According to national press reports, an Ethiopian government initiative supported by Italian development cooperation is increasing supplies of durum wheat to local food processing companies in Ethiopia. The ‘Agricultural value chains in Oromia’ project focuses on providing high-quality seed, training and technical assistance, as well as warehouse construction and supporting the marketing of locally produced wheat by fostering better contacts between farmers’ cooperatives and processing companies.
The project has established “innovative grain supply contracts between the cooperative union and the local food processing industry”. The “reference price was the prevailing average market price for bread wheat at harvest time in the zone”, but with a premium price being paid for “every increment of protein content over a minimum fixed standard”. The most protein-rich batches of durum wheat received prices “30% higher than bread wheat”, with transport costs being paid by the processing industry for loaded trucks of 40 tonnes.
In the first year of operation, the project achieved yields approximately one-third above the national average wheat yield (2.4 tonnes/ha, compared to a national average of 1.8 tonnes ). Contract farming of seed supplies is now being developed to further consolidate the work of the project.
Sales of wheat increased from 750 tonnes to 2,000 tonnes in 2011/12. Durum wheat was sold to two companies, Dire Dawa Food Complex (1,230 tonnes) and Kaliti Food SC (770 tonnes), whose annual consumption of wheat is 600,000 tonnes and 200,000 tonnes respectively. In the fiscal year 2012, “Ethiopia imported 472,147 tonnes of durum wheat, at a cost of 174.6 million dollars.” In the project area, efforts are under way to triple production next season to 6,000 tonnes. While a long tradition of durum wheat production exists in Ethiopia, processing companies such as Dire Dawa still depend on imports for three-quarters of their wheat supplies, for the production of biscuits, bread, pasta and macaroni. Consumer demand for all forms of spaghetti and macaroni is reportedly “growing faster than for any other food item, so ever-increasing amounts of durum wheat grain are required”. However, local production is limited and is often of poor quality, reinforcing the current import dependency.
According to private sector sources, hard currency constraints on wheat imports are resulting in a surge in imports of packed pasta. According to the Indexmundi commodities website, in 2012 Ethiopia produced an estimated 3.1 million tonnes of wheat – an almost threefold increase since 2002 (1,072,000 tonnes).
The establishment of standardised contracts, against a background of efforts to strengthen the organisation of cooperatives and their negotiating power, potentially offers considerable scope for growth of durum wheat production in Ethiopia. However, the cooperative model of organisation has had a history of mixed success in Eastern Africa, potentially offering lessons for Ethiopian farmers.
Elsewhere in East Africa, cooperatives initially worked well in pooling farmers’ resources and produce, and helping farmers to overcome diseconomies of scale. Great success has been achieved by tea and coffee cooperatives. However, cotton cooperatives have largely failed due to poor management and excessive government interference, which led to delays in payments to farmers.
Dairy sector cooperatives in Kenya have also faced problems in the past. However, liberalisation is now seeing a revival of dairy sector cooperatives, and these are increasingly becoming involved in value-added processing.
This diverse experience suggests that for cooperatives to thrive, a conducive policy environment is required that limits state intervention in the operation of cooperatives where strong leadership and good managerial skills exist. Strengthening the ability of producer cooperatives to track the functioning of supply chains is also important. While better linking of producers to processors can bring benefits, the experience of Kenyan tea cooperatives suggests that the greatest benefits lie in empowering cooperatives to move up the value chain and reduce their dependence on commodity-based sales. However, it needs to be recognised that more substantive investment and management challenges can be faced in other sectors, such as the durum wheat sector, which means that the option of moving up the value chain to reduce dependence on commodity-based sales is only available in the longer term.