Productivity Matters, Headcount Doesn’t

For almost a decade, meat processing and exporting companies in Ethiopia have been desperate to break into the international market. Despite the diverse agro-climatic conditions which make Ethiopia very suitable for the production of different kinds of livestock, exports of processed meat remain diminutive.

The country has the tenth largest livestock inventory in the world. The total cattle population is estimated at 59.5 million, according to livestock survey published by the Centrals Statistical Agency (CSA) in April 2017. In addition, an estimated 30.7 million sheep can be found in the country while the number of goats stood at 30.2 million.

Yet, the export data obtained from the Ethiopian Revenue and Customs Authority (ERCA) reveals that despite the huge potential, Ethiopia is exporting a mere fraction of the available livestock resources. Meat export contributes around 3Pct of the USD2.91 billion export earnings in 2016/17 fiscal years. Ethiopia exports around 15,000 tons of processed meat annually, which is 12Pct of the available livestock resource for export.

Generally speaking, the value and volume of export showed a marginal increment in the past five years. In 2012, the 12,387 tons of processed meat was exported bringing in a total of USD60.6 million. This figure rose to 16,248 tons and USD85.7 million in 2016, showing 31Pct and 42Pct increment in volume and value, respectively.

However, meat exports from Ethiopia have been inconsistent. Despite the increment in volume and earnings over the last five years, the export volume showed a decline of 2.3Pct and 3Pct in 2013 and 2016 respectively, when compared with the previous years. The export earnings also fell from USD86.9 million in 2015 to 85.7 million in 2016.

Currently, 13 companies are engaged in the processing of meat for export with an installed capacity of 50,000 tons per annum. However, according to information obtained from the Ministry of Livestock and Fishery (MoLF), only 9 of these 13 companies are actively engaged in processing and exporting meat.“Meat exporting companies only  partially utilize their installed capacity,” Gedion Yilma (PhD), director of Export Abattoir Inspection and Certification Directorate at MoLF told EBR. “The capacity utilization ranges from 5Pct up to 80Pct in different companies.”

Organic Meat Export Abattoir is one company engaged in meat processing and exporting. The company, which has an annual capacity of processing 6,000 tons of meat, has been utilizing only 50Pct of its capacity and exporting mainly to the UAE  and Saudi Arabia. “Lack of quality and continuous animal supply has impacted our effort to benefit from the growing meat demand in the international market,” argues Nigatu Birhanu (Major), coordinator at Organic Meat Export Abattoir PLC. “Exporters from other countries have more advantage over us because they have reliable supply and more experience in the business.”

Because there are no ranches in the country, and the number of livestock markets is few, companies like Organic sources animals from individual fattening units. This incurs them additional cost and adds to their increased cost which makes them less competitive in the international market. “Finding the suitable livestock is very difficult, because they are rare, or smuggled through borders to neighbouring countries,” says Nigatu.

According to the survey conducted by CSA, 6.65 million cattle, 6.37 million sheep and 5.35 million goats were sold between November 2015 and November 2016. Only 7.5Pct of the total cattle population sold during this period reached abattoirs through the central market. In addition, out of the total sheep and goat population, 55.5Pct of sheep and 45.2Pct of goats reached the central market.

Like many other abattoirs, Organic usually navigates the lowland areas in the states of Somali, Oromia and Southern Nations, Nationalities & Peoples to find the types of livestock preferred by consumers in the Middle East. “Livestock from highland areas in the northern part of the country are either hard to find or don’t meet the requirements,” says Nigatu.

In Ethiopia, there are two primary livestock production systems: the highland, and lowland livestock production systems. In the highland crop-livestock system, crop production is well integrated with animal husbandry. This system accounts for more than 60Pct of the total cattle in the country, according to CSA. But, cattle in this area are primarily raised to provide safety during draught. This is a deep-rooted cultural barrier that limits the supply of livestock in the market.

In the second livestock production system (common in lowland areas of the country), there are approximately two million household pastoralists who own between 10-15 cattle as well as 7 sheep or goats each, according to CSA. Pastoralists possess about 75Pct of the country’s goat population, collectively. Yet due to cultural factors, lowland pastoral areas also hold livestock as an asset primarily instead of supplying them to the market.

Stakeholders also stress that the livestock that reach the market after surpassing such cultural barriers mostly don’t meet the accepted standards. “Relatively young livestock is needed by abattoirs,” argues Gedion. “However, most of the animals available in the market are older.”

The survey conducted by CSA supports Gedion’s argument. Cattle aged below 3years are needed by abattoirs and meat exporting companies; however, the percentage of cattle population below this age constitutes 34.8Pct of the total population. In fact, in Ethiopia, cattle between the ages of 3 and 10 years constitute 63Pct of the total population.

“Most cattle reach the market after serving up to seven years in farming and harvesting,” Nigatu explains. “The animals reach abattoirs after long and uncomfortable transportation, which further deteriorates their heath and the meat quality.”

When it comes to sheep and goats, the export market requires well-fed young animals aged between 1 to 2 years. CSA’s survey indicates that the livestock resources from lowland areas partially fulfil this requirement. However, a bulk of the resources—close to 52Pct of sheep and 51Pct of goats in the country—are above two years of age. As a result, abattoirs that export meat are not interested in more than half of the sheep and goat population in the country.

In recent years, the demand for meat has significantly increased in the local market due to population growth and the increase in purchasing power. In addition to this, the sector is exposed to uncontrolled involvement of gangster-like brokers who affect the livestock supply by arbitrarily increasing price and extending the market chain. “Since local consumption is high, abattoirs buy animals at a higher price, which doesn’t go with the price at the international market,” says the marketing manager at Abergele International Livestock Development.

Due to these reasons, some abattoirs are currently on the verge of ceasing operation, according to Gedion. One such company is Ashraf Industrial Group, a Sudanese company that has a meat processing facility in Bahir Dar, in Amhara State. The company stopped operation a couple of years ago. Similarly, Abergele International Livestock Development, located in the state of Tigrai, is currently struggling to stay in the business.

Gedion says Ashraf chose to locate one of its facilities in Abergelle primarily to be closer to livestock resource in Humera, where comparatively better meat cattle breeds are found. The two most preferred breeds are found in Borena and Harar; a breed from Humera comes in third. Still, according to Gideon, “the company is unable to ensure the reliability of livestock supply in Humera.”

Stake holders argue that the limited export market destination has an impact on the export performance. “The demand from the Middle East fluctuates based on factors like fasting season,” says Nigatu.

The export data obtained from ERCA indicates that the limited amount of meat that was exported often sold to very few countries in the Middle East. Mainly, these countries were Saudi Arabia, United Arab Emirates, Bahrain, Qatar and Kuwait. In fact, UAE and Saudi Arabia constituted 98.6Pct of the export volume and 98.7Pct of the export value of meat in 2016.

Bilateral trade agreements are the most important tool that can be used to boosts trade relations between the two countries. A similar bilateral agreement with Egypt ceased almost a decade ago after the meat exported to the country failed to meet quality standards. Ethiopia had also requested to sign a bilateral agreement with China, though Chinese authorities rejected it because of disease related issues, according to Gideon.

Any meat exporting country is expected to fulfil strict health standards placed by international organizations and meat importing countries. The standards are in place to prevent transmission of animal diseases and protect consumers. Importing countries frequently send auditors to assess the status of animal disease in exporting countries. They also assess the production mechanisms as well as the abattoirs’ ability to maintain quality standards.

“You cannot secure the market if you fail the auditors’ assessment. Even after the initial approval, auditors come and check regularly every one or two years and they can come any time when they are suspicions,” explains Gideon. “In addition, it costs up to a quarter of a million dollars to bring auditors.”Since they cannot do much without bilateral agreements, companies say government has to be active to diversify export market. “We are trying to work with the government, through diplomatic missions and business delegations,” said Amanuel Ghidey, marketing manager at Abergele International Livestock Development.

Despite the challenges, new investments are joining the business. While two international companies are currently testing state–of-the-art export facilities, five more are under construction, according to Gedion. Allana Group, India’s largest exporter of processed food products and agro commodities, has built two abattoirs (one in Modjo and another Adami Tulu), under the company name Frigorifico Boran Foods with an investment of USD100 million, according to Ghidey Gebremedhin, director of Frigorifico Boran Foods. Ghidey was previously director general of the Ethiopian Meat and Dairy Industry Development Institute.

The Adami Tulu factory located near Ziway town, 163KM south of the capital in the Oromia State, can process 300 tons of meat for export per day. The Modjo factory can process 50 to 70 tons per day. However, the two facilities are currently exporting an average of only about 20 tons of chilled beef per day. “This capacity alone can totally change the existing business landscape,” said Ghidey.

Frigorifico relies on the markets Allana has brought to Ethiopia, which includes UAE, Saudi Arabia, Bahrain, Bangladesh, Qatar, Kuwait, Oman and Vietnam. Frigorifico exports under Borena and Addis brands.

“Allana’s product standard is the same throughout its abattoirs,” says Ghidey. Allana managers first came to Ethiopia in 2010, but started building the processing plant three years ago and the abattoir, started operation last year.

Another company in the race is Verde Beef, a company based in America and Ethiopia. The company is operating by renting meat-processing facilities. It has already started animal fattening on a large piece of land it acquired in Adami Tulu. The company is building a new, state-of-the-art abattoir facility in the area.  Upon commencement of slaughtering, the company aims to become the largest cattle feedlot operation in North Eastern Africa with a targeted capacity to feed, process, and export more than 130,000 cattle per year.

Just like Allana, Verde Beef has come up with a new trend. It buys calves before they turn six months old. Then, the company monitors every aspect of the animals’ life based on scientific methods. “The calves add [significant weight each day], and reach the right fat and weight level, at the age between one to two years,” says a senior manager at the company.

“I was amazed by what they did,” Gedion tells EBR. “The meat Verde Beef exports is so tender, just like Verde produces in other countries. They achieved this irrespective of the breed they buy, which shows that Ethiopia really has the potential, if we adopt scientific methods.”

6th Year . January 16  – February 15 2018 . No.57