the milk obtained from the "collecting depots” in Addis Ababa and transported to the Area could be sold there at 0. 50-0. 55 Eth. $/liter, giving rise to a local ex-farm price of 0. 37 Eth. $/liter.
SUGAR CANE
In the Present modern sugar estates at Wonji and Metehara owned th * HVA - a company with Dutch capital - sugar production is
al «-eady sufficient to meet almost the entire domestic demand (1). 
^ Uring the 1 966/1967 crop season domestic production of cane l95°?U/nted tO 850, 000 tons (avera8  annual production during
e
8o  & 1 957 was 1 40, 000 tons), with an output of more than
°° tOna of crystallized sugar.
1967, sugar imports of various kinds amounted to 2 ‘800 tons.- 74 -
Per-capita consumption has increased sharply over the last few
years although it still remains at a rather low level; it was re
ported to have been 3. 2 kg in 1967. It is to be noted that, when 
sugar was not produced in the country and imports were kept low, 
large amounts of honey were consumed in its place (in fact, large
amounts of honey are still eaten in the rural areas).
According to the HVA, sugar production from the present estates
in Ethiopia will be able to meet the growing demand at least un
til 1978. In this year demand will reach, according to a medium
hypothesis (income-elasticity coefficient 1.2, logarithmic func-
tion) 135, 000 tons on the basis of about 4. 5 kg per capita. It is
to be noted that domestic production is amply protected and that
the prices which would have to be applied to possible exports
would be much lower than those likely to be profitable for the
present producers.
In    this    study,    the    crop    has    not    been    analyzed    in    detail,    consider ing:
a)       that present thinking among sugar cane producers is to 
diversify cane cultivation regionally, avoiding further con
centration in the Awash Valley;
b)           that     cane     cultivation     and     sugar     milling     require     long-stand ing     experience     and     specialized     knowledge,     which     cannot     be obtained today in Ethiopia outside the present producers;
c)       that, more importantly, it is doubtful whether continuing domestic production of sugar is an economic proposition, when world market prices remain much lower than the costs of production in Ethiopia, and are expected to re main at such levels.- 75 -
processing industries
5.1 INTRODUCTION
The feasibility study of the irrigation area of Melka Sadi-Ami - bara does not include an analysis of the profitabijity of plants processing the main crops produced in, the^Area. In other words, this study does not include investment in processing plants as part of the project.
It is necessary, however, to show that the installation of such plants is likely or that productive capacity for processing al ready exists, in order to avoid a situation wherein the output
of the area cannot be marketed for lack of processing facilities.
An important exception is that of tobacco curing plants. These are an integral part of the tobacco cultivation process in Ethio pia, and both their current and capital costs have been included in the economic and financial calculations of the project.
In the following paragraphs, the need for processing plants will be examined, the availability of private entrepreneurship for their setting up or expansion will be assessed, and their rela tionships with the irrigation will be studied. The study is based on extensive interviews with entrepreneurs in Addis Ababa and Eritrea.
i
COTTON GINNING
Only  one ginnery  operates at present in  the general area of the project, that at Tendaho, belonging  to  T. P. S. C. However, the owners of a ginnery located at Addis Ababa have for some time
I- 76 -
been considering the possibility of setting up another plant in the Middle Awash (1).
According to the alternative cropping patterns, and thus to the
various levels of seedcotton output, it is possible to set up one
or more plants consisting of one or more batteries, made up of
3 gins and one baling press. As a rule, each battery should prod uce 8 standard bales of lint per hour (480 lbs equal to 218 kg). Thus, a ginnery of the minimum economic size (one battery) would have a theoretical capacity of more than 40 tons/day equal to about
110 tons of seedcotton (three shifts of eight hours). Considering 
that a ginnery is in full or practically full operation for about
5 months (from November to March, for the harvesting calendar
of the Middle Awash), the maximum productive capacity for that period would amount to about 5, 000 tons if three shifts were worked (1 3, 500 to 14, 000 tons of cottonseed) and to about 3300 tons if two Bhifts were worked (about 9, 000 tons of cottonseed).
Private enterprise is eager to invest in these facilities, and no serious obstacles exist to the realization of new plants, if produc tion should in fact develop. Their location, however, may not be on the irrigation area, since other production areas in the Awash basin would also utilize the new plants.
(l) The reason is that all the cotton ginned in Addis Ababa comes from the Awash Valley. The owners of the ginnery think that it would be advantageous to process the cotton on.site and transport the fiber to Addis Ababa and the 8^e_d Jp_Asjab. (ex
-
port) and/or Addis Ababa (oil mill) rather than transport the seedcotton to Addis Ababa, both to save on transport costs and to avoid loss in quality, due to the present state of the tracks and roads.- 77 -
5.  3 TOBACCO DRYING PLANTS
Drying plants for tobacco are without doubt necessary in the Produc tion Area. This is what farmers are doing at present and what the administration of the State Monopoly suggests. The Monopoly grades and fixes prices of tobacco after the first curing (practic ally only the small farmers, on account of their small financial capability, deliver the green leaf to the Monopoly).
A curing plant will have to be technically equipped to grade, cure, process and pack the tobacco leaves collected. A minimum econo mic size is considered that capable of treating 10 tons per day of fresh leaf. Calculating an average loss of 80%, the production of dry baled leaf is 2 tons. The period of full operation varies accord ing to the harvesting calendar, climatic conditions, etc.
The costs of investment and operation, adopted in the feasibility study, have been estimated on the basis of the experience acquir ed by the Tobacco Monopoly and by the farmers in the Awash Valley. These have been checked with supplies of machinery in Europe.
5. 4 SEED-OIL MILLS
Two unfavorable factors would seem to advise against the setting up of an ail mill in the irrigation district: the unpromising possi bilities of export of oil vis-i-vis seed (imports of the former arc subject to duty by the EEC, while imports of the latter are not)
and the decentralization of a plant which requires a minimum of industrial services (available only in the area where other indus tries are operating), which would not be economically worthwhile creating locally. Moreover, unused capacity exists in Hamar and private enterprise appears willing to expand it, if production de velops. In any case as shown in the market analysis, it is likely that production from Melka Sadi-Amibara may be mainly exported in the form of seed.- 78 -
5.5 VEGETABLE CONDITIONING
This is an indispensable activity in the area. A vegetable center
with refrigeration plant and a department for processing the pro-
ducts would enable:
The collection  and  grading  by  types,  and  uniform and  homo geneous quality  of the various products,  improving  their ap pearance according to the requirements of the market:
The staggering of export consignments, when necessary;
The utilization of more suitable packings, with criteria of standardization, thus ensuring greater economy in pur chasing;
The more economical employment of means of transport by using rational loads.
It is thus advisable to create a common organization for such services and consequently provide coordination between produc tion and exports (1).
The "center” could consist of a structure for pre-processing, refrigeration, conservation and packing of products to be mar keted fresh. The structure should be equipped with a pre-re frigeration plant and an air-conditioned workroom. The dimen sions and the capacity of these plants should be determined by the expected average stocks and rates of supply of the various products.
Although facilities for vegetable conditioning ar e necessary at the project area level, since vegetables cannot be shipped toport un less conditioned, such facilities have not been made part of the
(1) Cooperation can also take the form of suggestions made by exporters on indications by foreign buyers, to the growers regarding the type and characteristics of the products most in demand.- 79 -
project. The reasons are, principally, that the private sector iB already very active in this field - in Eritrea - and is willing to take up the conditioning and all other facilities (refrigerated transport to port; cold storage at the port) needed for exporting vegetables to Europe. Moreover, one large and experienced Eritrean exporter has already asked for a concession in the Melka Sadi-Amibara, and may well himself provide the needed facilities.
5. 6 CONCLUSIONS
No serious difficulties exist for the setting up of new plants or the expansion of existing plants for the processing of agricultural crops grown in the area. The private sector is active in this
field, and is already interested at the prospects of investing in the area or for the purpose of the area. The private sector is experienced and can undertake the job competently. In all calculations of ex-farm prices for the products included in the area's possible future cropping patterns, the profit margin at present enjoyed by processing industries has been taken into account. Such profit margins are large and constitute an incen tive for expanding activities.6.  CREDIT SITUATION
INTRODUCTION
While a full survey of the present credit situation in Ethiopia is outside the scope of the present study, the elements of the situation which bear on the financial position of the project must be analy zed. For this purpose, the following pages will investigate the lending institutions, their resources, procedures and terms of lending, for short and medium-term credit. A brief analysis of suppliers' credits locally available will also be undertaken.
SHORT TERM CREDIT
There are four commercial banks in Ethiopia with business of a
national character. They are constantly expanding over the national
territories and, by and large, are able to fulfil their role in 
commerce and industry. In the agricultural sector, on the other
hand, commercial banks have had little or no activity, partly 
because facilities and personnel for supervising short-term credit
cannot readily be made available; and partly because the few
modern, large-size commercial enterprises have not had major
short-term credit requirements. Thus, most of the financing of
agricultural production - and, in particular, of coffee, the main 
export commodity - has been the responsibility of traders, who, 
in turn, have been able to receive commercial bank loans. There
is little doubt that an irrigation project of the size of Melka Sadi-
Amibara shall give rise to a demand for short-term loans. For
the few commercial farms expected to establish themselves
in the Project Area, present commercial bank regulations should 
permit the granting of short-term credit. The location - on the
main Assab - Addis Ababa road - the concentration of enterprises
and the existence of a responsible body (AVA), should be sufficient
conditions for one or more commercial banks to open a branch in 
the area.
The     cost     of     short-term     borrowing     can     bo     estimated,     for     the     purposes of the present study, at 8, 5% per annum.- 81 -
MEDIUM term credit
There are a variety of institutions that engage in medium-term
agricultural credit. Those which have an organization and re
sources adapted to the needs of the Melka Sadi-Amibara area are, 
in practice, only two: the Development Bank of Ethiopia (DBE)
and the Commercial Bank of Ethiopia (CBE). Other institutions, 
such as the Ethiopia Investment Corporation (EIC), seem to be
mostly interested in sectors other than agriculture.
The DBE is not exclusively geared to the agricultural sector. 
However, about 50% of its outstanding loans, as of the end of
1966, were for agriculture, of which about one-half in non-coffee
branches. The DBE has a variety of sources for its loanable funds:
a)   the Government, which up to 1967 had contributed some Eth $
1 1 million, either from its Treasury or from IBRD financing;
b)   IBRD and USAID loans totalling USS 4 million;
c)   tied credit lines with France, Belgium and Yugoslavia, which have not been used to date;
d)   a German credit line, untied, in an amount of Eth. $ 6. 25 million.
Apart from (c) and (d) above, all other resources were fully utili zed, and DBE lending would have to be based only on the repay ments of past loans. No new source of funds is in sight, from within the country. Future activity will thus have to be based on point (d) above, plus new borrowing from international institutions. The possibility of utilizing tied loans under (c) above exists; how ever, their non-utilization up to now indicates that serious problems exist, connected with the difficulties in making borrowers accept Roods and services from a predetermined source, at prices often not competitive.
Moreover, by the time the Melka Sadi-Amibara project is imple mented, both sources (c) and (d) may well have been exhausted. Thus, medium-term credit requirements for the Melka Sadi-Ami bara project will most likely have to come from sources not yet in sight. This implies that coordination between AVA and DBE is imperative before the launching of the project.- 82 -
The interest rate charged by DBE for agricultural loans is 7%;
the grace period can be extended for up to 3 years, and the total
life of the loan spans over 10 years. DBE requires a first mort
gage on real property and machinery, in the proportion of 200%
of the value of the loan as security. While the interest rate appears
a subsidized one, which could not be sustained if the bank now had recourse to the local capital market or to international financial institutions, collateral requirements appear extreme. Thus, 
assuming that new resources could be found, borrowing by commer cial farms in the Project Area can be assumed to take place at a higher interest rate (9%), but with substantially liberalized colla teral requirements.
Problems of credit supervision should not arise for DBE, as the
area is territorially limited and AVA will possess a full staff
which should be in a position to assure the bank as to the farmers' efficiency.
A possible alternative to DBE financing is recourse to CBE. It
is not possible to anticipate, at this stage, whether CBE will
have the necessary resources to satisfy the Project Area's
medium-term credit requirements; thus, it will be necessary for AVA to contact CBE, by the time the project will be implemented. CBE is the major commercial bank in Ethiopia, and it has had 
some activities in medium-term lending, including the agricul tural sector (Tendaho plantation, in the lower Awash Valley). In principle, there should be no obstacles to lending to commercial farms in the Middle Awash area. At least CBE's subsidiary for building loans (Mortgage Company of Ethiopia) could finance the building investment in commercial farms. It is unlikely, however, that CBE will agree to become the sole lender of medium-term funds, and the presence of DBE in the Project Area is thus needed. CBE’s terms of lending are agreed, from time to time, on the
basis of negoti tions with prospective borrowers. It appears a reasonable assumption that terms will be the same as those assumed for possible future DBE lending. Credit supervision should not pose any serious problem for CBE. While other commercial banks may be willing to undertake similar initiatives, it is unlikely that they have the experience and skill required for financing agricul tural projects.- 83 -
In conclusion, medium-term lending to commerical farms is institutionally possible and feasible. Problems exist, however, in the availability of loanable funds, and AVA initiative will be called for to ensure that local or foreign resources are mustered for the project’s credit requirements.
SUPPLIERS' CREDITS
Local suppliers of agricultural machinery may extend a limited form of credit to their buyers. Such credit takes the form of a 2-year loan, at an interest rate of 10% per annum, secured on the the equipment sold, and covering up to 50% of the price of the equipment. Recourse to suppliers’ credits, although more expen sive than medium-term credit, should be taken into account for reasons of prudence when assessing the financing of the project. As little is known at present regarding the availability of medium term credit, it appears safer to rely, for equipment purchases, on known sources of finance, such as suppliers’ credits. Further more, farmers appear to prefer to deal with suppliers, for equip ment financing rather than with banks, probably because the former do not have collateral requirements, and because they are more willing, when financing, to extend assistance in repair ing and spare part stocking. There is a fair chance that such credits will not imply a rise in the purchase price of the equip ment, as competition among suppliers exists on the Ethiopian market.
CREDIT TO THE SETTLEMENT SCHEME
Apart from a few instances, dispersed in time, of bank credit to cooperatives, in practice no credit institution is at present geared 
lend to cooperatives. This is a problem for the Settlement Scheme which, moreover, is not in fact supposed to become a cooperative scheme before a number of years from the date of implementation of the project.
When describing the project, in fhrt 111, this question will be further studied. However, it will be necessary for AVA to coord inate it  action on the Settlement Scheme with DBE and with 
s
commercial banks, well in advance of the implementation date.- 84 -
7.           DETERMINATION OF FEASIBLE FARM SIZES
7. l INTRODUCTION
During the course of the study, it became apparent that decisions
by AVA on the size of commercial farms to be assigned to concessionaries, should be accompanied by an analysis which could provide the basic guidelines for such decisions. The Consultants were therefore called upon to establish such guide lines.
The analytical approach to the determination of feasible farm
sizes in the Melka Sadi-Amibara irrigation area,was based on the following considerations:
a)        any limitation on minimum size imposed by credit prac tices, tax policies, qualified manpower availability;
b)       behavior of unit costs at varying farm sizes.
After an in-depth survey in Ethiopia based on discussions with the competent authorities, and further study of farm costs, the Consultants concluded that the minimum feasible farm size is of about 400 ha and that the optimum size is probably of about
1» 000 ha or above.
All sizes referred to in this section are understood as the net cultivable area.
7 - 2 CREDIT PRACTICES
7 - 2 1 Medium and Long-Term Credit
Policies of the Development Bank have changed considerably in tecent years, shifting from small loans to a multitude of small farmers to larger loans to bigger size farms. The reasons for
the policy shift were:- 85 -
a)       difficulties in collecting loans when they are spread among many beneficiaries and over a wide area;
b)       uncertainties as to the economic benefits of small loans for traditional agriculture;
c)       problems of assuring coordination between lending and technical assistance activities.
Nevertheless, no lower limit to farm size is established in principle by the Bank, and nothing prevents it from extending loans to small farms, particularly if the latter are concentrat ed in one area and are assisted by an organization like AVA.
7. 2. 2 Short-Term (Crop) Loans
Here again, nothing prevents commercial banks from making loans to small farmers, provided, however, that they have the assistance of an organization like AVA. In practice, rela tively little crop lending has been done in recent years outside the coffee sector.
7. 3 TAX POLICIES
A definite lower limit is implicit in the Investment Proclama tion” No. 242 of 1966, whereby a 5-year income tax holiday is granted to investors, if the invested sum exceeds Eth. $ 200,000, or when the investor’s equity contribution alone exceeds this sum. Taking the most restrictive interpretation, this sum corresponds roughly to the investment needed in a farm of about 400 ha in the Melka Sadi-Amibara area.* 86 -
7. 4 MANPOWER AVAILABILITY
A possible limitation to the size of farms could have been the availability of qualified manpower - principally, experienced small farmers.-. If such manpower could not be found in suf ficiently large numbers, the number of farms would have had to be reduced. Such availability cannot, however, be assessed with precision. That experienced farmers are rare is an immediate conclusion, as irrigated farming is still very limit ed throughout the country. But the extent of the limitation could not be ascertained.
7. 5 UNIT COSTS
On the basis of the appraisal described above, it became soon clear that only an analysis of the variability of unit costs of future farms, at the change of farm size, could give a satis factory answer.
Ideally, a full financial analysis for many farm sizes should have been undertaken. Time constraints, however, prevented taking this course, and a simplified approach was followed.
This approach consisted in analyzing all farm expenditures, identifying those which do not change proportionately with the size (or, in other words, those which do not remain fixed 
on a per ha basis). Then costs are:
a)       investment and operation costs of agricultural machinery and implements;
b)       overhead personnel expenditures.
Other minor coat items may also change on a per ha basis
(e. g, housing for the management of the farm), but they norm ally derive from the two major categories mentioned above. For the first category of costs, a complex analysis was under taken, based on the machine-work diagrams (see Part. II,Vol. B).r
- 87 -
|
I
For each cropping pattern, the requirements in agricultural machinery were calculated for different sizes of farms. It
has been assumed that no cooperative or commercial enter prise for machine rental would exist in the area, as is the
case at present for the other irrigation areas in the middle
and upper Awash basin. Tables 26-28 show the machine fleet needed on farms varying in size from 100 to I, 000 ha.for the three cropping patterns ”A", MB'* and "C" (only the first 10- year period of each cropping pattern was considered). Fig. 1 shows the investment costs per ha for the three cropping pat terns and for each farm size.
For the second category of costs (overhead personnel expen ditures) the requirements in personnel at the central level
for each farm were studied: they are shown in Table 29 which also includes the annual salaries for each category of person nel. These costs do not change with size either. The unit
costs used in the table are slightly lower than the unit costs which have been adopted later on in the calculation of both economic and financial accounts. This difference does not alter the results. Fig. 2 shows the annual expenditure on 
this account, per ha, for farm sizes ranging from 100 to 
1, 000 ha.
In order to show the effect on unit costs of both phenomena, they were combined in a single chart (Fig. 3), which adds
the costs per ha as shown in Table 29 to a fixed percentage (20%) of the costs per ha shown in Tables 26-28. This per centage is in lieu of an average annual cost of the whole ma chine fleet. The new chart clearly confirms the indications
of the previous charts.
These are, in brief:
a)       that the decline of unit costs decelerates substantially for all cropping patterns at 400 ha;
b)       that the next decelerations occur at 600 ha, 800 ha and 1, 000 ha;
c)       that for the range of sizes surveyed. 1.000 ha represents the minimum unil costs.MACHFNE FLEET, CROPPING PATTERN "A" - I •< PERIOD
Minimum Fleet for Ha
Type of Machine and Implement
Ha
R-r Machin.
Machin.
Retail Price
(Eth. 5)
100
200
100
400
500
600
700
100
900
1, 000
1. too
1. 300
1. 500
1, 700
Tractor (45-70 HP)
Plough
Harrow
Furrowor
Ditcher
I-a nd leveler
Trailer
Drill
Cultivator
Dlgger-.haher
Knapsack sprayer
TOTAL (Eth. $)
Par ha (Eth. $)
106
313
62$
765
5. 000
•
1.250
769
154
-
905
12.SOO
I. 550
I. 550
1.050
710
I. 100
J. 000
1. 600
I. 050
I. 000
SOO
1
1
I
I
I
2
I
1
1
1
3
1
I
1
1
4
Z
1
1
1
5
2
1
1
I
6
2
i
1
1
7
3
2
1
1
8
3
2
1
1
9
3
2
2
I
10
4
2
2
I
11
4
2
2
i
13
5
2
2
1
IS 16 56
3
■
2
I1
1
1
I
I
1
2
i
1
2
I
I
1
I
I
4
I
1
4
I
1
5
1
1
6
1
2
6
1
Z
7        ! 1
I
2
9
1
2
9
1
I
1
1
I
1
1
I
1
1
2
z
22 23
10 |       11
I
22
1
23. 330
233.3
16. 880
184.4
49. J80
164.6
64.480
161.2
78, 030 156.1
1
90,530
150.9
107. 180 153. 1
i 20. 730 150.9
135. 880 151.0
—
151.280
151.3
164.830 149.8
192.430
148.0
223. 030 148. 7
240. 780 141.6
Note;    A    degree    of    flexibility    ha.    been    applied    in    determte.Ung    number    of    tractor,    (or    each    alee.    due    to    the    fact    that,    in    all    cropping    pattern.,    the    u.e    of    tractor,    for    purpo.e.    of    transportation parrnlt.    tome    elasticity    in    the    peak    liming    calculated    in    the    machine    diagram..    For    cropping    pattern    A.    th.    flexibility    I.    |Q%    (I.    e.    if    I.    10    tractor,    are    needed,    one    tractor    only    ha.    been
allowed), while for cropping pattern. H and C. th. HeubUity I. 30%.
y*
Table 26MACHINE FLEET. CROPPING PATTERN "B“ - lat PERIOD
Minimum Hoel for Ha
i
Type of Machine and Implement
Ha
Per Machine
Machine
JU Lail Price
(Eth. $)
iOO
200
JOO
400
500
600
700
800
900
1.000
1. 100
1. 300      j 1. 500
1.700
Tractor
Plough
Harrow
Fvrrowcr
Ditcher
Land leveler
Trailer
Drill
Cultivator
Digger-ehaker
Knapsack sprayer
TOTAL {Eth $)
Par ha (Eth. $)
IM
455
588
I. 424
5, 000
1. Ill
119
1.429
250
•13
29
12.500
I. 550
1.350
1.050
730
I. 100
1. 000
1. 600
1.050
1. 000
100
1
1
1
1
1
1
I
1
1
1
4
2
I
1
1
1
I
2
I
1
1
7
3
1
1
I
1
1
3
1
2
1
U
4
1
1
1
I
1
3
I
2
1
14
5
1
1
■
1
1
4
I
2
I
IB
6
2
1
I
1
5
1
3
1
21
7
2
2
1
1
I
5
1
3
I
25
6
2
2
■
1
1
6
1
4
1
26
•
2
2
1
1
1
7
1
4
1
32
9
3
2
1
1
8
1
4
2
15
10
3
2
1
1
1
S
1
5
2
18
12
3
3
1
1
2
10
1
6
2
45
14
4
J
1
2
11
1
6
2
52
16
4
3
2
1
2
13
2
7
2
59
26. 330
263.3
42. 710
211.7
60. 460
201.6
73. 6B0
164.7
90. 580
111.2
109. 560 162.6
124. 630
176.3
142.260 177.9
146.480
162.6
165.410
165.4
179. 660
163.5
216.680
166. 7
.48. 330
165.6
265. 130
167. 7
Tibia 27machine fleet, cropping pattern "C" - l.t PERIOD
Minimum Fleet for Ha
Type of Machine and Implement
-------------------- r
Ha
Per Machine
Machine Retail Price
(Eth. 4)
100
zoo
100
400
500
600
700
400
900
1. 000
I. 100
1. 300
1. 500
1. 700
Tractor
Plough
Harrow
Furrower
Ditcher
Land leveler
Trailer
Drill
Cultivator
Digger-ahaker
Knapaack sprayer
TOTAL (Eth. *)
Per ha {Eth. $)
114
246
714
1.250
10. ooo
1.447
147
I. DOO
204
1.250
55
12, 500
I. 550
1. 550
1. 050
710
1. 100
1. ooo
I. 600
1. 050
>. ooo
300
1
I
1
I
1
1
1
1
I
2
2
1
1
1
1
I
2
1
I
1
4
1
I
1
1
I
1
2
1
2
I
6
4
2
1
1
I
1
1
2
1
•
5
2
1
1
1
1
1
1
1
I
10
5
2
1
1
1
I
4
1
1
1
12
6
3
I
1
1
1
5
1
4
1
14
7
3
i
1
1
1
5
1
4
1
15
8
4
2
1
1
I
6
I
5
17
9
4
2
1
1
1
6
1
5
1
19
10
4
2
1
1
1
7
1
6
1
21
12
5
2
1
I
1
a
2
7
1
25
13
*
• S
2
1
1
9
- 2
4
2
29
15
6
3
2
1
I
11
2
9
2
12 ,
25. 710
257.1
41. 430 200.2
1
55. 950
146.6
75. 630
104. 1
4 7. 740
175.6
91. 180
152.5
no, ooo     124.410      145. 130 157.1           155.5          159.0
156. 230
156.2
1 73. 380 206, 780
157.6 |    159. 1
229.640 153. 1
262. 430 154. 5OVERHEAD PERSONNEL EXPENDITURES FOR FARMS OF DIFFERENT SIZE
(in Eth. $)
100 ha
200 ha
300-400.ha
500-600 ha
700-800 ha
900-1. 000 ha
Personnel
Number
Annual
Cbet
Number
Annual
Coat
Number
Annual
Coat
Number
Annual
Coot
Number
Annual
Coat
Number
Annual
Coot
Entrepreneur-Manager
Aeeietant
Accountant
Stores officer
Driver - mechanic
Watchmen
Other
A. Total above
Manager, tobacco curing Aeeiotant, tobacco curing
Watchmen at plant
B. Total above
Total A 4 0
1
l (•)
- (C)
-
-
1
I
14. 400
3. 000
600
•
-
460
370
1
1 (b)
-(c)
-
1
1
1
1 4. 400
6. 000
600
-
1.420
460
370
I
2 <d)
1
-
1
1
1
14. 400
9.000
6.000
-
1,920
460
370
I
5 (d)
1
-
1
I
2
14. 400
15. 000
6. 000
-
1. 920
460
740
1
4(d)
1
1
2
2
20. 000
21. 000
6. 000
1, 920
920
740
1
5(d)
1
1
2
2
2
20. 000
24. 000
6. 000
3. 000
3. 840
920
740
IB. 8)0
-
>
1
3. 000
300
1
1
I
23. 750
6. 000
3. 000
300
1
1
1
32.150
6. 000
3. 000
300
1
2
1
38.520
6. 000
6. 000
300
1
2
2
50. 580
6. 000
6. 000
600
1
3
2
58. 500
6. 000
9. 000
600
9. 30o
33. 050
200 ha
500 ha
12. 300
50. 820
600 ha
700 ha
900 ha
15. 600
74. 100
1.000 ha
Total A per ha
Total A ♦ B per ha
3, 300
22. 130
100 ha
188.30
221.30
118.75
165.25
300 ha
107.17
138. 17
9, 500
41. 450
400 ha
B0. 38
103.63
77.04
101.64
64.20
54. 70
72.26
90.26
12. 600
63. 180
BOO ha
63.23
7B. 98
65.00
82. 33
58. 50
74. 10
(a)       Lower level euporviaor.
(b)      Higher level euperviaor.
(el Part-time,
(d) From one to two luw-lovel aaeiatanta and from one to three higher-level aaeietanta.FIG. 1
MACHINE FLEET REQUIREMENTS PER ha
FOR DIFFERENT FARM SIZES
(ETH $)FIG. 2
ANNUAL OVERHEAD PERSONNEL EXPENDITURES PER ha
FOR DIFFERENT FARM SIZES WITH OR WITHOUT
TOBACCO CURING PLANTS
(ETH $)FIG. 3
ANNUAL machine fleet costs and overhead personnel COSTS, FOR DIFFERENT CROPPING PATTERNS
AND DIFFERENT FARM SIZES, PER ha
( ETH $)
. § ' " ' ! ' ' J I '
'J
200            300           400
700- 92 -
Although not tabulated, calculations undertaken on sizes above 1,000 ha show a very slight decline which,however, is not con tinuous. Interruptions in the decline appear, from time to time, as those shown in the foregoing charts, between 600
and 700 ha or between 800 and 900 ha.
7. 6 CONCLUSIONS
On the basis of the above, it would appear that sizes of 400-600 ha, 800 ha and 1,000 ha are feasible, Al though the 1,000 ha farm appears less costly than a 400 ha farm, the difference in unit costs is not substantial. It is, therefore, confirmed that the concession layout now tentatively agreed upon at AVA is feasible. And,subject to minor changes
due to the calculations of net farm areas from gross farm areas, this will be taken as the basis of the financial ana lysis of the irrigation area.
I

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Melka Sadi-Amibara Irrigation Project Summary

Melka Sadi-Amibara Irrigation Project Feasibility Study

Project Overview

The document presents a feasibility study for the Melka Sadi-Amibara Irrigation Project in Ethiopia, conducted by ITALCONSULT in July 1969. The study focuses on the economic and financial aspects of the proposed irrigation development in the Awash Valley.

Key Project Details:

Location: Awash Valley, Ethiopia
Sponsor: Imperial Ethiopian Government - Awash Valley Authority
Study Date: July 1969
Purpose: Assess feasibility of irrigation development for agricultural production

Main Components of the Study

1. Economic Situation Analysis

The study examines Ethiopia's agricultural economy, labor costs, and price structures:

Ethiopia has a predominantly agricultural economy with minimal government intervention
Labor costs are low (Eth. $1.25/day for common laborers)
Projections show increasing labor costs over time with productivity growth

2. Market Analysis

Detailed examination of potential crops and their market prospects:

Crop	Market Potential	Key Findings
Cotton	Domestic and potential export	Growing domestic textile industry demand; quality improvements needed for exports
Tobacco	Primarily export	Virginia tobacco suitable for export; requires organizational support from Tobacco Monopoly
Oil Seeds	Domestic and export	Groundnuts and cotton seeds show promise; domestic demand for vegetable oils growing
Cereals	Primarily domestic	Maize has stable domestic market; potential for quality improvements
Vegetables	Export to Europe and domestic	Sweet peppers, eggplants have export potential; requires conditioning facilities

3. Processing Industries

Assessment of necessary processing facilities:

Cotton ginneries needed near production areas
Tobacco curing plants essential for quality control
Vegetable conditioning centers required for export quality
Private sector seen as capable of providing these facilities

4. Credit Situation

Analysis of financing options for the project:

Short-term credit available from commercial banks at ~8.5% interest
Medium-term credit potentially available from Development Bank of Ethiopia (7% interest)
Suppliers' credits (2-year loans at 10%) for equipment purchases
Credit for settlement schemes remains a challenge

5. Farm Size Determination

Study of optimal farm sizes for commercial operations:

Minimum feasible size: ~400 hectares
Optimal size: ~1,000 hectares
Analysis based on unit cost behavior at different farm sizes
Larger farms benefit from economies of scale in machinery and overhead costs

Key Recommendations

        Focus on crops with strong market potential: cotton, tobacco, vegetables, and oil seeds
Develop necessary processing infrastructure, particularly for tobacco and vegetables
Establish farm sizes between 400-1,000 hectares for economic viability
Coordinate with credit institutions to ensure financing availability
Develop marketing organizations for export crops, especially tobacco

    

Projections

The study provides detailed projections for agricultural production and demand up to 1995, anticipating:

Population growth rate: 2.2% annually
Per-capita GDP growth: 2.5-2.7% annually
Significant increases in demand for cotton, oil seeds, and vegetables
Potential for import substitution in several crop categories