Agro Processing: Vital in Ethiopian Economy

Agro Processing:

Vital in Ethiopian Economy

By Samuel Tekleyesus

Well-known that Ethiopia is gifted with good climate, sufficient arable land and labor, adequate rainfall and a range of agro-ecological zones that contributes to the wide diversity of commodities which can be produced. And agriculture plays a critical role in the Ethiopian economy; Ethiopia’s economy is predominantly agriculture-based. According to Growth and Transformation Plan Progress Report, Ethiopian agricultural sector is characterized by the presence of many smallholder farmers which are not integrated into commercial value chains with small land holdings and accounts more than 85 per cent of agricultural production in the country.

Ethiopians’ demand for food and agricultural products is changing in unprecedented ways. Increases in per capita incomes, higher urbanization and the growing numbers of women in the workforce engender greater demand for high-value commodities, processed and ready-prepared foods.Even though the demand is there, medium- and large-scale food processing companies in Ethiopia often cite a lack of raw material inputs as a main constraint hindering their ability to work at full capacity.Poor quality inputs and farmers inefficiency are the major reasons for the supply and demand gap.

The Government has identified increasing productivity of smallholder farms and expanding large-scale commercial farms as two of its priority areas. In addition, as part of the second Growth & Transformation Plan (GTP II), the government has been looking to the agro-processing sector as one engine to pushthe economic growth.There are clear indications that agro- industries are having a significant global impact on economic development and poverty reduction, in both urban and rural communities. However, the full potential of agro processing industries as an engine for economic development has not yet been realized.

Developing competitive agro processing industries is crucial for generating employment and income opportunities. Agro processing industries have the potential to provide employment for the rural population not only in farming, but also in off-farm activities such as handling, packaging, processing, transporting and marketing of

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food and agricultural products. Though there is a huge potential for growth of the agribusiness in the country, there are some critical constraint such as weak infrastructure linkage between the producers and processors, limited knowledge on the requirements of processors by the farmers in terms of quality or agronomic practices and fragmented agricultural system which pose a challenges for processors to procure the appropriate quantity and quality of raw materials. Ethiopia’s agro-exports are currently almost entirely limited to primary and unprocessed products. The share of processed products in total agriculture exports constitute only insignificant amount while import for such products remains strong. It is known that there is a favorable market

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for exports of processed food in the global market.

Industrial development

It is believed thatthe development of agro processing industries will help Ethiopia to put economic development in a fast-track withadvanced industrialization and attainthe industrial developmentgoals. The Government expects the industrial sector to play an important role in GDP growth, job creation, foreign

exchange earnings, and small and medium-sized enterprise (SME) development over the coming years. As a vehicle for the structural transformation of the economy through the commercialization of the agricultural sector, developing agroprocessing industrial parks is a priority in Ethiopia’s national development strategy and is a center of the second Growth and Transformation Plan (GTP II).

Agro Processing industrial parks will drive the development of

the Ethiopian agricultural production system from its current fragmented and supply-driven practices, to organized and quality and demand based system. There will be an open area of production zones,controlled environment growing, research and technology facilities and marketinginfrastructure.Poverty reduction will be achieved through the integration of smallholder farmers, small-scale processing enterprises and allied industries in commercial value chains. This, in turn, will increase local value-addition, create additional jobs in rural areas and improve the overall

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efficiency of the agricultural value chain. Medium- and large-scale firms will also benefit from more efficient value chains, through reduced transaction costs, allowing for additional growth and job creation.

There is considerable room for investment in agro-processing as almost all of Ethiopia’s crop production is rain fed which shows a flourishing demand for water supply and drainage systems, drilling and water pump equipment. Other than that there is a huge demand for agricultural and agro-processing equipment and systems such as tractors. The Ethiopian Investment commission set some Key reasons to invest in Agro-Processing sector in which some of them are plentiful agricultural resources, suitable climate condition, cheap labor,

the country’s global repletion foritsspecial aroma and flavor wider genetic variety Arabica coffee, opportunity for meat processing as Ethiopia is the first in Africa by cattle population with well-established meat trade global partners and potential in honey production.

To meet its agro-processing objectives, the government is building Integrated Agro- Industrial Parks (IAIP) in four pilot areas: Amhara, Oromia, SNNP, and Tigray regional states selected based on their potential of existing agricultural resources and allied sectors, infrastructure, and facilities. In the coming years, consumer demand for certain types of foods in particular, dairy products, wheat-based products such as

pasta and bread, alcoholic and nonalcoholic beverages, cooking oil, sugar, meat, eggs are expected to increase.

In conclusion, Under GTP II, Ethiopia’s future economic growth in part depends on the development of the agro-processing sector. Agroprocessed productswill help to satisfy the huge local demand. Some of Ethiopia’s cash crops such as coffee, spices, pulses andoilseeds, cut flowers, fruits and vegetables, and honeyare exported to generate foreign exchange. In addition, the government should work with the private sector to process some of these commoditiesin order to add value and capture higher export prices through agro processing industries which can play a very important role in accelerating the economic development.

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COMMODITIES & DEVELOPMENT

REPORT 2019

By Staff Writer

In today’s era of accelerated climate change, developing countries, particularly commodity dependent developing countries (CDDCs), least developed countries (LDCs) and small island developing States (SIDS), are under multiple pressures. They are faced with challenges of diversifying their economies and achieving sustainable development. In addition, they are deeply affected by the direct impacts of climate change, as well as the impacts of climate mitigation and adaptation measures by other countries. In this context, the Commodities and Development Report 2019 highlights the particular vulnerabilities of CDDCs, focusing on the main commodity sectors on which they depend. The report provides valuable insights into the climaterelated challenges confronting those sectors, and discusses policies, strategies and actions needed to overcome those challenges, both at national and international levels.

These are crucial if countries are to meet the central goal of the Paris Agreement to keep the rise in the earth’s temperature to well below 2°C above pre-industrial levels by the year 2100, and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.

Most developing countries are commodity dependent,meaning that they derive at least 60 per cent of their merchandise export earnings from the commodity sector.

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In these countries, economic cycles are synchronized with commodity price cycles, implying that their economies grow faster during commodity price booms but slow down during commodity price slumps.

As episodes of commodity price slumps are generally longer than boom periods, CDDCs experience, on average, slower growth than other countries. Commodity dependence affects economic performance through several channels. The first is the Dutch disease

phenomenon. According to this phenomenon, the discovery and exploitation of a major natural resource leads to massive inflows of foreign currency and appreciation of the domestic currency. This hampers the competitiveness of traditional sectors and, in many cases, increases the concentration of the economy around the natural resource. Such an economy becomes more vulnerable to commodity price shocks. Second, the reduction of export revenues during slumps in commodity prices creates macroeconomic challenges such as declining

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public investment and spending, increasing public debt, currency devaluation and greater sovereign risk.

Third, negative terms of trade and high commodity price volatility create an unfavourable environment for economic growth and development. Fourth, at the microeconomic level, low or declining commodity prices reduce incomes of households that are dependent on agricultural commodity exports such as coffee, cotton, tea and cocoa. Moreover, negative macroeconomic conditions affect firms’ profitability, and consequently their contribution to overall economic performance.

Climate change is an additional challenge to CDDCs that are already struggling to manage the problems arising from their dependence on commodities. Given the two-way relationship between climate change and the commodity sector, this year’s report, titled Commodity Dependence, Climate Change and the Paris Agreement, attempts to identify the major channels through which this relationship operates.

Hence, the management of natural resources in the current era characterized by growing concerns over climate change

needs to take into account this relationship. Most particularly, the call to limit the rise in global temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels the core objective of the Paris Agreement will affect the way natural resources are managed.

The report presents some proposals that would allow CDDCs to contribute to climate change mitigation efforts while minimizing the negative impacts of climate change on their economies.

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