Oil processors raise concerns over input, market concerns
In a bid to enhance self-sufficiency and reduce dependency on oil imports, the Ministry of Agriculture has unveiled a bold plan to double domestic oil production coverage from the current 13 percent to an impressive 25 percent within the next two years.
While the announcement has sparked optimism, the Ethiopian Oil Processors Association has raised its concerns, warning that the plan’s success hinges on the government’s ability to tackle five critical challenges that currently plague the industry.
Among the Association’s concerns is the issue of market priority. They urge the government to prioritize the needs of local processors over foreign competitors, ensuring a level playing field for all stakeholders. The importance of addressing foreign currency availability, tax regulations, credit accessibility, and the prevailing political unrest, which continue to hamper the growth of the oil industry, were also emphasized by the Association.
They also call for reform in market linkage and the Ethiopian Commodity Exchange’s (ECX) monopoly, citing the pressing need for increased transparency and fair competition.
Highlighting the magnitude of the task at hand, there are 60 local edible oil factories, collectively responsible for meeting just 13 percent of the current consumer demand, require a staggering supply of 900,000 tons of oilseeds per year.
Shockingly, only 30 of these factories have access to the ECX soybean special window, which severely limits their ability to procure essential raw materials.
Association Head Addise Gakebo underscores the urgency of addressing this issue, stressing that “the limited supply capacity of the ECX is the primary cause of the oilseed shortage.”
The ECX’s monopoly on oilseed sales, enforced since July 2020 through the raw material proclamation, has drawn significant criticism from investors who argue that it stifles competition and impedes progress.
Addise asserts that “purchasing directly from farmers is essential for the success of the government’s import substitution plan,” pointing out that in 2021, the ECX supplied a mere 121,000 quintals of soybeans to the market, while processors require more than eight times that amount.
Ethiopia’s heavy reliance on oil imports, amounting to over 900,000 liters annually with a staggering cost of nearly USD 500 million, has prompted the government to implement measures to support importers.
However, these actions have sparked discontent among local processors who feel neglected. They argue that reduced tax incentives and foreign currency availability should extend to domestic producers to level the playing field and promote their growth.
Last year, the government allocated USD 100 million to alleviate the forex shortage facedby importers, but only half of the amount has been disbursed.
The Association, according to Addise, submitted a letter to the Ministry opposing the extension of the remaining USD 50 million allocated by the government.
Teshale Belhu (PhD), the State Minister of Trade and Regional Integration, emphasizes the government’s delicate task of balancing consumer protection and investor interests. “The government needs to keep the balance between Consumers Right Protection and Investors demand and revenue,” he said.
He questions “why local processors continue to maintain inflated prices for edible oil while purchasing oilseeds at a significantly lower cost of 3000 birr per quintal?”
To alleviate the burden, local processors implore the government to reduce the tax percentage exclusively for locally processed edible oil products. They argue that the current uniform tax rate of five percent for both imported and locally processed oil unfairly disadvantages domestic producers.
Transporting raw materials within the country has also become a major hurdle, with conflicts and political unrest affecting the roads. Drivers face the constant risk of abductions while trying to meet investors’ payment demands, according to the Association.
To address these challenges, Addise stresses the urgent need “for government security coverage to ensure the safe transportation of products and supplies.”
Meles Mekonen (PhD), the State Minister of the Ministry of Agriculture, acknowledges the concerns raised by the processors. He affirmed the government’s commitment to finding viable solutions to address the pressing issues faced by the industry.