June 2021 Monthly RECAP—Investment Climate:  Agriculture in the Ethiopian Economy

A crowd of about 80 gathered at Hilton for Investment Climate:  Agriculture and the Ethiopian Economy on June 3, 2021.  The lively networking session was followed by the program where Kemer Temam, AWiB 2021 president, introduced the movement and upcoming events.  Eyob Workineh, managing director with LinkUP Addis—AWiB’s media partner—briefed the audience of the company’s work.  Sponsors that helped make the event possible:  All Mart; Hello Solar; Kategna.

Kemer, the moderator, introduced the speakers:  Sara Yirga and Professor Belay Ejigu (PhD).  Sara is founder and general manager of YA Coffee Roasters.  She has worked in the food and beverages as well as agro-processing and manufacturing industries for over 10 years.  She is a past AWiB board member.  Professor Belay, an agricultural economist, teaches Economics at Montclair State University (MSU) and is founding director general of The Sustainable Development Goals Center for Africa (SDGC/A).  He was a senior agriculture policy specialist among holding various posts with Columbia University.

The moderator presented Question 1 to Professor Belay:  Agriculture is the backbone of the economy without much change in the sector. How does the sector look and what are the challenges?

Expressing how interesting the topic is, Professor Belay said we are an agrarian society with 80% of export earnings coming from the agribusiness, which contributes to 40-45% of the nation’s GDP.  Agriculture is mainly measured by productivity per capita, per person, and per animal. Ethiopia’s investment in all the three is low. The subsistence agriculture contributes to food security at the household level.  Food security is a challenge, he said. Yet, food security is not about eating only; it is about sovereignty, he said. In the past four years, Ethiopia has been importing fruits and wheat.  This is not because the country is incapable of producing. But because sufficient attention is not given. Agriculture is dependent on the availability of natural resources. Development indicators set that spending on food shall not exceed 1/6th of an individual’s income.  Prof. Belay stated that in Ethiopia people spend 60% of their income on food. Two thirds of Ethiopia’s agricultural product come from 1/3rd of the country which is the highlands. Investment is not made on how to convert the other shares of the land into arable land.

As a follow-up to the first question, Kemer asked Professor Belay to provide more details on where he sees the gap.

Professor Belay stated the first gap is the land tenure system; the only relevant proclamation was made in 1967. The constitution says that land belongs to the Nations Nationalities and Peoples’. The government is managing the land as land is not private property. This means one cannot invest on the land because one doesn’t know what will happen on and with the land.

Agriculture is mainly dependent on land and water.   If the land is only harvested and not properly fertilized every year, we are just mining the land.  To make such investment on the land, the farmer/ investor shall be guaranteed that possession of the land is secured. We are losing trillions of dollars because land is not generating any income. If one owns land, one can use it for collateral.

The second gap is the poor usage of technology to increase productivity per capita, Technology can assist in obtaining the biological optimum from seeds and other agricultural inputs.  For instance, the current average production of maize in Ethiopia is less than two tons. If we use technology to scale up maize production to four tons, the country will be self-sufficient. Or in wheat production where the wheat production is 26-27 tons, if we use technology to make an increase to 45 tons, we will be able to substitute the importation of wheat.

The third gap the professor identified is the agricultural finance policy.

With the general context set by Professor Belay, the moderator raised the third question to Sara Yirga: Private sector involvement in the agriculture is crucial. How does the supply chain affect your competitiveness and quality in the global market?

Sara said agriculture is a means of livelihood for the private sector.  It is an overfunded yet underperforming sector.  The aid and development portfolio in Ethiopia go to agriculture. Sara said the jackpot is in answering why it is still at a low point.

Women are not given attention, Sara said.  While some 70-80% of agriculture work is done by women, men take the last or final part of the work.  Manufacturing and commercialization is said to be supported on paper, but the practical running of an agribusiness is overwhelming.

As a coffee roaster, Sara said she wants to add value to the coffee she roasts. But when it comes to quality and competitiveness, producers in the other parts of the world have access to machinery and technology, an advantage she doesn’t although she has good quality coffee. It is the finance and the logistic that affect the extended value chain.

Adding to Sara’s reflection, Professor Belay stated it is important to see the difference between financial return and economic return. Producing coffee to enhance the economy of the country is not in the interest of the farmer. The interest of the farmer is financial return. In such instances exporting your products may not always be in the interest of the farmer due to currency maneuvering.

Question 4: What kind of policies should the government develop to promote public-private partnership to foster sustainable development in the agriculture sector.

Professor Belay expressed his belief that the government is keen to make policy changes. He believes that food security should be the priority for the next 10 years to substitute the import of primary goods. This can be achieved by increasing productivity. Currently the government subsides the consumer. Developing countries don’t subsidize the consumers but producers. Indeed, the government subsidies fertilizers but the subsidy is a blank subsidy because it is provided for those that can afford to pay and those that cannot.

The other policy consideration shall be on the use of technology to enhance agriculture. Agriculture contributes for 45% of the GDP but the budget flow to the sector is 2.2% of the GDP, which is less than 10% share of the national budget.

In addition to policies we need professional leadership, said Professor Belay. Agriculture is full of risks. It is important to work on adaptation mechanisms from the onset. For instance, locust invasion is not a new phenomenon. It happens every year. This means it is not anymore an emergency but a recurring situation. With due diligence and preparation its effect can be mitigated. This is where professional leadership comes handy.

The moderator directed Question 5 to Sara Yirga to give advice for someone who would like to join the agriculture sector and to share what she thinks is the prospect.

Sara replied there are ample opportunities in the sector. For instance, coffee is a cultural heritage. It connects farming, tourism, and the service industry. It serves 1/5th of the population but is not supported well. Investment in coffee is high but return in low. This is mainly because no one is investing in skills. And then there is shortage of warehouses. When coffee is not well stored you lose the quality. Digitization of the process can be another area of intervention. People who are already in the sector need market strategy support. Those interested to join the sector can engage in system development and modernization of the sector.

During the questions and answers session with the audience, the following questions were raised:

  • Professor Belay was asked to that when he was a Minister at the Ministry of Agriculture, a lot of changes occurred in the lives of farmers with the support they got in fertilization. But that went backward. Why do you think that happened?
  • How effective is the existing Kuta Getem modality of farming the government encourages?
  • There is a reason for making the land tenure system as it is right now. It was meant to address the socio-political problems that came from the Feudal land tenure system. Do you think privatization of land is necessary to make the most investment in agriculture? Wouldn’t there be other mechanisms such as leasing the land for numerous years with compensation obligation to the government if breach is made?
  • What can entrepreneurs do to get the maximum result even if the suggested policy changes are not made?
  • What is the contribution of YA Coffee in marketing the coffee industry?
  • How did YA Coffee thrive through challenging times?
  • Can we say that agriculture used the full potential of women?
  • What do you think is the contribution of agriculture for nutrition? What are the potentials to use it in addressing malnutrition?
  • If the goal is to scale up production, do we have the right policy in place for sustainable agriculture as opposed to for industrial agriculture?
  • What are the safety mechanisms on usage of toxic products such as insecticide?

Responses to the questions:

  • Leadership is important because there is not much new to do but to continue efforts. Biological optimum and economic optimum exist. We have natural resources with the constraints. Leadership helps in ensuring the optimum growth amidst the constraints.
  • We haven’t yet reached to a point of losing hope on Ethiopian agriculture, said Professor Belay. In 1994-1995 (Ethiopian Calendar), while he was a Minster of Agriculture, Ethiopia exported maize to other African countries.
  • Kuta Getem farming modality (Cluster program) is the use of small parcel of land for farming. China uses this program. Low input does not necessarily mean low output. It is possible to have high output with small parcel of land. Hence, is not bad by itself.
  • China was commune system till the 1978 where they started to have household production system. Land became leasable for 74 years in rural area. Frankly speaking, land is sellable. We buy and sell land every day. So, why not make that in the legal documents. With the existing laws land can be used as a collateral, but if the person defaults can you foreclose it? You cannot. There is qualitative difference between owning it and tapping it. The socio-political land question was addressed during the Derg. The relational tie land has with family origin was broken with the Land for the Tiller. But with the current system the government is selling the land–the farmer is not the seller.
  • Sara replied coffee roasting had been a foreign concept for her a few years ago but became a place to grow professionally. She recalled her energy along with her husband’s was high when they joined the sector because the policy documents show that it is a supported area. But they found the gaps between the policy documents and the reality on the ground to be wide. This challenge is cumbersome more on women. Therefore, using her experience on the AWiB Board, Sara created a platform for women in coffee to share information. Sara faced a challenge to cease the platform and to join the general farmers association. But she said she persisted.
  • When YA Coffee started, it was not able to sell a single pack for about six years but was active on social media. The brand became global. Our initial target was Africa, but we faced challenges. YA Coffee works all over the world except in Asia.
  • There are funds for Coffee and agriculture. There are opportunities and resources. Technical support and knowledge sharing supports can be tapped.
  • It is important to appreciate traditional skills and work on modern business. Our society hasn’t yet understood marketing. When there is a discussion on job creation, there is no discussion on creating jobs in agriculture. Invest in the youth.
  • Both insecticide and pesticide are important but we must know where and how to use them. In agriculture there might be situations such as locust invasions that require campaign actions. In such instances insecticide is handled by government. In the first place, if our agriculture sector uses improved seeds, fertilizer, strong extension systems and improved systems we may not need even herbicides. But in general, the use of insecticide and herbicide is not a curse. Organic products use both. Chemical science can play a crucial role in eliminating damage in the soil and agricultural products.

In the closing remarks, Sara said agriculture is not a stand-alone sector. It needs infrastructure, human capital, and tangible and sustainable solutions. Some 45% of the young population is in rural areas and close to the agriculture sector and that is an opportunity to be tapped.  Prof. Belay said all the issues discussed should have been done yesterday but pleaded the leaders of today not to transfer it for tomorrow. He said anything can be late but agriculture.

The event concluded with the moderator thanking the speakers for their time, knowledge, and experience-sharing, and presented AWiB’s appreciation gift.  The next monthly event is July 1, 2021 — Ethiopianness:  Regression or Evolution?

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