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BusinessEthiopia beefs-up export plans with proposed ceiling on local meat prices

Ethiopia beefs-up export plans with proposed ceiling on local meat prices

– Beef export halted for 8 months straight                   

Officials mull price cap to revive trade

The Ethiopian Ministry of Agriculture is taking a bold step to keep the country’s beef export industry competitive by introducing a draft bill that aims to regulate the prices of exportable cattle meat. The Livestock Development Institute, a key player in the industry, has proposed a ceiling price that would prevent local suppliers from charging more than their international competitors.

This move comes after the domestic price of cattle meat skyrocketed beyond the international market price, making it difficult for Ethiopia to compete in the global market. Currently, the average price of exported cattle meat in the domestic market is a staggering USD 7.2 per kilogram, almost double the international market price.

By setting a ceiling price, the government hopes to not only keep the industry afloat but also ensure that local consumers are not subjected to exorbitant prices.

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The Institute believes that the proposed bill will create a level playing field for all players in the industry and ultimately benefit the country’s economy.

A new bill proposing the establishment of a Price Board composed of key industry players has brought a ray of hope for Ethiopia’s struggling exporters. The Board, which will include representatives from the slaughterhouses association, suppliers association, and the Institute; will be responsible for periodically determining domestic prices to ensure exporters can maintain a workable profit margin.

The proposed legislation comes at a critical time for Ethiopia’s beleaguered exporters, who have been grappling with exorbitant commodity prices in the domestic market that have far outpaced international prices.

Many businesses have been forced to shut down or cut production, including cattle meat exporters, who have seen a significant drop in national revenue from USD 120 million last year to USD 33 million this year. Even Ethiopia’s meat exports to Dubai and Saudi, which used to account for over 60 percent of the market, have taken a substantial hit.

Kelifa Hussein, director of Frigorifico Boran Foods Plc, which owned by the Allana Group, revealed that their company has stopped exporting cattle meat entirely and is now only exporting goat meat to the Middle East.

Allana’s export revenue has plummeted from USD 32 million last year to USD 20 million this year, despite operating two export abattoir facilities in Ethiopia that used to generate USD four million monthly from exporting 600 tons of meat.

During a public-private discussion on agriculture at Skylight Hotel on July 25, 2023, commodity exporters voiced their concerns that exporting is no longer profitable due to the skyrocketing domestic prices.

Sesame, grain, coffee, and other commodity exporters are also experiencing losses as the domestic price is much higher than the export prices. For instance, sesame is currently priced at USD 2,670 per quintal in Ethiopia, while it is only USD 1,800 in India. This makes it difficult for Ethiopian exporters to compete in the international market.

The inflation rate has exceeded 30 percent since last year, and commodity prices in the domestic market have spiked, particularly since the two-year war in northern Ethiopia.

Exporters say they are facing a major setback as they struggle to cope with mounting losses. The situation, according to industry insiders, has significantly worsened over the past five years, with export losses now reaching between 30 to 40 percent, up from just five percent previously. In an effort to compensate for these losses, exporters have resorted to exporting at a loss in order to offset that by importing goods and selling them for a higher price, contributing to inflation in an import dependent economy.  

“Five years ago, export losses were only five percent. Now they are between 30 and 40 percent. Every exporter stayed in this business because they use the 20 percent forex retention for import business. So importers increase the prices of their items in the domestic market to compensate for their export loss. This, in turn, is severely affecting consumers,” added Kelifa.

Officials from the Ministry of Agriculture and Ministry of Trade and Regional Integration have both acknowledged the issue, pointing out that the situation is dire and in need of urgent attention.

“The market is highly distorted. Exporters have been trying to subsidize their export losses by imports. This, in turn, has brought about unsustainable inflation for consumers. We are buying items for 100 birr that should cost 10 birr,” said Tarekegn Bedilu, State Minister for Trade, during a discussion at Skylight.  

Tarekegn stressed that improving the supply side of the market is the only way to alleviate the domestic price crisis. However, Sofia Kassa (PhD), the State Minister of Agriculture, pointed out that the problem is partially due to the inflated prices of imported raw materials since the Ukraine war. She also highlighted the involvement of illegal brokers as a contributing factor.

“Two years ago, our farmers were buying a quintal of fertilizer for 2,000 birr. Currently, they are buying it for between 8,000 and 12,000 birr per quintal. The involvement of illegal brokers also exacerbated the situation. How can exporters expect to buy commodities at lower prices while farmers are suffering from inflated input costs?” asked Sophia, who was also at the Skylight discussion.   

Participants at the discussion noted that the spiking loan interest rates charged by banks are also adding to domestic inflation. Some have urged the government to place a cap on banks’ loan interest rates, which can be as high as 25 percent.  

Exporters and importers have made a critical demand for an amendment to the forex retention rate during the discussion.

Currently, according to the National Bank of Ethiopia (NBE) directive, exporters must surrender 80 percent to the government and use only 20 percent. Industry players are asking for an increase in the exporter’s share.

However, Tarekegn argued that this is impossible until the forex reserve improves and the government exits from the trade balance deficit.   

“First, the war cost huge forex. The government is under severe financial crisis. Forex revenue from foreign direct investments, external sources like aid, remittance and loans have dried up due to the war,” Tarekegn says.

He believes the government has to prioritize the available forex to import fertilizer, fuel, medicine, and other critical items. “And yet, the government has to bear a back-breaking external loan repayment,” Tarekegn told the participants.

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