Saturday, June 22, 2024

2021 was not only a year where Ethiopia found itself in the midst of a deadly war that led to the killings of hundreds of thousands of its citizens. It was also a year that saw authorities claim success in the food sector, in particular, in substituting wheat and edible oil, which account for over two-third of Ethiopia’s food imports.

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In less than a year, two big plants, with a capacity to satisfy over 90 percent of the country’s demand, were inaugurated.

Phibela, owned by Belayneh Kinde, a businessman whose wealth came from his two decade involvement in the agribusiness, exports of oilseeds and imports of heavy trucks, was the first largest edible oil refinery plant to be inaugurated last year.

Not surprisingly, the launching ceremony of the  4.5 Birr billion industrial complex was one of a kind. It was attended by Prime Minister Abiy Ahmed (PhD), who showered the investor, officials and the refinery plant with praise, claiming the inauguration is a sign that Ethiopia is on the path to prosperity.

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Though not yet fully operational, Phibela claims to have a capacity to produce 1.6 million litres of edible oil a day. However, it is not the only company to join the edible oil market which is characterized by hoarding and sudden price upsurges.

Under the ownership of Worku Aytenew, WA is another plant that was inaugurated last year to a fanfare much like Phibela. It claims to refine 1.3 million litres of edible oil per day.

Even though it has not captured the attention of many and did not dominate the headlines of broadcasters, Shemu Industrial Plc also invested 1.6 billion birr in its already operational edible oil plant in Dire Dawa last year.

It is an investment that has tripled the production capacity of the plant, enabling it to refine almost 950,000 litres of edible oil a day.

Along with Hamaressa, an Edible oil refinery plant owned by another tycoon, Buzuayehu Tadele, a founder and major shareholder of East African Holdings; Alimpex, Phibela, WA and Shemu have a combined capacity of refining 91.8 million litres of edible oil a month, way higher than the country’s monthly demand that stands at 75 million litres.

With these companies and many other plants that were already operating in the market that have the capacity to produce a surplus in the market; consumers did not expect they would face difficulties in finding an edible oil in the market, or the price of the item will skyrocket.

Meseret Alemu, a mother of two who is a resident of Addis Ababa, is among those who expected the cost of edible oil to be much lower than what it was before the refinery plants joined the market.

“When I saw officials inaugurating the factories, I expected price to fall by as high as 100 percent. But the promise made by officials and the factories, and the reality on the ground is totally different,” said Meseret, who has not been able to get edible oil in the market since last week.

There seems to be no end in sight for the recurring shortages in the market, but consumers are being charged as high as 1,100 birr for five litres of edible oil. The one litre edible oil is almost unavailable in the market and costs as high as 250 birr, a new development that is accelerating inflation, which has already reached 33.6 percent last month. And consumers want answers.

“It does not make any sense at all. It is unbelievable and unbearable as the price of everything has skyrocketed lately,” said Meseret, adding, officials that are responsible to regulate the market must explain to the public why such oversight happened.

Officials, on their part, first pointed their finger at “greedy traders,” a common justification when there is a sudden increase in basic commodities. Instead of admitting the shortage is an outcome of unpreparedness; their first action was to hunt down traders with stocks of edible oil in their warehouses.

A common practice when there is a public outcry, state media outlets were the first to report the crackdown against traders, though industry insiders say the contribution of hoarding is insignificant.

“There are wholesalers who have been properly distributing the market and they are being told why they have used their warehouse, while it is a part of their daily routines,” said a wholesaler in Merkato involved in the food market.

For long, industry insiders have been warning that they will not be able to respond to the shortage. In particular, there has been a push to continue importing edible oil until the new refinery plants stand on their own feet.

Though officials turned a deaf ear to such warnings, figures indicate it is an outcome of a shortage in supply due to the fall in volume of edible oil imported to the country.

“Since last year, there were not many imports. The role of importers that used to satisfy over 90 percent of the demand was supposed to be replaced by the new refinery plant. But turning this into a reality had not been an easy ride,” said Mohammed Yesuf, deputy chairperson of Edible Oil Producers Association and general manager of Addis Modjo Edible Oil Factory.

Mohammed believes the recent shortage is caused by a sharp fall in imports of edible oil. For him, blaming the new entrants and the refinery plant is not right because they are not utilizing their full production capacity due to a lack of input caused by foreign currency shortages. His justification seems to be valid.

An assessment conducted by the Food, Beverage and Pharmaceutical Industry Development Institute, which was dismantled this year and incorporated into the Ministry of Trade & Regional Integration, showed that the four big edible oil plants, Phibella, WA, Al-Impex and Shemu, need almost USD 600 million to produce 35 million litres of edible oil, which enables them to satisfy half of the country’s demand.

Current figures however indicate the factories are not even getting a third of this because of a shortage in foreign currency, even though the central bank put the refinery plant at the top of the priority lists during forex allocation by commercial banks.

A subsidiary of 54 Capital, Tena Edible Oil is among the factories whose productivity was impacted by a lack of foreign currency. According to its executives, the company can only utilize between 30 to 40 percent of its production capacity.

“We get crude sunflower oil from abroad and crush it in our plant. But getting sufficient amount of input has not been possible due to forex, undermining our efforts to supply enough volume of edible oil to the market,” said Edom Dawit, Chief People Officer of the company.

Edom believes the market should prepare for the worst, as the Ukraine-Russia war casts a shadow on the edible oil market.

“We get over half of our input from Ukraine. The same is true for factories operating in Africa. Since this is going to increase the price of edible oil, it is better to make consumers ready by training them on how they could alter their spending in light of the global challenge faced by everyone,” said Edom, who believes a short-term solution to avert the shortage, is to avail forex for imports of input.

If the government is willing to implement her recommendation, it is required to approve at least USD 40 million for imports of crude edible oil and another USD 40 million for importing the end product every month. The calculation was made before the start of the Russia-Ukraine war, which has now led to the surge in price of edible oil. This could also inflate the forex need of factories and importers. 

To withstand the impacts of the change in the global market, Addise Garkabo, general manager of the Edible Oil Producers Association, advises to ban exports of some oilseeds, like Soya bean.

“Soya bean is a critical input for those that crush the crop in their plant. But there has been a shortage since the government prohibited producers from buying the item from the primary market and trade at the ECX, a measure that led to an increase in exports of soya bean and a surge in cost of the item in the local market,” said Addise.

That may not be enough. Mohammed says the long-term solution is to be self-sufficient and increase production of oilseeds, which is now produced by 1.4 million farmers with an annual yield of 705,000 metric tons.

“Ethiopia has a fertile land and can produce inputs like sunflower locally, if finance is availed to commercial farmers and other incentives are introduced to encourage investors willing to involve in production of oilseeds,” said Mohammed.

Mohammed suggests the government avails as much forex as possible to importers in a bid to stabilize the market in the short term, a solution that seems to be plausible as the country’s major origin of crude edible oil and end products come from Malaysia and Indonesia, which are least affected by the ongoing war between Russia and Ukraine.

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