Disappointment on the Ground: The Failure of the Local Commercial Farming

Zewde Zeleke (PhD), general manger and owner of Biyo Agricultural Development, has received 6,749 hectares of land to develop a commercial farm in Benishangul Gumuz regional state, almost a decade ago. The farm was profitable and earned him an award for the export crops he grew. He created more than a thousand jobs for the local community and provided supports including building roads and helped train residents in new farming technologies. This is what the government had in mind when it encouraged local investment in commercial farming.

However, the hopeful beginning took a turn for the worse when a substantial amount of the land he has developed was scrambled by the local farmers, backed by the local administration; harvests and properties including tractors were burnt; his produce including 200 quintals of maize and other properties were looted; and many other dreadful acts were carried out on his investment.

He went to the courts and even filed complaints to the highest level authorities including the then Deputy Prime Minister the now Prime Minister, Hailemariam Desalegn. Yet he hasn’t got a solution to date.

Local farmers invading investors’ developed lands, usually encouraged by the local administration officials is actually quite a common phenomenon in Benishangul Gumuz, according to investors in the region. “This is also susceptible in outlying regions such as Gambella”, says another investor, who would like to stay anonymous. This problem particularly hits local investors hard, who are developing relatively smaller and medium scale commercial farms.

Girmay Amha returned back home after living in the UK for most of his adult life, to invest the ETB 6 million fortunes he has made. He invested in a cotton plantation by renting 500 hectares of land from the local community in the Middle Awash area of the Afar region. After seeing his success in developing the land, people in the locality wanted it and pushed him away with the help of some corrupt local administration officials and by harassing and conspiring with different people around his investment, which eventually led to his land being taken over, while he still has the right to use it.

As Zewde did, Girmay also went to the court in the local administration, filed complaints to authorities at different levels, at the Ministry of Federal Affairs and at the Ministry of Trade and Industry including to the then Minister Girma Biru but to no avail. He is now out of business and since agriculture is a capital intensive business he has lost most of his money developing the land and purchasing equipment, which was also taken by the local authorities, as he told EBR.

Bezualem Bekele, acting director for the Agricultural Investment Support Directorate at Ministry of Agriculture, however says it is not all the federal government’s responsibility. In an interview with EBR, he noted in most cases the problems occurred with investors who had investment licenses and made agreement with the regions. “Each side has complaints about each other, it isn’t that easy to pass judgment” he asserted. Many of the investors jumped into the venture without fulfilling the necessary requirements, according to him.

Temesgen Disasa, head of the Environmental Protection and Land Administration of the Benishangul Gumuz Regional State told EBR the main source of the problem is that land was granted to investor only by estimation and wasn’t demarcated properly in the past days. “Both government and investors didn’t know the exact measurement of the land,” he said. “This has led some local administration to provide land to the local community simply because they didn’t know the land was given to developers, and of course, local communities in some areas may have invaded the land because it isn’t well demarcated.”

This is not the only challenge Dr. Zewde and his comrades in business are facing though. Farming depends on support from the local government but intricate bureaucracy, lack of supplies like seeds and chemicals or improved varieties, absence of sufficient finance combined with lack of basic infrastructures like roads, electricity and telecom services have crippled commercial farm development in remote areas, in which much of the investment endeavourer is taking place.

Structural deficiency and uncooperative local administrations

The Ethiopian government has allocated more than 3 million hectares of land for commercial farmers, out of the 64 million hectares of land suitable for cultivation. It also says it is offering various incentives to encourage investors in the sector.

The government asserts that these investments will bring in foreign currency through initial Foreign Direct Investment (FDI) capitals and exports of products as well as contribute to long-term food security through the transfer of technology to small-scale farmers. The government also believes it will increase economic output, develop infrastructure and bring in jobs.

Of course, the country has been very active in marketing the investment opportunities to the world and to potential investors.

Workneh Nigatu (PhD), a seasoned lecturer, who teaches Agricultural Development and Strategies at Addis Ababa University (AAU), told EBR, “Commercial farming has a multifaceted benefit to an economy like Ethiopia in that it benefits from economies of scale because of the efficiency in per unit costs such as transport of inputs and products.” He adds, “It also supports the export sector by providing high quality and quantity products besides supplying the local market with products of new technologies and experiences such as rice.”

However, the performance of the sector is sluggish. As of last year only 17.6 pct of the land is transferred to investors, this means only 372,088 hectares from the total 2.2 million hectares of land was fully developed, according to the Ministry of Agriculture.

Data from the Ethiopian Investment Agency for the past 21 years, from 1992 – May 2013, reveals that 10,785 projects have received investment licenses with a total capital of more than ETB 256 billion to participate in the agricultural sector. Among these only 15 pct, which is about 1,615 investment projects with a capital of about ETB 15 billion are operational. If we take a look at the amount of capital in operation, it is a mere 6 pct of the total investment capital licensed. The rest are in a pre-implementation and implementation stages. Many that EBR spoke with had not received the land they requested and some have given up.

At the beginning of June this year, the Ministry of Agriculture held a meeting with investors, most of them local, who are engaged in large scale commercial farming and other stakeholders. The meeting was meant to discuss on the challenges the sector is facing and to find solutions and the way forward. Later on the discussions, several of the investors make a clean breast cursing the day they have decided to engage in the sector and told the authorities that they are on the verge of losing hope in their businesses blaming lack of supports and good governance from those concerned.

The minister, Tefera Derbew, pleaded with them to fight back. “Do we leave the development of our country to those rent seekers so they can triumph over us?” he questioned. Then added that the government is trying to solve their problems.

But several of the investors whom EBR approached grumbled that: only charismatic speeches and giving hope – that the problems will go away – will not solve the enormous challenges the sector is facing. Practical and immediate solutions are needed, the investors argued. An investor who had been working in the sector for a decade now and who would like to stay anonymous called the federal government toothless, tangled with structural deficiency and said it does not have the necessary political commitment for the development of the private sector.

Tefera seems to understand the root causes of this particular problem and told these investors that the country follows a federal system by which his office cannot interfere in the jurisdiction of the regional governments and local administrations. However, he confessesed that there is a capacity gap not only at the regional and local administrations but even at the federal levels. The federal offices only support the regional and local administrations in building their capacity and improving their political commitments. He even went on to say that they know in some cases regional bureaus, “create difficulties rather than providing solutions.”

Hailu Belay, an agricultural professional with more than 30 years of experience obtained his investment license a year ago. He applied for 500 hectares of land in Dangur, Benishangul Gumuz region and tipped the local administration to grant him a piece of land that was free. He has been going to the local administrative office time and again since then, with no fruit. “The bureaucracy and uncooperativeness at the lower level of the local authorities is unspeakable,” said the veteran agriculturalist.

Sometimes the rule of law has been in question too. The verdict by a court in Benishangul Gumuz Regional State to return back the pieces of land grabbed by the local farmers to the developers hasn’t been enforced because of the reluctant local administrators. According to an informer, the court even has proven that the local authorities have received money to transfer land developed by an investor to other individuals.

Lack of finance, input, market, human resource

The long and wearisome process to get a bank loan has also been another problem for these developers. The bureaucratic hustle has made the financial support they are supposed to get seem like a pie in the sky.

Galloping inflation has also contributed. The sky rocketing price of machines and labor made the capital intensive work of agricultural investment more cumbersome. Many have refrained from getting involved in the sector because they couldn’t secure financial support that will cover their initial cost.

Alemayehu Gessese is an Engineer, who had taken his investment license in 1999 to partake in food and cash crop production in the Benishangul Gumuz region. Even though he jumped through many hoops, he was unable to obtain a loan so he decided to engage in another business.

The banks argue that they are trying to help finance farming. A representative from the Commercial Bank of Ethiopia (CBE) argued that several loan requests did not meet the criteria set by the bank to provide loans. Some did not present a feasibility study convincing the banks the venture is reliable and profitable.

Bezualem seems to have an analogous opinion about the banks. The Development Bank of Ethiopia (DBA), which usually gives loans for investments in the agricultural sector, has its own criteria to grant loans. The proposal should assert the investments’ feasibility and profitability. “If the investment is not worth for the Banks it isn’t worth for us too.” says Bezualem.

In fact, in some areas such as Benishangul Gumuz some investors have taken land and couldn’t develop it. Temesgen says, “Some of the investors who took land in the region didn’t develop it in the time frame they are given, rather they have rented out it to the local farmers to get an unfair profit by illegitimate ways.”

The other challenge that investors are facing is the supply of technological inputs particularly improved seeds and some types of chemicals. Mussie Nebro, 33, grows a variety of cotton called DP-90 on his farm; he develops it with his childhood friends under Halsa Land Agricultural Development in Gambella region. The productivity and yield quality of this variety is low compared to the ones that are grown in other parts of the world now. They have been requesting the government to supply new varieties several times even by tipping the names of the latest variety which have been tested and proven successful. The government hasn’t responded yet and importing agricultural inputs like improved varieties and some chemicals has not been fully liberalized.

According to the government, import and supply of improved seeds and some chemicals are handled with caution because of their impact on the bio-diversity of the nation. They are supplied after a thorough study and piloting is conducted by those concerned. “We can’t bring in because someone wanted them or said so,” said Bezualem.

Market links are another problem these young investors are facing. The cotton they produce is supposed to be sold in the local market mainly because the government policy forbids them from exporting it, with an objective of encouraging the infant textile industry. However these textile industries use the pretext that the quality of the cotton is below the standard to dwindle prices while it is known that the products are in the medium quality level with a staple length of 26-30mm, according to Mussie. “I have sold the products I have produced in 2012 recently with a minimal price almost equivalent to its production costs,” Mussie told EBR. Mussie and his friends feel that the textile sector is abusing the previlages it was given. Lack of skilled manpower that is willing to work in the farm is also among reasons why investors participating in the sector have pulled out.

The need to be aggressive

Ethiopia has a vast fertile land favorable for investments in commercial agriculture. This untapped potential can produce products to fulfill the food security aspiration of the nation; as raw materials to its future industrial economy base, particularly textile, agro processing and food industries as well as a potential foreign currency earning through exports. It will also create job opportunities and facilitate knowledge and technology to subsistence farmers.

In a recent Parliament session, Prime Minister Hailemariam Desalegn vowed to improve the performance of commercial farming, indicating that the sector can produce an amount equivalent to the agricultural products, produced during the main harvest season, from Tigray and Southern Nations, Nationalities and People Region (SNNPR) regions put together.

But for improvement to happen, clear and practical policy incentives and strengthening institutions that can support, monitor and evaluate actors in the sector should be a priority, according to Workneh. Investors on the other hand should have a well studied document that can demonstrate the potential as well as strengths and weakness of their project. “Even license should be given after credible government institutions have proved the fulfillment of some important criteria by investors.”

According to Bezualem, the Ministry of Agriculture has selected potential commercial farm zones throughout the country. This will help bring in infrastructure to rural areas., creating favourable conditions for investment endavours. “The expenses for building infrastructures are very high and government constructs these facilities based on the benefits they will bring, cost benefit analysis is done as with any other business,” says Bezualem.

Other remedies are also underway. In Benishangul Gumuz, for example, authorities have started repossessing lands from investors who fail to develop it and are transferring them to other investors, according to Temesgen. Concerning the land invasion, he told us, “Though it is very difficult to evict all the squatters at once we are negotiating, giving them substitute lands to leave the lands developed by investors. We also work in developing awareness among the local community and advice investors to take some [corporate] social responsibility to coexist peacefully with the local community.”

Ethiopia is not a food secured country. It imports food items in addition to the substantial amount of aid to feed its people every year. This reality must change. In South Africa commercial farmers ensure the country’s food security. According to the South African Institute of Race Relations (SAIRR), the country’s 47,500 commercial farmers produce 95 pct of the total food supply only on 4.6 million hectares of land, which is equivalent to 36 pct of cultivated and five percent of the total agricultural land available.

In the mean time, in Ethiopia, many frustrated investors are pulling out their investment from the sector and the number of investors interested in engaging in the sector is decreasing with each passing day. This trend must stop immediately, otherwise the gains that were made six or seven years ago will be reversed. The government must restore investors’ confidence in the sector. Approaching the issue strategically and including all the stakeholders will be wise. And for this to happen serious political commitment and aggressiveness is expected from the State. The government should put its game face on. EBR


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