Inedible Oil Industries

When the massive edible oil factories, Phibela and W.A., were inaugurated with state fanfare, many believed Ethiopia would no longer face cooking oil shortages, even to the extent that imports would be fully substituted with local production. Six months after the launching of the two giants, cooking oil has become a precious commodity in Addis Ababa with prices rising.
With over 2.7 million liters demanded every day, Ethiopian currently imports 1.3 million liters. Though the daily supply from medium- and large-scale factories in the country has dramatically increased from last year’s 228,800 to 992,876 liters currently, it is still far less than their installed capacities of 3.4 million liters.

Even with blossoming local production, there is in excess of 10.4 million liters in supply gap every month. Lack of power supply and raw materials is crippling even the big oil complexes, as most of the oilseed production is exported to fetch foreign currency for importers. EBR’s Mersha Tiruneh explores government’s misguided policy and the extra effort edible oil factories are undertaking towards farming their own supply of oilseeds.

For supermarkets and shops across Addis Ababa, edible oil has been as scarce as hen’s teeth as of April, with shelves lacking in both imported and local brands. “Three months prior, our supermarket’s shelves were stocked with over seven types of edible oils. But since then, we have not been able to access the product due to foreign currency shortages for imports and a general supply shortage for local variants,” said Meron Eshetu, Supervisor at the Shoa Supermarket branch in Zefmesh Mall, around Megenagna. Prices have also increased to ETB130 per liter on average—a doubling from two years ago.

The discrepancy between demand and supply is basically due to difficulties in implementing import substitution and is in spite of government officials attributing the shortage to hoarding and economic sabotage.

As per the government, Ethiopia’s monthly calculated demand is currently 75.5 million liters, up from 2019’s 68 million liters. These figures are indicated in a recent document of the Ministry of Trade and Industry (MoTI), which also cited that 40.4 million liters was imported monthly. However, based on FAO’s standard per capita oil consumption for developing countries of 0.72 liters per month, demand is much higher. With Ethiopia’s estimated population at 110 million, monthly demand would be over 79.2 million.

Actual total edible oil consumption for 2020/21 is estimated by the US Foreign Agricultural Service (USFAS) at 630,000 tons or 700 million liters, of which 90Pct is imported. Most of the consumption is of palm oil, followed by sunflower and locally produced niger seed oil. USFAS has also studied that local factories are only covering 10Pct of demand. MoTI’s latest edible oil studies are contradictory in this regard, stating the share of local manufactures has jumped from 12Pct last year to 40Pct currently.

With MoTI’s total forecasted demand for the current 2021/22 fiscal year at 906.5 million liters, USD993 million would be required if imports were to cover the entire requirement. Ethiopia spent USD749 million to import edible oil in 2020. Malaysia and Indonesia constitute 71Pct of Ethiopia’s total palm oil imports. According to the Malaysian Palm Oil Board, one ton of the type is currently selling at USD1,550, the highest in the decade.

For the past decade, local producers were unable to penetrate the market as government was supplying imported saturated palm oil at subsidized prices through handpicked enterprises. This scheme was halted two years ago after the public health institution disclosed a study linking saturated palm oil with health risks.

Once the market was opened, a number of local producers mushroomed. The number of medium- and large-scale edible oil producers thus jumped to 232, with 26 capable of producing more than 1,000 liters per day. There is also in excess of 1,000 micro and small edible oil processors, according to MoTI data. Kokeb, Dukem, Tena, Sunflow, Addis Modjo, Kibe Lemene, and others have become prominent local brands in supermarket shelves.

In fact, the share of local edible oil production to total demand has increased from just 5Pct three years ago, to 40Pct currently, according to a MoTI document. This increase can mainly be attributed to the opening of two large edible oil factories this year—Phibela and W.A. The former has a production capacity of 1.5 million liters per day and cost ETB4.5 billion while the later produces 1.3 million liters daily at an initial outlay of ETB5.2 billion. Phibela alone was forecasted to cover 60Pct of Ethiopia’s total demand.

Nonetheless, even these highly anticipated factories could not sufficiently utilize their installed capacities. For instance, in the six months since launching in February 2021, Phibela has produced only 14.6 million liters, according to MoTI data. The factory is utilizing only 5.4Pct of its installed capacity, in similar fashion to its peer W.A., at 4.4Pct. Though older manufacturers are better performing, they are still under-utilizing their capacities. Hamaressa employs 10Pct of capacity, Shemu 32Pct, and Rongy 20Pct. Even the decades-old Addis Modjo Edible Oil Factory is producing at 56Pct of its 50,000 liter-a-day capacity. The 30 medium and large oil plants, with daily capacities of at least 1,000 liters, have the facility to produce 3.4 million liters per day. Nonetheless, they produced on 998,876 liters per day this year.

The major problem now for these players, including the two newly inaugurated giants, is the lack of raw material and power fluctuations. The fact that oilseeds are bought at inflated prices from the domestic market and exported just to generate foreign currency for importers has severely affected edible oil manufacturers from accessing the key input.

“We are unable to access raw material because it is too expensive. Exporters are able to purchase oilseeds at inflated prices and export. If we buy at the market price, we must also sell the oil expensively, which cannot be afforded by Ethiopians. Oilseed prices have hiked but we have not increasing our selling price. Resultantly, we are losing ETB50,000 to 70,000 every month,” said Fikru Belete, Marketing and Distribution Officer at Wolkite Pharmaceutical Union, a cooperative amalgamation with over 42,000 members. The union produces 5,000 liters of edible oil per day alongside its other businesses. “We have tried to use unexportable items to minimal success. We have increased the selling price of our oil from ETB90 to 130 but we are still operating at a loss.”

Due to the high demand of exporters, sesame prices have doubled over the past four years to ETB6,000 per quintal, while soybeans are selling at ETB4,000 in the domestic market.

Sitara Ali, Executive Director of Shemu Edible Oil Factory, is worried his factory is losing business due to the raw material shortage. “Oilseeds are highly inflated. Also, we are not able to import crude oil and process it here owing to the inaccessibility of foreign currency. In the end, we decided to invest backward in the chain and produce oilseeds of our own. We allocated ETB6 million to begin farming and have requested land around Adama town. However, the Oromia regional government has failed to provision the land,” said Sitara.

In addition to raw material shortages, some edible oil producers have not been able to get sufficient power supply, even to the extent of utilizing generators full-time.

During a meeting with MoTI officials in June 2021, Belayneh Kindie, Owner of Phibela, said “we are powering half of our production time with generators because electricity supply is not sufficient. A lot of edible oil complexes established in the country are unable to produce at full capacity, mainly due to raw material shortages and lack of energy supply. The production and supply of oilseeds has also been decreasing from time to time. A concerted effort is critical among investors and government in a bid to embark on oilseed farming investments.” The location of the giant factory, Bure Agro Industry Park in Amhara Region, as well as other government-built industrial parks are facing a dearth of electricity. The issue is becoming a persistent challenge in Ethiopia’s industrialization endeavors.

Oilseeds in excess of 6.5 million quintals per year is the requirement of oil manufacturers whilst refiners have a need of 1.2 million tons of crude oil per year, according to a study by MoTI. Ethiopia’s annual oilseed production has been around 8.4 million quintals since 2016/7, but dropped to 7.8 million quintals in 2018/9, according to a National Bank of Ethiopia (NBE) report. Cultivated land increased from 805,000 to 820,800 hectares from 2016/7 to 2019/20.

During the previous fiscal year, Ethiopia produced 2.9 million quintals of niger seed, 2.1 million quintals of sesame, 1.4 million quintals of groundnut, 896,000 quintals of linseed (flaxseed), 437,000 quintals of rapeseed, and 73,800 quintals of sunflower seed, according to data from the Ministry of Agriculture.

Even though Ethiopia exports almost half of its oilseed production, export volumes have been slightly declining as demand from local edible oil factories has been rising meteorically. Revenue from oilseed exports declined from USD423.5 million in 2017/8 to USD345 million in 2019/20, with volumes also showing a drop from 348.5 million to 236.5 million quintals, according to NBE. Half of total oilseed production is consumed at the household level. However, substantial amounts are smuggled out of Ethiopia via border trade routes, according to studies.

Experts underly that the government has failed to regulate the market and channel the oilseed value chain towards local edible oil factories. This is mainly due to the excessive focus of governmental policy towards export promotion only, without due consideration for import substitution. They add that government must ban the export of oilseeds or enforce a market system mandating oilseeds be sold only to edible oil factories. But this requires the enforcement of contracts between oilseed farmers and oil factories. Ethiopia can even generate more foreign currency by exporting surplus cooking oil to African countries than exporting raw seeds.

Another solution is to facilitate land and capital for factories to invest in backward linkage to at least fulfil their own demand. “We will support edible oil factories to invest in oilseed farming. We are conferring with regional governments to avail land for this purpose. Another option to address the input problem is to import crude oil from neighboring countries,” said Melaku Alebel, Minister of MoTI.

The ministry plans to replace 50Pct of crude oil imports with domestic oilseed inputs in the next five years and completely replace it in the next ten years. However, the ministry has not introduced a workable market value chain roadmap that can boost oilseed production or channel the available stock directly to edible oil factories.EBR

9th Year • September 2021 • No. 100