Sunday, April 14, 2024
CommentaryUnderpaying farmers risks Ethiopia’s wheat self-sufficiency aspirations

Underpaying farmers risks Ethiopia’s wheat self-sufficiency aspirations

Ethiopia, home to over 100 million people, is making significant progress toward its goal of wheat self-sufficiency. Reforms are afoot in a bid to curb imports of the product, diverting the much-needed forex to other sectors. The move, however, is not solely motivated by a desire to halt or decrease imports. As well as supplying demand in the domestic market, it will be exported to key markets, bringing in much-needed foreign exchange.

While this is a positive step in the right direction, historical output levels in the country and current targets are far apart.

The Ethiopian News Agency (ENA) cited Ethiopia’s State Minister of Agriculture as saying that the country expects to harvest more than 160 million quintals of wheat during the 2022–2023 crop season. Similarly, Girma Birru (Amb.), senior advisor to the prime minister, was quoted by the DW Amharic program as saying 32 million quintals of excess grain will be available for export after meeting all domestic demands.

Compared to the country’s historical production level and the USDA’s prediction of 57 million quintals of production for the same time period, these numbers are off the charts and make no sense.

This article is not to advocate for the use of this historic level of production to provide food for the drought-affected areas of the country and show the world that we have started taking care of our own citizens. I want to rather focus on the drivers of wheat production, the Ethiopian farmers, because the stories around wheat are not all rosy.

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On February 15, 2023, wheat farmers from the Bale zone of Oromia Regional State gave the DW Amharic radio station troubling testimonies of not being paid the high prices they were promised for the wheat they produced. Further, they stated that they were restricted to selling only to farmer’s cooperatives, which are paying below market price (3,200 birr per quintal).

These are very troubling allegations that call for the government’s immediate action. I may sound alarmist, but if these allegations are true and widespread, they can derail Ethiopia’s dream of wheat self-sufficiency unless addressed promptly and decisively. The farmers deserve an explanation as to why there are restrictions on whom to sell to and the rationale behind the 3,200 birr price tag.

Paying farmers a price that justifies their hard work is just and rational. Ethiopia’s dream of wheat self-sufficiency depends on these farmers. Therefore, it is pertinent to ask if we are paying our wheat farmers a remunerative price, what the right price is, how prices are estimated, who has the necessary data to calculate the prices correctly, and what we can learn from countries like India, which have implemented robust farm support systems that have enabled them to become food self-sufficient.

The issue here is not why the government has set 3,200 birr per quintal but whether the price is right or not. Setting prices for agricultural products is a standard practice in many parts of the world. Successful policies supporting agricultural prices protect farmers from the vagaries of nature. Weather conditions determine how much a farmer harvests each year, and the variability in the production level causes farm prices and farmers’ incomes to vary from year to year.

It is common for a good harvest to cause a sharp drop in price, which hurts future supplies because farmers stop planting that crop the next year or years after that.

Governments provide support prices to incentivize farmers to continue to produce food products and become a reliable source of domestic food production. The type of support varies between countries and depends on the growth level of the agricultural system.

For instance, India uses the Minimum Support Price (MSP), which is announced before the planting period and is a price that serves as a floor below which prices are not allowed to fall. So, farmers go into the production season knowing in advance how much they will be paid. The MSP is particularly crucial when bumper crop production pushes the market prices down, and the MSP helps protect farmers from financial losses.

In nations like the US, where overproduction is a problem, it pays farmers to either take land out of production or buy any quantity offered by the farmers at a guaranteed support price, protecting them from price fluctuations. The government then disposes of its purchased product by giving it away to low-income and foreign aid-dependent countries like Ethiopia.

In India, the MSP calculation takes into account production costs, including all actual expenses in cash and kind, rent for leased land, the cost of family labor, owned capital assets, depreciation, and interest on fixed and variable capital. It also adds a minimum 50 percent profit margin, and the responsibility to calculate the price is given to the Commission for Agricultural Costs and Prices (CACP).

CACP was established in 1965 and is currently chaired by an economics professor with more than 30 years of research and teaching experience in economics, marketing, and policy issues in the food and agribusiness sectors. The institutional durability of CACP, with more than half a century of experience, and its leadership quality show India’s emphasis on correctly calculating support prices.

Another complaint posed by Bale farmers was the restriction on to whom they sold their produce. Farmers were restricted from selling wheat in the open market and were forced to sell only to farmer cooperatives, which paid below the market price. Other countries that have implemented successful support systems use price supports to protect farmers from the vagaries of the market and never allow government agencies to profit by buying cheap and selling at a higher price or exporting grains.

In India, for example, farmers don’t have to sell to a government agency, but the agency is required to buy all the crops farmers offer at a set price. Together, this policy and the MSP helped India increase wheat production in a sustainable way and become self-sufficient. The evidence of this success can be seen on the World Food Program’s (WFP) country home page for India, where the success is described as follows:

“WFP has been working in India since 1963, with work transitioning from food distribution to technical assistance since the country achieved self-sufficiency in cereal production. With the government now providing its own food distribution systems.”

In the end, Ethiopia’s dream of being self-sufficient or a major wheat exporter in Africa depends on how committed its farmers are to the vision. This level of commitment can only be expected from the farmers if they are paid a fair price for their products. India’s experience is one case in point for Ethiopia’s wheat industry, which means the minimum support price must cover all input costs, including family labor, and add a reasonable profit margin.

These prices must be floor prices, and farmers should be able to sell to whoever gives them the highest price. Farmers’ cooperatives need to be strengthened to step in as alternative buyers when market prices fall below the minimum support price. Only under such fair and just pricing conditions would Ethiopian farmers contribute to the country’s dream of wheat self-sufficiency; otherwise, we could push them to sabotage it. If that happens, they are not to blame.

Contributed by Tsegaye Yilma (PhD)

[speaker]
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Video from Enat Bank Youtube Channel.

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