Open-UP the Agricultural Input Market!

Modernizing and transforming agriculture has been a generational effort skewed in the wrong direction. Production and productivity have been government’s mottos for decades, only to remain lip service. Practically, the farmer’s decision-making power has been overruled by the government with the use of extension programs. Government was not brave enough to consider the farmer as a private and for-profit actor due to political reasons.
As a result, the supply of agricultural inputs, consultancy, and technologies have been monopolized by the government and its extensive extension program. From importation to distribution, from improved seeds to fertilizers, from veterinary drugs to technologies, the agricultural input supply market is monopolized by inefficient state-owned enterprises with the partial involvement of local governments.
Affordable agricultural input is particularly critical for Ethiopia, where the land has been ploughed for millennia. Ethiopia’s small-scale dominated agriculture, where farmers’ per capita land area has diminished to just less than a hectare on average, requires intensive input use to achieve productivity. However, this cannot be achieved when the government is running an inefficient agricultural input market business. Over the last few years, the private sector has been highly interested in installing modern agricultural input shops as a viable business. EBR’s Ashenafi Endale explores the growing potential of private one-stop agricultural input shops in replacing government’s incapacitated role in agriculture.

Tuli Feyera, an ex-farmer, decided to become an investor after witnessing the huge gap in the supply of agricultural inputs. Two years ago, he opened an agricultural one-stop input supply and service center in Jimma, a city located in Oromia region where 61 similar centers are now servicing farmers. Tuli spent ETB1.6 million to purchase a plot of land, construct a building, and stock it with agricultural inputs.

“One-stop shops are helping farmers by supplying genuine inputs like agrochemicals at lower prices” explains Tuli whose shop is visited over 2,000 times monthly, accruing up to ETB600,000 in sales. “My profit margin is anywhere between five and 15Pct.”

Such shops were primarily introduced by the Agricultural Transformation Agency (ATA) three years ago, as a pilot project aiming to expand access to high quality agricultural inputs including fertilizer, seeds, agrochemicals, and veterinary drugs as well as provisioning trainings to smallholder farmers on agricultural technologies. After the success of the pilot project, the number of one-stop shops has dramatically increased during the last three years. There are currently close to 200 operating in Ethiopia.

The Oromia regional government is planning to expand and open such shops in every woreda across the region, according to Manyazhal Shegaw, Coordinator of one-stop shops in Oromia region. “The region also plans to provide agrochemicals worth ETB179 million to 452,000 farmers this year through the outlets.”

The setup is spreading outside of Oromia as well. In Amhara region, the number of one-stop shops has now reached 37 with an additional 15 on the way. “Unlike the past, people are now investing in agriculture,” says Yedemie Yeshalem, Amhara region Coordinator for one-stop shops. “Supplying agricultural inputs to farmers is becoming a viable business.” Over the last six months, over 500,000 farmers in Amhara bought inputs worth ETB145 million.

The success and rapid expansion of one-stop shops indicates demand for agricultural inputs is not satisfied by existing structures. Currently, agricultural input supply is dominated by the government. Major inputs including fertilizer, seeds, and agrochemicals are supplied by public institutions.

The Ministry of Agriculture (MoA) and related government-owned enterprises are the sole fertilizer importers in Ethiopia. The government monopoly exists despite the fact that the demand for fertilizer is increasing dramatically. Three years ago, the amount of fertilizer imported was 14.5 million quintals. For the 2021/22 main crop season, the MoA plans to import 18.1 million quintals, with five million quintals already reaching the Port of Djibouti. The MoA doesn’t import and supply fertilizer for harvests cultivated in the secondary crop season or irrigated farming.

Ethiopia buys fertilizer from Morocco, taking 15 to 20 days to reach Djibouti. Only the Ethiopian Shipping Lines and Logistics Enterprise is allowed to ship the fertilizer. After reaching Djibouti, it is packed with material imported from India. It will then be transported and stocked at the warehouses of the state-owned Ethiopian Agricultural Businesses Corporation, the only enterprise allowed to import and distribute fertilizer. From the warehouses, it is distributed to regional governments and cooperatives. After passing through various parties and channels, the fertilizer finally reaches its end user—the farmer.

However, stakeholders say quantities are too small to satisfy the demand of close to 17 million small-scale farmers in the country. As a result, fertilizer prices are rising. “Per capita consumption of fertilizer in Ethiopia is lower than the sub-Saharan average,” explains Aynalem Nigussie, State Minister at MoA.

The supply of improved seeds is also dominated by governmental organs. The state-owned Ethiopian Seed Enterprise (ESE) is the major player involved in the production and distribution of improved seed varieties. Although cooperatives and few foreign companies have a small market share, local private companies are not allowed to multiply and supply seeds.

But the existing seed market is far from adequate. In fact, only 20Pct of farmers in Ethiopia access genuine improved seed varieties. “There is a high demand for an improved maize seed named Pioneer. But there is no supply,” says Kebede Lakew, Founder and General Manager of Ecogreen Liquid Fertilizer. “Seeds sold by foreign companies cannot germinate after the first year.”

Over 80Pct of Ethiopian farmers still access rolling seeds from other farmers or from previous harvests. “The market of improved seeds is untouched,” Chimdo Anchala (PhD), Senior Director of Production and Productivity at ATA, stresses. “Agriculture cannot modernize without smooth input supplies. Yet, most problems are deep rooted.”

Regarding chemicals, the private sector is permitted to import and distribute. But the market is dominated by few. “Ethiopia’s agent dealership law allows for exclusive supplying. The chemical market is monopolized. So, if an importer registers a chemical, then no other company can import that chemical,” says Workneh Ayenew, Agriculture Bureau Head of East Gojam zone, in Amhara region. “This is because Ethiopia’s exclusive agent dealership permits this monopolization. But this is negatively affecting agriculture. This law must change.”

However, Wubshet Alemaw, General Manager of Lions International Trading, engaged in agrochemical import and distribution through its 500 outlets, argues otherwise. “I believe there is a trade monopoly in Ethiopia; but there is no content monopoly. Anyone can import any chemical. There are many manufacturers for similar chemicals.”

A small fraction of farmers in Ethiopia access genuine agrochemicals, according to assessments. As the volume of agrochemicals supplied to farmers has declined over the last three years, the input’s prices are exponentially increasing.

Experts underlie that the reason the agricultural sector could not access improved technologies and has failed to modernize is because agricultural inputs supply is controlled by the government and the private sector is fended off. As such, they recommend the government opens up the market.

“Mango production in Ethiopia has diminished beginning last year due to a new disease affecting the trees. Similarly, bacteria attacking ginger plantations is present. With no chemicals, yields shrink,” adds Wubshet.

“Agricultural input supply is totally government-based in Ethiopia,” argues ATA’s Chimdo. “However, it is, or should be, a busines of professionals.”
Tekle Alemu is an Agricultural Economist and agrochemicals supplier. He stresses that the government should withdraw from agriculture and open up the sector. “The MoA cannot carry all the burdens of the agricultural sector. The private sector must share the burden. Thinking everything collapses unless the government does it is utterly wrong. Government’s role should be limited to regulating and coordinating with the private sector.”

However, the lack of access to foreign currency is a serious problem, according to Solomon Kebede (PhD), Veterinary Drugs and Feed Licensing and Regulatory Directorate Director at MoA. For instance, the USD25 million worth of veterinary drugs imported in 2013/4 dwindled to USD19 million by 2019/20. “There are very few chemical importers left in the business as forex shortages has pushed them out,” says Wubshet. “This has opened the door for contrabanded supplies of agrochemicals.”

“Foreign currency is scarce but is awarded for the import of unnecessary items. Also, no one is taking samples of the imported chemicals to check their specifications and contents, and if they are applied at the correct quantities and then properly disposed of,” says Amsalu Getu, Manager at Ambassel Trading House, one of the companies engaged in the import and supply of agricultural inputs.

To import fertilizer this year, the central bank approved USD650 million for MoA, of which USD640 million has been spent.
“The private sector suppliers have many problems themselves,” according to Mengistu Tesfa, Director for Agricultural Input Marketing at MoA. Tuli from Jimma concurs. “No importer or local producer is supplying agrochemicals to one-stop shops. The only place to find agrochemicals is Mercato. But they issue a receipt for only half of what we purhcase.”

Tekle argues the private sector cannot participate in agricultural input supply business, while government is controlling farmers in all aspects. “Kebeles, woredas, and local government officials are all engaged in the state-run extension business. The private sector has no place when government is heavily involved.”

Shimelis Araya (PhD), who undertook intensive studies on Ethiopia’s agricultural policy, recommends the Ethiopian government design a new policy for the agricultural sector. “The government should exit from importing and selling agricultural inputs to farmers, and focus on developing its capacity in controlling whether inputs are imported as per their content specifications, and build a database of which chemical is supplied by which importer to which farmer.”

Mengistu says MoA is currently finalizing revising the agriculture and rural development policy. “The new policy aims to increase the private sector’s role in agriculture. Private businesses are highly interested in supplying agricultural inputs. It is a profitable business now.”

Currently, Amhara and Oromia regional states are requesting to distribute fertilizer through one-stop shops. “Supplying fertilizer through private distributors like one-stop shops is a good idea,” says Tuli. “This is because one-stop shops can pack fertilizer in small packages and supply to small-scale farmers.” So far, fertilizer is packed in 50-kilo bags or more and there are no small size packs in the market. Small-scale farmers are buying large packs above their needs, leading to wastage and losses.

“Private businesses and one-stop shops will be allowed to import fertilizer if they have adequate foreign currency stocked at the central bank,” says Yitbarek Semeane (PhD), Director of Inputs and Crop Protection at ATA. EBR

9th Year • Mar 16 – Apr 15 2021 • No. 96


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