Sunday, December 4, 2022
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Money TalksHurdles in export of cash crops loom large

Hurdles in export of cash crops loom large

Trade officials issued a series of warnings against traders who resisted exporting goods they had already harvested a year earlier, in dispute of the retention rule that required businesses to surrender 80 percent of the foreign exchange they generate and a surge in price of agricultural commodities that has bankrupted exporters. Some disregarded the instruction in the hopes that the rule would be changed shortly. Others lost interest in the export business since they now primarily rely on the import business they conduct, utilizing the foreign exchange they earn from their exports.

Last March, the ministry revealed a list of 105 exporters of pulses and oilseeds whose warehouses were discovered with close to 600,000 quintals of the cash crops hoarded, of which a quarter was sesame. It was a list of exporters found in just a limited number of places: Adama, Addis Ababa, and surrounding towns.

Following the end of the previous fiscal year, the ministry reopened warehouses closed by officials for hoarding over 2.3 million quintals of cash crops in Adama, Burayu, Kality, and Gelan towns of Oromia Regional State.

Only 69 percent of the export plan for pulses and oilseeds was met in the previous fiscal year, according to the export performance report at the time.

Warnings from trade officials to export the cash crops begun since January of this year and are still continuing, but several exporters who sourced the crops from the Ethiopian Commodity Exchange (ECX), contract farming, or investment farming, chose to ignore them all.

Last Tuesday, the minister, Gebremeskel Chala, and state minister, Kassahun Gofe, held a discussion with exporters on how they should export the 16 types of cash crops recently discovered.

This took place following the latest assessment, which the ministry conducted in three groups from October 05–18, 2022, and discovered nearly a million quintals of these 16 crop types hoarded.

Kassahun blamed exporters’ refusal to abide by the regulations for problems in the export trade of cash crops, according to the report from the ministry. What he listed as problems with many exporters are under-invoicing and the growth of the illicit market.

Several other reasons have been forwarded by industry insiders as the reason for the low appetite of exporters.

One was that the National Bank of Ethiopia (NBE) enacted a law obliging exporters to surrender 70 percent of their foreign currency earning to it, in a bid to strengthen the foreign currency reserve, which could not bring massive changes.

Ethiopia’s foreign currency reserve is reported to have shrunk to only the amount that is enough to cover three weeks of import value.

The foreign currency retention directive in place requires 70 percent of the currency from exports to go to the government’s reserve and 10 percent to the bank. Since then, exporters have complained about the meager 20 percent share of foreign currency, prompting them to stockpile commodities in anticipation of policy changes.

With warnings of actions such as revocation of licenses and legal measures against these exporters, Gebremeskel urged exporters to export the crops within a month to available markets and bring in the foreign currency before harvesting for the current season begins in a few weeks.

“The quantity of crops exported is shrinking. Exporters have to get a warning so that the performance won’t get any lower than our plan for the fiscal year,” said Kumneger Ewunetu, acting communications director at the Ministry.

Officials fear that last year’s 31 percent drop in planned export performance will continue through this fiscal year as well. Oilseeds export last year was 171,240 tons with a value of USD 264 million, while pulses export was 40,000 tons higher but USD 50 million lower in value, compared to oilseeds.

Since the fiscal year ended, authorities announced an inventory of 329,000 tons of the cash crops hoarded in various warehouses. Had these crops been exported last fiscal year, they would have surpassed the plan for the year together with the officially exported 381,906 tons, and the USD 478.5 million Ethiopia earned from the export of these crops would have surpassed the plan.

Edao Abdi, vice president of the Ethiopian Pulses, Oilseeds and Spices Processors and Exporters Association (EPOSPEA), puts the blame on none other than some of his fellow exporters for the complications in the sector. He boldly mentioned malpractice and greediness among some of the traders as the main causes of the problems.

“Sometimes you may not understand whether the purpose of exporters is to disrupt the market, trade the commodities, or hoard. There are unethical, greedy, and unprofitable trading activities among exporters,” he told The Reporter.

For him, the main reason why the commodities are not being exported is that exporters are acquiring them at a price that is higher than the international market. Selling them at a loss is what he sees as the fundamental problem.

Lack of knowledge in the international market and a growing interest in hoarding the commodities are what forces the exporters to buy the crops at higher prices and compensate for the loss from imported commodities, according to Edao.

“Why do they buy the crops at expensive prices? They should have acquired them compared with the international market. This is how all commodities, including coffee and oilseeds, are being exported,” he said.

To get a buyer in the international market and sell them as quickly as possible, a quintal of mung beans is sold at 5,000 birr. However, exporters were buying the crop for as high as 8,000 birr, Edao stated.

Two weeks ago, officials at the Trade Ministry came up with a decision to lift the mandatory price ceiling of the cash crops at the ECX, giving trader’s freedom to trade the commodities on a market basis.

The threshold price set by the ECX was immediately reinstated after the alleged market disruption by the traders, and prices skyrocketed. Edao observed some commodities went as high as 10,000 birr a quintal two days after the decision, from a price of 7,000 to 8,000 birr before the decision.

Jemal Seid, general manager of an import and export business bearing his name, took part in the discussion with top Trade Ministry officials last Tuesday. What he sees as the reason for the crops found in his warehouse and others is the mismatch of selling price indicators by the government and the international market.

“I was offered USD 750 for a quintal of the crops I had, but then I was refused by the government, claiming it was under-invoiced. Later, I was allowed to sell it, only to find out that the market was no longer available,” he said, refraining from specifying the type of commodity he was planning to sell.

He warned the government that its decision when the market is available should be in consideration of the price variations that could happen later. Demand for some commodities is slowing, which Jemal and his colleagues attribute to the decline in cash crop exports.

The one-month export warning forwarded by the will not be achieved, according to Jemal, since finding buyers in a short period of time and looking for containers with shipping companies might be obstacles to the plan being realized.

Nevertheless, export of the crops seems inevitable as it would help ease the foreign currency problem the country is experiencing.

Ethiopia earned the highest record of USD 4.1 billion from exports in the last fiscal year, for which agriculture contributed 72 percent of the total earning. The best performing product, coffee, alone contributed to over a third of the total earnings, while pulses and oilseeds were among the lowest performers.

Unlikely to happen in light of the current market situation, the ministry plans to export oilseeds worth USD 300 million during the current fiscal year.

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