FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ministry of water resource FEASIBILITY STUDY AND DETAIL DESIGN OF BALE GADULA IRRIGATION PROJECTZnX Federal Democratic Republic of Ethiopia- Ministry of Water Resources 2 easibility Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF WATER RESOURCES FEASIBILITY STUDY AND DETAIL DESIGN OF BALE GADULA IRRIGATION PROJECT FINAL FESIBILITY REPORT VOLUME 7- ANNEX 10 AGRICULTURAL MARKETING STUDY MAY 2010 WWDSE In Association with ICT Final Feasibility Study ReportPeasibilitv°^fOHratiC Rcpub,ic of Ethiopia- Ministry of Water Resources s- - - 11 y and Detail Design of Balo Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing List of Volumes in the Final Feasibility Report VOLl Executive Summary VOL 2 Main Report VOL 3 Annex 1 Meteorological and Hydrological Study VOL 4 Annex 2 Geological and Geotechnical Investigations VOL 4 Annex 3 Hydro-geological Study VOL 5 Annex 4 Soil Survey VOL 5 Annex 5 Land Evaluation VOL 6 Annex 6 Socio Economic Study VOL 6 Annex 7 Settlement Study VOL 7 Annex 8 Irrigation Agronomy VOL 7 Annex 9 Farm Mechanisation VOL 7 Annex 10 Agricultural Marketing VOL 8 Annex 11 Livestock Study VOL 9 Annex 12 Environmental Impact Assessment VOL 9 Annex 13 Watershed Management VOL 10 Annex 14 Institutional Dev. VOL 11 Annex 15 Financial & Economic Analysis WWDSE In Association with ICT Final Feasibility Study ReportFeasibility Rcpublic °f Ethiopia- Ministry of Water Resources & -------------y tugX^nd Detail Design of Bale Gadula Irrigation Projoct VOL 7- Annex 10 Agricultural Marketing Table of contents LIST of tables LIST of FIGURES acronyms and abbreviations,v 1- BACKGROUND1 2. objectives of the study 3. METHODOLOGY OF THE STUDY 4. THE EVOLUTION OF AGRICULTURAL MARKETING IN 4ETHIOPIA 4.1 Agricultural Marketing under the Dergue Regime' ..............................................................Ill .......................................................................................Ill 4.2 The Post 1991 Agricultural Marketing Policy of Ethiopia..........................................................................................1 5. THE NATIONAL AGRICULTURAL MARKETING SYSTEM! 6. THE NATIONAL GRAIN MARKET STRUCTURE1( 6.1 Producers10 6.2 Rural Assemblers11 6.3 Regional Wholesalers 6.4 Central Market Brokers12 6.5 Retailers..........................................................................................................................................................................13 6.6 Consumers13 6.7 The relative importance of product outlets in the marketing chain14 7. MARKET INFRASTRUCTURE18 7.1 Road Infrastructure and transport facilities18 7.2 Storage Facility19 7.3 Market information20 8. PRODUCTION, MARKET AND PRICE FOR AGRICULTURAL PRODUCTS IN ETHIOPIA22 8.1 National production of major agricultural produces22 8.2 Marketable surplus and the supply of farm produces24 9. FARM PRODUCT PRICE TREND IN THE DOMESTIC MARKET27 9.1 Prices of farm products in the regional market27 9.2 FARM PRODUCT PRICE TRENDS IN THE CENTRAL/NATIONAL MARKET29 10. MARKETING AND PRICES OF FARM PRODUCES IN BALE GADULA35 10.1 Market and prices of farm produces in the study areas35 10.1.1 Market Infrastructure in the study areas35 10.1.1.1 Road network and accessibility35 10.1.1.2 Storage Facility in the study area36 10.2 Agricultural marketing channel, supply chain and farm product price trends in Bale Gadula areas37 10.2.1 Agricultural marketing channel and supply chain37 10.2.2 Farm product price trends in the study area33 11. THE EXPORT MARKET POTENTIAL AND OPPORTUNITIES FOR FARM PRODUCES42 11.1 Export market potential for farm produces 2 4 11.2 Major Export commodities and potential markets44 11.2.1 Grains44 11.2.2 Pulses 11.2.3 Seeds WWDSE In Association with ICT Final Feasibility Study ReportVI Federal Democratic Republic of Ethiopia- Ministry of Water Re Feasibility Study and Detail Design of Bale Gadula Irrigation-------------- 11.2.4 Spices and Herbs47 VOL 7- Annex 10 Agricultural Marketing 11.3 MARKET OPPORTUNITIES FOR SPICES AND HERBS EXPORTED FROM DEVELOPING COUNTRIES49 11.4 FARM PRODUCT PRICES AND THE COMPETITION AMONG MAJOR EXPORTERS49 11.5 Major products and competitors in conventional trade50 11.6 Major products and competitors in organic trade52 11.7 Farm product imports by EU member states53 11.8 Opportunities and threats facing developing countries$9 11.8.1 Product Quality Standards59 11.8.1.1 Oil seeds............................................................................................................................................................ 60 11.8.1.2 Pulses61 11.8.1.3 Spices and Herbs...............................................................................................................................................61 11.8.2 Trade-related Measures that Restrict Entry to EU Market 11.8.2.1 Sustainable Development for Businesses^2 11.8.2.2 Ecolabels........................................................................................................................................................... 63 11.8.2.3 Environmental Standards 11.8.2.4 Health and Hygiene Issues: haccp................................................................................................................... ^4 11.8.2.5 Fair Trade and Social Responsibility^4 11.8.2.6 Packaging, Marking and Labeling 12. CONCLUSION AND RECOMMENDATION66 12.1 Conclusion 12.2 Recommendation REFERENCE WWDSE In Association with ICT Final Feasibility Study Report 11Feasihiiitv^o*0 ^rat*C ^ P ^*' eu c °f Ethiopia- Ministry of Water Resources VOL 7- Annex 10 Agricultural Marketing list of tables Table 8.1. Cereals and pulses production, Comparison of 2001/02 to 2006/07 Meher season s area and PRODUCTION22 Table 8.2. Meher Season Cereals and pulses production of Peasant holding (2004 - 2008) 2^ Table 8.3: Area and production of cereals & pulse for commercial farms (2007-2008) Table 8.4: National grain (Cereals & Pulses) supply/demand balance ('000 tons)............................................................. 2^ Table 11. l Ethiopia's Exports of Major Agricultural Commodities during 2005/06 - 2007/08;43 Table 11. 2 Consumption of pulses byEU member states (tons), 2000-200245 Table 11.3 Consumption of sunflower seeds by EU membep states, 2000 - 2002 in million tons46 Table 11.4 Consumption of sesame by EU member states, 2000 - 2002 in tons Table 11.5 Consumption of spices by EU member states, 2000-2002 (tons) Table 11. 6 Imports by EU member countries of food ingredients, 2003, € million/thousand tons Table 11.7 Imports of selected organic food products by selected EU countries in Tons Table 11.8 Imports of spices and herbs by EU member countries, by EU importer and by country of origin, 2001- 2003, €1,000/tons...................................................................... '............................................................................ 55 Table 11.9 Imports of pulses by EU member countries, by EU importer and by country of origin, 2001-2003, € 1,000/tons57 Table 11.10 Imports of oil seeds by EU member countries, by EU importer and by country of origin, 2001-2003, € 1,000/tons58 LIST OF FIGURES Figure 6.1: Market Structure and Flows, 1995/96 15 Figure 9.1: Wholesale prices of Barely & Wheat in Bale Robe (2000 - 2009)27 Figure 9.2: Average prices of major cereals in Sinana Woreda (2000 - 2006)28 Figure 9.3: Average prices of spices in Bale Robe (2003 - 2006)28 Figure 9.4: Average prices of pulses in Bale Robe (2000 - 2006)29 Figure 9.5: The mean wholesale price trend for selected commodities in Addis Ababa30 Figure 9.6: Monthly wholesale prices of Teff & Wheat in Addis Ababa (2000 - 2006)31 Figure 9.7: Monthly wholesale prices of Barley, Maize & Sorghum in Addis Ababa32 Figure 9.8: Monthly Wholesale Prices of Teff & Wheat in Addis Ababa (2007 - 2009)33 Figure 9.9; Monthly Wholesale Prices of Barley, Maize & Sorghum in Addis Ababa34 Figure 10.1: Average Prices of Major Cereals in Goro Woreda (2000 - 2006)40 Figure 10.2: Average Prices of Pulses in Goro Woreda (2000 - 2006)40 Figure 10.3: Average Price of Spices in Goro Woreda (2003 - 2006)41 WWDSE In Association with ICT Final Feasibility Study ReportP1 F1 F* M» Mi Pi IM IM IM Ml M IM M. % & 11 <IM4 Federal Democratic Republic of Ethiopia- Ministry of Water Resour Feasibilitystudy and PetailDesignofBak^^d^j^^5y^ ——— on VOL 7- Annex 10 Agricultural Marketing ACRONYMS AND ABBREVIATIONS AMC Agricultural Marketing Corporation CSA Central Statistical Authority EFSR Emergency Food Security Reserve EGTE Ethiopian Grain Trade Enterprize EPRDF Ethiopian Peoples Revolutionary Democratic Front ECX Ethiopian Commodity Exchange EWFS Early Warning and Food Security FAO Food and Agricultural Organization IFPRI International Food Policy Research Institute WFP World Food Program UK United Kingdom USA United States of America uVOL 7- Annex 10 Agricultural Marketing 1- BACKGROUND Irrigated agriculture is one of the available options that would enhance the Ethiopian agricultural sector and its contribution to the entire economic development. Irrigation would also enhance the growth of food production and thereby ensure the achievement of long - term food security. However, the viability of an irrigation project will depend on the marketability and market standing of products that it will supply to the market. When agricultural production is likely to be increased through the introduction of reliable irrigation resources, the knowledge of potential markets and marketing outlets would be decisive to determine the types of crops that should be produced. Therefore, agricultural marketing should be an important component of the feasibility study carried out to determine the viability of an irrigation project particularly for crop producing areas where multiple of crops should produced and supplied to the market. Particularly, market aspects should be given due consideration to certain crops that would likely have substantial production potential. Similarly, the market potential and also the available options for the supply of farm products that are perishable, like vegetables; fruits etc should be assessed prior to injecting resources into the production of these products. Because, low prices of farm produce could discourage farmers to grow particular crops if the project is designed without an adequate account for proper marketing facilities that enable a sustainable supply of produce to the market as well as the delivery of inputs to the project. In view of this, proper marketing infrastructure along with proper crop price support will encourage farmers to boost their produces through diversified cropping. Therefore, the marketing study was initiated to address all important marketing decision variables in the definition of the feasibility of the Bale Gardula irrigation project. Final Feasibility Study Report 1Fea«5ihii-? T*° e Crat*C ^ePu^,ic °f Ethiopia- Ministry of Water Resources VOL 7- Annex 10 Agricultural Marketing 2. OBJECTIVES OF THE STUDY Since agricultural marketing assumes an important place in the agricultural and financial planning, the study regarding the marketing facility is very important. The main objectives of the agricultural marketing study are the following: o Reviewing the agricultural marketing situation of Ethiopia including current policies; o To identify the market places, services and their distribution in the local and export market; o To identify the trade routes in and outside the country and possible market sectors; and o To investigate marketing constraints and opportunities. WWDSE In Association with ICT Final Feasibility Study Reporte Fn3Qih r?G^°Crat'C R P bH of Ethiopia- Ministry of Water Resources l, c ~ — 1 lH^X_£2^^£l^ilD£^iggof Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing 3. methodology of the study The methodologies employed in carrying out the study are the following. i- Primary data collection: Primary data was collected through the interviews and discussions conducted with key individuals and experts in government institutions, marketing organizations, farmers, local, traders, both retailers and wholesalers, brokers and commission agents, track drivers and other key informants that have insight into the local marketing system. In addition, primary was also collected from different regional bureau and offices, national level bureau and organizations including the CSA particularly for data on national farm production, consumption as well as exports. Data collection was facilitated with the help of question check-list prepared to guide the key informant interviews and discussions. Review of literature and collection of secondary data: a considerable number of published and unpublished documents have been reviewed including specific studies like the studies by the Ethiopian Valleys Study Development Authority (1990 and 1992) conducted in the previous Dollo Mena Awraja and also others conducted in the project areas. Moreover, documents and studies conducted on the history of agricultural marketing policy of Ethiopia and the agricultural marketing systems that prevailed during the different regimes witnessed so far have been assessed based on the available documents and studies conducted in the past. With regard to the analysis of farm price trends and development, the study benefited from the EGTE monthly price data that is collected from central as well as major regional markets in the country while the exports market price data was gathered from CSA and other publications that compile the national trade statistics. The export market was assessed based on the data and information gathered from studies conducted recently especially the Netherlands Center for the Promotion of Imports from Developing Countries (CBI), The data and information gathered were analyzed to assess the export market situation, the potential and also the threats facing developing countries like Ethiopia. WWDSE In Association with ICT Final Feasibility Study Report 3Federal Democratic Republic of Ethiopia- Ministry of Water Resources easility Studya^dDetail DesignofBale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing 4. THE EVOLUTION OF AGRICULTURAL MARKETING IN ETHIOPIA This section provides a detailed analysis of the agricultural marketing policy of Ethiopia and its evolution from pre 1974 to the present period. Based on the relevant documents reviewed, the findings about the past and present situation of the country's agricultural marketing policy, the agricultural marketing system, marketing infrastructure and facilities are discussed below thoroughly. 4.1 AGRICULTURAL MARKETING UNDER THE DERGUE REGIME The main agricultural policies that observed so far are the pre 1974 policy under the Monarchy system, the socialist agricultural policy of Dergue and the agricultural policy pursued after 1991 with the liberalization of the country s economic policy. Prior to 1974, the government policy was largely market based and hence the prices of agricultural products mainly determined by market forces with little or no government intervention. Nevertheless, with regime change and the implementation of a suppressive Government policy after the 1974 revolution, private grain marketing was restricted. Thus, during the post 1974 period until 1990, the policy introduced was characterized by a centralized grain marketing that directly engaged the socialist-oriented government in wholesale and retail trade of farm produces. In order to facilitate centralized grain marketing policy, the Agricultural Marketing Corporation (AMC) was established in 1976. Initially, with the support of the World Bank, the AMC was established to buy grain from farmers and sell to urban consumers and state organizations. During the Dergue regime, Ethiopia’s agricultural marketing policy was a socialist market policy that restricted private trade and hence imposed major hindrance on the growth of the marketing system. For over 16 years that cover the period from 1976 - 1990. parastatal or government - owned marketing enterprises dominated grain trade to facilitate government intervention to control market and restrict the involvement of private traders in the country’s grain marketing system. Nevertheless, the Ethiopian grain economy underwent a dramatic market reform when the government lifted, overnight, all restrictions on private trade in March 1990 (Lirenso, 1993). Therefore, it is this policy measure that ended the period of WWDSE In Association with ICT Final Feasibility Study Report 4FpaciKir? T° e Crat*C RePubl’c of Ethiopia- Ministry of Water Resources ' -—tlJdLandDetaH Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing tight state control exercised over prices as well as the restriction on interregional grain movements. Until 1990, the Agricultural Marketing Corporation (AMC) strictly controlled grain trade throughout the country. The AMC administered a highly distorted trade regime in which official prices were set below the producer costs. As a result of the very low official pricing system, the magnitude of producers’ losses was significantly high. The socialist marketing system of the Dergue regime also included the administration of a compulsory delivery system of farm produces and the imposition of fixed quotas for major grain on all producers. In addition, the policy forced each farmer to supply a fixed quota of grain to the AMC at fixed prices every year. The primary purpose of this policy was particularly aimed to feeding the army and also the provision of subsidy to consumers in major urban areas like Addis Ababa. Under the Dergue regime, private sector trade was banned entirely in the major grain-producing areas and as a result, inter-regional movement of grain by the private sector was severely restricted (Lirenso, 1993). Thus, as the sole parastatal marketing enterprise, the AMC built 2,200 modern warehouses that have a total storage capacity in excess of 1 million tons were built in all grain producing areas. Numerous warehouses were also built at the major distribution centers close to the main urban areas in order to facilitate its supply to consumers and the army. The Kella (checkpoints) installed at all the entry points of towns and villages played major role in exercising the control and restriction of inter-regional grain movement causing the distortion of grain market. Apart from the Kella (checkpoints) set at the gates of every town to control the movement of agricultural products, Kebele and other food ration shops for consumers in urban areas that the AMC operated further distorted the grain market in Addis Ababa and the other regional towns of the country. Until the March 1990 policy reform of the Dergue, which was aimed at achieving a mixed economy that is based on wide private-sector participation, the AMC was able to exercise strict control over grain trade. However, in response to external VWV'DSE In Association with ICT Final Feasibility Study ReportFpaQihn ? ^ ‘J * 6 0 3 0 ^epub,’c °f Ethiopia- Ministry of Water Resources Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing pressures, a radical and abrupt market reform was enacted literally overnight in 1990, taking the government parastatal as well as private traders by surprise (Fisseha, 1994). The reform allowed private entrepreneurs to compete with state run trade enterprises in agriculture, industrial commodities as well as in import export trade. According to the proclamation, trade exchange was to be conducted on the basis of free market pricing with the abolishing of the grain control and the quota system. As a result, the AMC entered the free market to operate as a state trade organization. The March 1990 reform has removed the major bottlenecks- of agricultural marketing particularly the restriction of food grain marketing, quota imposition, fixed pricing, legal monopoly of parastatal organizations and has reduced checkpoints (Kella). The liberalization of the Ethiopian grain market spelled the rejection of state-controlled channels, the return of private traders dispossessed of their trade during the socialist regime, and the restoration of age-old trading relationships and market networks (Dadi, Negassa, and Franzel, 1992; Amha, 1994; Gebremeskel, Jayne, and Shaffer, 1998). As a result of this reform private trade has been restored while the parastatal was renamed as the Ethiopian Grain Trade Enterprise and transformed into a buffer stock scheme. The modern warehouses which were entirely used for the AMC's operation were also made available for rental to private entities and relief agencies even though the proportion of the warehouses used by these agencies was as low as only 50 percent in 1992 (Lirenso, 1993). 4.2 THE POST 1991 AGRICULTURAL MARKETING POLICY OF ETHIOPIA As stated already, the liberalization of agricultural marketing policy was actually introduced under the Dergue regime in March 1990. While donors’ pressure was a major factor that forced the regime to liberalize the agricultural markets, the policy reform was also aimed at achieving a mixed economy which is based on wide private-sector participation. Nevertheless, the Ethiopian Peoples Revolutionary Democratic Front (EPRDF) overthrew the Dergue regime in May 1991 before the implementation of the proclamations that was intended to liberalize the market WWDSE In Association with ICT Final Feasibility Study Report A_JtyStudy and Detail Design of Bale GadulaJrriqation^Proiect Feasibility Studv Ethlopia_ Ministry of Water Resources VOL 7- Annex 10 Agricultural Marketing In fact, a fundamental shift in the country’s agricultural marketing policy took place when the economic policy of the Transitional Government of Ethiopia was announced in November 1991. This was also the first major policy and a turning point that signaled a move away from the centrally planned economy towards a market-oriented and decentralized economic system. Thus, along with quotas and fixed grain prices, subsidies on wheat for urban consumers were abolished in 1992. The ensuing Transitional Government of Ethiopia reaffirmed that all controls on interregional grain movement were lifted and the private sector was permitted to operate in a free market environment. The reforms and restructuring process in the rest of the economy has influenced the implementation of agricultural market liberalization as these reforms included price deregulation, financial liberalization, fiscal policy reform, institutional reforms, and trade policy reform. As a result, market forces begun to transmit their signals and hence caused grain movement from surplus producing to deficit regions. Therefore, the price of cereals in surplus-producing regions increased by 12 to 43 percent, while the prices in deficit regions declined by 6 to 36 percent indicating a decline in producer-consumer price spreads (Asfaw and Jayne 1998). However, in the course of the reform process, the volatility of wholesale cereal prices has declined and has had a direct impact on food production and food security. After the reforms, the prices of fertilizers and improved seeds increased significantly. Along with the grain market reforms, the government-marketing agency, the Ethiopian Grain Trade Enterprise (EGTE), was downsized in 1992 and hence played only a minor role in the grain marketing system. As a result, the role of EGTE was revised to stabilize producer and consumer prices and to maintain buffer stocks. The eight zonal offices of the EGTE were closed down and the number of its branch offices was reduced significantly from 27 to 11, and the grain purchase centers shrank from 2,013 to 80. I he parastatal's annual average grain purchase from smallholder farmers and traders declined from 258,719 tons during the period between 1984/85 and 1989/90 to 50,608 tons during the period between 1990/91 and 1995/96 (Asfaw and Jayne 1998). WWDSE In Association with ICT Final Feasibility Study Report 7Federal Democratic Republic of Ethiopia- Ministry of Water Resources easibility StudyandDetail Design of Bale Ga d u I a Irrigation Project VOL 7- Annex 10 Agricultural Marketing The EGTE was explicitly mandated to support producers' maize and wheat prices during the 1995/96 season and its combined purchases of these two cereals from farmers at the stated support price was 12,373 tons. It purchased less than 45,000 tons of maize and wheat from traders at negotiated market prices. The state farms were the sole grain suppliers to the EGTE since the supply from the smallholder farmers was diverted to private grain traders. Because these farms are established to supply grain to the army and consumers in certain urban areas through the AMC, most of them are known to have been operating in losses. Even after the reform, the farms continued to be the main suppliers of grain to the EGTE, which was the sole buyer of their-produces. Thus, because of the inherent inefficiency and poor performances that led to bankruptcy and shutdown, the state farms became one of the major targets of the liberalization. As a result, privatization measures have been taken to transform the ownership of most farms to private sector and meantime those farms which were reorganized as state owned enterprises/farms were given the autonomy to market their produces through the free marketing system. Therefore, the EGTE’s became less active in the grain market with the closing of the chapter that ended the era of the centrally planned and command system as a result of the liberalization and the subsequent privatization measures. Final Feasibility Study ReportFederal Democratic Republic of Ethiopia- Ministry of Water Resources Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing 5. THE NATIONAL AGRICULTURAL MARKETING SYSTEM It is well known that cereals, pulses, oil seeds and horticultural crops are the main agricultural products supplied to markets in Ethiopia. Among the major cereals produced are teff, wheat, maize, sorghum, barley and finger millet. These cereal crops are produced in different regions throughout the country and harvested once or twice per year during the main season (Meher) and the short season (Belg), Most cereals are grown as long or short cycle crops within the Meher season while teff, wheat and barley are grown under the Belg rains. During the Monarchy, prior to 1974, there was little or no government intervention in the marketing of produces since market forces largely determined the prices of agricultural products. Nevertheless, farm gate prices tended to be low because the market for agricultural products was undeveloped and hence market forces were not strong enough to transmit their signals to guide farm production. Therefore, producers did not have access to information about the demand, supply and prices paid for their products. Since the nearest market would take almost half a day, small farmers often sold their grains to local traders who would then take it to bigger markets either to sell to consumers, to another trader, a wholesaler or a retailer. The relatively free market system of the pre 1974 ended with the over through of the monarchy by the Military dictator and the socialist marketing system under the Dergue regime. During the post-1974 period of the military dictatorship, the government adopted a policy of direct intervention in order to keep farm prices at low levels. Farmers were forced to deliver a significant proportion of their produce (quota) at fixed prices to the state owned Agricultural Marketing Corporation (AMC). Private traders were not allowed to buy grain; even to buy the balance after the quota was deducted, since transporting grain from one region to the other was restricted strict control of grain movement through the checkpoint (Kella). When the "Mixed Economy Policy" was introduced in March 1990, the AMC quota system of grain delivery, restriction on grain movement though the Kella and the system of fixed pricing for farm produce was removed. Moreover, with further liberalization of the grain market, the AMC was restructured to create the Ethiopian Grain Trade Enterprise (EGTE) limiting its role to wholesale trade which is primarily for regulatory purposes and stabilization of markets. WWDSE In Association with ICT Final Feasibility Study ReportFeasibility Sturirat'C^nPUbl'C °f EthSopla_ Ministry of Water Resources ^eas^|,tyjtudy ajid Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing_ 6. THE NATIONAL GRAIN MARKET STRUCTURE Similar to several African markets, marketing chains in the Ethiopian grain market remain relatively short (Food Studies Group 1992). This is primarily due to the low level of commercial grain processing and the lack of specialization of grain wholesalers, who are often engaged in retail and other types of trade as well. However, as Lirenso (1993) notes, the marketing chain in Ethiopian became more complex after market deregulation, with the selling outlets for farmers increasing threefold, to six outlets, and the supply sources for urban consumers increasing twofold, to four sources. The Ethiopian grain market is structured so that grain moves from producers to rural assemblers, then to regional wholesalers (sellers), then on through central market brokers to regional wholesalers (buyers), then to retailers, and finally to consumers. Market liberalization also increased the number of players significantly as the market structure consists of all the major players including retailers, assemblers, wholesale traders and others. Thus, as the product moves from the production point to its final destination, it will pass through the various market intermediaries that have distinct role in the provision of marketing services. The main players in the market and the services they provide are discussed in brief as follows. 6.1 PRODUCERS The major producers of agricultural products especially grain are smallholder farmers, private commercial farmers and state owned farms. About 95 percent of the Ethiopian grain is produced by the smallholder farmers produce (Kuawab Business Consultants 1994). There are four principal ways through which grain reaches the market and these are by means of direct sales to rural and urban consumers, direct sales to rural assemblers, direct sales to retailers, and direct sales to either regional wholesalers or millers (Gebremeskel, Jayne, and Shaffer, 1998). Farm produces are transported to the nearest regional market by the farmers themselves, either using pack animals or carrying sacks themselves over relatively short distances of up to 20 kilometers to sell directly to wholesalers (Lirenso 1993). At the local or village level, farmers sell small quantities of grain to rural assemblers who are known as “farmer-traders," while larger scale farmers also WWDSE In Association with ICT Final Feasibility Study Report 10Feasibility Stud^^n^'c of Ethlopia- Ministry of Water Resources ~ - J2Land Detail Des.nn of Bale Gadula Irrigation Proinct VOL 7- Annex 10 Agricultural Marketing assemble grain from a large number of farmers and transport it to the regional market using horse-driven carts. Grain buyers from primary or village markets assemble and transport the grain using pack animal and small trucks for sale in the secondary or urban markets. A large number of assemblers (village collectors) play a vital role in consolidating the products sold by small producers in the village or farmer - trader markets. Farmers particularly those in close proximity to regional markets also sell grain directly to retailers in regional market towns. Finally, the fourth sales outlet through which farmers sale their products is made directly to wholesalers in the regional market or sell to regional traders who move from village to village, purchasing grain until their trucks are filled. 6.2 RURAL ASSEMBLERS These are mainly farmer-traders who are mostly independent operators that buy grain at primary or village markets for sale at the next large market (secondary, urban or regional) depending on accessibility and the availability of transport. Assemblers buy grain from farmers in rural markets for the purpose of reselling it to consumers or regional wholesalers. They typically operate independently but they may also act as agents for wholesalers on a fixed-fee or commission basis (Gebremeskel, Jayne, and Shaffer, 1998). According to the studies carried out by the Grain Marketing Research Project in the late 1990s, assemblers are estimated to handle about half of the marketed volume of maize from the smallholders. Their major sales outlets are the relatively larger wholesalers who handle roughly 75 percent of the total marketed quantity of maize; the remaining 25 percent is directly sold to rural/urban retailers and consumers (FAO/WFP, 2006). 6.3 REGIONAL WHOLESALERS In the context of the Ethiopian grain marketing structure, wholesalers are generally licensed grain traders who receive grain from farmers and rural assemblers at their stores, in secondary markets. The wholesalers at the level of the regional market purchase grain either from farmers or from rural assemblers and they usually sell their grains to private companies, other wholesalers in urban areas, or urban retailers, or sell it to nearby mills. The wholesalers play a key role in the grain trade because they act as the main suppliers who store and move a WWDSE In Association with ICT Final Feasibility Study Report 11■ Feasibility StnHrat'C^nPUbliC °f EthloP’a_ Ministry of Water Resources a as^yStudy and Detai^esign of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing large volume of grain. Most of them have the capacity to store between 50 and 500 ton of grain (FAO/WFP, 2006). Next to the wholesalers there exists a substantial network of private traders who buy, store, transport and sell grain on local, regional and inter-regional markets within the country. The bulk of the grain traded in a given season is held in the wholesalers store between January and October until the inflow of the next harvest. Assemblers and retailers do not hold stocks of any size and the larger merchants equally prefer to remain liquid, buying from wholesalers as and when they need to meet a contract. 6.4CENTRAL MARKET BROKERS There is no adequate market information system in most local markets including the major regional markets in Ethiopia. Therefore, most traders operate through specialized brokers, mainly located in Addis Ababa and other major regional markets like Adama (Nazareth). The brokers serve as mediators between traders in surplus areas and wholesalers in terminal and deficit markets, processors and private companies. Central market brokers operate as representatives of buyers or sellers and most of these grain brokers are located in Addis Ababa. They also operate in new market hubs like Nazareth. Brokers acknowledge receipt of the grain from the regional wholesalers, inspect its quality, determine its market clearing price, and proceed to sell it on behalf of their clients (Gebremeskel, Jayne, and Shaffer, 1998). Brokers may identify as buyers other traders, flour mills, hotels or restaurants, government agencies, or nongovernmental organizations. When the grain arrives at the central market, it will be sold in different quantities to various buyers that include local relief agencies, retailers, hotels, consumers etc. The brokers operating in the main terminal markets normally coordinate inter market grain flow. They are specialized by route and coordinate grain buying, selling, transporting and pricing activities ((FAO/WFP Mission Report 2006). Typically, a grain broker representing a seller will interact with a grain broker representing a buyer. If no buyer is found, the grain remains on the truck for up to WWDSE In Association with ICT Final Feasibility Study Report 12-------- —- Feasibility Stu^an^n^'c Y ~ uay and Detad Desig of Bale Gadula Irrigation Project Ministr* of Water Resources n VOL 7- Annex 10 Agricultural Marketing two days, after which it is off-loaded into the broker’s warehouse. The seller bears the off-loading costs as well as additional storage costs charged by the broker. These costs are extremely high compared to the broker’s commission fee and due to these high costs; shipments are often sold from the seller’s truck on the date of arrival. The nature of the market structure would hinder direct flow of agricultural products from surplus to deficit areas because of the relationship between the traders and brokers at each stage in the marketing system. There are two key aspects that make the flow of products. The first is the hierarchical nature of the system, with the brokers in Addis Ababa controlling flows both to and from the Capital, and secondly that it is based upon personal contact and trust since most of the regional traders are loyal to their respective client broker. The long-term relationships which are often based on the trust between brokers and regional traders have hindered the flow of product from surplus to deficit areas. The relationship of Brokers with regional wholesalers blocks contacts between merchants operating on different routes and in different regional markets. Instead, surplus grain moves first to Addis and is then redistributed to deficit areas. Regional wholesalers in deficit areas, through the services of a broker in the central market (Addis Ababa) purchase grain from regional sellers. Therefore, the circuitous route that partially is enforced by the very nature of the existing road network considerably increases the overall transaction cost of grain. 6.5 RETAILERS Retailers purchase grain in semi wholesale quantities (less than 1 ton) from the regional wholesalers in the regional markets located in deficit areas or urban centers. They can also purchase directly from farmers, from mills, or from the central market using the services of brokers. 6.6 CONSUMERS Prior to the reform, consumers did not have adequate access to regular sources for the purchase of farm produces. But since the reform, consumers have had a WWDSE In Association with ICT Final Feasibility Study Report■ 'll- . Il'J Federal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing umber of supply sources. Thus, they can purchase grain directly from farmers, from assemblers, from regional traders, from processors (mills), or from retailers. 6.7 THE RELATIVE IMPORTANCE OF PRODUCT OUTLETS IN THE MARKETING CHAIN So far, the major players and/or actors that participate in the marketing chain have been described in detail. Furthermore, the relative importance of the different market outlets is discussed with the help of the following figure 1 adopted from a previous study (IFPRI, 2001) that analyzed the market structure and flows of products during 1995/96. Final Feasibility Study Report WWOsFirTAssociatiorTwith ICT 14Federal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 AgriculturajMarketin^ 1 Source: Adopted from IFPRI market study . At the farm-gate level, the volume of direct sales to consumers is surprisingly high, 31 percent of total sales, while sales to rural assemblers play a minor role comprising only 12 percent of sales. The most important pattern is seen in sales 1 Eleni Z. Gabre-Madhin, 2001. Market Institutions, Transaction Costs, and Social C’l' Grain Market. International Food Policy Research Institute a P,ta ,n l^e Ethiopian WWDSE In Association with ICT 7^ Flnal Feasibi'ity Study Report 15F ederal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Studyand Retail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing by farmers directly to regional traders, which make up 36 percent of producers sales. The bulk of sales by rural assemblers (76 percent) are to the regional traders. Overall, regional traders handle 45 percent of the total domestic marketed surplus, or 1.2 million tons. In turn, most of the sales by the regional traders (nearly 70 percent) are made in the terminal markets, either through the services of brokers or directly to regional wholesalers, constituting of roughly 800,000 tons. Either regional traders or brokers in the terminal markets sell grain (mainly wheat) to processors, their sales constituting 40 percent of the total marketed quantity of wheat, or some 120,000 tons. Of the 54 percent of the total marketable surplus that is passed through retailers, the- largest share is procured from wholesalers (740,000 tons), followed by that purchased directly from farmers (520,000 tons). Finally, as expected, consumers purchase a large share of their total grain from retailers, 55 percent or 1.43 million tons. However, a surprisingly large share of purchases, 31 percent, is made directly from producers. This confirms the relatively unsophisticated nature of the market and shows that most of the transformation of unprocessed grains is undertaken by consumers themselves. In particular, it is surprising that processors have not acquired a more significant role in the market in the wake of market reforms. Recent studies reveal that one of the dramatic effects of market reforms in eastern and southern Africa is the emergence of small-scale maize mills that have significantly reduced consumer prices (Jayne et al. 1999). In the Ethiopian context, the nature of the market structure would hinder direct flow of agricultural products from surplus to deficit areas because of the relationship between the traders and brokers at each stage in the marketing system. There are two key aspects that make the flow of products. The first is the hierarchical nature of the system, with the brokers in Addis Ababa controlling flows both to and from the Capital, and secondly that it is based upon personal contact and trust since most of the regional traders are loyal to their respective client broker. The long-term relationships which are often based on the trust between brokers and regional traders have hindered the flow of product from surplus to deficit areas. The relationship of brokers with regional wholesalers blocks contacts between merchants operating on different routes and in different WWDSE In Association with ICT Final Feasibility Study Rep^fTFederal Democratic Re i r Feasibility Sturiy and Eth'°PJ>a‘ Minis,ry of Water Resources VOL 7- Annex 10 9 I markets. Instead, surplus grain moves first to Addis and is then stributed to deficit areas. Regional wholesalers in deficit areas, through the rvices of a broker in the central market (Addis Ababa) purchase grain from regional sellers. Therefore, until recently, the circuitous route that partially is enforced by the very nature of the existing road network considerably increases the overall transaction cost of grain. yyyyQSEInAssociation with ICT Final Feasibility StudyFederal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing 7. MARKET INFRASTRUCTURE 7.1ROAD INFRASTRUCTURE AND TRANSPORT FACILITIES The level of transport infrastructure and the quality of road network in Ethiopia has been one of the major obstacles to the development of market and is also one of the major factors that impose major limitation on the flow of grain from surplus to deficit areas causing market segmentation. The rugged nature of the Ethiopian landscape with its steep valleys and high upland areas makes the transport of bulky commodities both difficult and expensive. Because the construction and maintenance of road infrastructure itself is expensive, the existing road network is also limited. As a result, it is very difficult to reach many villages in rural areas by motor vehicles. As a consequence, grain price differences between markets are considerably high owing to the cost of transport and the difficulties involved in moving the product from primary market to major regional markets and from surplus to deficit areas. Access to markets, especially for dispersed and remote rural communities, is often limited by poorly developed transport infrastructures. Normally, farmers have to sell their surplus grain production in markets that are 5 to 20 km away from their villages . 2 As a result, transport costs are a significant element in the determination of the final market price and they represent the major share of the price differential existing between surplus and deficit markets. According to FAO/WFP report (2009), about 75 percent of farmers live more than a one-halfday's walk from the nearest all-weather road. Thus, the role played by a large number of rural assemblers is crucial since they mostly work at primary markets collecting and transporting the grain using pack animal and small trucks for sale in secondary or urban markets. However, the situation is gradually improving due to the substantial public investments in road construction that have characterized the development agenda in the last few years. According to the PASDEP 2006/07 Annual Progress Report, the road network has expanded from 37 000 km in 2004/05 to 42 400 km in 2006/07, with improvements also in road quality. In the same period, the average time needed to reach an all-weather road decreased from 5.7 to 4.5 hours. 2 FAO/WIT, Crop and l-ood Security Assessincntjyiission to Ethiopia, Phase I, January 2009 WWDSE In Association with ICT Final Feasibility Study Report 18FeasIbilHvSh'rt Rrpnb,,r of E,h,0P‘* Ministry of Wrtftr Rn^nnrrns - ------------ -- ll( y And l)ctj<l1 f)**hn of Halo Gadula Irrigation Projnct VOL 7 Ann*’/ 10 AdficuHufnl MarkMing According to the International Fertilizer Development Center (1993), the majority of traders do not own means of transport, they rely on rented trucks, for which markets are incomplete and linked to the transport of manufactured goods and fertilizer, which constitute the backhaul cargo After liberalization, the road freight sector has increased private sector participation and as a result, private fleets constituted up to 81 percent and 38 percent of short-haul and long haul trucks, respectively in 1993 In the area of rail transport, a single axis used to link the neighboring port of Djibouti with Addis Ababa. With the exception of trade into Dire Dawa. rail transport is not an important means of moving grain in Ethiopia particularly at present when the existing single axis rail is no more functional. Moreover, the prospects for the development of rail transport network are more likely impractical because of the difficult landscape and the extremely rugged topography, undulating mountainous, gorges and hills that constrain the development of rail network in much of the country. 7.2 STORAGE FACILITY One of the handling problems that cause product quality deterioration is the lack of storage facility. Particularly, quality deterioration due to poor storage is a major problem of products supplied by small-scale farmers and local traders as well. Farm-level storage is carried out by means of primarily traditional basket granaries while traders generally store grain in warehouses with an average capacity of 100 tons that has poor ventilation and dirt floors (Dadi, Negassa. and Franzel 1992). About 72 percent of the total grain production is retained for on- farm uses (Gebremeskel, Jayne, and Shaffer 1998). Moreover, weak storage infrastructure leads to potentially high storage losses, with crop vulnerability to damage from weevils, termites, rodents, birds, and moisture. Even though storage capacity has increased after the enactment of market reforms, roughly two thirds of traders indicate that their storage facilities are still inadequate in terms of availability, capacity, and location while 19 percent of traders reported that they were unable to obtain rented storage space (Gebremeskel, Jayne, and Shaffer 1998) Due to the susceptibility of agricultural products to pest damage and the lack of adequate storage facilities, traders, WWOSF In Association with IC T Final Feasibility Study ReportFederal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Balo GadiilaJrrigatiorH^IS^si VOL 7- Annex 10 A g ri c u I tu rajMarketmg particularly primary and secondary market traders are often unwilling to store stocks beyond the minimum turnover period. In most surplus producing areas, private traders can use the modern storage facilities of the state-controlled grain marketing system to store their stock. The traders would have access to rented space in the 2,200 modern warehouses with a capacity of 1 million tons located around the countryside. Although the warehouses have a large capacity, the total capacity that private traders used in 1992 was less than one-naif (Lirenso 1993). In summary, agricultural markets in Ethiopia are fragmented, unregulated, lacking in open market information systems, saddled with high transaction costs, constrained by inadequate liquidity, tending to operate only when price differentials are considerable - all of which limit the extent to which any commodity can move from an area of surplus to an area of deficit in most Ethiopian markets. Moreover infra-structural constraints increase import parity prices and lower export parity prices to such an extent that marked price fluctuations can occur when the supply of a commodity with a relatively inelastic demand varies above or below the requirements of the domestic population. 7.3 MARKET INFORMATION Beyond infrastructural issues, market access is also determined by the availability of reliable and timely information. The CSA collects food prices for the preparation of the Consumer Price Indices and recently the historic monthly consumer price data base (covering all major commodities in over 200 markets) has been posted on CSA website and regularly updated. At the same time, EGTE collects and publishes wholesale prices of main cereals, pulses and oilseeds for about 20 markets. However, the rapid and growing diffusion of mobile phones is the most remarkable change in price information management system.3 It is contributing to develop new market strategies, with more possibility of spatial arbitrage by searching in different markets to compare prices and reducing use (and costs) of intermediaries. An important change in the functioning of Ethiopian agricultural markets is taki place with the launch of the Ethiopian Commodity Exchange (ECX) on M 1 Between 2005/06 and 2006/07, the number of mobile subscribers had a growth rate of abou wwdse in Association with ICT ri i nc ------ hs-bhJJL—- Final Feasibility study Report 20^ epub,ic °f Ethiopia- Ministry of Water Resources VOL 7- Annex 10 Agricultural Marketing 2008. Drawing inspiration on Chicago’s original board of trade, the ECX intends to create a new market place where all market actors (from farmers to traders to processors to exporters to consumers) can take advantage of more transparent market information as well as the possibility to hedge against price risks through standardized contracts for immediate or future delivery. The ECX guarantees the characteristics of the traded commodities through warehouse receipts issued by a 6 ECX-run warehouses network in surplus areas, where produce will be independently weighted, graded and certified. The goal is to provide a reliable system for handling, grading and storing commodities, matching offers and bids for commodity transactions, that allows farmers to better negotiate prices and to gain a market premium according to the quality of their product. ECX intends to create trust and transparency through aggressive market data dissemination to all market actors, through clearly defined rules of trading, warehousing, payments and delivery, and through an internal dispute settlement mechanism. The establishment of Electronic Price Display Boards located in public sites in Addis Ababa and other major markets in the country, coupled with extensive media coverage, provides market players with updated, independent and real time access to price information. ECX trading started with four commodities, namely maize (white and mixed), wheat (soft and hard), haricot beans (white pea and red kidney) and sesame seeds (Humera, Gondar and Wollega). Coffee trading recently started at the beginning of December 2008. The ECX trading system works as a physical Trading Floor located in Addis Ababa, where all interested sellers and buyers verbally negotiate simultaneously during trading hours. Over the next five years, ECX has the ambitious commitment to establish 5 000 Information Kiosks at village level, networked into a national system, where farmers can receive up to date information on market prices, production trends, global commodity outlook, weather forecasts, as well as cropping technologies, fertilizer and seed prices, and other key information. WWDSC In Association with ICT Final Feasibility Study Report 21» * •*»*»•' a' i S“'««s X‘I, •t'» «4 t thhtpl* MmlMiy of W.»hn IlnmiiK Prl< Ur* .■■> ,»| tMir fiAthili luhpflnn I*i«>]*•> I VOI / Anri«x 10 Aqrh ultuf I PRODUCTION. MARKI 1 AND PRICE FOR AGRICULTURAL PRODUCTS IN I THIOPIA 8 1 NAT ION Al PRODUCTION OF MAJOR AGRICIJI FURAL PRODUCES ' he e *s sk .vci!\ of accurate data that provides a precise estimate of the country's ac \\ hnai production disaggiegatrd by crop types and year Generally, it is ohwiH to pet annual production and yield data since the agencies like the CSA a^o t^e MoARD that have the mandate to carry out agricultural surveys do not have the resources required to undertake the assessment of crop yield and production estimates every year Therefore, forecasts and/or projections are made based on the data from surveys conducted in the past or make approximate est mate of production on the basis of educated guess and estimation. This is also me methodology used by the FAO/WFP Mission to carry out crop and food se:<.' ?v assessment in Ethiopia every year At least partially, the time series data o 4 a ea r and crop production estimates shown on Table 8.1 below was also obta ned based on previous surveys and the Missions own assessment of crop yield every year Table 8 1 Cereals and pulses production, Comparison of 2001/02 to 2006/07 Meher season’s area and production Year Cereals Area Production Area Pulses Total cereals & pulses Production Area Production (000 ha) (‘000 tons) 2001/02 9 845 10.960 2002/03 9 502 8,157 (‘000 ha) 1,502 1,515 (‘000 tons) (‘000 ha) (‘000 tons) 1,005 767 11,347 11,964 2053/04 9 036 10,699 1,268 794 1,299 1,407 1,834 11,018 10,304 2004/05 9 234 13,751 2005/06 9 967 16,8/5 2006/0/ 10 458 18,282 1,408 1,449 1,690 10,640 I 1,417 12,148 8,923 11,493 15,049 18,281 Souicfc I ACJ/WI I > Crop and I ood Security Assessment Mission to Ethiopia January 2009 20,110 Phase 1) Hu- tot il nma and P,o(juctlon °* iunl pulses dining 2001/02 to 2006/07 bhowri on„nf•<lu*>ibovr table is based on the I AO/WI I’ estimates which was derived I y n-< oik ihiig the (ASA pm haivest yield assessment, yield estimations carried out l,y iin- MoAKO and the mission's own assessment of yield and production of the niiitiy (ieiKHiilly, il •*» <;|oai ,rom lt,IH /Wo/ioz area and production has WWIiHt IiiAbmoi Ififioii Willi IC I I ln.il FoHHibillty Study ReportFm^t?6?0^6 Repub,ic °f Ethiopia- Ministry of Water Resources =- si uy—tudy and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 AgriculturalMarketing been increasing during 2001/02 to 2006/07 with the exception of the year 2002/03. Thus, total production increased from 8.9 million tons in 2002/03 to 20 million tons in 2006/07. According to the estimates of the FAO/WFP mission, regional totals of the 2008 peasant Meher area and production of cereals and pulses harvest from 10.42 million hectares was 17.1 million tons. For comparison purpose, the 2004 - 2008 time series data for the peasant sector area and production of cereals and pulses is shown on Table 8.2 below. According to these data, the 2008 production estimate for cereals and pulses is the highest that has been achieved to date. Nevertheless, its validity hinges on the accuracy of the area and yield estimates prepared by the BoARD staff and which was adjusted by the FAO/WFP Mission. Table 8.2: Meher Season Cereals and pulses production of Peasant holding (2004 - 2008) Year Cereals Pulses Total cereals & pulses Area (ha) Production (tons) Area (ha) Production (tons) Area (ha) Production (tons) 2004 7,637,524 10,030,836 1,349,116 1,349,579 8,986,640 11,380,415 2005 8,081,401 11,624,271 1,292,470 1,271,247 9,373,571 12,895,518 2006 8,471,920 12,879,793 1,379,046 1,578,622 9,850,966 14,458,414 2007 8,730,001 13,716,991 1,517,662 1,782,739 10,247,663 15,499,730 2008 8,999,351 15,554,073 1,433,627 1,534,160 10,432,,978 17,088,233 Source: Derived from FAO/WFP Mission report of Crop and Food Security Assessment, January 2009(Phase 1) In comparison with Meher season, the belg season production and harvest is relatively lower even under normal weather condition. Climate change related yield reduction and crop failure is also more common during belg season than meher season crops. For example, the 2008 belg rains were universally recognized as having been extremely poor. Thus, the MoARD estimate that 2.1 million tons of different crops were produced from 1.48 million ha during the 2008 belg harvest compared to 4.1 million tons from 3.16 million tons in 2007 which shows a 50 percent reduction in area and a significant decrease in total production. The production for commercial farms in meher 2007 and 08 which are estimates based on the CSA data for 2008 and also the estimation of the FAO/WFP Mission. WWDSE In Association with ICT Final Feasibility Study Report 23Federal Democratic Republic of Ethiopia- Ministry of Wator Resources feasibility Study and Detail Design of Balo Gadula Irrigation Projoct VOL 7- Annex 10 Agricultural Markotlng ■ ■ ■ ■ ■ ■ ■ ■ ■ ti ■ ■ ■ ■ ■ ■ ■ ■ Thus, the cereals, pulses are oilseeds production data for Molier 2008 is as shown on Table 8.3 below. Table 8.3: Area and production of cereals & pulse for commercial farms (2007-2008) Type of crop Total Gram Commercia Area (ha) l Farm 2007 Production (tons) Commerciz Area (ha) 299.993 470,965 287,194 Cereals & pulses 178,290 410,965 141,315 I Farm 2008 Production (tonsj_ 439,131 350.943 Total cereals 158,031 380,965 139,984 349,456 Teff 4,577 7,613 109 89 Barely 614 1,150 1,481 2,549 Wheat 33,494 66,141 19,544 51,445 Maize 53,780 190,989 4,640 165,270 Sorghum 65,508 114,994 80.210 130,103 Finger Millet 58 78 - - Oats - - - Rice & others - - - Pulses 20,259 30,000 1,331 1,487 Oil Seeds 121,703 60,000 145,879 88,188 Source: FAO/WFP Mission report of Crop & Food Security Assessment, 2009 (Phase 1) The Mission admitted the incompleteness of the 2008 data that were provided by zonal agricultural bureaus and by the commercial farms. Because, compared to the CSA data for the previous year a further 34 000 ha of maize and 19 000 ha of pulses that have not been recorded to have been planted commercially in Amhara, Oromiya and SNNPR Regions. Thus, the 2008 Meher season total area and production of commercial farms would be much higher than the estimate shown on the Table. Based on the above estimate of the FAO/WFP Mission, the national harvest of meher season 2008 is the combined peasant holding and the commercial farm which was estimate to be 10,563 million ha total area and 17.435 million tons of total cereal and pulse production. A total of 15.90 million tons of cereals were produced from 9.129 million ha of area while the total production of pulses was only 1.535 million tons from a total area of 10.563 million ha. 8.2 MARKETABLE SURPLUS AND THE SUPPLY OF FARM PRODUCES For various reasons already mentioned, accurate estimate of production data that is disaggregated into various uses like the amount used for consumption, seeds feed, marketable surplus, etc is not available particularly for the smallholder sector Due to the lack of data that clearly indicate the actual amount of produces used for different purposes, it is difficult to make an accurate estimate of market WWDSE In Association with ICT Final FeasibiiityStUd7Re^T' 241-oaRlbllltv Sliidw,th ^Pllb,,c °f E*Mopln Ministry of Wator Resources --------—y St,,tly nnd P"*(jn Halo Gaduln Irrigation Project VOL 7/Annox 10 \ AyrlcliIturnl Markotlnp / supply for each crops produced in the country Apart from the lack Vrf^ata^on marketable surplus or aggregate supply of each agricultural produce, thoTFls also scarcity of data that shows the actual demand for the respective products. As a result, one would not easily arrive at a precise estimation of the demand - supply gap of farm produces in the domestic market. Therefore, in order to make an approximate estimate of supply - demand relationship, the annual reports of FAO/WFP Mission assessment of the national grain supply - demand balance has been used since it is the most reliable estimate of the domestic supply of farm products particularly cereals and pulses and also the aggregate demand for these products. Accordingly, the national grain supply - demand balance estimated for the respective years, i. e., 2004/05 - 2006/07 compiled and depicted by Table 8.4 below shown the trends in the aggregate production and supply of major farm produces. Table 8.4: National grain (Cereals & Pulses) supply/dcmand balance ('000 tons) k - Description Supply - Demand Balance 2008/09 I 2007/08 2005/06 2004/05 Domestic Availability (Supply) 17,599 20,950 18,998 15,759 - Opening stocks 214 522 407 400 - Total domestic production 17,385 20,428 18,591 15,359 Utilization (Demand) 18,259 20,950 18,998 15,759 Food use 14,456 14,253 12,930 11,395 Seed, feed use. etc & losses 3,509 5,038 4,746 3,707 Commercial/informal exports & closing stock 294 1,659 1,322 657 —J Source Computed based on the FAO/WFP crop and food security assessment reports. As shown on the above table, the total domestic production fluctuates every year. The total produce domestically available in 2004/05 which was about 15.8 million tons is the lowest as compared to the total production of nearly 21 tons estimated for 2007/08 which was the highest in the last four consecutive years. For the purpose of this study, the total at national level supply would be approximately equal to the domestically available grain which is the sum of total domestic production and closing rosorvo, which is the grain kept in warehouses to meet an unanticipated emergency situation. Similarly, demand is assumed to be equal to WWPSI: In AfiBoclntlon with IC L Final Feasibility Study ReportFeasibility Sturt™ JnH n i t R P lb ------- yStudy and Deta.l D !'^°f EthioPia' Ministry of Water Resources es qn o( i Bale Gadula Irrigation Project VOL 7- Annex 10 AgriculturalMarketing more than the total grain utilization which includes the grain used as food, seed, feed, etc and also the amount allocated for export and closing stock each year. The opening stock or the food grain held at the beginning of each year and the closing stocks or the amount kept as reserve by the Emergency Food Security Reserve (EFSR) and in the WFP warehouses vary from year to year. On the basis of the data compi'ed from the food security assessment of the Mission, at the minimum, demand would be the amount of grain mainly cereals and pulses required for food and also the total grain exported through formal and informal commercial entities each year. Therefore, the total volume available for commercial and/or informal exports and also the closing stock which is the volume of grain allocated as reserve for emergency programs are the potential market outlets for domestic producers. Apart from the demand for food in the domestic market, the annual reserve requirements would be one of the major sources of demand for the produces of the irrigation project. As wheat and barley account for the bulk of the closing account or the volume of grain which the EFSR and WFP would purchase from domestic sources, the project could be a major supplier of these products each year. In addition, the low volume of exports in some of the years shows inadequate availability of export supply for some commodities and hence indicating a tremendous export market potential for the project. As the last line of the table shows, the amount of commercial/informal exports and closing stock was the lowest or only about 294,000 tons in 2008/09 while it was much higher during the previous three years. The two likely reasons for the decline in are 1) the decline in export market demand mainly due to the global economic recession; and 2) the decrease in the number of people that depend on emergency food and hence a smaller reserve requirement for this particular year. Nevertheless, a significant amount of grain is purchased by organizations like the WFP and other relief agencies in order to supply food grain to food insecure population each year and hence serving as a potential market outlet for the project of the project. Therefore, one of the priority farm produces of the irrigation project could be the production of food grains particularly wheat which humanitarian agencies would purchase for supply to food insecure population. WWDSE In Association with ICT Final Feasibility Study Report 26^gggibiUty Study and^^i'c OfEth'°P' ~ Ministry of Water Resources a Ueta" Dgjgnof Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing FARM product price trend in the domestic market ■1 prices of farm products in the regional market 2006, the wholesale prices of wheat and barley in Bale Robe market lr >ed relatively stable despite a slight price rise during 2006. However, the ncrease in prices was more than double during 2007 - 2009 as depicted on the following graph I ■ Figure 9.1: Wholesale prices of Barely & Wheat in Bale Robe (2000 - 2009) I ■ I ■ I ■ I 0 I Even though the crop price data for 2007 - 2009 was not available during the field work, the average prices data collected from the Early Warning and Food Security (EWFS) office in Robe is almost similar to the wholesale price compiled by the EGTE (Figure 2 above). Since the Robe market is both the regional market and is also the major market for Sinana woreda, Figure 9.2 below which is constructed on the basis of the EWFS average price data for the five major cereals will provide a clear picture of price development in the regional market. 0 0 0 WWDSF In Association with ICT Final Feasibility Study ReportI/~ //1/ °c ° " °P Ethiopia- Ministry of Water Resources Crn C R ubllc of VOL 7- Annex 10 Feastblllty Study and Dotall Design of Bale Gadula Irrigation Project Agricultural Marketi ng Figure 9.2: Average prices of major cereals in Sinana Worcda (2000 - 20 06) Spice especially, Cummins and Fenugreek are the two maj or products traded in the regional market and the trend in their prices is shown for the period 2003 - 2006 (Figure 9.3). As the graph depicts, average prices of Cummins black for Bale Robe market was about 250 Birr per quintal in 2003 and this increased to 800 Birr in 2006 which is an increase of almost three folds. Similarly, Fenugreek price rose from less than 150 Birr per quintal in 2003 to about Birr 550 per quintal in 2006. Though data is available only for two years, ginger price trend will more likely be similar to the price trends of the two products. Figure 9.3: Average prices of spices in Bale Robe (2003 - 2006) Figure 9.3 Average prices of spices in Bale Robe (2003 -2006) — Cummin black ~ ~ Fenugreek • x- Ginger WWDSE In Association with ICT Final Feasibility Study Report 28Federal Democratic Republic of Ethiopia- Ministry of Water Resources VOL 7- Annex 10 Feas_i binty^tudy_ and_Detail_pesig nofBale Gadula Irrig ation Project Ag ricultural_Market ing_ As pulses particularly lentils, hose beans and chi ck pea are commodities of inter national commercial importance, it is necessa ry that the proje ct give gre ater attention to the developments of pulse prices both in the domestic market and export market. Accordingly, the prices of pulses in Bale Robe regional market have been collected to assess the price trend (Figure 9.4). There was relative stability in the regional market price of the major pulses namely lentils, hose beans and chick during 2000 to 2004. The price level tended to decline slightly from 2000 to 2003 and then, increased gradually during 2004. Starting from 2005, prices of all pulses rose significantly with a sharp rise in the price of lentil during the subsequent years. Figure 9.4: Average prices of pulses in Bale Robe (2000 - 2006) Figure 9.4 Average prices of pulses in Bale Robe (2000-2006) 750 " — 700 o 62,0 600 .5 550 - CO 500 o 400 “■ 300 - m 250 Cd 200 - ------------------------ — X- A ----------------------------------------------- x / a/ / ------ ---- —— q 150 > 100 - < 50 0 ------ - _____________ ___ /■-— 2000 2001 2002 2003 2004 2005 2006 —♦— Lentils —•— Horse beans Field peas Chick pea 9.2 FARM PRODUCT PRICE TRENDS IN THE CENTRAL/NATIONAL MARKET Prices of major cereals are characterized by large seasonal fluctuations. Generally, prices start to decline from September onwards as the large supply that floods the market after the major harvest, meher will increase supply exceeding the demand since the bulk of the annual sales of farmers take place are usually during the months from December to February. Therefore, supply will increase pushing prices further low as farmers need cash to fulfill their tax and loans obligations contracted along the season and to purchase other food and non-food WWDSE In Association with ICT Final Feasibility Study Report 29Federal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Balo Gadula Irrigation Projec VOL 7- Annex 10 Agricultural Marketing commodities. Between November and December, prices reach their lowest le for maize while it is in January and in March respectively for wheat and teff. Then, prices start rising again and reach their peak in August, during the lean season, the available stocks gradually get depleted before the new meher approaches In general, seasonality is higher in the case of maize due to tech difficulties of storing the product for long time as a consequence of high mo’ content and insect damage. Prior to 2007. there was a fairly stable relationship among prices of main cereals, with teff having the highest unit price, followed by wheat, sorghum and barley and then by maize with the lowest price (Figure 9.5). Figure 9.5: The mean wholesale price trend for selected commodities in Addis Ababa (2000 - June 2009) Figure 9.5 The mean wholesale price trend for selected commodities in Addis Ababa (2000 -June 2009) left Mixed ♦ l eft While —p Wheat White Final Feasibility Study Report 30FeasibilitJ^0^31'0 Repub,ic of Ethiopia- Ministry of Water Resources Fgg^bihtyStudy and DetaiLDesign of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing While the general price levels remained stable with minimum deviation from the mean during 2000 - 2005, price levels rose sharply during the subsequent years. For example, the wholesale price rises for teff and wheat was relatively smaller in the preceding years (Figure 9.6). Nevertheless, starting from 2006 there was a sharp increase in the prices of these products that tend to show similar trends overtime. Figure 9.6: Monthly wholesale prices of Teff & Wheat in Addis Ababa (2000 - 2006) Figure 9.6 Monthly wholesale prices of Teff & Wheat in Addis Ababa (2000 - 2006) Wheat White —♦—Teff White Teff Mixed Although the price level for barley, sorghum and maize is much lower, the magnitude of price increase was relatively smaller until 2005. During this period, the general trend in the prices of barley and sorghum is nearly steady while there was a slight difference in the pattern of maize price which tends to be more unstable. Figure 9.7 below depicts the trends in the price pattern of the three commodities during 2000 - 2006. WWDSE In Association with ICT Final Feasibility Study Report 31Feasibility Study Ethiopia- Mln,stry of Water Resources --- ------------ y Ul-dv and DetaH Design of Bale^GaHuH Irrigation Project VOL 7- Annex 10 Agricultural Marketing igure 9.7. Monthly wholesale prices of Barley, Maize & Sorghum in Addis Ababa (2000 - 2006) Vigutr Q.7 Monthly wholesale price, ol Bailee. Maize & Sorghum in Addis Alinlm (21)00 - 2006) Obviously, increases in the prices of all the five commodities are more evident during the last three consecutive years especially beginning from the last months of 2006 and the beginning of 2007 up until 2009. When comparing prices of the five major cereal commodities, it is evident that the expected “typical” pattern has not strictly pertained during the last three years from 2007 to 2009. Based on EGTE data, wholesale prices of teff, wheat and barley have shown a steady upward trend during this period. By the end of 2006, monthly wholesale prices of all the major commodities registered record levels in the Addis Ababa market, with an increase of between 30 and 20 percent above the previous year’s prices at the same time. A much higher rate of price increase which was double in the case of teff was registered during 2008. It was only in 2009 that a slight decline was observed in the prices of the major cereals. The monthly wholesale price trend for teff and wheat in Addis Ababa market during 2007 to 2009 generally depicted distorted prices as the pattern of price development for these commodities depicts (Figure 9.8) WWDSE In Association with ICT Final Feasibility Study Report 32Feas ib i |i?Xdv e al ^biljtystudy andPetailDesign of Bale Gadula Irrigation Project a,iCHRnPlJb"C °’ Ethi°pia’ Min,s,r* of Water Resources VOL 7- Annex 10 Agricultural Marketing Figure 9.8: Monthly Wholesale Prices of Teff & Wheat in Addis Ababa (2007 - 2009) —Teff Mixed Teff White Wheat White Similar to teff and wheat price trends during 2007 - 2009, there was also a sharp rise in the prices of barley, sorghum and maize during the same period. During this period, the price of sorghum was more than double as compared to the average prices in the preceding years. It was only the price of mixed barley that tended to rise gradually reaching its peak in September 2008 and then started to decline steadily. Nevertheless, apart from the sharp rise in the prices of white barley, white sorghum and maize, which is almost double as compared to price levels in the previous years, the high price level also pertained during 2008 with a slight decline in 2009 (Figure 9.9). WWDSE In Association with ICT Final Feasibility Study Report 33=------------- y. _ QV^nd Detail Des.gn^Bale Gadula Irrigation Project Feasibility Studv Ethl°?la\Mlnist^ of Water Resources VOL 7- Annex 10 Agricultural Marketing 9 Monthly Wholesale Prices of Barley, Maize & Sorghum in Addis Ababa (2007 - June 2009) Barely Mixed Barely White Sorghum White Maize As stated already, for long-cycle cereals particularly sorghum, the trend in monthly wholesale prices reached a maximum in March 2008 and the high price was maintained for the rest of the months despite sharp fall for a brief period in April, August and December. As shown on the above graphs, the wholesale cereal prices in Addis Ababa market have reached record levels between August and September 2008. In particular, between April and August 2008, retail prices increased by almost 60 percent in the case of wheat, some 80 percent for teff and sorghum and more than 90 percent for maize (FAO/WFP, 2009). In general, in comparison with the price level prior to 2006, the wholesale prices of all cereal commodities in Addis Ababa market remained at high level until June 2009. With regard to the reason for the sharp rise in the prices of cereal commodities and other farm produces, there are diverse opinions and views that hinge to domestic factors like scarcity of production, increases in per capita consumption, etc while the export of grain and the decrease in the exchange rate of Birr to hard currencies particularly the US Dollar are among the external factors that are believed to have contributed to domestic price rises. WWDSE In Association with ICT Final Feasibility Study Report 34H Ji r al Democratic Republic of I thlopla Mlnlwby of Writer Ronoiih <»n HMSibihu study and IM.m Dcslqn of H | > G.uiuhi Irrigation Project a( vol / Annex 10 Agricultural Marketing 10. MARKETING AND PRICES OF FARM PRODUCES IN BALE GADULA This section deals with the findings el the faun pioducl maiketing system carried out in the areas of Balo Gadula irrigation project I ho srudy findings arc based on the data and infoiniation collected through the interviews and discussions with individuals and groups of people particularly the sector office staffs in Gore woreda, farmers, traders and other key informants who are residents of the town and kebeles within the vicinity of the project. In addition, primary and secondary data and information relevant for the marketing study collected from sector offices of the woreda and other sources wore analyzed to supplement the findings from interviews and discussions conducted with producers, local market traders and other key informants who have deep knowledge about the agricultural production and marketing system. 10.1 MARKET AND PRICES OF FARM PRODUCES IN THE STUDY AREAS 10.1.1 Market Infrastructure in the study areas 10.1.1.1 Road network and accessibility Even though the woreda has enormous agricultural production potential, the existing market infrastructure and the level of its development is still at a low level. This is particularly the case for the road and transport infrastructure because except the main road that connects Goro with Ginir and Robe, there is a lack of adequate all weather road network that connects kebeles and villages with the main market in Goro. There is very poor road network in Goro woreda including the roads that connect kebeles and villages with the main markets of the woreda. Also, the major road that crosses Goro with the zonal capital, Robe town has been severely deteriorated and is particularly difficult to pass for heavy tracks that are loaded Even though Goro and Sinana areas are among the high potential areas that produce and supply a large volume of commercially important commodities that include major cereals, pulses, oilseeds and spices, the main road that connects these woredas with the regional market like Awassa and Shashemanne is one of the major bottlenecks During the field work, the study team has observed numerous tracks that have been trapped in the mad and sometimes they get WWDSE In Association with ICT Final Feasibility Study Report 35feasibility Stud^'0 Reput,lic of Ethiopia- Ministry of Water Resources of Bale Gadula Irrigation Project VOL 7- Annex 10 Ag ri c u Itural Marketing ken and hence forced to stay at the spot carrying full load of the produce, hus, unless the existing road is rehabilitated, the efficient delivery of farm produces to the market would be impossible and hence commercial vehicles can t Provide transport services. The problem of road access is not limited to the Goro — Robe road as the main road that connects Robe with the central market in Addis is also in a very poor condition. Even though the problem existed long ago, the condition of this road has worsened because of the very rough and bumpiness of the temporary roads used as substitute for the new asphalt road under construction which is still far from completion. In its entirety, the road from Kofele to Robe is nearly impassable because on top of the difficult topography, motor vehicles encounter enormous difficulties to pass on the uneven surface, ditches, gullies, etc crossed while driving through the substitute road all the way from Adaba to Dinsho. Thus, in its present condition the accessibility of road would remain a major bottleneck for every motor vehicle including commercial transport service providers. Nevertheless, if proper repair and maintenance is done, the Goro - Robe road which also connects the project site with Robe could be passable for any motor vehicle including heavy tracks. 10.1.1.2 Storage Facility in the study area The lack of storage facility causes product quality deterioration which is one of the handling problems of farm products destined for market. This is particularly the problem of small producers whose poor storage causes the deterioration of product quality. However, since small producers supply their product to market soon after harvest, the duration of storage in the traditional storage is relatively shorter. Thus, products that are marketed soon after harvest like wheat and spice that farmers in Bale Gadula supply to market are mostly stored for quite short duration and hence one will not observe significant quality deterioration. Storage facilities that local traders use do not meet the standards and hence the o or storage condition will contribute to product quality deterioration. It was observed during the visit to local traders in Goro and the nearby market of Meniyu Lt the walls and roofs of almost all the storages used by local traders are made of legated iron sheet except the floor which is madejrf concrete. Traders use WWDSr In Asso. ►ciation with ICT FinaIFeasibiIityStudy ReporT 36Feasibilih, ^ ^ 6 0 31'0 Republic of Ethiopia- Ministry of Water Resources ^^y_Study andDetaii D eS gn of j Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing orages to provide shelter for the products until they supply them to ale buyers. These storages of temporary nature whose walls and roofs are de of corrugated iron sheet are used by all local wheat and spice traders in each of the Kebeles of Bale Gadula. Farmers supply their products directly to the storages of local traders that assemble the product for delivery to regional and/or central market traders. As the products are stored for short duration, treatments that help to eliminate insects and pests from the storage are not that common in all the facilities observed. 10.2AGRICULTURAL MARKETING CHANNEL, SUPPLY CHAIN AND FARM PRODUCT PRICE TRENDS IN BALE GADULA AREAS 10.2.1 Agricultural marketing channel and supply chain This assessment was carried out taking specific farm produces which the envisaged irrigation project would more likely produce and supply to the market. Two most important agricultural commodities which have high commercial value namely wheat and various spices which are the most important traded commodities produced in Bale Gadula have been treated as describes below. Wheat: Bale zone in general and in particular Bale Gadula and the neighboring woredas like Sinana are among the major wheat belts of the country that produce and supply a large volume of wheat to the domestic market. Wheat producers in these areas supply their produces either directly to local market traders and/or through brokers or commission agents that assemble the product and deliver it to wholesalers that in turn supply to the central market and/or food factories. Thus, in the marketing channel and the supply chain of wheat, the product passes from the producer to local traders and/or brokers/commission agents that assemble at the level of local market. Then, the product is delivered to the wholesale buyers and the wholesalers transport the product for destination to 1) central and/or regional market that redistribute it to retailers and consumers; 2) to food factories that purchase it to further process and produce wheat floors. In the case of durum wheat, pasta and macaroni factories undertake bulk purchases for use as an input in their food processing factories. Therefore, in this case, the supply chain involves numerous market participants like producers, brokers/commission agents, wholesale buyers and food factories (floor mills and pasta and macaroni ^WDSETnAssociation with ICT Final Feasibility Study Report 37Feasibilitv ^ ^ e 0 rat'C Repub,ic of Ethiopia- Ministry of Water Resources s £^ !htyStudyandDetail Design of Bale Gadula Irrigation Project b VOL 7- Annex 10 Agricultural Marketing factories) that play an important role in the marketing channel to facilitate product delivery to its final destination, i. e., consumers and/or food factories. Spices, the most important spices that have commercial importance are cumin black, fenugreek and ginger. Over the past four years particularly since 2004, the volume of supply of these spices has been increasing in response to rapid growth in prices. As these spices have good demand both in the domestic market and internationally, production has been increasing significantly. The spices produced in the study areas are assembled by local traders who sell them to wholesale buyers that come to the region. A large number of local traders, commission agents and/or brokers that represent wholesale traders play an important role in the marketing channel and supply chain of spices. At the local market, local traders, commission agents and/or brokers will buy the produces from farmers and assemble it for the wholesale buyers. Then, they deliver the product to the wholesale buyers from the central market that in turn distribute the products locally and/or clean and export them abroad. Thus, the marketing chain for the product starts from the origin i. e., the producers and then passes through local traders, brokers and commission agents that assemble the product at the level of the local market. Then, it will be delivered to the wholesale buyers who would distribute it to retailers and/or undertake the cleaning and packaging for export to the international market. Pulses: major pulses produced in the woreda and the project site includes lentils, field peas, horse beans and chick peas. Farmers directly sell their produce to local traders or assemblers that come to their villages and/or to retail traders, brokers and commission agents who assemble the produce in the main markets particularly Goro and Meniyu market. Since wholesale traders can’t directly purchase the product from farmers, it is through the retail traders, brokers and commission agents that produce is delivered to wholesale traders. Then, the wholesale buyers transport the products through the following marketing channels; o Supply to wholesale traders in the major regional markets like Awassa and Shashamanne that redistribute to retail traders and consumers in towns and small markets; WWDSE In Association with ICT Final Feasibility Study Report 38Fpf«ihT? T.° L e< ratlC Ropublic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing ° To central and/or regional market wholesale traders that supply the products to wholesale traders in other regions or to local food processing factories; and o To export traders that do the cleaning, sorting and packaging for supply to export market. Each of the above supply chains involves numerous market intermediaries that provide specialized services. Thus, starting from the point of production to its final destination (consumers), the product passes through all the major players that operate at stage in the marketing chain. 10.2.2 Farm product price trends in the study area In order to understand price development in the local market, the local market price data which were available during the field work have been collected and analyzed. For Bale Gardula irrigation project, the market and prices of farm products in Goro woreda has been used because it is more relevant since Goro market is in close proximity to the project location. Based on the price data available for the period 2000 - 2006, the general prices trend of five major cereals namely wheat, teff, sorghum, maize and barley produced in the woreda have been analyzed (Figure 10.1). As evident from the graph, prices of all products depict similar trend as the change in the price of one products pushes the price of its close substitute like the prices of white and mixed teff and also that of maize and sorghum. It is also important to note that average price of each of these produces was stable prior to 2004 while the price rise was more significant during the following years. WWDSE In Association with ICT Final Feasibility Study Report 39FeSli?v Sh.riratlCHRnPUbliC °f Ethi°P|a- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing Figure 10.1: Average Prices of Major Cereals in Goro Woreda (2000 - 2006) Figure 10.1 Average prices of major cereals in Goro woreda (2000-2006) ~Wheat —Teff White Teff Mixed Sorghum ~Maize —• Barley^ The trend in the local market prices of pulses for Goro woreda during 2000 - 2006 is shown below (Figure 10.2). As evident from the graph, the average price of lentils is much higher than the prices of the three other pulses namely horse bean, chick and field peas. Generally, pulse prices remained relatively stable prior to 2004 and then after, a steady rise in prices took place during the subsequent years. Figure 10.2: Average Prices of Pulses in Goro Woreda (2000 - 2006) Goro woreda has also an enormous potential for the production of commercially important spices like Cummins, fenugreek and also ginger. Even though these WWDSE In Association with ICT Final Feasibility Study Report 40Federal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing P P pi spices are produced by small scale farmers in the woreda, there are also good prospects for the growth of production since the products fetches higher prices and diverse market outlets especially the export markets. Analysis of the available price data also indicate that spice production and marketing is one of the available opportunities for the envisaged irrigation project. As shown on the graph below, black Cummins and fenugreek are the two major spices that fetch higher prices. The increase in the price of black Cummins was more significant during the past four years while the average price of Fenugreek showed sharp rise starting from 2005 (Figure 10.3). Figure 10.3: Average Price of Spices in Goro Woreda (2003 - 2006) Figure 10.3 Average price of spices in Goro woreda (2003-2006) Pi p p p p p —Fenugreek Cummin Bl WWDSF In Association with ICT Final Feasibility Study ReportVOL 7- Annex 10 Agricultural Marketing for farm produces ^ XP0RT market potential and opportunities 11.1 export market potential for farm produces There is a tremendous export market potential for most of the agricultural products produced in Ethiopia. Nevertheless, access to export market depends on the level of competitiveness, the responsiveness of domestic production to developments taking place in the export market and also the general condition of agriculture and food security of a given country. Thus, in order to be successful in the export market, products exported should be competitive in price and quality and this competitiveness should be sustained through ensuring from time to time that the supply responses are based on the signals transmitted by the development in the export market. In other words, product supply to export market should not be interrupted due to the factors that disrupt domestic production and cause product shortage in the domestic market. This is also an important factor that affects the sustainability of Ethiopia’s farm product supply to the export market. Even though Ethiopia has the potential to produce and supply numerous farm products to the export market, farm production is affected due to the frequency of drought and crop failure causing shortages of food grain that lead to domestic price increase. Particularly during the years when there are production shortfalls, exports will further increase domestic prices. Thus, the export of grains will have a direct link with the country’s grain balance sheet which is presumably based on national food security. As a result, official exports of cereals were minimal and, since the beginning of 2006, the government imposed on the export of cereals in order to avoid further increases in domestic prices. In 2005/06, before the imposition of the ban, teff exports have increased substantially. However, despite the government’s ban, several market analysts suspect that significant informal exports are taking place, especially to Kenya, Sudan, Eritrea and Somalia (FAO/WFP 2007) On the contrary, official exports of pulses have increased substantially in the previous years, especially due to the significant demand for green beans in Europe, for chickpeas in India and Pakistan and for horse beans in Kenya Total official exports of pulses in 2005/06 have been estimated by the Custom Authority at about 110 000 loos. WWDSE In Association with ICT Final Feasibility Study Report 42Federal Democratic Republic of Ethiopia- Ministry of Wntor Rosourcos feasibility Study and Detail Design of Balo Gadula Irrigation Projoct VOL 7- Annox 10 Agricultural Marketing Despite the ban on the export of grain starting from the beginning of 2006, the country s exports of farm produces particularly the non - traditional commodities continue to take a large share of the total export. Thus, next to coffee which is the traditional export commodity, oil seeds and pulses arc the two major farm products exported during 2005/06 - 2007/08. As shown on Table 11.1 below, the export price of oilseeds increased significantly during this period while the volume of oilseed exported declined. Comparison of the 2005/06 and 2007/08 price which was respectively 796 USD4 and USD 1,440 per ton shows nearly 80% increase. Nevertheless, the 2005/06 volume of oilseed export amounting 265,700 tons declined to 152,100 tons in 2007/08 and the decrease was more than 40 percent. Table 11.1 Ethiopia’s Exports of Major Agricultural Commodities during 2005/06 - 2007/08; Agricultural Commodities Exported Export value in million USD & volume in ‘000 tons by year 2005/06 2006/07 2007/08 Coffee Value Volume 354.3 147.7 424.2 176.4 524.2 170.7 Oilseeds Value Volume 211.4 265.7 187.4 235.0 219.0 152.1 Pulses Value Volume 37.0 110.4 70.3 158.8 144.5 233.0 Chat Value Volume 22.3 89.1 92.8 22.7 108.2 22.4 Leather & leather products Value Volume 75.0 15.4 89.6 15.8 | 99.2 14.9 Source: National Bank of Ethiopia & Ethiopian Customs Authority Apart from the major export commodities indicated on the above table, the other commodities that Ethiopia exports include cut flowers and foliage, live animals and meat, fresh vegetables, herbs and spices. Nevertheless, except cut flowers and foliage, live animals and meat, the quantity of particularly herbs and spices exported every year is quite small despite the enormous export market potential for these products especially in the EU market. The most important export commodities in which the country has advantage including the herbs and spices 4 Cnmnuted by dividing the exportj^lueb)Hhewluj2£2££^^ VWVDSE In Association with ICT ________ Final Feasibility Study Report 43Fcasi bili?vT.° d r ^eas.bmty Study and Detail Design of Balo Gadula Irrigation Project C ratl\RnP,,b"C °f E,hlOpla’ Mlnl,tr* °f Wator Resources VOL 7- Annex 10 Agricultural Marketing that have market potential and the major importing countries of these products have been assessed and discussed with detail in the following. 11.2 MAJOR EXPORT COMMODITIES AND POTENTIAL MARKETS 11.2.1 Grains According to the findings of the CBI EU market survey (2004), grains are mostly used in the processing industry (bread and bakery products, muesli, rice cakes and cereal-based drinks). Besides, grains are used as consumer packs for retail sale and for animal feed. The USA and Canada dominate the market for both conventional and organic commodity grain products (e.g. wheat, maize and barley). Nevertheless, opportunities for exporters in developing countries are limited and therefore, the export of grains would be more likely unrealistic at this stage when the country’s faces food insecurity. 11.2.2 Pulses Pulses are mainly used for consumer packing for the retail trade, but also for bread spreads and convenience foods. Soy has numerous uses in virtually all food sectors; e.g. drinks, desserts, tofu and vegetable burgers. In 2001, all EU countries together consumed about 5.6 million tons of pulses. France is the leading consumer accounting for 24 percent of EU consumption, followed by Spain (18%). About 27 percent of the total world imports of pulses in 2001 were destined for the European Union. The most interesting product group for exporters in developing countries is specialty beans. People are looking for non-animal foods that can provide the necessary proteins. Soybean is often used as a protein provider in the preparation of other food products, but kidney beans and lima beans and chickpeas can also serve as meat replacement. Often the beans are sold in cans. However, they are also used in ready chilli and Tex Mix meals and by the feed and pet food industry. On the basis of the import data for 2000 - 2002, Italy and the United Kingdom are the leading markets for specialty beans. Organic traders and wholesalers offer beans such as azuki beans, lentils, mung beans, pinto beans, and red kidney WWDSE In Association with ICT Final Feasibility Study Report 44Federal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing beans. The consumption of pulses in EU member States is shown on Table 11.2 below Table 11.2 Consumption of pulses by EU member states (tons), 2000 - 2002 iCountry 2000 2001 2002 | Austria Belgium Denmark Finland France Germany Greece Ireland Italy The Netherlands Portugal Spain Sweden United Kingdom EU-15 EU-25 71,479 476,508 158,388 10,338 1,406,440 577,121 74,285 55,381 547,096 264,328 66,735 1,221,392 72,771 701,108 5,705,495 6,217,451 106,558 324,111 85,891 10,333 1,388,937 695,882 69,053 43,906 535,585 195,441 68,303 1,047,105 82,641 958,806 5,615,808 6,100,325 114,559 202,579 146,142 10,334 1,171,479 462,596 75,552 28,406 542,337 150,813 68,950 895,450 89,663 786,370 4,747,978 5,132,482 Source: CBI 2004 EU Market Study 11.2.3 Seeds Seeds are supplied to, and further processed by, the food industry. Sometimes seeds are used for consumer snack foods. As the trade in these products is business-to-business trade, there are no direct consumption figures available for them. According to FAO , 5 in the EU-25, consumption of sunflower seeds in 2002 amounted to 4.8 million tons and that of sesame seeds amounted to 77 thousand tons (CBI, 2004). France and Spain are the leading consumers of sunflower seeds. In 2002, consumption of sunflower seeds in Spain and France both amounted to 1.2 million tons. Greece, Germany and The Netherlands are the leading consumers of sesame seeds. Nevertheless, the share of the new accession countries was comparatively small. The kernels of sunflower seeds are appreciated for their nutritional value and their flavor. They are used in the manufacture of a large number of food products, including meals, desserts, cereals, confectionery, ice creams, salad toppings and 5 Consumption figures are taken from FAO which estimated based on production + imports - exports + stock changes. WWDSE In Association with ICT Final Feasibility Study Report 45^7 ***** Ministry of Water Resources VOL 7- Annex 10 ° f Ba,e Gadula Irrigation Project _____________________ Agricultural Marketing ' acxs Da t r o* the production of confectionery sunflower seeds is used as bird re- S-~ ower sees o s widely used for commercial as well as home cooking. cs. a sunflower seed oil is used for margarine making, as salad oil, or for ~g purposes Defatted sesame meal is almost entirely used in compounding ca a°ceo 'ooastu*fs Since 1999 total sunflower seeds imports into the EU are oecneased by more than 50%. The market for the imports of peeled seeds, used " ‘ooo a’xj snacks, might have a better potential since this may be cheaper than -rxrtmg the seeds and peeling them in Europe. Table 11.3 below depicts the t'end n the consumption of sunflower seed by EU member states during 2000 - z u «z 'able 113 Consumption of sunflower seeds by EU member states, 2000 - 2002 in million tons Country 2000 2001 2002 France •a / ’.et^ehands Germany Portugal A jstria Be gium Greece United Kingdom Sweden F nland Denmark Ireland Accession countries EEUU--2255 J 1,337 1,549 683 651 399 293 124 105 109 20 13 10 72 0 658 6,025 1,406 1,545 676 621 376 199 108 76 90 27 15 13 35 1 845 6,034 1,215 1,202 455 367 251 171 107 77 70 39 16 16 1 1 816 4,816 Source OBI 2004 EU Market Study Sesame seeds are traded much less than sunflower seeds, but the product is important for some developing countries and its import into the EU is climbing rapidly Since 1995, the import of sesame seeds has grown by 56 percent. Sesame seeds are supplied to markets in North America, Europe, and East Asia by countries iri Africa, I atm America, and South Asia. Cooking oil can be extracted from sesame seeds, and this is their main use, especially in Asia. In North America and I uropu, raw sesame seeds are generally used for toppings on breads such as hamburger buns, bagels, broad sticks, and other baked goods Restaurants arid natural food store customers purchase sesame seeds for use in WWIMI In A»»oi.Mlon with IC I Final Feasibility Study Report 46F F:te i h' ?T : li C atiC^PUbliC °f EthiOpia‘ Ministr y ° ^sources f feasibilityStudy^nd Detai£Design ofBale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing I I I I I A ■ ethnic dishes. Middle Eastern countries use sesame seeds for tahini paste and halvah, as well as for oil. Table 11.4 below shows the consumption of sesame seeds by EU member states. Table 11.4 Consumption of sesame by EU member states, 2000 - 2002 in tons Country 2000 2001 2002 Greece The Netherlands Germany United Kingdom Italy France Spain Sweden Austria Denmark Belgium Finland I Ireland Portugal Accession countries EU 25 - Source: CBI 2004 EU 18,434 15,819 14,761 6,106 4,816 3,924 1,935 1,705 1,642 1,317 1,299 373 211 50 11,011 83,420 17,851 14,685 16,022 6,343 5,090 5,383 1,825 1,982 2,002 1,374 1,360 301 212 60 12,997 87,509 20,456 3,901 15,473 5,619 6,776 4,766 1,334 2,405 1,971 1,199 1,214 368 263 62 11,696 77,521 Market Study 11 2 4 Spices and Herbs Spices and herbs consumption of the EU increased to 252 thousand ton .n 2002. The leading consuming countries in the EU-15 are Germany, the UK. The Netherlands and France together accounting for 50 percent of EU consumption. Hungary has the highest consumption of the new member states and ,s one of the largest consumers in the entire EU as well. Table 11.5 below shows the consumption of spices by EU member states during 2000 - 2002. M Final Feasibility Study Report WWDSE In Association 47Federal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Balo Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing Table 11.5 Consumption of spices by EU member states, 2000 — 2002 (tons) Country EU - 25 Accession countries* Hungary Germany Unites Kingdom The Netherlands France Spain Belgium Italy Greece Sweden Ireland Portugal Austria Finland Denmark 2000 2001 2002 220,348 18,779 39,992 44,174 34,605 22,990 13,612 9,855 6,618 4,859 5,013 4,873 2,325 2,132 5,434 1,502 3,295 239,188 19,116 60,141 45,039 37,825 12,490 12,891 15,935 6,204 5,943 4,488 4,794 2,495 2,201 4,382 1,239 3,677 252,405 18,833 57.016 48,321 36,368 22,803 18,911 13,723 10,041 6.950 6,194 5,020 2,775 2,348 1,450 787 519 * excluding Hungary Source: CBI EU market survey of 2004 (computed based on FAO data) The leading spices consumed are peppers and all spice (pimento), while leading nerbs include thyme and oregano. The principal end users of spices and herbs in all EU markets can be divided into three end user segments. In almost all EU countries, the largest proportion, being 55-60 percent of the total usage of spices and herbs, was consumed by the industrial sector. The retail sector consumed 35- 40 percent and the catering sector 10-15 percent. In most markets, the ratio is moving towards higher relative usage by the industrial sector, reflecting the growing popularity of ready-to-use spice mixtures. Another reason is the increasing consumption of processed foods, which often rely on spices and herbs to retain and enhance the food flavor. According to manufacturers, a growing awareness of diverse cultural cuisine is helping to drive spice sales People arc starting to experiment with spices at home, for example, a Thai curry, which they have tried in restaurants. Salos of individual ethnic spices and ethnic blends are increasing across the board. Individually, there has been a strong upswing in sales of organic cardamom and cloves. WWDSE In Association with ICT Final Feasibility Study Report 48Federal Democratic Republic of Ethinni, ... ■ . SW ( o, P Ba|c a °,,X"on"X‘ VOL 7- Annex 10 Agricultural Marketing 11.3 MARKET OPPORTUNITIES FOR SPICES AND HERBS EXPORTED FROM DEVELOPING COUNTRIES Theie is a large potential for herbs and spices for which developing countries occupy a dominant position. Based on the CBI (2004) market survey, these spices, herbs and other plants include: e Species sensitive to environmental factors, such as tropical plants (spices, ginger, cananga, vetiver), even if the climate is not a real protection against competition. o Trees in the wild, which can abundantly be found in developing countries (cinnamon, camphor, sandalwood). c Wild plants that could be easily cultivated in industrialized countries, but for which wild harvesting remains more profitable than the cultivation (Artemisia sp., rosemary). o Crops for which the cultivation and harvest is more profitable in developing countries (jasmine, tuberose, basil, Mentha arvensis). 11.4 FARM PRODUCT PRICES AND THE COMPETITION AMONG MAJOR EXPORTERS From the trends in the export prices of farm produces, it can be said that almost all organic products command a higher price than conventional products. This is mainly due to more labor-intensive production and expensive materials. In some countries, insufficient supply and additional distribution costs also push up the price. Premiums between conventional and organic products generally range between 15 and 25 percent, depending on the type and quality of product and the current market situation. The price differential between conventional and organic products, however, has decreased during recent years and competition in the organic sector is increasing. The import price of sugar, for example, has halved in recent years from USS 800 to around USS 400 Increasing trade and competition has also forced processors and distributors to cut down costs of handling. Trade in bigger quantities for some products (e g. palm oil and sugar) has led to economies of scale in shipping, and in processing and distribution systems. Final Feasibility Study Report WWDSE In Association with ICT 49_ ° »a,| ,^ *P° e c cr *^ Republic of Ethiopia- Ministry of Water Resources FeasibihtyStudjr and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing Importers mostly trade on annual contract terms in which prices are fixed. Importers are generally interested in a long-term stable relation with a supplier. However, price pressure in the organic market has increased. Due to this pressure, importers are more easily inclined to change to other cheaper suppliers at the end of a contract period For some agricultural products, for example coffee and cocoa, the producer prices are linked either to conventional prices plus a premium fixed in absolute value or in percentage. For other products, for example grains, most of the production is contracted in advance at an agreed price. In such cases it is quite possible that at certain periods of the year the value of organic products is cheaper than conventional ones. Generally, the price difference is less for processed products. As shown in the box below, price differential between organic and conventional products vary among EU member states. Box 1 Germany The price premiums for organic products (in comparison with conventional products) vary considerably between 18%-142%. The average price premium in Germany is above the European average. varying between 60%-70%. The high price differences are a result of the small supply of organic products, high logistic costs because of the small volumes and very high depreciation of the retail chains. The price premium is one of the main barriers to buy organic products. Studies show that most consumers only accept a price premium up to 20%. France The average premium retail price for organic products is 20-30 percent above that of conventional foods While retail prices differ from one outlet to another, organic Specialized food stores price their items up to 50 percent more than supermarkets do. Italy The price premium on organic products is 25% in supermarkets and 30% in specialized organic stores The prices paid for organic fruit and vegetables though varies according to the season and is at times comparable to the conventional one. A little less than half of the Italians are willing to pay more for organic products compared to conventional ones but the limit is often 20%. 11.5 MAJOR PRODUCTS AND COMPETITORS IN CONVENTIONAL TRADE Among the EU member states. The Netherlands. Germany, UK. France. Spain and Italy are the major importers of non-organic products. The box below which was taken from the CL3I survey (2004) indicates an overview of leading importers of selected product groups. However, it should be noted that these data include imports of both conventional and organic products comprising a very small share of total trade. WWDSE In Association with ICT Final Feasibility Study Report 50Federal Democratic Republic of Ethiopia- Ministry of Water Resources Possibility Study and Detail Design of Palo Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing Box 2 Leading EU importers of selected food products (conventional and organic), 2003 share in EU imports in terms of value Product group Leading importers and share in total imports Coffee f ranco (24%), Germany (12%), UK (12%), The Netherlands (11%) Pulses of which Kidney beans o Black & green Italy (23%), UK (19%), Prance (12%), Spain (13%) Italy (24%), (JK (18%), Spain (14%), France (13%) UK (33%), France (24%), The Netherlands (16%), Belgium (6%) Seeds ( of which Sunflower Sesame the Netherlands (24%), Germany (17%), Spain (14%), France (11%) The Netherlands (23%), Spain (16%), Germany (16%), France (12%) The Netherlands (31%), Greece (20%), Germany (18%), UK (7%) Edible nuts of which Peanuts Cashew nuts Pistachios The Netherlands (27%), Germany (19%), UK (13%), Spain (10%) The Netherlands (37%), UK (17%), Germany (17%), Italy (7%) The Netherlands (39%), UK (17%), Germany (15%), France (7%) Germany (24%), Spain (19%), Italy (12%), France (12%) Spices & herbs Germany (22%), France (17%), The Netherlands (12%), Spain (12%) Source: Eurostat (2004) In order to make comparison with imports, the box below provides an overview of the leading suppliers of selected product groups. Similar to imports, products shown in the box include imports of both conventional and organic products. An important point that should also be noted is that European suppliers are often engaged in re-export trading. Box 3 Leading suppliers of selected food products (conventional and organic) to the EU, 2003 Share in EU imports in terms of value Product group Leading suppliers & share in total supply Coffee Germany (31%), Italy (22%), Belgium (15%), Switzerland (9%) Pulses of which: o Kidney beans > Black & green Seeds of which Sunflower > Sesame Canada (23%), China (17%), Argentina (15%), USA (15%) Canada (25%), Argentina (16%), China (16%), USA (14%), The Netherlands (7%) China (36%), USA (20%), The Netherlands (9%), India (9%) Hungary (17%), Ukraine (13%), France (9%), Romania (7%), USA (7%) Hungary (22%), Ukraine (14%), France (11%), Romania (8%), India (33%), Sudan (20%), The Netherlands (13%), Ethiopia (8%), Guatemala (6%) Edible nuts of which: Peanuts o Cashew nuts o Pistachios USA (14%), Iran (14%), China (12%) The Netherlands (12%). India (12%) China (29%), Argentina (25%), The Netherlands (15%), USA (15%) India (43%), Vietnam (23%), The Netherlands (13%), UK (6%), Brazil (4%) Iran (41%), USA (24%), Germany (14%), The Netherlands (7%), Spain (3%) Spices & herbs Iran (14%), Germany (12%), the Netherlands (9%), USA (8%), Madagascar (6%) Source: Eurostat (2004) WWDSE In Association with ICT Final Feasibility Study Report 51Federal Democratic Republic of Ethiopia- Ministry of Water Resource ^bility study and Detail Design of gale_Ga_dula Irrigation Project VOL 7- Annex 10 Agricultural Marketing 11.6 MAJOR PRODUCTS AND COMPETITORS IN ORGANIC TRADE To be able to export products as “organic" to the European Union, certification is required. When a producer or a group of producers applies for certification, several inspection missions follow in which the production system is judged and recommendations are made for improvement. Currently, certification for export from developing countries is mostly carried out by the certification bodies of the importing countries. Initially, inspectors usually come from Europe or the USA However, international certification bodies now hire local inspectors, which have reduced costs. With regard to the supply of organic products by developing countries, the dominant and leading producers include Argentina, China, Mexico and South Africa. The off-season supply of fruits and vegetables is dominated by Egypt and Morocco, which profit from their close geographic location to the EU. These countries have developed the infrastructure to deal with the requirements for the supply of organic products and the increasingly complex and stringent regulations on food products. There are numerous types of organic products supplied to the EU market, Spices and herbs among these products which contain a very wide group of products and the sales of individual ethnic spices and ethnic blends are increasing across the board. Individually, there has been a strong upswing in sales of organic cardamom and cloves. Organic importers are always on the look out for new reliable suppliers of certified organic spices and herbs. African, Latin American and Asian countries are supplying organic spices and herbs to the European Union. While Egypt is a leading supplier, substantial production also takes place in Tanzania, Malawi, Sri Lanka, Peru, Ecuador, Argentina, Brazil and India. There are many other developing countries producing spices and herbs. Carmine, curcuma / turmeric, marigold and henna are spices produced in most African countries and which have good market opportunities in EU market (CBI, EU Market Survey, 2004). The main EU markets for essential oils are France, the WWDSEkfAssociation with ICT Final Feasibility Study Report 52Fe^H?yStu"vlL n^ L L R i O E,hi°Pia Mi ;2 ist ry ofWaterResources .. VOL 7- Annex 10 Agricultural Marketing United Kingdom, and Germany. Interesting companies include Alban Muller International and C Melchers Essential Oils. 11.7 farm product imports by eu member states The leading EU importers for ingredients for food products are Germany, France, the United Kingdom. The Netherlands, Italy and Spain. At the level of product groups, however, there can be other countries, which are important markets. Portugal, for example, represents the second leading EU importer of sugars while Greece is an important market for oil seeds. If we look at the shares of developing countries in EU imports, developing countries were particularly strong in sugars, oil seeds, spices & herbs and honey. In 2003, developing countries supplied over 50 percent of the imports (in value) by EU member countries of these products as shown on Table 11.6 below. China, Indonesia, India, Argentina, Iran, and Turkey are among the leading developing countries supplying the EU with ingredients for food products. Table 11. 6 Imports by EU member countries of food ingredients, 2003, € million / thousand tons Food Ingredients Total EU Imports Of which from DC’s Value Volume Value Volume Vegetable oils & fats Dried fruit & edible nuts Spices & herbs Essential oils & oleoresins Pulses Dried vegetables Natural colors & flavors Vegetable saps & extracts Oil seeds 5,246 3,597 788 579 495 418 265 163 89 6,770 2,013 298 64 1,096 193 34 28 123 2,281 1,519 432 221 201 134 82 36 67 4,500 1,088 181 32 376 62 11 14 98 DCs: developing countries Source: Eurostat (2004) Germany is by far the largest importer in Europe and it imports a wide assortment of organic products. According to CBI survey (2004), imports account for an estimated 38 percent of the value of raw materials for the German organic market, equivalent to about € 156 million, or about 10 percent of total sales at retail level (ITC) The Netherlands is a major importer of organic food products. Dutch companies play an important role in import/export trade and large quantities (up to 80%) are re-exported, mostly to other European countries. The Netherlands is a sizeable importer of organic fresh fruits and vegetables, grains, cereals, dried WWDSE In Association with ICT Final Feasibility Study Report 53/ x-» / J. / FeasiNIHv6^0^31'0 Republic of Eth'opia- Ministry of Water Resources Fe “v Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing fruits, nuts and seeds, coffee, tea, spices and herbs. All types of fresh fruits and a wide range of off-season vegetables are imported. Supplies of organic produce from many developing countries, especially in Asia and Latin America, are making an increasing impact. Most imports are delivered in bulk for packing and/or processing in The Netherlands or other European countries. Data on organic trade are scarce and, as they are always estimates, they must be interpreted and used with extreme caution. Table 11.7 gives an overview of imports of selected organic food by a number of EU countries. Table 11.7 Imports of selected organic food products by selected EU countries in Tons Country Cereals Oil seeds Potatoes Vegetable Fruits (incl.nuts) Milk (products) Wine Germany 100,000 8,000 6,000 50,000 30,000 15,000 120,000 Denmark 20,000 2,000 1,772 3,000 - 3,000 France 112,225 18,200 6,000 30,000 25,000 25,000 20,000 Italy 200,000 Na - 4,280 12,484 120,000 - Netherlands 48,000 30,000 7,500 80,000 2,000 2,500 - UK 160,000 Very small 20,000 74,000 30,000 22,000 22,000 Source: CBI EU Organic Market Survey 2004 Imports of selected farm products by EU member countries during 2001 - 2003 in both value terms and volume have been estimated on the basis of the 2004 EU market survey. In terms of volume, imports remained fairly stable during the 2002 - 2003 amounting to almost 300 thousand tons in 2003. For example, as from 2001 the import value of spices and herbs by EU member countries decreased by 3 percent, amounting to € 788 million in 2003 (Table 11.8). It is also easy to understand the international price trends for farm products based on a simple comparison of the volume of imports and the value of imported products indicated on the table. WWDSE In Association with ICT Final Feasibility Study Report 54FeasIbili^Stud?tiC^nPUbllC °f Ethiopla‘ Ministry Foasibnity Study and Detail Design of Balo Gadula Irrigate Project of Water Resources VOL 7- Annex 10 Agricultural Marketing Imports of spices and herbs by EU member countries, by EU importer and by country of origin, 2001-2003, € 1,000 / tons Food Ingredients Total Intra-EU Extra-EU Developing countries Top 5 EU importers Germany France The Netherlands United Kingdom Spain Top 5 suppliers Germany The Netherlands Madagascar Indonesia France Developing countries Brazil India China Iran Vietnam Comoros Papua New Guinea Turkey Peru Thailand Source: CBI EU Organic 2001 Value Volume 813,956 293,883 296,824 99,013 517,132 194,870 467,746 171,103 181,106 63,081 111,095 24,051 141,660 65,452 105,847 45,323 90,230 36,298 73,997 20,971 95,750 32,434 57,926 2,373 83,515 31,247 38,749 6,322 40,305 20,953 46,533 24,718 21,903 15,107 27,507 1,351 19,549 8,939 17,931 530 1,196 65 15,847 6,907 14,968 7,873 10,304 7,243 2002 2003 Value Volume Value Volume 794,871 299,715 788.064 298.114 302,631 92,119 304,385 90.463 492,239 207,596 483,679 207.65 - 442,215 180,861 431,947 181,323 180,547 68,141 170,894 70.354 128,372 30,457 152,022 28,405 121,638 62,375 111,871 58.157 96,270 43,456 89,151 46,846 73,873 34,134 69,767 31,897 78,396 20,634 85,821 23,833 85,130 32,989 75,100 29,316 68,533 1,931 65,704 2,504 65,408 26,910 60,615 24,353 45,403 7,019 51,443 7,559 39,079 21,240 42,813 26,170 41,553 27,801 38,265 25,571 25,383 19,034 27,677 23,391 24,022 505 24,690 1,048 23,546 14,470 20,852 13,507 14,462 610 16,090 2,971 136 15,402 15,658 7,566 13,436 7,481 12,538 9,500 12,814 9,611 10,643 7,475 10,348 8,404 583 128 In 2003, Germany was the leading importer, accounting for 22 percent of the total imported value by EU member countries. Hamburg (Germany) is the world’s leading trade centre for spices. Other leading EU importers of spices and herbs are The Netherlands (19%), France (14%), the UK (11%) and Spain (9%). The leading imported product among spices & herbs was pepper, accounting for 21 percent of the total spice and herb import value in 2003. Other important products were vanilla (19%), paprika (17%), mixtures (8%), nutmeg (4%), saffron (4%) and ginger (3%). Vanilla imports increased by 60 percent between 2001 and 2003. Spices & herbs were mainly supplied by non-EU countries. In 2003, more WWDSE In Association with ICT Final Feasibility Study Report 55I rasibllity Study and Detail Design of Balo Gadula Irrigation Project Th‘,,,r:?npubllc°' E‘”lopla Mlnls,r* Wa,or VOL 7-Annex 10 Agricultural Markotlng than 60 percent of imports by EU member states was supplied by non-EU countries, of which 90 percent originated in developing countries. Germany, The Netherlands and Indonesia wore the loading supplying countries, together accounting for 30 percent of the total imported value in 2003. Please note, however, that the reason why The Netherlands and Germany are high on the supplier list is that they re-export large amounts of their imports, which are in fact originally from developing countries. Similarly, imports of pulses decreased by 16 percent as compared to 2001 and in terms of value this was € 495 million in 2003. In terms of volume, total imports of pulses by EU member countries showed a peak in 2002, but decreased again in the subsequent year, amounting to 1.1 million tons in 2003 (Table 11.9). In 2003, Italy was the leading EU importer of pulses, accounting for a quarter of the total imported value and is followed by Spain (20%), the UK (15%) and The Netherlands (10%). All the leading EU pulse importers decreased their import values during 2001 -2003. Although the imports of kidney beans by EU member states decreased by 17 percent between 2002 and 2003, it remained the leading product group, accounting for almost half of the total import value of pulses. Other major pulse groups are lentils (16%), chickpeas (14%) and broad & horse beans (10%). In 2003, the EU member states supplied only 21 percent of the total imported value of pulses, while the remaining part (79%) was supplied from countries outside the EU, mainly represented by North American countries. WWDSE In Association with ICT Final Feasibility Study Report 56Fl Feas^tyjjudy and Deta^pesign o(gale Gadula Irrigation Project P e ibi'l ?TCHrati\RnPUbliC °f E,hi0Pia’ Mi"iS,r* °f Water R«O rces i U VOL 7- Annex 10 Agricultural Marketing Table 11. 9 Imports of pulses by EU member countries, by EU importer and by country of origin, 2001-2003, € 1,000 /tons Food Ingredients 2002 2003 Value Volume Value Volume Total Intra-EU Extra-EU Developing countries Top 5 EU importers I Italy Spain United Kingdom I France ! The Netherlands | Top 5 suppliers Canada USA China Argentina Mexico Developing countries Turkey Peru Chile Egypt i Tanzania Madagascar India Myanmar Rnlivia Ethiopia 2001 Value Volume 588,004 1.088.014 106,168 305.932 418,836 782,082 245,932 356,716 131,755 320,618 138,345 248,045 90,606 151,262 67,940 103,055 38,877 67,603 135,758 263,472 78,935 123,797 59,299 103,332 57,454 84,915 69,094 82,736 24,306 33,530 3,198 4,147 3,974 2,708 2,004 2,989 3,034 3,312 3,368 5.924 5,722 7,009 3,071 4,615 536 247 4,724 11,750 570,731 108,371 462,360 223,085 128,862 113,943 90,431 66,548 49,304 131,871 61,285 62,473 54,242 46,814 21,012 5,558 1,830 2,320 4,207 2,956 2,677 3,779 748 6,559 1.328.793 494.798 1 .096.358 325.619 106.216 340.719 1,003.173 388.582 Z55.639 355.788 200.627 375.904 339,225 121.799 349 272 221.415 100.844 228,913 153,158 74,294 1 58.829 106,709 60.498 1 12.058 313,156 30.315 56.508 249,806 104.184 238.001 86,531 59.787 96.220 106,690 55.184 121.492 93,416 43,303 85.922 62,212 37,713 61,OB* 31,914 26.002 47.374 6.898 5,986 9,402 1,314 4.394 2.883 3,529 4.086 6.444 4,971 4,030 4,549 5.872 3,048 5.372 4,148 2.618 4.872 7,517 2.218 5.782 369 2,179 1.153 15,337 2,133 6.757 Source: CBI EU Organic Market Survey 2004 Several developing countries, primarily those on the African continent, benent from the oil seed sector and exports Ethiopia is among the countries that benefit from exports of sesame seed and cotton seed. However, for strategic reasons or because of existent constraints, the developing countries like Ethiopia may not be the leading exporters of the crops mentioned. As shown on Table 1110 below, between 2001 and 2003, imports in terms of value of oil seeds by EU member countries fluctuated somewhat, amounting to € 89 million in 2003. In terms of volume, imports fluctuated considerably, amounting to 123 thousand tons in 2003. This fluctuation in import volumes was mainly - --------ifhiCT WWDSE In Association with ICT F,nal Feasibility Study Report JH 57Federal Democratic Republ £eas bjjy Study and Detail A >c of Ethiopia- Ministry of Water Resources ..Design of Balo Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing caused by the substantial variability in the imports of palm nuts & kernels. Compared to sesame seed, the imports of palm nuts and kernels are relatively small In 2003. The Netherlands was the leading EU importer of oil seeds, accounting for 30 percent of the import value, followed by Greece (14%), Germany (17%). the UK (11%) and France (7%). The fluctuation in imports between 2001 and 2003 was visible in all EU member countries. Table 11.10 Imports of oil seeds by EU member countries, by EU importer and by country of origin, 2001-2003, € 1,000 / tons Food Ingredients Total Intra-EU Extra-EU Developing countries Top 5 EU importers Italy Spain United Kingdom France The Netherlands Top 5 suppliers Canada USA China Argentina Mexico Developing countries Turkey Peru Chile Egypt Tanzania Madagascar India Myanmar Bolivia 2001 2002 2003 Value Volume Value Volume Value Volume Ethiopia Source OBI EU 813,956 293,883 296,824 99,013 517,132 194,870 467,746 171,103 131,755 320,618 138,345 248,045 90.606 151,262 67.940 103,055 38,877 67,603 135,758 263,472 78,935 123,797 59,299 103,332 57,454 84,915 69,094 82,736 24,306 33,530 3,198 4,147 3,974 2,708 2,004 2,989 3,034 3,312 3,368 5,924 5,722 7,009 3,071 4,615 536 247 4,724 11,750 794,871 302,631 492,239 442,215 128,862 113,943 90,431 66,548 49,304 131,871 61,285 62,473 54,242 46,814 21,012 5,558 1,830 2,320 4,207 2,956 2,677 3,779 748 6,559 299,715 92,119 207,596 180,861 339,225 221,415 153,158 106,709 313,156 249,806 86,531 106,690 93,416 62,212 31,914 6,898 1,314 3,529 4,971 5,872 4,148 7,517 369 15,337 788,064 298,114 304,385 90,463 483,679 207.651 431.947 181.323 121,799 349,272 100,844 228,913 74,294 158.829 60,498 1 12.058 30,315 56,508 104,184 238,001 59,787 96.220 55,184 121.492 43,303 85.922 37,713 61,084 26,002 47,374 5,986 9,402 4,394 2,883 4,086 6,444 4,030 4,549 3,048 5,372 2,618 4,872 j 2,218 5,782 | 2,179 1,168 2,133 6,75? Organic Market Survey 2004 WWDSE In Association with ICT Final Feasibility Study Report 58VOL 7- Annex 10 Agricultural Marketing 11.8 OPPORTUNITIES AND THREATS FACING DEVELOPING COUNTRIES The available opportunities, constraints and threats faced by developing countries that export farm products to EU are discussed with respect to specific commodities. Generally, on the basis of the EU market potential and imports of member states, developing countries have opportunities in the export of organic products. The reason is that, o Germany and the United Kingdom are the biggest importing countries of organic products in the EU. The Netherlands is also a major importer and plays a role in the re-export of (processed) organic food products, o Coffee, tea, sunflower seeds and Soya oil are important organic products that are imported in the EU while protective measures for grains imported in the EU restrict their imports except basmati rice. o Organic products are imported from developing countries from all over the world. The wide range of products, the use of local structures and the relatively easy way of conversion give Africa opportunities in exports of organic products. o Developing countries have enormous market opportunities for the export of spices and herbs particularly in the most important spices and herbs that EU member states import including pepper, vanilla, paprika, mixtures, nutmeg (4%), saffron and ginger. In general however, food products (including grains and pulses) destined for the end-user have to comply with the requirements of the Council Directive 89/395/EEC (amending Directive 79/112/EEC) and any subsequent legislation concerning the labeling, description and advertising. This legislation is, however, more relevant for importers than for exporters of grains and pulses, as these produces are generally traded in bulk and are not directly exported to the end users. 11.8.1 Product Quality Standards Product quality standards which exporters should be able to meet in order to be competitive in the EU market are briefly discussed below with respect to the major export commodities relevant to the Ethiopian producers. WWDSF In Association with ICT Final Feasibility Study Report 59Federal Democratic Republic of Ethics, • r...iMIIB s,„ay M c,.„ 11.8.1.1 Oil seeds B„e VOL 7- Annex 10 Agricultural Marketing The EU member countries import relatively minor commodities, such as sesame hemp seeds, for further processing. Sesame seeds (Sesamum indicum), also known as benniseed, gingelly, sim sim, and til, are supplied to markets in North America, Europe, and East Asia by countries in Africa, Latin America, and South Asia. Cooking oil can be extracted from sesame seeds, and this is their main use, especially in Asia. In North America and Europe, raw sesame seeds are generally used for toppings on breads such as hamburger buns, bagels, bread sticks, and other baked goods. Restaurants and natural food store customers purchase sesame seeds for use in ethnic dishes. Middle Eastern countries use sesame seeds for tahini paste and halvah, as well as for oil. There are different types and qualities of sesame seeds. White seeds are a white- to golden color and receive a higher market price than mixed seeds, which range from yellow to dark brown. White seeds are used primarily in raw form because of their aesthetic value, whereas mixed seeds are generally crushed to oil. The value of sesame seeds depends on their purity, expressed as a percentage, and oil content, which should exceed 50 percent. Hulling seeds, or removing their thin husk, increases their value as does bleaching hulled seeds. Moisture content and free fatty acid content are also important in assessing value. The highest-quality sesame seeds are found in Central America, primarily in Guatemala. Other oil seeds covered within this market survey are palm nuts & kernels and shea nuts (karite nuts). There are no fixed EU quality standards for the oil seeds. In practice, importers have defined their own quality standards, and are willing to pay more for better quality. Shipments will usually be subject to FOSFA (Federation of Oils, Seeds and Fat Associations rules. These cover items such as sampling and analysis, insurance and claims arbitration. FOSFA is the major association in the oil seeds trade. It draws up contract terms for most of the oil seed commodities and these are periodically revised in order to ensure that they fully meet trade requirements. FOSFA contracts attempt to reflect the interests of the buyer and seller equally --------- ~~ Fjna| Feasibility Study Report WWDSE In Association with ICT 60------- r.a- IVliniStrV Of Water D Feasibility Study and Detail Design of Bale Gadu|a Irrigation The arbitration clause is an important aspect of the FOSFA requirements for pesticide residues are laid down for oilseeds. 11.8.1.2 Pulses VOL 7- Annex 10 Agricultural Marketing contracts. Legal Wrthin this product group, the focus will be on specialty beans like kidney beans, chickpeas and broad & horse beans. Although the trade in the mentioned groups is small, they are important for exporters from several developing countries, as they are important suppliers for the EU market. So far, there are no specific quality standards for pulses. Currently, there is a lack of agreement on nomenclature, or what to call various types and market classes of pulses. Moreover there is no common approach for measuring quality. Both these issues create trade difficulties. The International Pulse Quality Committee is now trying to develop common, international standards for identification and testing of such pulse crops as peas, beans, lentils and chickpeas. Quality parameters include color, size and shape, dehulling efficiency and cooking and canning quality. Representatives, however, only include western stakeholders. 11.8.1.3 Spices and Herbs The European Spice Association (ESA), representing spice associations in EU countries, has developed an “ESA Contract” which indicates minimum quality standards for imported spices, methods of arbitration and enforcement procedures. The ESA specifications of quality minima for spices and herbs are the proposed legal minimum standards for selling into the EU. Nevertheless, it must be emphasized that the quality requirements of traders in major northern European markets (Germany, The Netherlands, United Kingdom and France) are generally much stricter. As of April 5, 2002, EU-wide maximum levels apply to aflatoxin in the following spices: Capsicum spp, Piper spp, nutmeg, ginger and turmeric. The maximum levels for aflatoxin are listed in the Commission Regulation 472 (16 March 2002). The harmonized sampling plan for aflatoxins was published in Commission Directive 98/53/EC. Sampling methods for aflatoxin in spices, to be applied as WWDSE In Association with ICT Final Feasibility Study Report 61Federal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing from February 28, 2003 onwards, were added to Commission Directive 2002/27/EC. The EU wide maximum levels set are 5 jjg/kg for aflatoxin B1 and 10 pg/kg for total aflatoxins. The European Commission will review the maximum limits for aflatoxins by the end of 2003 and, if appropriate, reduce them to take account of the progress of scientific and technological knowledge. It is important to bear in mind that most European importers at this moment refuse to accept any traces of aflatoxin in organically produced products. Further, tumigation and irradiation is not allowed in organic products; alternatives are: deep freezing, steaming or pressurizing in autoclaves. 11.8.2 Trade-related Measures that Restrict Entry to EU Market As compared to product quality standard, trade related regulations such as healthy and safety, environmental as well as other aspects of EU market regulations have become obligatory for suppliers that export products to EU market. Environmental aspects of products have become a major issue in Europe in recent periods. Depending on the product group in question, environmental aspects can play a vital role in preparing for exports to the European market. Besides governmental actions (legislation and regulation), a strong consumer movement is noticeable especially in the northern parts of the EU (Scandinavia, Germany, The Netherlands and the United Kingdom). “The environment" is more than a trend. It is a lasting issue seen for all products and nowadays even services. Therefore, growers and manufacturers have to view their products and production processes not just by looking at traditional aspects like price, quality, customer demands and standards, but also at the environmental aspects. It is the objective of this section to briefly highlight several aspects that currently play a major role in the EU. Exporters must be aware of these considerations of European customers and governments and try to satisfy their needs by offering products, which comply with both legislative and market requirements. 11.8.2.1Sustainable Development for Businesses The concept of sustainable development, adopted by nearly all the countries in the world which participated in the 1992 Rio de Janeiro Conference, represents the philosophy that economic development should automatically take into account WWDSE In Association with ICT^Feasibility Study 62Feasibility Study and nnt^ | n°l R l l Etlli°.P a Ministrv of Watcr i ; Resources --------- ------ Cta" Dcsi^n °f Balo Gadula Irrigation Project VOL 7- Annex 10 Agri cultural Marketing of the environment, recognizing the fact that polluting activities now will 9 eat (negative) impacts on the way future generations can live. In this pect all parties, including the general public but also growers, are asked to cept their social responsibility and minimize the environmental impact of their activities. 11.8.2.2 Ecolabels The hallmarks for environmentally sound products are normally referred to as Ecolabels. Such a hallmark indicates that the product (including its full production process) has a reduced impact on the environment, compared to similar products. Ecolabels have been developed at various levels. Labels, referring to the organic production of food could also be considered ecolabels. Organic production is the strictest of the environmentally sound agricultural practices. As a consequence, if your product is already labeled for organic production, (other) labels with less strict requirements will in most cases be less interesting when marketing the product in the European market. 11.8.2.3 Environmental Standards The ecolabelling procedures are purely aimed at the products (not at the manufacturing process) and indicate that the product with a label has a reduced impact on the environment. If a manufacturer wants to indicate to external parties that he is manufacturing in an environmentally sound way, then he can comply voluntarily with the following standards: • ISO 14001 • EMAS. Both standards are based on the ISO 9000 series of standards for quality management. The relevance of the ISO 14001 standard for the future can be clearly seen by following the development and use of the ISO 9001 and ISO 9002 quality standard. Although voluntary, customer pressure is resulting in the ISO 9001 and ISO 9002 quality standard becoming increasingly necessary to do business around the world. Similarly, the ISO 14001 environmental management standard may become a de facto requirement for being able to compete in many regions of the global marketplace. WWOSEInAs^UoT^tHEr Final Feasibility study Report 63F edcra! Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Project 11.8.2.4 Health and Hygiene Issues: haccp VOL 7- Annex 10 Agricultural Marketing The Hazard Analysis Critical Control Point (HACCP) system applies to the food processing industry in the EU The EU Directive on Hygiene for Foodstuffs (93/43/EC), which became effective in January 1996, stipulates that: 'foodstuff companies shall identify each aspect of their activities which has a bearing on the safety of foodstuffs and shall ensure that suitable safety procedures are established, applied, maintained and revised on the basis of the HACCP system’. All food processors in the EU are legally bound to have an HACCP system in place or they must be working on implementing an HACCP system. The HACCP system is applicable to companies which process, treat, pack, transport, distribute or trade foodstuffs. These companies are forced to understand (and act against) the possible hazards associated with food production at all stages, from growth, processing, manufacture and distribution, until the point of consumption. This includes macro-biological (vermin), micro-biological (viruses, bacteria, moulds), toxicological (chemical contamination with pesticides), or physical (wood, metal, glass, plastic or fabric) risks. The HACCP regulation is of importance to exporters, because importers of food products in the EU will be legally held responsible for any negative consequences. Therefore, the food industry in the EU will be reluctant to do business with food processing companies in developing countries that do not have an HACCP system in place. Companies sourcing processed food products or food ingredients will insist on HACCP implementation by their suppliers. Companies can seek the assistance of accredited organizations to help them with the implementation of an HACCP system and to become HACCP certified. 11.8.2.5 Fair Trade and Social Responsibility In most Western countries, more and more attention is paid to the social conditions of the producers of the goods that are imported. The goal is to assist small producers to gain direct access to the export markets and to guarantee decent working conditions on plantations and in factories. A uniform European logo for these products was introduced in the beginning of 2003. Social issues WWDSE In Association with ICT Final Feasibility Study Report 64pi p pi pi PI PI M rederal Democratic Republic of Ethiopia- Ministry of Water Resources = eas □ ty Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Ann*/ 10 Agricultural MafVfcti' j a so c ay a major role within the organic movement This has resulted in the aoopuon of a separate chapter on social justice in IFOAM s Basic Standards 11.8.2.6 Packaging, Marking and Labeling Aoart from the safety aspects and the protection against damage the focus of packaging is definitely on environmentally friendly transport - as well as sales- promotion packaging. This means, among other things that it should be corsdered whether recyclable systems could be used on a much greater scale than before. The basic requirements for the oackaging and labeling of organic foods a e r laid down in EU Regulation 2092/91. Besides, exporters must always check the specific requirements of national organic symbol schemes in the country to which they are selling. R’rtCSE r- Assocsccr -ra StusyFederal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility study and Detail Desjgn of Bale Gadula Irrigation Project 12. CONCLUSION AND RECOMMENDATION 12.1 CONCLUSION VOL 7- Annex 10 Agricultural Marketing_ It is well acknowledged that irrigated agriculture would be one of the best options that would enhance the productivity and production of the Ethiopian agriculture sector Through the development and expanded use of irrigation, the dependence of agriculture on rainfall and also the incidences of crop failures resulting from rain shortages could be minimized. Moreover, the growth of irrigated farming would also ensure the achievement of the country’s agriculture and rural development strategy and stimulate the entire economic development of the nation. In addition, irrigation would also enhance the growth of food production and thereby ensure the achievement of long - term food security. Even though irrigation would have a significant contribution to enhancing food production and ensuring food security, the marketability and market standing of the products produced and supplied by an irrigation project would determine the viability of the project. It is also important for the project to identify potential market for its products and also devise an effective marketing strategy in order to be a good competitor in the market. As a first step towards the identification of the most suitable market, the project needs to research the important potential markets and understand the ongoing developments that shape the product market structure. This should be done by means of systematic market research, involving a preliminary screening of potential markets followed by a more detailed assessment of the targeted markets. This agricultural marketing study is therefore conducted with the aim to generate market data and information, to assess the potential market and thereby identify target market for the products produced by the project and to draw conclusion that could serve as an input in the decision to determine the market validity of the products and also to prove project feasibility. Based on this notion, the national agricultural marketing policy and the marketing system including market infrastructure, marketing channel and supply chain for farm produces has also been assessed thoroughly. From this analysis the study WWDSE In Association with ICT Final Feasibility Study Report 66.... ......... -.xsgaasszr found out that alto, mntk.tl llbnoh/nllon and mi|.» I odpral Dpinor.rAtlc. Roniikii. «» W)\ f /•nntf/Vf roforrri rn;ijore> t;jknn after 1991. the policy environment h, and fat. competition ,n „,„Gh niillke, <is l)('(,oHK) nioro enabling in that it encourage free function freely without any government restriction marketing system As a tost,II. fa„„ ,„ , ( dllt: K sokl | the active involvement ol all |l,„ „,a|o, players namely producers commission agents, processors and exporters After the and interference in the and bought freely through s, traders, brokers, 3 market deregulation, the agricultural marketing stiucturo has become more complex as it involves different actors and intermediaries that provide specialized services in the marketing channel through which products pass from the producers to final destination. Meantime, the liberalization of market increased the selling outlets for farmers with a simultaneous inciease of the supply sources for urban consumers. With regard to existing marketing infrastructure particularly the availability of road network and transport services, the findings indicated that these market infrastructures are in poor condition especially at the project site where access road is unavailable. Apart from the Goro - Robe road which is in very poor condition due to the lack of regular maintenance, the inter-regional road that connects Robe with Addis Ababa is also nearly impassable especially for loaded tracks since the asphalt road construction is far from completion while it is unsafe for vehicles and people that use the substitute road which is too rough and bumpy. In addition to the problem of road, traders and farmers in the local market do not have adequate access to storage facilities. Only wholesale traders could have the possibility to rent the modern warehouses in Robe which is under the government marketing enterprise (EGTE). Local traders entirely depend on sub standard storages constructed from corrugated sheet except the floor which is made of cement concrete. A major improvement in the functioning of the national agricultural markets is the access to market information. Apart from the CSAs monthly consumer price database of major commodities in over 200 markets and posted on its website will) regular updates, the launch of the Ethiopian Commodity Exchange (ECX) in 2008 is a breakthrough in availing market information and access to a new market WWDSI In AwModotlon with ICT Final Feasibility Study Report 67Federal Democratic Republic of Ethiopia- Ministry of Water Resources Feasibility Study and Detail Design of Bale Gadula Irrigation Proiect VOL 7- Annex 10 Agricultural Marketing place where all market actors (farmers, traders, processors, exporters and consumers) can take advantage of more transparent market information. The marketing study has also collected and analyzed the national production and the marketable surplus for major produces. Generally, cereal production is in scarce supply and as a result, the government has banned grain export since it has direct link with the country s grain balance and for reasons of national food security issues. Therefore, the study emphasized on the production and supply of internationally traded farm produces that have export market potential. Moreover, the production trends as well as the development of farm product prices in the domestic market have been analyzed in order to identify products that have domestic market potential and also for the selection and determination of crops which could be produced by the project The assessment of trends in local production potential and supply of major crops produced by farmers indicated the growth in the production of cereals, pulses and oilseeds. On the contrary, there is food grain scarcity in the domestic market coupled with the rise in the prices of almost all the farm commodities. Thus, as food grain scarcity and the sharp rise in prices is a common phenomena nationwide, it is an opportunity for the project to use irrigation for the production of cereals particularly wheat which has high demand in the domestic. In addition, farm produces that have export market demand including oilseeds (for example sunflower) and pulses especially lentils, chick peas, etc are products that have export market outlets and huge market potential. The assessment of the export market has indicated the existence of a huge market and market outlets for these produces particularly in the EU market. As the document indicates, the agricultural marketing study has assessed and analyzed almost all the critical issues of produce marketing and also drew useful conclusions. Finally, on the basis of the findings and the conclusion arrived at, the following recommendations would have relevancy in making the project a success. WWDSE In Association with ICT Final Feasibility Study Report 68//* S&S and De^l n° ------ a R f Ethi°Pia’ Mln,Stry of Water Resources JdDetaii Design otBa e | Gaduja Irrigation Project VOL 7- Annex 10 Agricultural Marketing 12.2 RECOMMENDATION 0 be successful in the marketing of its produce and also in devising an marketing strategy, the following recommendations would have vital relevancy. The project should give adequate consideration to the existing food grain scarcity in the domestic market and identify commodities which have high demand and hence fetch high prices in order to select produces that could be produced and supplied to the domestic market. Especially at the early stage when the access to export market would require detailed market study, it is the best option for the project to commence its production starting with produces that have good demand in the domestic market. b. As evident from the study particularly the reserve stock kept by humanitarian agencies, a large proportion of the country’s population has been food insecure for over three decades and the problem still exists and would not be alleviated at least during the medium term period. Since humanitarian agencies give priority of food grain purchase to domestic suppliers, sales to these agencies should be considered as one of the potential markets for certain produces of the project. c. Oilseeds and pulses are among important farm commodities for which there is huge export market potential. Ethiopia is already among the exporters of oilseeds especially sesame and also pulses like chick peas and lentils. Therefore, while producing and supplying food grain to the domestic market, meantime, the project should assess the existing export market outlets and supply channels in order to start production and export of oilseeds and pulses. d During the short to medium term period, the most appropriate export outlet and/or channel could be the use of established export agencies like the EGTE and other private export companies that have export market access and major importers as well as the experience and facilities for produce preparation like for example produces cleaning. e In the long - term, the project should devise an effective marketing strategy in order to be a competitive exporter of the products that it will produce. Thus, conducting of detailed market research to identify and select produces that have export market potential would be an important first step VVWDSE In Association with ICT Final Feasibility Study Report 69KA 1 iv --------------------- ------------- — - TW-U a asib'li?StXataCn^X ' b iC OfEthiopia . - Ministry of Water Resources ~ 3il DeSign of Bale Gamula Project VOL 7- Annex 10 Agricultural Marketing l°ping long - term marketing strategy. Based on the findings of the research, the project should determine export commodities that it produce and also devise production strategy that ensure a sustainable U PP'y produces to importers who often prefer uninterrupted supply. The study has found out the growth in the production and supply of spices particularly Cummins, Fenugreek and ginger which fetch high prices. Based on the assessment of export market especially the EU, spices and herbs are among the exports of developing countries that have enormous market potential. Therefore, in order to produce and export these commodities, detailed agronomic studies should be conducted to identify and select species or varieties that meet the export market quality standards as well environmental and health safety requirements of the products. g. Generally, the marketing of the farm produces that the project will supply would depend on the availability of infrastructure needed for an efficient delivery of the produces. Thus, the road network and poor road condition in the vicinity of the project as well as the road that connects Goro with the central market should be upgraded through regular repair and maintenance. Numerous access road should also be constructed in order to link the project with the kebeles and villages that produce farm commodities using the irrigation project. h Traders in the study area do not have access to standard storage facilities and as a result, the products they purchase have to be delivered soon in order to avoid the deterioration of product quality. Nevertheless, since all the products produced by large scale projects can’t be delivered to market soon after harvest, the project should install modern storage facilities to avoid product quality deterioration. The existence of own warehouses will also enable to use proper marketing strategy which enable to supply products depending on market prices so that products could be stored when prices fall. WWDSE In Association with ICT Final Feasibility Study Report 70Federal Democratic Republic of Ethiopia- Ministry of Water Resources FeasjbilityJ^udyjncnDeta^HDesign^^ Project VOL 7- Annex 10 Agricultural Marketing REFERENCE 1. Amhas, W. The Structure and Functioning of the post padets grain marketing system in Ethiopia 2. Cunningham, 1997b, Review of ethno botanical literature from eastern and southern Africa, in: The African Ethno botany Network, Bulletin No.1, November. 3. Eleni Z. Gabre-Madhin. Market Institutions, Transaction Costs, and Social Capital in the Ethiopian Grain Market. Research Report 124, International Food Policy Research Institute, Washington, D.C. 2001 4. Eskola, E. 2005. Agricultural Marketing and Supply Chain Management in Tanzania: A Case Study. Working Paper Series No. 16 5. Ethiopian Valley Development Studies Authority 1992. Welmel Medium Scale Irrigation Project Feasibility Study 6. Ethiopian Valley Development Studies Authority 1992. Yadot Medium Scale Irrigation Project Feasibility Study 7. EU Market Survey 2004, Organic Food Products. CBI (Centre for the Promotion of Imports from developing countries), 8. EU Market Survey 2004, Food Ingredients for industrial use. CBI (Centre for the Promotion of Imports from developing countries), 9. EU statistics bureau Eurostat: at http://europa.eu.int/comm/eurostat 10. Fair Trade market reports (some including organic sections) can be downloaded from http://www.fairtrade.net. 11. FAO/WFP 2007, Crop and Food Security Assessment, Mission Report 12. FAO/WFP 2008. Crop and Food Security Assessment. Mission Report 13. FAO/WFP 2009. Crop and Food Security Assessment. Mission Report (Phase 1) 14. FAO/WFP 2009. Crop and Food Security Assessment. Mission Report (Full Report) 15. FiBL, SIPPO and Naturland, The handbook 'Organic coffee, cocoa and tea by at http://www.fibl.ch/buehne/publikationen/pdfs/verzeichnisse/handbook- coffee.pdf. WWDSE In Association with ICT Final Feasibility Study Report 71Federal Democratic Republic of Ethiopia- Ministry of Water Resources FeasibiIity Study and Detail Design of Bale Gadula Irrigation Project VOL 7- Annex 10 Agricultural Marketing 16. Frost & Sullivan (2004), Executive summary of European Markets for Active Ingredients in Personal Care. 17. Gebremeskel, D., T. S. Jayne, and J. D. Shaffer. 1998. Market structure, conduct, and performance: Constraint on performance of Ethiopian grain markets. Working Paper No. 8. Grain Marketing Research Project, Addis Ababa, Ethiopia. IS. Lirenso, A. 1993. Grain marketing reform in Ethiopia. Ph D. diss., University of East Anglia, Norwich, U.K. 19. Negassa, A. 1998. Vertical and Spatial Integration of Grain Market in Ethiopia: Implications for grain markets and food security policies. Working Paper No 9. Addis Ababa, Ethiopia 20. Negassa, A., and T. S. Jayne. 1997. The response of Ethiopian grain markets to liberalization. Working Paper No. 6. Grain Marketing Research Project, Addis Ababa, Ethiopia. 21. Negassa, A., T.S. Jayne and J. Myres, R. 1998. The Effect of Liberalization On Grain Prices and Marketing Margins in Ethiopia, MSU International Development Working Papers 22. Organic Marketing Initiatives and Rural Development (OMIaRD). “Analysis of the European market for organic food”. 23. Osbone, T. 2003. Imperfect Competition in Agricultural Markets: Evidence from Ethiopia, European University Institute 24. SIPPO and FIBL. The Organic Market in Switzerland and the European Union’ at www.sippo.ch/cqi/news/publications.asp?mode=6#orqanic. 25. TTC study “Organic Food and beverages: World Supply and major European markets” at http://www.intracen.org/mds/sectors/orqanic/abstract.htm. 26. The World of Organic Agriculture, Statistics and Future Prospects". 2003 at http://www.ifoam.org/ and http://www.soel.de/inhalte/publikationen/s/s 74.pdf. 27. USDA organic country reports at http.7/www.fas.usda.qov/htp/orqanics/attache.htm. WWDSE In Association with ICT Final Feasibility Study Report 72I TM '■'X v w . ___ __
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