Agro Processing: Vital in Ethiopian economy

By Samuel Tekleyesus/ABN/

Well-known that Ethiopia is gifted with good climate, sufficient arable land and labor, adequate rainfall and a range of agro-ecological zones that contributes to the wide diversity of commodities which can be produced. And agriculture plays a critical role in the Ethiopian economy; Ethiopia’s economy is predominantly agriculture-based. According to Growth and Transformation Plan Progress Report, Ethiopian agricultural sector is characterized by the presence of many smallholder farmers which are not integrated into commercial value chains with small land holdings and accounts more than 85 per cent of agricultural production in the country.

Ethiopians’ demand for food and agricultural products is changing in unprecedented ways. Increases in per capita incomes, higher urbanization and the growing numbers of women in the workforce engender greater demand for high-value commodities, processed and ready-prepared foods.Even though the demand is there, medium- and large-scale food processing companies in Ethiopia often cite a lack of raw material inputs as a main constraint hindering their ability to work at full capacity.Poor quality inputs and farmers inefficiency are the major reasons for the supply and demand gap.

 The Government has identified increasing productivity of smallholder farms and expanding large-scale commercial farms as two of its priority areas. In addition, as part of the second Growth & Transformation Plan (GTP II), the government has been looking to the agro-processing sector as one engine to pushthe economic growth.There are clear indications that agro- industries are having a significant global impact on economic development and poverty reduction, in both urban and rural communities. However, the full potential of agro processing industries as an engine for economic development has not yet been realized.

Developing competitive agro processing industries is crucial for generating employment and income opportunities. Agro processing industries have the potential to provide employment for the rural population not only in farming, but also in off-farm activities such as handling, packaging, processing, transporting and marketing of food and agricultural products. Though there is a huge potential for growth of the agribusiness in the country, there are some critical constraint such as weak infrastructure linkage between the producers and processors, limited knowledge on the requirements of processors by the farmers in terms of quality or agronomic practices and fragmented agricultural system which pose a challenges for processors to procure the appropriate quantity and quality of raw materials.Ethiopia’s agro-exports are currently almost entirely limited to primary and unprocessed products. The share of processed products in total agriculture exports constitute only insignificant amount while import for such products remains strong. It is known that there is a favorable market for exports of processed food in the global market.

Industrial development

It is believed that the development of agro-processing industries will help Ethiopia to put economic development in a fast-track with advanced industrialization and attain the industrial development goals. The Government expects the industrial sector to play an important role in GDP growth, job creation, foreign exchange earnings, and small and medium-sized enterprise (SME) development over the coming years. As a vehicle for the structural transformation of the economy through the commercialization of the agricultural sector, developing agro-processing industrial parks is a priority in Ethiopia’s national development strategy and is a center of the second Growth and Transformation Plan (GTP II).

Agro-Processing industrial parks will drive the development of the Ethiopian agricultural production system from its current fragmented and supply-driven practices to organized and quality and demand-based system. There will be an open area of production zones, controlled environment growing, research and technology facilities and marketing infrastructure. Poverty reduction will be achieved through the integration of smallholder farmers, small-scale processing enterprises and allied industries in commercial value chains. This, in turn, will increase local value-addition, create additional jobs in rural areas and improve the overall efficiency of the agricultural value chain. Medium- and large-scale firms will also benefit from more efficient value chains, through reduced transaction costs, allowing for additional growth and job creation.

There is considerable room for investment in agro-processing as almost all of Ethiopia’s crop production is rain-fed which shows a flourishing demand for water supply and drainage systems, drilling and water pump equipment. Other than that there is a huge demand for agricultural and agro-processing equipment and systems such as tractors. The Ethiopian Investment commission set some Key reasons to invest in Agro-Processing sector in which some of them are plentiful agricultural resources, suitable climate condition, cheap labor, the country’s global repletion for its special aroma and flavor wider genetic variety Arabica coffee, opportunity for meat processing as Ethiopia is the first in Africa by cattle population with well-established meat trade global partners and potential in honey production.

To meet its agro-processing objectives, the government is building Integrated Agro-Industrial Parks (IAIP) in four pilot areas: Amhara, Oromia, SNNP, and Tigray regional states selected based on their potential of existing agricultural resources and allied sectors, infrastructure, and facilities. In the coming years, consumer demand for certain types of foods in particular, dairy products, wheat-based products such as pasta and bread, alcoholic and non-alcoholic beverages, cooking oil, sugar, meat, eggs are expected to increase.

In conclusion, Under GTP II, Ethiopia’s future economic growth in part depends on the development of the agro-processing sector. Agro-processed products will help to satisfy the huge local demand. Some of Ethiopia’s cash crops such as coffee, spices, pulses and oilseeds, cut flowers, fruits and vegetables, and honey are exported to generate foreign exchange. In addition, the government should work with the private sector to process some of these commodities in order to add value and capture higher export prices through agro-processing industries which can play a very important role in accelerating the economic development.

(The writer holds MBA in Finance; he’s a

Lecturer, researcher and business consultant)

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