Food-grain producing State Farms in Ethiopia by Jose Luis Vivero

EC-LFSU

Research Report

Delegation of the European Commission toEthiopia Local Food Security Unit

IS THERE A COMPARATIVE ADVANTAGE TO FOOD-GRAIN PRODUCING STATE FARMS IN ETHIOPIA? Alemu Asfaw & Jose Luis Vivero*

* The authors acknowledge the ideas and comments forwarded from LFSU and EC Delegation staff in developing this paper. Nevertheless, all the views expressed in this paper are those of the authors and do not necessarily represent the European Commission.

Addis Ababa

October 2000

TABLE OF CONTENTS Executive Summary Acronyms and Data Note List of Boxes and Tables

ii v vi

INTRODUCTION

Page

1.1. Objectives, Data, and Methodology. 1.2. Agricultural Sector Outlook . 1.3. Food Security at National Level 1.4. Food Gap Analysis . . 1.5. Food Aid . . .

. . . . .

. . . .

. . .

1 2 2 3 5

. . . . . .

7 7 9 10 11 11

. . .

13 13 14 14

ANALYSIS OF COSTS

3.1. Re-assessment of Assets and Premises . 3.2. Seed Purchasing . . . 3.3. Loan and Interest Payment . . 3.4.Other Factors

. . . . .

SITUATION OF PRESENTLY OPERATING AGRICULTURAL DEVELOPMENT ENTERPRISES

2.1. Background Information on State Farms . 2.2. Main Features of Agricultural Development Enterprises 2.3. Productivity . . . . . 2.4. Storage and Machinery . . . 2.5. Marketing . . . . . 2.6. Irrigation Potential of State Farms . .

. . . . .

. . .

CONSTRAINTS TO AGRICULTURAL DEVELOPMENT ENTERPRISES

4.1. Agricultural . . . . . . . 4.1.1. Monoculture due to Lack of Alternative Rotational Crops 4.1.2. Lack of Improved Varieties 4.1.3. Chemical Adaptability 4.1.4. Water-logging and Lack of Drainage Systems 4.2. Technical . . . . . . . 4.2.1. Machinery Constraints in Quantity and Quality 4.2.2. Lack of Qualified Personnel 4.2.3. Problem of Vehicles 4.3. Managerial . . . . . . . 4.3.1. High Overhead Costs at Enterprise Level 4.3.2. Re-evaluation 4.3.3. Loan Interest 4.4. Policy Related . . . . . . 4.4.1. Weak Collaboration with Research Institutions 4.4.2. Privatisation Uncertainty

. . .

22 23 24

CONCLUSIONS AND RECOMMENDATIONS

References . . List of People Contacted . Annexes . . .

. . .

Executive Summary The specific purpose of this study is to evaluate the present situation of the existing grain producing state farms and to assess their potential to enhance food security through capitalising unutilised production potential and improving the efficiency and effectiveness of the existing system of production. This study only focuses on the actively working cereal producing state farms. These state farms are under three Agricultural Development Enterprises (ADEs). A formal questionnaire and/or check lists for primary data and secondary data sources have been utilised in assessing the activities and performances of those selected cereal producing enterprises. This study, albeit its focus on arguments in favouring the large scale mechanised farms by their strategic advantage, attempts to prove the profitability of state farms even when simple financial analysis is done. It also tries to illustrate some financial benefit one can get from the prevailing commercial farms if some development assistance is forwarded towards the development of such kinds of commercial agricultural enterprises. Agriculture is the traditional mainstay of the Ethiopian economy, it provides much of the necessary dietary food, raw materials for industries and quality products for export markets, thus being the major source of foreign exchange. As seen in Table 1, from 1995 to 2000, the average population growth (3%) is quite similar to the net grain production (about 3%). Production should have grown more than population so as to reduce the current food gap per capita. The main reason for this has been a puzzling stagnation in the food-grain yields, which is surprising given the fertilizer usage increase in recent years. Lower food-grain yields helped in widening the food gap , resulting in a declining per capita food production and an increasing needy population from 1995 to 1999 (Table 3). The same table indicates the food gap has been filled by food aid from 1995 to 1997 despite the good production performances in those years. As depicted in Table 2, even if trends show increased productivity in the agricultural sector, the national food deficit remains unchanged. In addition to the food gap problem, real prices have increased significantly in the last 10 years with stagnant or declining income levels thus indicating the worsening of the food security situation in the country. To decrease the food gap problem in particular, and food security problem in general, Ethiopia has been the recipient of more relief food assistance than any other African country (average annual 693,786 MT~1.3 billion ETB). Table 5 depicts that the amount of EC Food Aid for Ethiopia, except in 1999, has shown an increasing trend for the last five years. Considering the population growth rate, it is obvious that food aid cannot be a sustainable instrument in the longer term. It is also known that the European Commission's intention is to move from direct food to development aid while ensuring that the capacity remains to react to any possible crisis. This dependence on food aid can only be overcome with a coherent national strategy for food security, capable of dramatically boosting yields per hectare, which for cereals are among the lowest in the world. This wide gap may be diminished by the underestimated potential of productivity-increasing technology. Increasing the national average of maize yields alone to 3 MT/ha could add more than one quarter to the country's food grain production. It should be noted that with rain fed agriculture and no support in highly mechanised farming, it would be a difficult task to meet subsistence requirements in the future. Hence, considering food products as strategic ones, the role of establishing commercial agricultural enterprises and the revitalisation of the old ones is undeniable. Commercial agriculture was introduced in the 1960s with the goal of abating the food-gap intricacies. After the revolution in 1974, commercial farms were nationalised and state farms were established. Production of cereals from state farms reached as high as 382 thousand MT in 1981/82 which was about 8 percent of the national production. The policy reform stated in 1991 by TGE obviously discouraged the existence of these farms under the control of the government. As an aftermath, the cultivated land and output over the last 10 years have shown a declining trend. In the 1999/2000 production year, there are only 13 state farms (out of 31) producing 113 thousand MT of cereals with an area of 47,634 ha. The selected enterprises for the study are Arsi Agricultural Development Enterprise (AADE), Bale Agricultural Development Enterprise (BADE), and Awassa Agricultural Development Enterprise (AwADE). These enterprises include six, five and two cereal producing state farms respectively. Presently, these enterprises are governed by Central Authority for Public Enterprises (CAPE). Each enterprise is administered by a board which is directly responsible to CAPE. Board members are representatives of different government organisations related to the production of state farms. ii

The three enterprises cultivated 31,817 ha in 1998/99, which is about 1.1 percent of wheat and maize area covered in the country. But in terms of production, their contribution to the national marketable surplus is greater than 20 percent for the last couple of decades (Annex Table 5). On average it can be said that the production performance of the three cereal producing enterprises is good for the last five years. Non-fragmented plots of land and well established infrastructure which are the basic elements for mechanised farming can be considered as the main reasons for their good performance. As there are very fertile productive state farms operating efficiently, there are also very few which are operating poorly. Poor performances can be ascribed to the poor fertility of the soil and high overhead costs at enterprise level. There is also considerable irrigation potential via rivers, and under ground water and seasonal springs for both, the productive and non-productive state farms, which need to be further studied in the future. Even if a proper cost efficiency analysis requires considerable detailed review, and often not relevant to such kind of work where objectives are more social than financial, the consideration of cost and cost-effectiveness is always important. In the main text, it is shown that except one enterprise, AADE, the other two enterprises under the study are working profitably in 1998/99 in financial terms. The only reason that AADE looks loss maker is that there is one unproductive state farm which is consuming much of the profit that other state farms are gaining. Diksis state farm incurred a cost of 5,930 ETB/MT, where as the most profitable state farm, Lole, spent only 1,200 ETB/MT. With some additional cost of 258.21 ETB for transaction, the market price of the product of the profitable state farm would be 1,458.2 ETB/MT. The market price of wheat during that time in one of the destination places of local purchase, Nazareth, was 1,937 ETB/MT. The same cost differences among state farms occur even for the profit making enterprises. It is noteworthy reporting that profit is attainable even after paying interest. For instance, AwADE is getting profit after paying interests. Both AADE and BADE are paying more than 10 million ETB of arrears of interest every year, which has been carried forward from the previous poor performance of the enterprises during the Derg regime. It is claimed that the organisations can be considered as unprofitable due to these arrears. Surprisingly, it was not canceled for those destroyed farms or the one transferred to DPPC. This strange management of governmental credits to governmental enterprises threatens the financial position of the ADEs. Other than simple financial computations of unit costs, this paper has also attempted to show the potentials of the existing producing state farms. Table 5 shows the potentials of the existing three grain producing enterprises in financial terms. As depicted on the table, the cost of importing food aid is more expensive than the costs of producing it locally using state farms. The following constraints have been observed in the study of the existing producing state farms: Agricultural. a) Monoculture due to lack of alternative rotational crops, b) Lack of improved varieties in wheat and maize, c) Chemical adaptability, d) Water-logging and lack of drainage systems. Technical. a) Machinery constraints in quantity and quality, b) Lack of qualified personnel, c) Problem of vehicles. Managerial. a) High overhead costs at enterprise level, b) Re-evaluation of state farms' assets, c) Loan interest. Policy Related. a) Weak collaboration with research institutions and extension services, b) Privatisation uncertainty, c) Disadvantageous agreements with the Ethiopian Seed Enterprise (ESE). In general, the mounting incidence of weeds, pests and diseases in the crops, the steady increase in fuel prices and costs of spare parts due to old machinery, and high overhead costs of the enterprises coupled with unnecessary costs to ESE have caused costs to increase significantly, and this had badly affected the competitiveness of state farms. Based on the findings of this study the following conclusions and recommendations have been done. ď&#x201A;§

The idea of blank accusation must be avoided. It is well explained in the text that should state farms be given due attention, and their carried forward problems resolved, they could all, with few exceptions, be profitable. Therefore, the reference made to all state farms as unprofitable has been proved wrong by this study.

ď&#x201A;§

Despite their immense constraints, the good performance of state farms can be attributed to: aggregation of their land holding in one place which supports the efficient use of mechanised farming, the already established infrastructure (storage, roads, and other facilities), good access to credit, strong negotiation

1 1 The 258.22 ETB includes 88.2 ETB/MT of transportation cost to Nazareth, 30 ETB/MT of Loading/Unloading, 110 ETB/MT of

bagging,

and 30 ETB/MT of other operational costs.

iii

power with food-grain given it is sold in bulk (they are able to store it for long and sell it when in need), and lower post harvest losses due to mechanised farming. State farms can also contribute to attain indirect objectives, namely increasing the foreign exchange earnings (by exporting some surpluses) and employment generation (for example, the three enterprises are employing 3,000 permanent and 5,000 temporary workers), and/or renting their machinery and contribute to alleviate the problem of machinery access for the small private investors. 



A stronger role in supporting or facilitating the activities of commercial food-grain producing farms should be played by the government, taking into account the special, hazardous food security situation of Ethiopia in the last 15 years. It is also noted that the government is not in a position to subsidise private commercial and non-commercial crop producers and hence should be able to supervise the activities of big commercial farms so as to have an upper hand on cereal marketable surplus in the country.



Possibility of transfer of resources to agricultural development endeavors rather than food aid, by shifting a significant share of food aid budget to sustainable, locally produced food-grain. The creation of sustainable productive assets should be the medium to long-term objective of the EU assistance to the country. The role of new machinery has significant importance in big commercial farms. For instance, the three enterprises visited may need about 100 new tractors and 30 combines, that will cost only 32 million ETB versus 162 million ETB/year of EC-Food Aid-Food Security budget. Therefore, simple financial analysis shows that there is a potential of transferring resources from food aid to development. (Jose! Please refer to the comments I made on EU assistance to the private sector. The shifting of EU food aid budget to the production of food grain through state farms or otherwise does not appear to me to be a feasible approach. The same goes to the issue of resource transfers to the procurement of new machinery.)



As depicted on Table 5, the cost of importing food aid at present is more expensive than the costs of producing it locally through state farms. Should all the mentioned constraints be resolved, renew the machinery, and also by increasing some unutilised land, there would be a potential to increase maize yield in commercial agriculture to 5 MT/ha and wheat to 4 MT/ha. Hence, by considering these potential yields and by using the existing infrastructures of state farms, plus some increase in their land use and efficiency, we can locally produce additional 111 thousand MT of wheat and maize with a subsequent cost of about 64 million ETB. With this cost, we will only be able to import 38 thousand MT of food aid, which comes out to be a mere 34 percent of the additional production that can be produced by state farms. The cost of importing the equivalent 111 thousand MT of food aid would be 194 million ETB, which is about 3 times the cost of producing the same amount in the state farms. This may suggest that investing on commercial agriculture looks comparatively advantageous even in the state owned enterprises. It is, of course, reasonable to assume that private investors may extract more profit out of it and may be necessary to transfer those farms to private investors on conditional basis.

ď&#x201A;§

Acronyms and Data Note AADE ADE AISCO AMC AWADE BADE CSA DPPC EARO EC-LFSU EFSRA EGTE ESE FDRE GMRP GoE MT SNNPR TGE WFP

Arsi Agricultural Development Enterprise Agricultural Development Enterprises Agricultural Inputs Supply Corporation Agricultural Marketing Corporation Awassa Agricultural Development Enterprise Bale Agricultural Development Enterprise Central Statistical Authority Disaster Prevention and Preparedness Commission Ethiopian Agricultural Research Organization European Commission Local Food Security Unit Ethiopian Food Security Reserve Administration Ethiopian Grain Trade Enterprise Ethiopian Seed Enterprise Federal Democratic Republic of Ethiopia Grain Market Research Project Government of Ethiopia Metric Tones Southern Nations, Nationalities and People's Region Transitional Government of Ethiopia World Food Programme

Note: Exchange Rate (January to December 1999 Average) was obtained from National Bank of Ethiopia (NBE) (1 US$ = 8.215 ETB).

List of Boxes, Tables and Figure Box 1. Food as a Strategic Product

Table 1. Food Gap Analysis: Population Vs Food-grain Production Growth in Ethiopia (1995 2000).. . . . . . . . . . . 3 Table 2. National Food Gap (1994/95 to 1999/2000)

Table 4. Food-grain Yields in Research Stations and Farmer's Fields (in MT/ha) .

Table 5. EU Food Aid to Ethiopia (in '000 MT)

Table 3. Food Gap and Food Aid (in '000 MT) and Needy Population

Table 6. Total and Unit costs of the three Agricultural Development Enterprises in 1999/2000

Table 7. Cost Efficiency Analysis of Three Grain Producing Agricultural Development Enterprises (1998/99) Vs Imported Food Aid . . . . . . 13

Annex Table 1. Ethiopia â&#x20AC;&#x201C; Food Aid and Food Grain Production (1985-1998)

Annex Table 2. Total Area (Ha) and Production (MT) of State Farms by Agricultural Development Enterprise (ADE) and Crop Type . . . . . . 25 Annex Table 3. List of Grain Producing State Farms in the Country (Operational and NonOperational as of May 2000) . . . . . . .

Annex Table 4. Share of Wheat and Maize Production of the Three Enterprises Visited Over the National Production . . . . . . . . 27 Annex Table 5. Share of Wheat and Maize Production of the Three Enterprises Visited over the National Marketable Surplus of Wheat and Maize Production . . . 28 Annex Table 6. Production Performances by Enterprise

Annex Table 7. Total and Unit Cost Budgets by Grain Producing State Farms in 1998/99

Annex Table 8. Potential and Cost Analysis of Three Grain Producing Agricultural Development Enterprises (1998/99) . . . . . . . . 31 Annex Figure I. Real Wholesale Prices of Selected Cereals in Addis Ababa Over 10 Years .

vii

INTRODUCTION

1.1. Objectives, Data and Methodology The overall objective of this study is to contribute to the alleviation of the food gap at national and household levels by detecting main constraints in large-scale food-grain production landholdings and thus increasing land productivity in highly productive areas. The specific purpose of this study is to evaluate the present situation of the existing grain producing state farms and to compare their activities with their original objectives. In addition, it is also the objective of this paper to assess the potential of state farms towards enhancing food security through capitalising unutilized production potential and improving the efficiency and effectiveness of the existing system of production. Furthermore, the study will identify, in the context of the Ethiopian Food Security Strategy, the possible types of support that could be provided to such large scale farms in order to strengthen their contribution to food security in the country. The above objectives may seem a bit ambivalent with the governments policy that unprofitable state farms will be handed over to farmers around the farms or to workers employed on them or to private investors on a concessionaire bases. Nevertheless, it may seem pragmatic to survey these state farms and try to reveal the possibility of entrusting the existing development aid resources to that area whereby those farms could be helped and utilised in ameliorating the food insecurity problems of the country. As regards to data and methodology, this study only focuses on the actively working cereal producing state farms. As indicated in Annex Table 3, the study only makes analysis on the operational cereal producing state farms. In doing so, a formal questionnaire and/or check lists for primary data collection and secondary data sources have been utilised in assessing the activities and performances of those selected state farms. The primary data sources have been collected by using some formal questionnaire which were responded by both enterprises and state farms and also secondary data sources gathered from different institutions. Both primary and secondary data sources have included the following big picture inquiries: Can one utilise the existing potentials of state farms in alleviating the persistent food-gap problem in the country? What are the constraints of state farms which forced them to decrease their efficiency and area coverage from year to year? Issues of inputs and area of enclosure? How much state farms' capacity is unutilised due to the prevalent constraints? Is there any possibility of utilising the existing irrigation yield potentials of state farms by using some of drainage basins or their catchments? How much of their land and capacity are being utilised in their life span? What kind of financial assistance is required to boost the capacity of the prevailing state farms? What do the financial statements of each enterprise tell us? This paper is organized as follows: the first section, by highlighting the basic grounds of agriculture, food security, food gap and food aid analysis in the country would lead us to look at the second section which deals with situations of the presently operating state farms and that would lay a ground for the following sections. The third section which can be termed as the gist of this paper, analysis of costs, would provide an instrument for looking at the comparative advantage of investing on the existing commercial agriculture. The fourth section attempts to show the basic constraints of state farms which will help in analysing the potentials of exploiting the prevailing state farms. The final part would wind up the study by providing the main conclusions and recommendations of the study. 1

1.2. Agricultural Sector Outlook Agriculture is the mainstay of the Ethiopian economy and provides much of the necessary dietary food, raw materials for industries and quality products for export markets, thus remains the major source of foreign exchange earnings. Rainfed subsistence agriculture produces 85 percent of employment, 85 percent of exports and 40 percent of the raw materials base for the manufacturing industry. The contribution of agriculture to the GDP is higher in Ethiopia than the average of subSaharan countries (50 percent in Ethiopia compared to 25 percent in SSA). Agricultural growth in 1992-98 has averaged 3 percent which is nearly keeping pace with population growth. However, between 1980 and 1990 agricultural production grew by less than 1 percent annually2 and the scale of Ethiopia's net food deficit between 1974 and 1994 remains significant. Since 1994, the Ethiopian economy has been growing at 6 percent, with a GDP growth per capita of 3 percent. Nevertheless, this growth per capita is barely appreciated in the rural livelihoods. It was recently reported that despite considerable investments in rural areas in recent years the levels of ‘stunting’ and ‘wasting’ continue to rise in the country3. In spite of this, there has been a puzzling stagnation in yields, whose average remains at 1.18 MT/ha since 19804. This is surprising given the fertilizer usage increase in recent years, from 50,000 MT in the 1980's to 250,000 MT by 1996. As a matter of fact, despite trends showing increased productivity in the agricultural sector, the national food deficit remains. The major problem of crop production in Ethiopia is the low productivity that can be attributed to several factors such as absence of integrated diseases and pest control, heavy dependence on rainfall and shortage of technologies for proper conservation and utilisation of water for supplemental irrigation at critical times. In addition, Ethiopian farmers depend on low yielding local varieties of crops and farm technologies due to a bottleneck in the institutions that multiply and distribute technologies that are generated by research. In Ethiopia, with its huge dependence on agriculture, improved food security depends on a strategy of agricultural growth, and thus food insecurity will increase unless this agricultural growth can dramatically boost agricultural productivity per hectare5. In the new regional structure, the great bulk of the agricultural production comes from the large regions of Oromiya and Amhara, with three other holding a huge potential, namely Benshangul-Gumuz, Gambella and SNNPR.

1.3. Food Security at National Level Several statistical data reveal that Ethiopia used to produce surplus food and export excess grains in the 60s and early 70s. However, in the last two decades, the population growth went up outpacing agricultural production growth. While population grows steadily and sharply, food-grain6 production cannot follow the pace with a very irregular annual growth (Table 1). As one can see from the table, it is noted that population growth from 1995-2000, by about 3 percent, is quite similar to the net production growth, 3 percent. Nevertheless, food-grain production growth has been negative or nearly zero between the period 1996-1998 (Table 1). The main reason for this has been a puzzling stagnation 2

Demeke (1999). Middlebrook (2000). 4 Food-grain yield has ranged from 0.82 MT/ha in 1984 to 1.23 MT/ha in 1979. 5 Pinstrup-Andersen et al. (1997) state that so as to reduce poverty and food insecurity in low income countries, agricultural research and policy should focus on improving agricultural productivity. 6 Food-grain refers to main cereals (wheat, maize, shorgum and barley) and pulses (faba bean, horse bean, lentil, chickpea, field pea). 3

in the food-grain yields. In addition to this irregular production growth, real prices have shown an increasing tendency for the last 10 years. As shown in Annex Figure 1, real wholesale prices have increased for the last ten years, specially the increases have been significant for the last five years in the big terminal market of the country, Addis Ababa. Real price increases coupled with stagnant or declining income have resulted in a decline of the purchasing power and food availability in the country. TABLE 1. Food Gap Analysis: Population Vs Food-grain Production Growth in Ethiopia (1995 - 2000). Years

Population Growth ('000)

Population Growth (%)

Change in Net production a ('000 MT)

Growth Rate of Net Production (%)

1995-1996 1996-1997 1997-1998 1998-1999 1999-2000

1,723 1,745 1,765 1,790 1,823

3.15 3.09 3.04 2.99 2.96

1,367 73 (2,850) 1,187 662

19 0.86 (33) 20 9.6

Annual average Total (1995 - 2000)

8,846

3.04 15.22

439

3.3 16.46

Source: Production and Population, CSA, the Rest Own Computation. Figures in brackets are negative. a Net Production is total production minus post-harvest losses.

In contradiction with the idea of surplus times, it is a well known reality in Ethiopia that both localised surpluses and deficits occur. Even for the typical surplus years, the cereal quantity produced did not meet the local demands of the population. For instance, in 1995/96, where production was at its record level (Annex Table 1), there were 554.3 MT of deficit in the country (Table 2). In 1999/2000 production year, there is also a surplus of 1.3 million MT marketable wheat, maize and sorghum in the country while there are 8.08 million people (which represents about 13 percent of the total population) in need of 758,039 MT of food aid assistance7 . To decrease the gap between food demand and supply in the country, there has been food aid for the last two decades. Annex Table 1 provides the food aid and food production figures for Ethiopia between 1985 and 1998. The table indicates that on average food aid is equal to approximately 10.4 percent of agricultural production although it should be noted that in recent years this trend has been changing. The trend since 1995 for food aid is to be less than 5 per cent of production which, of course, is encouraging although once again in 2000 food aid figures will again reach 1 million MT which would be about 10 percent of the national grain production.

1.4. Food Gap Analysis In the next several decades, population growth in Ethiopia will contribute to increased demand for food. Presently, the total population is 62.1 millions, but the projected population for 2025 rises up to 136.3 millions, more than double8. That is, due to an average population growth rate of 3.2 and a total fertility rate of 7 for the period 1995-20009. Although cereal production grew 1.6 percent per year from 1975 to 1988, it fell substantially behind the population increase of 2.6 percent per year. Therefore, there is little doubt that per capita cereal availability fell during the 80's. During the 90's, 7

EC/LFSU-WFP (2000)

UNFPA (1998). The fertility rate indicates the number of children a woman would have over her reproductive life.

food-grain production grew irregularly and production attained its highest-ever level in 1995/96, topping more than 10 million MT, and its lowest level of 6.9 million in 1997/98. As depicted in Table 2, the food gap varied from year to year. While the country achieved a surplus of 194 thousand MT of grain in 1996/97, it showed a 3.3 million MT deficit of grain in 1997/98.

TABLE 2. National Food Gap (1995 to 2000) Year

Production

Population

Net

Consumption

Food Gap*

Food Gap

('000 MT)

('000)

Production

Needs ('000 MT)

('000 MT)

Per Capita (kg)

1995

8,527.6

54,649.0

7,083.0

8,197.7

(1,114.7)

(20.3)

1996

10,174.3

56,372.0

8,450.2

8,456.4

6.2

0.1

1997

10,268.3

58,117.0

8,523.8

8,717.9

194.1

3.3

1998

6,840.5

59,882.0

5,673.2

8,982.3

(3,309.1)

(55.3)

1999

8,273.1

61,672.0

6,860.7

9,248.8

(2,388.1)

(38.1)

2000 9,075.7 63,490.0 7,522.3 9,523.7 (2,001.4) Source: Production and Population, CSA, the Rest Own Computation. Figures in brackets are negative. *Food Gap = Net Production - Consumption Needs.

(31.5)

TABLE 3. Food Gap, Food Aid and Needy Population Year

1995 1996 1997 1998 1999 Average

Net Production (Food Grain) ('000 MT)

Food Gap (FG) ('000 MT)

Food Aid (FA) ('000 MT)

(FA -FG) ('000 MT)

Needy Population (million)

7,083.0 8,450.2 8,523.8 5,673.2 6,860.7 7,318.2

(1,114.7) 6.2

980.0 683.0 334.0 199.0 544.0 548.0

(134.7) 676.8 139.9 (3,110.1) (1,844.1) (116.8)

4 2.7 3.4 5.3 6.6 4.4

194.1 (3,309.1) (2,388.1)

(1,322.3)

Source: Production Data from CSA, and the rest Own Computations.

As can be seen in Table 2, in Ethiopia, the food gap is still quite large, resulting in declining per capita food production10 and an increased needy population since 1995 (Table 3). The same table indicates the food gap has been filled by food aid in 1996 and 1997, despite the huge production in those years. Of course, the filled gap does not mean that food aid has resolved the food problem in the country. The food gap does not give a good picture on income distribution. There will always be disparities in food production or income11, but food aid only tries to target the poorest of the poor and alleviate if not fully eliminate the problem of food gap in the country. On the other hand, the gap has been higher between 1998 and 1999 and could not been filled by food aid. As the future prospect for food aid is bad, it seems that this gap will be widening for the years to come. This wide gap may be diminished by the underestimated potential of productivity-increasing technology. For instance, maize yields for Africa and Asia were virtually the same in 1961, but since then they have tripled in Asia while they have remained stagnant at around 1 MT/ha in Africa. The potential to increase productivity of the food-grain crops is very high as has been demonstrated by recent extension activities in different parts of Ethiopia (Table 4).

The per capita food production dropped from 200.6 kg/person in 1979/80 to only 140.5 kg/person in 1998/99. It is worth mentioning that the standard requirements are estimated in 225 kg/person year (2,100 kcal). 11 The food produced is not equally distributed, and hence there are always food deficits and surpluses coexisted simultaneously in the country.

TABLE 4. Food-grain Yields in Research Stations and Farmer's Fields (in MT/ha) Crop

Research Stations (1979)

Field Trials (1979)

Farmers (1979)

Farmers (1995/96)

Maize Wheat

9.0 5.3

5.0 3.2

1.2 0.9

1.7 1.2

Source: Howard et al, 1999.

Table 4 gives some indication of the yield potential of food-grains is still unrealised. These data suggest possibilities for substantial increases with improved varieties, increased use of modern inputs, and better management. Increasing the national average of maize yields alone to 3 MT/ha could add more than one quarter to the country's food grain production12. The yield increases in maize and wheat need to be sustained and deepened. Furthermore, they need to be extended to other crops as barley, sorghum, teff and grain legumes.

1.5. Food Aid To avoid the problem of food insecurity and mitigate disasters brought about by drought in the country, food aid has continued to be a temporary solution for the last two decades. Over the last twenty years, Ethiopia has been the recipient of more relief food assistance than any other African country. Average annual food aid13 for Ethiopia is 693,786 MT, which implies to be 12 kg food aid per capita per year (or 154 kg per year per vulnerable person or 0.4 kg per day). The average amount of food aid expressed in money terms comes to be 1.5 billion Birr14, which is 10.6 percent of total federal budget for 1999. Food aid import ranged between 1.8 and 10.35 percent of food-grain production in the last five years (Annex Table 1). The average EC-Food aid and food security budget line for Ethiopia amounts to be 648 million Euro from 1996 to1999. The average annual food grain production in Ethiopia (1985-1998) is 7.3 million MT/year, and hence food aid represents around 10 percent of food grain production in the country. This relief source will not last forever. Since the 80's, food aid is diminishing at a stead rate. Changes in agricultural policies in North America and the European Union, the implementation of the Uruguay Round trade agreements, and changing geopolitical concerns within donor countries have contributed to diminished interest in and support for food aid among donors. In sub-Saharan Africa, food aid deliveries in 1996 reached their lowest level since 1983. A great part of the reduction in food aid deliveries is due to the growing tendency of channelling food aid through relief operations and development projects. Of all the ACP countries, Ethiopia has been the main recipient of EC Aid in the period 1986-1995, with 1,414 millions ECU, and the main recipient of EC Developmental Food Aid for that period, with more than 510 million ECU of commitments. In Table 5 one can see the EU Food Aid figures for Ethiopia in the last five years, where an increasing trend can be noted as well (in accordance with the general trend of other donors and rising needy population). Although about 90 percent of Ethiopia's food grain supplies over the last decade have come from domestic production, the dependence of the country on food aid is still quite big, owing to the fact that production varies widely from year to year, mainly due to the instability in yield and irregular rainfall patterns. This dependence on food aid can 12

Donovan (1997). Based on the 1990/98 averages from DPPC relief appeals, compiled by Neun (2000). 14 An standard EU estimation cost for one metric tonne of imported food-grain is 250 USD. 13

only be overcome with a coherent national strategy for food security with facilitating agricultural activities for the development of production and markets.

TABLE 5. EU Food Aid to Ethiopia (in '000 MT) 1996 (%) 1997 (%)

1998 (%)

1999 (%)

2000 (%)

Local purchase Food Aid Imported

32.9 (7.7) 399.6 (92.7) 432.5

Total EU Food Aid to Ethiopia

100.7 (96) 4.2 (4)

76.6 (32) 164.2 (68)

7.9 (3) 255.3 (97)

72.8 (48) 78.7 (52)

104.9

240.8

263.3

151.5

Source : EC-LFSU

The trend in food production has improved since 1994, probably as a result of increased area under production and intensification of small holder agriculture more than the wider uptake of fertilisers. As a result, the volume of food aid as a percentage of production has fallen from more than 25 per cent in 1984 (a major famine year) to an average of less than 5 per cent of production between 1996 to 1998. Few would argue that such volumes of food relief assistance may have induced some kind of dependency on the benefiting population and undermined local production and distorted prices in grain markets. But this needs a separate detailed study. The primary way of directly reducing the food gap, whether at macro or micro levels, is through increases in crop yields and crop area under production. Other supportive approaches such as integrated soil and water conservation, reforestation and area closure, expansion of irrigated areas, provision of tools, seeds and credit to rural farmers, livestock development, and water supply development also contribute towards the overall objective. Ethiopia suffers from both structural and transitory food insecurity and even if national food self sufficiency is attained, as recently stated by the GoE in 1996, pockets of vulnerable communities will continue to exist at various levels. It would be worthwhile mentioning that, while it is claimed that food aid requests are purely a response to food emergencies, it should be noted that in places like eastern zone of Tigray, north and south Wello, east Haraghe and North Omo, the same families have been food aid recipients for 15 years or more, and therefore they should not be seen as emergency victims but rather as chronically food insecure Considering the population growth rate, it is obvious that food aid cannot be a sustainable instrument in the longer term. It is therefore the European Commission's intention to move from food to development aid while ensuring that the capacity remains to react to any possible crisis. The most important way to increase food availability in Ethiopia is to increase yields, which for cereals are among the lowest in the world15 . It should also be noted that with rain fed agriculture and no support in highly mechanised farming, it would be a difficult task to meet subsistence requirements in the future. Considering food products as strategic ones, the establishment of commercial agricultural enterprises and the revitalisation of the old ones should be given top priority. Box 1. Food as a Strategic Product With the secession of Eritrea from Ethiopia, the latter became a land locked country, which means that importing and exporting vital products dependant very much on foreign ports very often collapsed, mainly Djibouti but Berbera rising. This geopolitical situation, coupled with the mounting food gap at the national and household level, and the recurrent drought that affects many areas, envisages/suggests food to be considered as a strategic product for the Federal Government in the coming years. In view of importing constraints and declining commitments for Food Aid from the donor community, and the vast areas with adequate soil and rainfall suitable for the establishment of modern private commercial farms, the local production of food should be encouraged on a national l level because of its strategic role. 15

Donovan (1997).

SITUATION OF PRESENTLY OPERATING AGRICULTURAL DEVELOPMENT ENTERPRISES

2.1. Background Information on State Farms Commercial agriculture has been introduced in the 1960s with the goal of abating the food-gap intricacies. These commercial farms were intended to meet the growing demands of the urban areas. In 1969/70, the total land area mechanically cultivated was 481,659 ha16. After the revolution in 1974, commercial farms were nationalised and state farms were established based on the Public Ownership of Rural Land Proclamation, that came into effect on March 197517. The area under state farms at that time amounted to 125,000 ha18 . When state farms were under the Ministry of State Farms, the following clear stated objectives were accredited for them:  alleviate the country’s food shortage by establishing and operating large state farms in suitable areas  produce and supply adequate amounts of raw materials for domestic industries  through export of agricultural products, earn foreign exchange  expansion of agro-industries and rural agricultural technologies  creation of employment To this effect, there was an expansion of state farms, both in number and capacity even though no serious feasibility studies were conducted. Production of cereals from state farms reached as high as 382 thousand MT in 1981/82 which was about 8 percent of the national production. This was attributed to the use of high yielding crops, modern inputs, and increase in area of state farms. Nonetheless, almost all state farms were forced to operate negatively (the average yearly loss was about 85 million Birr during the Derg regime). According to Eshete (1995), most of the agricultural policies such as rigid price control, forced grain delivery to the then AMC (presently EGTE), fixing farm gate prices artificially low, preferential prices to state farms and the allocation of fertile land to producers’ co-operatives were some of the factors that contributed to the low performance of state farms. The ownership of state farms by the government continued after the fall of the Derg regime. Nevertheless, the policy reform stated in 1991 by TGE obviously discouraged the existence of these farms under the control of the government. The policy stated that unprofitable state farms will be handed over to the community around the farms or to workers employed on them or to private investors on a concessionaire basis or the assets on them will be sold and the land returned to the people. As an aftermath, the cultivated land and output over the last 10 years have shown a declining trend (Annex Table 2). In the 1999/2000 production year, there are only 13 state farms (decreasing from 31) producing 113 thousand MT of cereals with an area of 47,634 ha. The role and efficiency of state farms have also declined significantly for the last decade.

2.2. Main Features of Agricultural Development Enterprises 16

Demeke (1999) Eshete (1995) 18 MEDAC (1997) 17

During the Derg regime, the ADEs were governed by the Ministry of State Farms. But the Ministry was liquidated after the fall of Derg and now they are administered by Central Authority for Public Enterprises (CAPE). All the enterprises are directed by Boards, represented by Zonal office (Board Chairman), Bureau of Finance, Bureau of Planning, and two from labour union. Every month, the board holds meetings regarding the activities of the enterprise and they report directly to the CAPE. Budget is approved by the authority. The impact of the authorising agency is only realised on the approval of investment, not on the day-to-day operations of the enterprises. Up to now, there is no timing problem of budget approval, it is approved in time though there is problem of budget approval on big investment issues. Arsi Agricultural Development Enterprise (AADE) has been established in 1977/78 with six state farms all of which are still operating. As listed in Annex Table 3, these six state farms are Diksis, Lole, Adele, Garadela, Tamela, and Goffer. Out of the total production of the enterprise, wheat covers 98 percent. It was re-established or re-evaluated in 1993/94. In 1980/81, the total land acquired by the enterprise was around 35,000 ha. Significant decline of land ownership has occurred in 1991/92, during the downfall of the Derg regime. The cultivated land declined from 22,710 ha in 1990 to 14,918 ha in 1991/92. The main reason for this significant decline has been that the local community has taken much of the border lands of different state farms. Presently, the total cultivated land is about 12,500 ha out of the 17,000 ha of total land holding of the enterprise. Out of this total holding 2,000 ha can be considered as infertile. Up to now there are no abandoned land by the enterprise. There is some problem of frost on two state farms which are near to the Melka Wakena Hydro Electric Power dam. There are now 1,064 regular full time permanent employees in the enterprise. But there are also about 1,000 casual employees who are used during the usual operation seasons. Bale Agricultural Development Enterprise (BADE) was established in 1977/78 with eight state farms to run. In 1991/92, two of them have been robbed and abandoned. One state farm was forwarded to DPPC for resettlement purpose. It is reported that the productivity of the area was well studied before state farms got established. The enterprise is producing 99 percent of the total production as wheat. The three state farms which are abandoned, leased to private investors and/or provided for resettlement purpose are Gololcha, Dinkiti, and Shineka. The present running state farms are Herero, Hunte, Robe, Serufta and Sinnana (Annex Table 3). Like AADE, the enterpriseâ&#x20AC;&#x2122;s significant reduction of land ownership was realised in 1991/92, the amount of cultivated land has declined from 27,402 ha in 1990/91 to 15,546 ha in 1991/92. The enterprise has a cultivated land of 15,736 ha. It is reported that there is no unutilised land in the enterprise. In 1999 the enterprise had 1,167 permanent employees with an annual salary of 6.7 million Birr. Temporary employees are employed during planting and harvesting times. Awassa Agricultural Development Enterprise (AwADE) was established in 1961 as commercial agricultural enterprise. It was said that even Awassa city was developed after the enterprise. The state farms were entrenched into the enterprise after the revolution in 1974. There were six state farms within the enterprise which specialised in coffee, cotton, and food crop production. These state farms were Belate, Abaya, Arba Minch, Mito, Bilito Sinqile and Wendo Tiqa. In 1970, 23,000 ha was under the custody of the enterprise, including the cotton and coffee state farms, out of which 9,000 ha was assigned to maize, out of which 7,463 was cultivated. Presently the enterprise has only crop producing state farms of Bilito Sinqile and Wendo Tiqa (or Awassa Zuria state farm), and one agro industry for sisal fibre and oil extraction. The maximum land cultivated decline has occurred from 1996/97 to 1997/98, from 5,147 ha to 2,784 ha. This decline is due to adjustments done to the capacity of the organisation so as to increase the efficiency of the enterprise. This year 50 ha of land has been taken from the enterprise by the Awassa municipality. It is also reported that about 200 ha of land have been confiscated last year by the municipality, after it has been cultivated in Wendo Tiqa. In 1999/2000, the enterprise has cultivated 3,800 ha of land for maize. In 1999/2000 the AwADE has 700 permanent employees, but more than 1,500 temporary employees are employed during the peak planting and harvesting seasons. 8

.3. Productivity The production performance of the three grain producing enterprises is not as gloomy as it appears from the outset. There are very fertile state farms which are operating efficiently even though there are also some others which are operating poorly. There are also no special problems of inputs in almost all enterprises. Nevertheless, detailed investigation of these state farms should be done so as to have a clear picture of each individual state farm. In this section, however, the objective is to show the general picture of enterprises in order to have a general strategic reason for continuing supporting their production. The landholdings of the enterprises are aggregated in one place, they are not dispersed, and thus supporting the efficient use of mechanised farming. There are no unutilised land for wheat producing state farms due to inefficiency of the enterprises. The uncultivated land of all the enterprises under consideration are due to the following reasons: taken by the municipality, distributed to the local community and the remaining left due to lack of capacity. Hence, it is believed that there is a possibility of expanding the land beyond their present holding. As can be observed from Annex Table 4, the share of production of state farms to the national production has been dwindling through time. The share of wheat production reached as high as 12 percent in 1981/82, but the share, declining through time, reached its lowest level of 0.76 and 0.79 percent in 1995/96 and 1996/97 respectively. Similarly, the share of maize of the AwADE reached as high as 4 percent in 1979/80, but declined to 0.34 percent in 1998/99. This clearly shows that albeit the potential of the state farms, their role in boosting the national production has declined over time. The share of state farms was very significant during the first decade of their establishment, especially when we compare the figures with the marketable surplus. By presuming that all the production of the state farms is marketable, it seems plausible to compare the share of grain producing enterprises with that of the national marketable surplus. As shown in Annex Table 5, the share of wheat producing Bale and Arsi enterprises is as high as 85 percent in 1984/85 while the share of Awassa maize producing enterprise reached its highest in 1980/81, 10 percent. But the share of BADE, AADE and AwADE have declined and reached the level of 6.6 and 1.1 percent, respectively, of the 1998/99 national marketable surplus production. The average yield per hectare of wheat produced in the state farms ranges from a minimum of 1.2 MT to 2.3 from year 1972 to 1992, while the average yield for maize ranged from 1.4 to 3.6 MT/ha. The average break even yield for wheat producers is 2 MT/ha. For maize, it is about 3.4 MT/ha. These figures are yearly averages and do not necessarily indicate the maximum and minimum yields attained at the state farm level. Their yield, therefore, varies from state farm to state farm and also from grade to grade. For instance, among the six state farms in the AADE, four of them, Goffer, Garadela, Tamela and Lole, are quite productive. Specially Lole is the most fertile and productive state farm, the yield ranges from 3 to 5 MT/ha. On the other hand, Diksis and Adele can be classified as unprofitable and unproductive: Diksis state farm is losing about 5 million Birr yearly, and the yield for the area was just 1 MT/ha last year. As shown in Annex Table 6, the production performances of the three enterprises for the last three years have been encouraging. The enterprises planned according to their capacity, and their achievement has been good. If we look at the wheat producing enterprises, their production performance is more than 90 percent. They also cultivated almost all the area planned. Similarly, the Awassa maize producing enterprise cultivated more than 95 percent of the area planned to be cultivated. But its production performance (about 75 percent of its plan) is lower than the wheat producing enterprises.

Monoculture, the cultivation of large areas with a single crop, makes for the efficient use of the existing limited capacity of the land holdings, but it can have disadvantages in terms of land use, crop protection and soil condition, unless good management and inputs are available. Monoculture can also be highly risky in a country like Ethiopia, where rainfall is highly erratic. All enterprises cultivate about 300 Ha for rotational crops to decrease the negative effects of monoculture. The present rotational crops include faba bean, rape seed, horse bean and sunflower. It was also reported that the selection of rotational crops depends on weed infestation and other soil borne diseases prevalent on that specific crop, and on the capacity of the enterprise as well. They allot plots and make their assessment about weed infestation and other diseases and then select the place for rotation, and this changes from year to year. In principle, managers agree that they need to use crop rotation for all the land available, but due to their constrained utilisation, they are obliged to apply the above mentioned criteria. Due to problems on rotational crops, some state farms use fallow as an option. Possibilities of forage have not been tried and need to be assessed, specially the market aspect should be looked carefully. There is no significant problem of wastage of outputs by state farms. The use of mechanised farming may be an advantage for the state farms. Other than their financial salary, part of payment to employees is done in kind. Besides, workers may purchase maize and wheat lower than the prevailing market price. This is applicable for both the permanent and temporary employees. This may indicate that wastage in the production of state farms is not magnified in the sense that even the broken grains, which are logically edible, can be used by workers.

2.4. Storage and Machinery As to the input and output storage facility, all the three enterprises visited do not seem to have any serious problem. AwADE has enough input storage facilities both at the state farm and enterprise level. As to the output, they have a capacity of 9,000 MT, with a silo and some other stores with a capacity of 6,000 MT, at the enterprise level. AADE has enough storage at the state farm level. The same applies to BADE, though there are some problems of output storage which is minimised by renting from other organisations during the harvesting season. All enterprises' machinery comes from Eastern Europe and they are all old. There is a paramount problem with spare parts and service costs. For instance, in AADE, out of the total 177 tractors, less than 5 have a life span of less than 5 years, and the rest are more than 15 years old. The same is true for combine harvester, ploughs, harrows, spreaders and trailers. Due to this the fuel and lubricant requirements costs are about 3.5 million per year. For AwADE, the major reason for unutilised land is the decrease in the capacity of machinery which are old with no replacements or depreciation allowances done. As a result, they were forced to decrease the number of permanent workers in 1989/90 by more than 50 percent. On the same year, due to adjustments made on labour and the intention of effective utilisation of the existing machinery, the land utilised or cultivated declined significantly. The problem of poor performance of machinery has also led some state farms, like BADE, to burn the straw. Despite the acknowledged fact of losing organic matter by burning the straw, the following advantages were argued to be determinant: facilitate the performance of the poor quality of machinery which are unable to penetrate the land well, decrease the disease (mainly rust) which may exist on the straw, and it also decreases the weed seed infestation.

2.5. Marketing 10

Regarding the purchase of inputs, the enterprises use the usual channels of the markets, and no significant problems have been noticed. For the selling of their products, they are dealing with the existing good market price by using tender with no serious detailed market analysis done on markets of the country. Hence, the only system of selling their product at present is that of auction, better market price with enough publicity. Nevertheless, the directive issued in 1999 which directs government to government negotiation seems to have a direct impact on their marketing activities. For instance, this year BADE and AADE sold much of their grain to government flour factories and the government owned Ethiopian Seed Enterprise. The effect of this directive on the maize producing state farm, AwADE, seems minimal since there are practically no maize processing industries in the country. The wheat producing enterprises are therefore influenced by the demand from the flour factories. On the other hand, maize producing state farms are somehow governed by their own financial demands. The latter group usually sell their products during the lean season where prices are at their highest level. All enterprises under study faced no problem of selling their grain to the existing market. Recently, though they are indirectly forced to supply to government organisations, they believe that they are selling their grain at a reasonable market price. Problems of transporting their grain to the destination place coupled with limited market study seems to have caused loss of some profit which could have been exploited otherwise. Wheat producing state farms are also losing some money by selling their wheat to Ethiopian Seed Enterprise (ESE). When it is a new variety, the seed enterprise purchases from state farms at a relatively lower price and resell it to state farms themselves at higher prices by only adding the value of cleaning it. Hence, producing enterprises suggest that ESE is authorised to get some profit by using the state farms channel.

2.6. Irrigation Potential of State Farms The pattern of rainfall is important in the Ethiopian agricultural system. The most fortunate areas are generally those areas where the onset of the rain is predictable, the rainfall within the season is well distributed, the season is long enough for a good crop to mature, and heavy down pours and storms do not occur. Nevertheless, the rain condition in the country is highly unpredictable, erratic, and there are many cases of short rain in the main Meher seasons of state farms. These situation amplifies the use of irrigation in many parts of the state farms. For all state farms which are rain-fed, the need for assessing the enterprises for irrigation potentials seems plausible. Hence, according to the study, there are some potentials for Awassa and Bale enterprises but there seems to be no potential for AADE. In AwADE, for instance, one of the state farms, Wendo Tiqa, has the potential of using Awassa lake for irrigation. It is estimated that 1,100 ha of land can be cultivated by using irrigation. There is also one river in Bale enterprise, Tegona river, which can be used for irrigation. There are also possibilities of utilizing under ground water and seasonal springs which can cover about 500 ha of land and would possibly serve for horticulture products. Nevertheless, a detailed study on these potentials is necessary.

ANALYSIS OF COSTS

Even if a proper cost efficiency analysis requires a considerably detailed review, and may not often be relevant to such kind of work where objectives are more social than financial, the consideration of 11

costs and costeffectiveness is always important. This study, albeit its focus on arguments in favouring the large scale mechanized farms by their strategic advantage, attempts to prove the profitability of state farms even when simple financial analysis is done. It also tries to illustrate some financial benefits from the prevailing state farms if some development assistance is forwarded towards the development of such kinds of commercial agricultural enterprises. As can be observed in Table 6, the total cost of the three cereal producing state farms is about 118 million Birr. The average cost per hectare is 3,248 Birr. The cost per hectare and per MT differs from enterprise to enterprise and also from state farm to state farm. The cost of wheat is higher than the cost of maize, thus explaining the price variation between the two products. For example, the 1999 yearly average wholesale prices in Nazareth for wheat was 1,937 Birr/MT and in Shashemene for maize was 1,237 Birr/MT where as the average costs incurred were 2,120 Birr for AADE, 1,540 Birr for BADE, and 1,324 Birr for AwADE. If the total cost figures are broken down, one can see that production costs are lower than sales/revenue for BADE and AwADE. Hence, without loan interests, the ADEs could easily become profitable. From the outset it seems that AADE state farms are loss makers, but the figures mentioned in the table are simply average figures of the enterprises, they do not express performances of the individual state farms. For instance, Arsi Diksis state farm incurred a cost of 5,930 Birr/MT while Lole state farm incurred costs of 1,200 Birr/MT. With some additional cost of 258.2 for transaction19, the market price of the product of the profitable state farm would be 1,458.2 ETB/MT ETB. The market price of wheat during that time in one of the destination places of local purchase, Nazareth, was 1,937 ETB/MT. The same cost differences among state farms occur even for the profit making enterprises. In BADE, Herero state farm incurred a cost of 1,427 Birr/MT while Hunte incurred 1,940 Birr/MT (see Annex Table 7). In many of the state farms, it is noted that the role of the enterprise is not significant but it is posing considerable overhead costs for the state farms. At the enterprise level, in all the ADEs, the overhead costs are very high due to the excess of manpower. This may warrant a need for a close look at each state farm. Table 6. Total and Unit costs of the three Agricultural Development Enterprises in 1999/2000 Total Costs of the Enterprisea (in 000 Birr)

Total Costs by Type of Cropb (in 000 Birr)

N° of State Farms

Cost /Hab (In Birr)

Cost/MTb (in Birr)

Wholesale Market Pricec **(Birr/MT)

AADE

50,733.0

46,029.1

3,511.1

2,120.0

1,937

BADE

48,507.9

47,677.1

3,043.3

1,540.0

1,937

AwADE

18,975.9

13,171.4

3,190.0

880.0

1,237

Total

118,216.8

106,877.6

Enterprise

3,248.1

1,5223

Source: Budget Reports of the Enterprises. a This cost includes other costs incurred in producing other crops of the enterprise. In Annex Table 7 the total costs refers only to wheat or maize. b The Cost per ha and per MT is attributed to wheat production for Arsi and Bale and to maize for Awassa. c For comparison purpose, wheat wholesale prices are 1998/99 Nazareth prices and for maize, they are Shashemene market prices.

Other than simple financial computations of unit costs, this paper has also attempted to show the potentials of the existing producing state farms. Table 7 shows the potentials of the existing three grain producing enterprises in financial terms. As depicted on the table, the cost of importing food aid is much more expensive than the cost of producing it locally through state farms. By using the existing infrastructure of state farms and with some potential increase in their land use, we can 19 The 258.22 ETB transaction cost includes 88.2 ETB/MT of transportation cost to Nazareth, 30 ETB/MT of Loading/Unloading, 110 ETB/MT of bagging, and 30 ETB/MTof other operational costs.

produce an additional 111 thousand MT of wheat and maize with the cost of about 64 million Birr. With this cost, we are only able to import 38 thousand MT of food aid, which comes to be a mere 34 percent of the additional production that can be produced in the country. The costs that will be incurred to import the 111 thousand locally produced grain would be 194 million Birr which is more than 3 times the cost of producing the same amount locally using state farms. Hence, even excluding spillover effects and other advantages, investing on the existing state farms, either under present government status or under private hands, is much better than importing food aid into the country. Table 7 : Cost Efficiency Analysis of Three Grain Producing Agricultural Development Enterprises (1998/99) vs Imported Food Aid Enterprise

Production Added (MT)*

Additional Costs for the Increased Production (in â&#x20AC;&#x2DC;000 Birr)

Equivalent Imported Food Aid by the Added Cost (MT)

Expenses Required for Importing the Increased Amount of Production (in â&#x20AC;&#x2DC;000 Birr)

AADE

48,688.2

30,929.8

16,758.7

89,858.9

BADE

32,865.8

9,492.5

5,143.3

60,657.2

AwADE

30,032.5

23,871.9

16,214.0

44,216.8

111,586.0

64,294.2

38,116.0

194,732.9

Total

Source: Annex Table 8. *Production Added refers to the amount of production increased due to some improvements in machinery's, implements and manpower of the enterprises. Details of assumptions and computations can be observed from Annex Table 8.

Other than the above cost analysis, it is worth noting that the following issues should be considered in the financial analysis of the enterprise.

3.1. Re-assessment of Assets and Premises It is argued by the finance manager of the AADE that during the re-establishment of the enterprise in 1993/94, all the machinery assets were re-assessed wrongly. For instance, before the re-establishment, the value of machinery was 21 million Birr, but after the evaluation they jumped to 120 million Birr. As a result they are now paying about 14 million Birr on a yearly bases for depreciation. This financial mismanagement is negatively affecting the final budget. Even if re-evaluation is one way of making the working capital positive, there are other ways that should be considered.

3.2. Seed Purchasing The usual process of seed distribution is as follows: ESE purchases the basic seed from EARO, duplicates it and sells to ADE. But very often, when the improved varieties have less than five years of age, the ESE directly purchases the next generation from state farms, then cleans and finally distributes it at a higher price than the purchased price. For instance, AADE needs about 1,000 tonnes of seed for their 15,000 ha of land. If they lose a minimum of 300 ETB on each MT between the selling price to ESE and the purchasing price from ESE, the loss would be 300,000 ETB per year.

3.3. Loan and Interest Payment

It is noteworthy reporting that both AADE and BADE are paying more than 10 million Birr of arrears of interest every year, which has been carried forward from the previous poor performance of the enterprises during the Derg regime. It is claimed that the organisations can sometimes be considered as unprofitable due to these arrears. In some state farms and years, they are getting profit even after paying these interests. For instance, AwADE has been getting profit for the last three years after paying interest. BADE has inherited loan arrears with the attached interest of 280,040,027 Birr. This loan was established with the Agriculture Investment Bank since the establishment of the State Farms during the Derg regime. Surprisingly, it was not canceled for those destroyed farms or the one transferred to DPPC. This strange management of governmental credits to governmental enterprises threatens the financial position of the ADEs.

3.4. Other Factors The weather condition imposes a significant constraint on the cost variation among enterprises or state farms though the dominant role is played by productive environment in determining the profitability of the farms. Furthermore, the market conditions have a huge influence on the profit given the great numbers of enterprises that are selling in the market. Smaller changes in prices have significant impact on their revenue. Access to credit can also be another important factor for profitability, but recently ADEs are not facing any problems on this line. Even if the break even depends on the amount of inputs used, specially chemicals, and other related factors, one can estimate the average figures for break even. On average the break even for these commercial agricultural enterprises for wheat is 2.0 MT/ha and for maize it is 3.2 MT/Ha.

CONSTRAINTS ENTERPRISES

AGRICULTURAL

DEVELOPMENT 14

Other than the weather related problems, there are agricultural, technical, managerial and policy related constraints in the existing grain producing state farms that enormously hinder their technical and good economic performance. As already mentioned in the previous sections, problems of machinery, re-assessment and re-valuation of assets, interest arrears and monoculture have been serious constraints in the normal functioning of the enterprises.

4.1. Agricultural 4.1.1. Monoculture due to Lack of Alternative Rotational Crops All the ADEs visited were extensively cultivating in a monoculture system, either maize or wheat. Only a minimal area was allotted for rotational crops. Traditionally, pulses have been the rotational crops, but due to low performance in the field they have been abandoned. Sunflower and Rapeseed are also used in rotation, but their capacity to improve soil fertility is negligible compared to pulses. The low performance of pulses is due to three factors: a) High disease and pest incidence (faba bean, horse bean, haricot bean), that greatly hinders to attain a good harvest. b) The scarcity of high yielding improved seeds. Specially with pulses, there are several constraints in the seed production chain (Research Centres or ESE) that hampers the final release of seeds to farmers. c) Harvesting constraints for some pulses (lentil, chickpeas, field peas), since they need special combines and machinery.

4.1.2. Lack of Improved Varieties As extensively mentioned throughout the document, low yields are the main obstacles that hinder agricultural production. These low yields are mainly due to bad performance of present varieties and the high disease incidence, given the high susceptibility of major food-grain crops to them, mainly wheat and barley. All varieties are susceptible to different races of rust (stripe, yellow, brown). There are also a variety of problems in the wheat producing enterprises. These enterprises use about 10 varieties of wheat to minimise the risk. Despite this, all these varieties are regularly affected by diseases. Varieties have even been seriously affected only after one year of their release from EARO. Paradoxically, the high yielding varieties are the ones which are more severely affected by disease. For instance HAR 1685, the latest one, is highly susceptible to yellow rust. As mentioned above, the ESE is the main supplier of improved seeds to the ADEs, although some of them purchase a percentage of seeds to the commercial company Pioneer Hi-breed. As ADEs are obliged to purchase from ESE and they are not allowed to produce their own seeds, they drain their budget with each transaction (a minimum of 300 Birr/MT).

4.1.3. Chemical Adaptability The problem of chemical adaptability has caused many state farms to use more and more chemicals throughout the years. This has caused the input costs to increase on a yearly basis. The AADE manager remarked that there were chemicals, like Puma for weed infestation, which had been used for the last ten years, and it was observed that the weed had already adapted to the chemical. Herbicide rotation, chemical combination (in place and in time), or authorisation to new foreign companies to supply the market can be considered as good options to ameliorate problems of chemical adaptability.

4.1.4. Water-logging and Lack of Drainage Systems 15

There has also been water logging problem in some state farms. Too much rain has been the main reason for production failure in the area. Hence, yellow rust and root rotting (due to water logging) are the main reasons for production failure for these specific state farms. In AADE, Diksis and Adele state farms, 3,000 ha are seriously affected by water logging, and hence an urgent maintenance of the existing soil beds and drainage system looks necessary. This drainage system was built long time ago and it has not been maintained since then.

4.2. Technical 4.2.1. Machinery Constraints in Quantity and Quality This aspect has been the most and extensively referred constraint by all managers and directors in the three ADEs visited. Not only is there a deficit in number, ostensibly expressed in AwADE was the impossibility to cultivate all the held cultivable area, but also the life-span of most of the machineries (tractors and combines) has exceeded salvage value since a long time ago, with some assets older than 20 years.

4.2.2. Lack of Qualified Personnel There is a high outflow of skilled manpower to the private sector, because of the attractive salaries paid by the latter. Hence, the enterprises have a strong demand of qualified personnel. Though it seems that the number of permanent employees are high in all the ADEs, their qualification is declining through time.

4.2.3. Problem of Vehicles Problem of vehicle is the other constraint that needs to be mentioned here. One can observe that state farms are very large and they are rather far from the enterprise's headquarters, being quite evident the scarcity of vehicles to move from place to place. This problem is observed both in transporting people and goods. Moreover, due to this lack, both inputs and outputs are charged with additional costs, a rather high cost whenever they are transported, even to the nearest market places.

4.3. Managerial 4.3.1. High Overhead Costs at Enterprise Level In all the three ADEs visited, the overhead costs at the enterprise level20 are quite considerable. One of the sound explanations is that they have redundant manpower, since they have reduced the area but not dismissed the employees, and the fixed costs per hectare thus rise. Another possible explanation, linked with the lack of qualified staff, is a problem of poor management by the general managers and the technical personnel at the enterprise level. Seemingly, the technical staff in the state farms undertake their duties professionally. However, the managerial staff in the headquarters don't seem to do it as well as those in the state farms.

4.3.2. Re-evaluation

Enterprise costs are those incurred by the central office and all sort of management costs outside the State Farms.

During the re-establishment of some ADEs in 1993/94, all the assets and facilities were re-assessed, assigning higher values to all of them. Moreover, there was an absolute lack of any brief description regarding the capital approval and re-valorization determination of fixed assets during the enterprises' re-organization. As a result of this financial mismanagement, the ADEs are presently paying huge, non-real, yearly bases for depreciation; which has in effect negatively contributed to the financial well-performance of the enterprises.

4.3.3. Loan Interest It is noteworthy reporting that both Arsi and Bale enterprise are paying more than 10 million Birr of arrears of interest every year, which has been carried forwarded from the previous poor performance of the enterprises. It is claimed that the organisations can sometimes be considered as unprofitable due to these arrears. In some state farms and years, they are getting profit even after paying these interests. In general, the mounting incidence of weeds, pests and diseases in the crops, the steady increase in fuel prices and costs of spare parts due to old machinery, and the high overhead costs of the enterprises have caused costs to increase significantly and this has badly affected the competitive market prices of the state farms.

4.4. Policy Related 4.4.1. Weak Collaboration with Research Institutions and Extension Services As repeatedly stated, there is no good collaboration between ADEs and research institutes (EARO). Most of the regional research centres have weak or no collaboration with these ADEs, either in the pure agricultural aspects (like testing new varieties, better rotational practices, irrigation knowledge, post-harvest techniques, etc) or in the extension and managerial packages. Some state farms have rather good trial fields and a noteworthy recording system, which could help very much EARO's work. Though there are trial plots in each state farm, which test the use of seeds and also determine the fertiliser application rates , there is problem of co-ordination with the scientific institutions and the extension services. There seems to be a neglect of the major agricultural enterprises and their state farms by shifting all the efforts in benefiting the small farmers and landholders in some marginal areas.

4.4.2. Privatisation Uncertainty Presently it seems that all the ADEs are in a "limbo situation", given the fact they were told to be privatised soon. The calendar is totally unknown and hence they are forced not to make any additional long-term investment. This has caused many qualified personnel to leave the enterprises and some state farms are being looted by farmers in the surroundings. For example, in AwADE, delays and doubts in the government action21 have caused much trouble within this community. Some farmers have indeed started to encroach some of the land formerly owned by the state farms. Another case attributed to this uncertainty happened in Wendo Tiqa state farm, where 200 Ha of land were transferred to private investors last year, after being ploughed and sowed by the state farm.

5. 21

CONCLUSIONS AND RECOMMENDATIONS

Privatisation versus distribution among the local community



The idea of blank accusation must be avoided. It is well explained in the text that should commercial state farms be given due attention, and their carried forward problems be resolved, they can all, with few exceptions, be profitable. Therefore, circumstantial references to state farms as unprofitable should be avoided and due attention should be given to them. In fact, there may be a need to close the most unprofitable state farms, yet accusing all state farms as unprofitable has been proved wrong by this study.



Despite their immense constraints, the good performance of state farms can be attributed to: an aggregation of their land holding in one place (as continuous single plots) which supports the efficient use of mechanised farming, the already established infrastructure (storage, roads, and other facilities), good access to credit, strong negotiation power with food-grain given it is sold in bulk (they are able to store it for long and sell it when in need), and lower post harvest losses due to mechanised farming. State farms can also contribute to attain indirect objectives, namely increasing the foreign exchange earnings (by exporting some surpluses) and employment generation (for example, the three enterprises are employing 3,000 permanent and 5,000 temporary workers), and/or renting their machinery and contribute to alleviate the problem of machinery access for the small private investors.



Therefore, it seems plausible to maintain the existing commercial farms as they are operating now. Proving their profitability may lead to the idea that they can easily and smoothly be transferred to private investors on a concessionaire basis. Once the existing state farms are transferred to private investors, there is no guarantee that these investors would maintain producing the strategic food crop production unless they agreed to produce food crops on condition. As noted in this paper, with the existing fragmented plot of land owned by farm producers it seems very difficult, if not impossible, to produce more than subsistence level, and hence this type of commercial mechanised farming (with large land holdings) should be well encouraged so as to achieve at least self-sufficiency in food grain at national level. Hence, commercial farms must be transferred to those investors that have the capacity and willingness to produce the strategic food-grain for the country. Caution should also be taken in not transferring government to private monopoly. Food is a strategic product for Ethiopia and thus seems logical to prepare at least concessionaire agreements with private entrepreneurs, if state farms are left to private hands, so as to have a government's key role in the productive system of the country. This would help to get influence over considerable quantities of food grain, that could be used as buffer, contingency allocations in case of emergency.



Attaining indirect objectives. Maintaining the structure of the existing state farms will contribute to some additional objectives, other than the direct objectives mentioned above, namely increasing the foreign exchange earning (by exporting some surpluses) and employment generation (as the existing three enterprises are employing 3,000 permanent and 5,000 casual labourers). Furthermore, some enterprises can rent their machinery and contribute to the alleviation of the problem of machinery access for the small farmers. There is also a spill over effect via the establishment of state farms. It was basically after the establishment of the enterprises that many cities were built or expanded. For example Awassa city has been well established after the foundation of the AwADE and its state farms. Hence, the external positive impact of supporting commercial agricultural enterprises is paramount.



able to supervise the activities of big commercial farms so as to have an upper hand on cereal marketable surplus in the country. It is a known fact that we should provide enough technical support to food-grain producing farms so as to enable them to be the backbone of the society. Besides, the recurrent drought should give us enough strategic reason for supervising the existing crop producing commercial state farms. If monopoly role is played, there will be unnecessary price increases on the very staple food of the people during difficult times which will affect the consumers by burdening them on even higher prices. ď&#x201A;§

Clear privatisation policy, market liberalisation and re-structuring of public agricultural enterprises. The establishment of new commercial agricultural enterprises and the re-vitalisation of the old ones should now be given top priority. This could be the medium-term objective: to revitalise the present state farms, under government's initiative, so as to privatise all or most of them afterwards. This would help in paving the way to smooth transition of state farms to private entrepreneurs. Due to lack of clear, transparent policy about state farms 22, all the Agricultural Enterprises are in a "limbo situation". The government's indecision appears to be an important reason for the local community to reclaim the land owned by state farms and also becomes a reason for poor performance of the existing state owned farms. ADEs are now warned of closing down since four years ago, with just a few privatisation schemes having already taken place23. As noted along the study, the enterprises should well be protected from looters and from invasion by the local community. In order to encourage modern, capitalintensive commercial farms, the right marketing, price and fiscal policy mix would have to be designed and subsequently implemented. Issues as transport facilities, land allotment, a firm, legally-based rental and leasing policy, as well as marketing facilities should be addressed. Thus, the government should protect the commercial farms for strategic reasons, since they are the major partners to boost food-grain production and to narrow the existing food gap in the country.

ď&#x201A;§

Possibility of transfer of resources to agricultural development endeavors rather than food aid, by shifting a significant share of food aid budget to sustainable, locally produced food-grain. Over the last twenty years, Ethiopia has received more relief food assistance than any other African country, being also the main recipient of EC Development and Food Aid of all the ACP countries. Where has all this money gone? Food Aid is non-sustainable and doesn't create productive assets. The creation of these assets should be the medium to long-term objective of all donor assistance to the country, in order to stimulate development and economic growth, and to assist Ethiopia to reach food self-sufficiency. Despite these efforts, the food gap is still present and food per capita decreasing. The average annual allocation of EC-Food Aid and Food Security budget line for Ethiopia in the last five years amounts 162 million Birr. The creation of sustainable productive assets should be the medium to long-term objective of the EU assistance to the country. The role of new machinery has significant importance in big commercial farms. For instance, the three enterprises visited may need about 100 new tractors and 30 combines, that will cost only 32 million ETB versus 162 million ETB/year of EC-Food Aid-Food Security budget. Therefore, simple financial analysis shows that there is a potential of transferring resources from food aid to development.

ď&#x201A;§

As depicted on Annex Table 8, the cost of importing food aid at present is more expensive than the costs of producing it locally using the three Agricultural Development Enterprises (ADEs). Should all the mentioned constraints be resolved, renew the machinery, and also by increasing some unutilised land, there is a potential of increasing maize yield in commercial agriculture to 5

22 23

Whether or not they will be privatized or distributed to farmers around, and when or how. Very recently, Wollega and Gojjam ADEs have been sold to private investors.

MT/ha and wheat to 4 MT/ha so as to increase their share of production24. Hence, by considering these potential yields and by using the existing infrastructures of state farms, plus some increase in their land use and efficiency, we can locally produce additional 111 thousand MT of wheat and maize with a subsequent cost of about 64 million ETB. With this cost, we are only able to import 38 thousand MT of food aid, which comes out to be mere 34 percent of the additional production that can be produced by state farms. The costs to import the equivalent 111 thousand MT of food aid would be 194 million ETB, which is about 3 times the cost of producing the same amount in the existing producing state farms. This may suggest that investing on commercial agriculture looks comparatively advantageous even in the state owned enterprises. It is, of course, reasonable to assume that private investors may extract more profit out of it and may be necessary to transfer those farms to private investors on conditional basis. 

To expand the cultivated area, partly through the utilisation of all the abandoned land owned by the state farms, but more importantly through expanded irrigation in lowland areas, since some state farms have an untapped potential, either by underground or surface water. Moreover, there is a need to diversify agricultural production in these high productive state farms with other crops like potatoes, vegetables, cattle fattening and oilseeds. Hence, there is a need to study the potentials of some other crops. For instance, it is noted that AwADE enterprise can produce more than 10 MT/ha of potatoes either under rain-fed or irrigation. By using the existing potential of the enterprises, it seems logical to produce vegetables, cattle fattening and some other oilseeds, specially by using the irrigation scheme. In AwADE, they have more than 4,000 ha of non-used cultivable land, with 1,100 ha out of it which could be irrigated at for horticulture crops. At present, only 170 thousand ha of land are under irrigation in Ethiopia, but this could be increased by using the considerable quantities of untapped water resources and suitable land that most state farms hold. Therefore, to expand the irrigated land should be given high priority. Crop yields are very low for maize under rain fed condition but can be maximized with supplementary irrigation during main season. Hence, further studies should also be conducted on these and related areas.



Support the research and extension services. As noted in the text, the EARO does not have much direct contact with the ADEs. It seems reasonable to suggest that they should have a tighter collaboration because these enterprises are major consumers of the outputs of this institute, both in the form of improved varieties and technical packages. This direct contact would open the way for large scale commercial farms either to directly purchase seeds from the EARO and duplicate themselves or to use their own production as seed source, by receiving the necessary training for cleaning and using the seeds rather than using intermediaries like the Ethiopian Seed Enterprise.



The extension services should be reinforced so as to facilitate a smooth and effective transfer of the research achievements to the commercial farms. It would seem logical to follow up the activities of large scale commercial farms in implementing the practices because plausible scientific recording on crop performance at the extended field level can easily be extracted from these farms. The research institutes could benefit from the farm field knowledge about testing new varieties, practices or seed doses. 

Research projects can be promoted with the aim of increasing yields of major cereals (wheat and maize) and pulses (faba bean, horse bean and haricot bean). Only based on scientific research can be tackled the major constraint that hinders food-grain yields: lack of improved

As noted in Annex Table 5, the share of the two wheat producing state farms to the national marketable surplus reached as high as 85 percent in 1984/85, but the share reached 6.6 percent in 1998/99.

high yielding varieties resistant to pests and diseases. This goal can soundly be accomplished through a combination of suitable native genetic resources and high-technology variety development. ď&#x201A;§

Passing out government decisions for writing of interest arrears as a gesture of assuring government commitment to re-vitalize the ADEs.

REFERENCES Arsi Agricultural Development Enterprise (1999). 1998/99 Summarized Report (Amharic Version), November, Arsi. Arsi Agricultural Development Enterprise (1998). Enterprise Questionnaire, Arsi. Awassa Agricultural Development Enterprise (1999). Production Programme and Capital Budget 1999-2000, Programming Service, July, Awassa. Bale Agricultural Development Enterprise (1999). Operational Budget and Work Programme 1999/2000, Planning and Data Processing Service, July, Bale-Robe. Central Statistics Authority (1999). Agricultural Sample Survey, Report on Forecast of Area and Production of Major Crops 1999/2000, Statistical Bulletin 215, November, Addis Ababa. Demeke M. (1999), Annual Report on the Ethiopian Economy 1999/2000, edited by Befekadu Degefe and Berhanu Nega, The Ethiopian Economic Association, Addis Ababa. Donovan, G. (1997) Ethiopia: Agricultural Growth. October, World Bank Report EARO (2000). National Crop Research Strategic Plan. Crop Research Directorate, Ethiopian Agricultural Research Organization, Addis Ababa. Eshete (1995). Studies on State Farms, Addis Ababa. EC-LFSU & WFP (2000). Report on the Availability of Maize, Wheat and Sorghum in Year 2000 For Local Purchase by Donors, February, Addis Ababa. FAO (2000). FAO/WFP Crop and Food Supply Assessment Mission to Ethiopia, Special Report, January, Addis Ababa. Federal Democratic Republic of Ethiopia (1996). Food Security Strategy, prepared for the Consultative Group Meeting of December 10-12, 1996. Federal Democratic Republic of Ethiopia (1999). Food Security Programme, Report of the Multi-Donor Team. March 15. Howard, J.A. et al. (1999). Green Revolution Technology Takes Root in Africa, MSU International Development Working Paper N째 76, East Lansing, USA. MEDAC (1997). Survey of Agricultural Sector, Department of Agriculture, February, Addis Ababa. Middlebrook, P. (2000). Ethiopian Poverty, the Poverty Reduction Strategy Paper and Employment Safety Nets: An Opportunity for Integration?. International Conference on Poverty Reduction and Alleviation Strategies, Addis Ababa 15th - 18th May 2000. Ministry of Economic Planning and Economic Development (1985 to 1989), Yearly Plan Performance Evaluation, Addis Ababa. Neun, H. (2000). Food Aid: Missed Opportunities and/or Latent Potential for Poverty Reduction and Alleviation in Ethiopia. International Conference on Poverty Reduction and Alleviation Strategies, Addis Ababa 15 th - 18th May 2000. Oxfam (1985). The Field Directors' Handbook, An Oxfam Manual for Development Workers, 4th ed., Alden Press, Oxford. Pinstrup-Andersen, P., et al. (1997). The World Food Situation: Recent Developments, Emerging Issues, and Long-Term Prospects, Food Policy Report, 2020 vision, IFPRI, Washington DC. Pinstrup-Andersen, P., et al. (1999). World Food Prospects: Critical Issues for the Early Twenty - First Century, Food Policy Report, 2020 vision, IFPRI, Washington DC. UNDP (1998). Human Development Report 1998. Ethiopia, UNDP, Addis Ababa. UNDP (1999). Human Development Report 1999, UNDP, New York. UNFPA (1998). The State of World Population, The New Generations, UNFPA, New York.

List of People Contacted General Manager of Awassa Agricultural Development Enterprise Deputy Manager of Bale Agricultural Development Enterprise General Manager of Arsi Agricultural Development Enterprise Managers of different State Farms: Bilito Sinqile (AWADE), Robe and Sinana (BADE), Lole and Diksis (AADE). Ato Woldemariam, Head of Extension Department, Bureau of Agriculture, Sidama zone Ato Seifu, Irrigation Expert, Bureau of Agriculture, Sidama zone Ato Tesfaye Dubale, Irrigation Expert, Bureau of Agriculture, SNNPR.

Annexes ANNEX TABLE 1. Ethiopia – Food Aid and Food Grain Production (1985-1998) Year

Food Aida (‘000 MT)

Food Grain Production (‘000 MT)

Food Aid as Proportion to Production (%)

1985

1,272

4,855

26.2

1986

926

5,404

17.1

1987

277

6,684

4.1

1988

1,096

6,902

15.9

1989

461

6,676

6.9

1990

657

6,579

10.0

1991

925

7,078

12.0

1992

840

7,055

11.9

1993

519

7,619

6.8

1994

980

8,527.6

14.1

1995

683

10,174.3

9.1

1996

334

10,268.3

3.2

1997

199

6,840.5

1.8

1998

544

8,273.1

5.9

693.8

7,352.6

10.35

Average

Source: Derived from DPPC annual Appeals and FAO/WFP field reports. a All food delivered, including local purchases. For the period 1985-1994, 27 percent from USAID, 24 percent from WFP, and 19 percent from the EU, 10 percent in addition from individual member countries of the EU, 7 percent from Canada, 23 percent others.

ANNEX TABLE 2. Total Area (ha) and Production (MT) of State Farms by Agricultural Development Enterprise (ADE) and Crop Type ARSI ADE - Wheat Year

BALE ADE - Wheat Yield

Area Production

AWASSA ADE - Maize

Area

Production

Yield

1972/73

30,326

51,339

1.5

40,799

48,605

1.2

7,463

Area Production 21,402

Yield 2.9

1973/74

35,058

48,655

1.3

47,078

55,894

1.2

7,407

19,593

2.6

1974/75

34,876

54,319

1.4

45,751

76,591

1.7

7,873

11,834

1.5

1975/76

27,539

40,187

1.3

31,242

38,089

1.2

6,709

11,639

1.7

1976/77

26,034

43,281

1.5

32,591

43,149

1.3

6,951

9,458

1.4

1977/78

25,764

46,970

1.7

40,979

65,414

1.6

7,389

16,336

2.2

1978/79

25,004

55,073

2.3

42,300

73,715

1.7

7,160

11,202

1.6

1979/80

23,510

23,937

1.2

37,472

65,365

1.7

5,374

15,544

2.9

1980/81

23,645

46,988

2.2

32,044

46,746

1.5

3,361

8,267

2.5

1981/82

22,108

45,999

2.2

27,365

51,044

1.9

4,669

16,825

3.6

1982/83

22,710

36,617

1.8

27,402

38,023

1.4

3,436

10,334

3.0

1983/84

14,918

22,459

1.5

15,546

20,334

1.3

4,878

4,264

0.9

1984/85

10,338

14,746

1.4

12,442

23,043

1.9

3,083

6,068

2.0

1985/86

11,208

17,527

1.5

12,805

21,916

1.7

3,317

6,091

1.8

1986/87

12,810

19,892

1.6

12,934

24,060

1.9

3,926

8,904

2.3

1987/88

13,500

23,370

1.7

14,883

29,705

2.0

5,134

11,204

2.2

1988/89

12,380

22,359

1.8

14,671

28,036

1.9

5,147

9,023

1.8

1989/90

13,042

22,825

1.8

15,336

26,458

1.7

2,784

7,211

2.6

1990/91

13,124

21,759

1.6

15,918

23,470

1.5

2,992

5,262

1.8

1991/92

12,560

27,566

2.1

15,736

31,646

2.0

2,243

7,740

3.5

Source: Agricultural Development Enterprises, April 2000.

ANNEX TABLE 3: List of Grain Producing State Farms in the Country Operational as of May 2000)

(Operational and Non-

Region

Zone

Woreda

State Farm

Agr. Devt Enterprises

Status

Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Amhara Amhara Amhara Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya Oromiya SNNPR

East Wellega East Wellega East Wellega East Wellega East Wellega East Wellega East Wellega East Wellega East Wellega Awi West Gojjam West Gojjam Arsi Arsi Arsi Arsi Arsi Arsi Arsi Bale Bale Bale Bale Bale East Shewa Sidama

Guto Wayu Guto Wayu Guto Wayu Guto Wayu Guto Wayu Sasiga Sasiga Sasiga Sasiga Ankasha Jabe Tehen Jabe Tehen Gedeb Assasa Munesa Gedeb Assasa Amegna Sude Gedeb Assasa Kofele Adaba Dodola Dodola Sinana Dinsho Sinana Dinsho Aje Awassa Zuriya

Horo Aleltu Uke Kinaf Logo Loko Bereda Anger Belo Jerema Ayehu Tachber Laiber Ardaiyta Lole Tamela Adele Diksis Garadela Goffer Hunte Surufta Herrero Sinnana Robe Bilito Sinqile Wendo Tiqa

Wolega Wolega Wolega Wolega Wolega Wolega Wolega Wolega Wolega Gojjam-Gonder Gojjam-Gonder Gojjam-Gonder Arsi BOA Arsi Arsi Arsi Arsi Arsi Arsi Bale Bale Bale Bale Bale Awassa Awassa

Non-Operational Non-Operational Non-Operational Non-Operational Non-Operational Non-Operational Non-Operational Non-Operational Non-Operational Non-Operational Non-Operational Non-Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational

Source: Respective Enterprises.

ANNEX TABLE 4: Share of Wheat and Maize Production of the Three Enterprises Visited Over the National Production National Maize

Share of Arsi & Bale ADEs Wheat

Wheat

Share of Awassa ADE Maize

1979/80

Area (in '000 Ha) 870.8

1980/81

731.0

9,482.5

552.2

6,132.3

11.24

11.03

1.34

3.20

1981/82

652.5

11,995.5

684.9

7,066.0

12.36

10.91

1.15

1.67

1982/83

819.7

16,029.5

714.0

9,166.1

7.17

4.88

0.94

1.27

1983/84

849.4

15,562.5

737.9

8,199.8

6.90

5.55

0.94

1.15

1984/85

918.2

10,645.0

548.0

5,216.9

7.27

10.56

1.35

3.13

1985/86

865.0

10,362.2

778.4

7,752.6

7.78

12.43

0.92

1.44

1986/87

1,012.6

17,153.6

661.9

7,753.2

6.02

5.21

0.81

2.00

1987/88

1,091.2

19,566.6

653.8

7,759.2

5.10

4.79

0.51

1.07

1988/89

983.5

15,877.8

628.6

7,811.9

5.03

6.11

0.91

2.88

1989/90

1,147.5

19,955.6

598.6

7,908.4

4.37

3.74

1.24

2.58

1990/91

1,154.4

14,098.6

556.8

7,858.8

2.64

3.04

1.46

1.44

1991/92

999.2

15,262.5

591.6

7,984.7

2.28

2.48

0.92

1.49

1992/93

838.5

14,559.2

578.2

8,955.2

2.86

2.71

1.02

1.6

1993/94

1,242.7

13,962.3

746.8

8,027.5

2.07

3.15

0.72

1.68

1994/95

1,418.3

18,893.7

801.1

10,397.3

2.00

2.81

0.83

1.52

1995/96

3,539.9

55,037.6

2,315.6

26,547.3

0.76

0.92

0.28

0.53

1996/97

3,604.1

59,607.1

2,229.8

29,916.6

0.79

0.83

0.19

0.42

1997/98

1,090.4

18,245.7

783.4

10,975.8

2.66

2.48

0.57

1.05

1998/99

3,093.9

53,278.9

2,589.6

35,486.9

0.91

1.11

0.14

0.34

Year

Production (in '00 MT) 15,240.8

Area (in '000 Ha) 486.7

Production (in '00 MT) 5,374.5

Area (%) 8.17

Production (%) 6.56

Area (%) 1.53

Production (%) 3.98

Source: National Production data from CSA, and Enterprise data from respective Enterprises.

ANNEX TABLE 5: Share of Wheat and Maize Production of the Three Enterprises Visited over the National Marketable Surplus of Wheat and Maize Production Maize National

Awassa ADE

Share of

Wheat National

Arsi and Bale ADE

Share of Arsi

Mktable Surplus

Maize Production

Awassa ADE

Mktable Surplus

Wheat Prodn

and Bale ADE

(in '000 MT)

Maize (%)

(in '000 MT)

Wheat (%)

1979/80

311.6

21.4

6.9

136.0

99.9

73.4

1980/81

193.8

19.5

10.1

155.2

104.5

67.3

1981/82

245.2

11.8

4.8

178.9

130.9

73.2

1982/83

327.7

11.6

3.6

232.1

78.2

33.7

1983/84

318.2

9.4

3.0

207.6

86.4

41.6

1984/85

217.6

16.3

7.5

132.1

112.3

85.1

1985/86

211.8

11.2

5.3

196.3

128.7

65.6

1986/87

350.7

15.5

4.4

196.3

89.3

45.5

1987/88

400.0

8.2

2.1

196.4

93.7

47.7

1988/89

324.6

22.4

6.9

197.8

97.0

49.1

1989/90

408.0

20.4

5.0

200.2

74.6

37.3

1990/91

288.2

11.3

3.9

199.0

42.7

21.5

1991/92

312.0

11.9

3.8

202.1

37.7

18.7

1992/93

297.7

14.3

4.8

226.7

39.4

17.4

1993/94

285.5

13.5

4.7

203.2

43.9

21.6

1994/95

386.3

15.8

4.1

263.2

53.0

20.2

1995/96

1,125.3

14.0

1.2

672.2

50.4

7.5

1996/97

1,218.8

12.5

1.0

757.5

49.2

6.5

1997/98

373.0

11.5

3.1

277.9

45.2

16.3

1998/99

1,089.4

11.9

1.1

898.5

59.2

6.6

Year

Source: National Production data from CSA, and Enterprise data from respecitve Enterprises. The marketable surplus proportion has been taken from GMRP 1995/96 National Household Survey.

ANNEX TABLE 6: Production Performances by Enterprise

Bale Agricultural Development Enterprise - Wheat Year

1996/97 1997/98 1998/99 Average

Plan Area

Plan Production

Actual Area

Performance

(ha)

(MT)

(ha)

(%)

Actual Production Performance (MT)

(%)

15,663.0 15,335.0 15,772.0 15,590.0

28,774.8 28,409.0 31,230.3 29,471.4

15,335.6 15,918.0 15,736.3 15,663.3

97.9 103.8 99.8 100.5

26,458.1 23,469.6 31,646.0 27,191.3

91.9 82.6 101.3 92.0

Arsi Agricultural Development Enterprise - Wheat Year

1996/97 1997/98 1998/99 Average

Plan Area

Plan Production

Actual Area

Performance

(ha)

(MT)

(ha)

(%)

Actual Production Performance (MT)

(%)

13,390.0 13,396.0 13,332.0 13,372.7

28,252.9 28,265.6 27,818.9 28,112.5

13,042.1 13,124.1 12,559.8 12,908.7

97.4 98.0 94.2 96.5

22,825.2 21,759.1 27,565.8 24,050.0

80.8 77.0 99.1 85.6

Awassa Agricultural Development Enterprise - Maize Year

1996/97 1997/98 1998/99 Average

Plan Area

Plan Production

Actual Area

Performance

(ha)

(MT)

(ha)

(%)

Actual Production Performance (MT)

(%)

4,799.5 4,739.6 3,346.8 4,295.3

17,013.7 15,195.9 17,029.3 16,413.0

4,242.8 4,469.4 3,520.8 4,077.6

88.4 94.3 105.2 96.0

12,522.1 11,533.7 11,903.5 11,986.4

73.6 75.9 69.9 73.1

Source: Different Documents of the Enterprises.

ANNEX TABLE 7: Total and Unit Cost Budgets by Grain Producing State Farms in 1998/99

Bale Agricultural Development Enterprise - Wheat State Farm

Total Cost (Birr) 10,768,160.0

Cost/ha (Birr) 3,140.3

Cost/MT (Birr) 1,427.4

Planted Area (ha) 3,429.0

Production (MT) 7,543.9

Hunte

6,885,290.0

3,297.6

1,939.7

2,088.0

3,549.7

Sinnana

10,329,300.0

2,691.3

1,495.0

3,838.0

6,909.2

Robe

8,448,560.0

3,293.8

1,568.5

2,565.0

5,386.4

Serufta

11,245,810.0

3,002.1

1,501.0

3,746.0

7,492.2

Total

47,677,120.0

3,085.0

1,586.3

15,666.0

30,881.4

Herero

Arsi Agricultural Development Enterprise - Wheat State Farm Diksis

Total Cost (Birr) 8,994,250.4

Cost/ha (Birr) 4,455.8

Cost/MT (Birr) 5,928.6

Planted Area (ha) 2,018.5

Production (MT) 1,517.1

Lole

6,994,182.2

3,212.1

1,204.8

2,177.5

5,805.3

Adele

6,006,744.7

3,229.7

2,268.0

1,859.8

2,648.5

Garadela

8,089,113.7

3,218.7

1,519.9

2,513.1

5,322.1

Goffer

2,800,429.2

3,792.8

2,559.4

738.4

1,094.2

Tamela

8,193,887.8

2,978.4

1,563.7

2,751.1

5,240.1

Total

41,078,608.0

3,481.3

2,507.4

12,058.4

21,627.2

Awassa Agricultural Development Enterprise - Maize State Farm

Total Cost (Birr) 4,475,760.0

Cost/ha (Birr) 3,499.0

Cost/MT (Birr) 850.0

Planted Area (ha) 1,279.2

Production (MT) 5,265.6

Bilito Siraro

8,695,660.0

3,051.0

840.0

2,850.1

10,352.0

Total

13,171,420.0

3,275.0

845.0

4,129.3

15,617.6

Awassa Wendo Tiqa

Source: Respective Agricultural Development Enterprise Budget Reports.

ANNEX TABLE 8: Potential and Cost Analysis of Three Grain Producing Agricultural Development Enterprises (1998/99) Description AADE BADE AwADE Total General Total Land Holding (Ha) 20,395.00 15,956.00 4,500.00 40,851.00 Number of State Farms 6 5 2 13 Cultivated Area (Ha) 13,109.59 15,666.25 4,128.97 32,904.81 Non-Productive Area 2,795.00 0.00 700.00 3,495.00 Other Potential Area (Ha) 4,490.41 290.00 4,871.03 9,651.44 Production and Yield Production (MT) Wheat 21,711.83 30,959.16 52,670.99 Maize 14,967.50 14,967.50 Yield (MT/Ha) Wheat 1.66 2.01 1.84 Maize 3.60 3.60 Costs and Revenue (in '000 Birr) Costs/Ha 3.51 3.04 3.19 3.25 Costs/MT 2.12 1.54 0.88 1.51 Total Costs by Crop Type1 46,029.10 47,677.10 13,171.40 106,877.60 Total Budgetary Costs 50,733.00 48,507.90 18,975.90 118,216.80 Operation Expenses for the Year 50,603.12 48,507.90 14,612.19 113,723.21 Revenue for the Year 31,691.71 38,825.53 22,321.08 92,838.32 Gross Profit (18,911.41) (9,682.37) 7,708.89 (20,884.89) Interest Expenses 8,921.20 10,379.00 1,002.50 20,302.70 Net Profit (Excluding Interest Expenses) (9,990.21) 696.63 8,711.39 (582.19) Potentials Cultivable Area (Ha)2 Yield (MT/Ha)3 Production (MT)

17,600.0 4.0 70,400.0

15,956.3 4.0 63,825.0

9,000.0 5.0 45,000.0

42,556.3 13.0 179,225.0

Area Added (MT)4 Production Added (MT) Estimated Cost for the Added Production5 Cost of New Machineries6 Total Estimated Cost for the Added Production Imported Grain with that Budget (MT) 7 Estimated Cost for the import of the amount of Added Production 8 Difference of Cost9 Difference of Production in MT10

4,490.4 48,688.2 15,765.8 15,164.0 30,929.8 16,758.7 89,858.9 58,929.1 31,929.5

290.0 32,865.8 882.5 8,610.0 9,492.5 5,143.3 60,657.2 51,164.7 27,722.5

4,871.0 30,032.5 15,538.6 8,333.3 23,871.9 16,214.0 44,216.8 20,344.9 13,818.5

9,651.4 111,586.5 32,186.9 32,107.3 64,294.2 38,116.0 194,732.9 130,438.7 73,470.5

Source: Budgetary Reports of the Enterprises.

Notes: 1. Crop Type refers to wheat for AADE (Arsi Agricultural Development Enteprise) and BADE (Bale Agricultural Development Enterprise) and Maize for AwADE (Awassa Agricultural Development Enterprise). 2. Potential Cultivable Area is the sum of cultivated area and other potential area. The 'other potential area' in Awassa is the abandoned area, it can easily reclaimed back and should be considered as other potential . 3. This Yield can be attained with efficient utilization of the existing resources, and also with the necessary changes in machineries and by overlaying the necessary conducive production potential environment on state farms. 4. Area Added = Potential - Cultivated Area. 5. These are costs estimated after detailed discussion of each enterprise's requirement with the enterprises. 6. Estimated Cost is simply computed as cost/Ha x Area Added, but that can be changed with some improvements in machineries and other productive changes on the existing large mechanized farms. 7. This is computed as Total Estimated Cost for Production / Cost per MT of Imported Food. The Cost for Imported Food is taken as: for wheat 1,845.6 birr/MT and for maize 1,472.3 birr/MT, from the February 2000 Cereal Availability Study Report. 8. This is computed as Added Production X Cost/MT of Imported Food. The Cost/MT of Imported Food is taken as note No. 7. 9. This difference is the amount of money that can be saved to produce the extra production by providing some assistance to the existing large mechanized farms. Difference = Estimated Cost for the Import of Additional Production - Total Cost for the Added Production. 10. Difference in MT

Annex Figure I Real Wholesale Prices of Selected Cereals in Addis Ababa Over 10 Years

Birr/Qu intal

300

Mixe d T eff

200

White Barley White W heat

100

White So rghum 0

White Maize 19

YEAR