Collection of Harvard Business School Type

Collection of Harvard Business School Type

Case Studies Small and Medium Size Enterprises in the Food and Feed Sector in Ethiopia

Monika Sopov

The Case of Alfa Fodder and Dairy Farm PLC • The Case of Friendship Agro Industry PLC • Debre Birhan Legume Processing Cooperative Enterprise • The Passion Fruit Outgrower Incubator Project • Case Study on ELERE Poultry Farms • Akaki Animal Feed Processing Plant PLC

Produced by the Centre for Development Innovation, Wageningen UR

Collection of Harvard Business School Type Case Studies Small and Medium Size Enterprises in the Food and Feed Sector in Ethiopia

Monika Sopov

Collection of Harvard Business School Type

Case Studies Small and Medium Size Enterprises in the Food and Feed Sector in Ethiopia

Copyright © Centre for Development Innovation, Wageningen UR. 2015 All rights reserved Published by Centre for Development Innovation, Wageningen UR. Monika Sopov 2015. Collection of Harvard Business School Type Case Studies, Small and Medium Size Enterprises in the Food and Feed Sector in Ethiopia, Wageningen UR (University & Research Centre). Wageningen. Editing: Jenessi Matturi. Production management: Erika Endrődiné Benkő. Design and layout: Erika Endrődiné Benkő. The case studies were developed by lecturers, working at agricultural universities in Ethiopia, as part of a capacity building trajectory to enhance skills of staff, among others, in developing innovative training materials. The initiative has been financially supported by NUFFIC (NICHE project) and by the Embassy of the Kingdom of The Netherlands in Ethiopia (Agribusiness Support Facility Project). The 4-year project was managed by Q-Point (The Netherlands).

CONTENTS

Challenges of Contract Farming

THE PASSION FRUIT OUTGROWER INCUBATOR PROJECT 7

— EXHIBITS 13

Improving the animal feed sector in Ethiopia—Business Challenges and Opportunities for

AKAKI ANIMAL FEED PROCESSING PLANT PLC 15

— EXHIBITS 19

Challenges in Managing a Dairy Company in Ethiopia

THE CASE OF ALFA FODDER AND DAIRY FARM PLC 21

— EXHIBITS 27

CASE STUDY ON ELERE POULTRY FARMS 31

— EXHIBITS 36

Integrated Poultry Farming

THE CASE OF FRIENDSHIP AGRO INDUSTRY PLC 39

— EXHIBITS 44 Challenges of

DEBRE BIRHAN LEGUME PROCESSING COOPERATIVE ENTERPRISE 49

— EXHIBITS 55

THE PASSION FRUIT OUTGROWER INCUBATOR PROJECT

Challenges of Contract Farming


Authors: Aman Rikitu, Lecturer (Ambo University, [email protected]) Tadele Melaku, Lecturer (Ambo University, [email protected]) Berihun Tefera, Assistant Professor (Bahir Dar University, [email protected]) Derib Woldeyohannes, Lecturer (Wolaita Sodo University, [email protected])

unit. The meeting did not go well and he was exhausted. The outgrowers were complaining and he could not blame them. He had spent only months working for the project, but he clearly saw the challenges. His only worry was how to solve these problems to make the outgrowers happy and ensure that the company could operate profitably.

It is Thursday afternoon, 29 November 2013. Dr. Tadu Challa, a consultant and manager of the Passion Fruit Outgrower Incubator Project is not in a good mood. He has been busy chairing a meeting on expanding the outgrower incubator project to boost the short supply of passion fruit for the africaJUICE Share Company’s processing

1 Establishment of the project As he was trying to relax in his office, he recalled the background of the project, based on what he had heard and read. africaJUICE Tibila Share Company, a joint agribusiness company between africaJUICE BV in the Netherlands and the Ethiopian government, produces and exports tropical fruit juices. It operates under Fairtrade principles. The company was established in 2008 and took operational control of Tibila Farm in the Upper Awash Valley in April 2009. The establishment of the company involved the privatization, rehabilitation and expansion of a former state-owned fruit farm into a high-tech, drip-irrigated tropical fruit plantation. It is one of the foreign direct investment (FDI) projects implemented in Ethiopia in recent years. The africaJUICE Passion Fruit Outgrower Incubator Project was established in 2009 in Jeju Woreda, East Shoa Zone of Oromia Region, with 16 farmers. It was set up by 3 foreign investors (from Spain, England and the Netherlands) mainly to grow, process and export passion fruit to the international market and to also help local farmers. The project is located in an area constrained by water shortage. Consequently, it provides an irrigation water facility to the local farmers who produce and supply passion fruit to the africaJUICE processing unit. The project was initiated to transfer technology to help farmers use irrigation water and produce passion fruit. The irrigation scheme was established by the government and expanded by africaJUICE. Participating farmers have been selected based on their interest, own adjacent land, and their proximity to the irrigation scheme. Included in the outgrower scheme at the start of the project were 16 farmers practicing drip irrigation, and another 16 farmers using furrow irrigation. Currently, 88 farmers are organized into cooperatives and involved in producing passion fruit with the aim to expand the farm to 54 ha and increase the number of participant farmers. All the initial investment costs (irrigation scheme, poles, and seeds/seedlings) were covered by the outgrower project. The passion fruit vines start to bear fruit 10 months after planting and farmers are able to harvest continuously throughout the year for three consecutive years, except in the months of September to November. The africaJUICE company has a total farmland of 1,334 ha. It plans to have a fruit plantation consisting of 600 ha of yellow passion fruit, 300 ha of mango, and 300 ha of other tropical fruits such as papaya and avocado over a period of five years. Currently, the farm is actively cultivating 500 ha of tropical fruits and citrus. Moreover, it plans to develop more than 1,200 ha for contract farming to supplement the supply and link smallholder farmers to high-value markets.

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The company also has a new fruit-processing facility with state-of-the-art processing, sterilization, and packaging equipment which became operational in November 2010. The processing unit has the capacity to produce 6 tons of passion fruit juice per hour. The current capacity utilized is estimated at about 25% and there is a plan to reach full capacity in the coming 2–3 years. The company has been exporting yellow passion fruit juice to the European market since the establishment of the processing unit. However, its strategic plan is to supply export markets, in Europe and the Middle East, and regional markets, with tropical fruit juices, purees and concentrates. Some fruits and vegetables such as papaya, tomatoes and green chilies are produced for local markets. africaJUICE is a dynamic new company that is on track to become a major producer and exporter of tropical fruit juices from Africa. The company plans to establish at least three production locations across Africa by 2014 and become a premier supplier of Fairtrade juice to the European market. Their first project, the Upper Awash Project in Ethiopia, which has been in operation since early 2009, involved the privatization, rehabilitation and expansion of an existing fruit farm, and the construction of a new fruit-processing facility that enabled the start of passion fruit juice exports in November 2010. The company’s strategic growth plan seeks to replicate the Upper Awash business model in other locations in Africa in order to grow the volumes and range of products. africaJUICE is committed to delivering an economically successful business that provides attractive returns for investors. The company’s strategy to deliver a profitable business is based on: identifying the optimum intersection between fruit products that have significant value and market growth potential, and production locations that have the best blend of growth conditions, land availability, and fiscal and political stability; developing production and supply chains that can provide the market with a reliable source of quality produce in a flexible and efficient manner; and utilizing technology and best available inputs and practices to maximize yields and quality level.

• • •

East Shoa Zone and part of Jeju Woreda in Oromia Region fall under the rain-deficit zones where rainfall is insufficient for crop production. As a result, food insecurity is a key challenge for farmers. In areas where there is scarcity of water, efficient irrigation technology is essential. Farmers in these areas use the furrow (traditional) irrigation method, which does not enable them to produce high yields. From the experiences so far, it is advisable for farmers to practice intercropping by planting vegetables such as onion, peppers, tomatoes and cabbage in-between the rows of passion fruit. Vegetable intercropping helps farmers generate income and purchase food for their households.

2 Political and economic context Globalization and market liberalization in many developing countries have resulted in the growing integration of global agricultural markets and major structural changes in world agriculture. While these processes have expanded lucrative markets for high-value agricultural products, there is a growing concern that smallholder farmers could be marginalized from emerging market opportunities. Smallholder farmers already face a number of constraints, such as lack of market information and access to credit, which limit their participation in the commercialization process and negatively impact their incomes. Moreover, major shifts such as the tendency for vertical coordination and the application of strict quality standards and food safety rules by developed countries could be additional barriers to the participation of smallholder farmers in the export market economy. These constraints are further compounded by market and institutional failures in developing countries. Ethiopia’s Growth and Transformation Plan (GTP) 2010/11–2014/15 maintains agriculture as a major source of economic growth, intensifying commercialization and involving both smallholders and large, private commercial farms. The plan acknowledges the increasing importance of contract farming (outgrower schemes) in linking smallholder farmers with high-value markets, in the context of a fundamental shift to the production of high-value crops. Despite its potential, the experience of contract farming in Ethiopia has been very limited. This has consequently limited the capacity to frame appropriate policy and binding formal legislation that support contract farming arrangements. This is further compounded by lack of in-depth studies to guide policy-making. The Ethiopian government took numerous measures as part of the fulfillment of IMF and World Bank recommendations. In 1992 the government agreed with IMF, World Bank and other donors to adopt a structural adjustment program. In September 1992, a policy framework paper for 1992/93–1994/95 was prepared and agreed upon with the World Bank and IMF. All the reform measures that were taken mainly concerned the non-agricultural sector.

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During the first years of the transformation period, substantial liberalization of both factor and commodity occurred, price controls were eliminated for all goods except for petroleum and petroleum products, pharmaceuticals and sugar for household consumption. The road transport monopoly was eliminated and a new labor code was introduced. Furthermore, public enterprises were categorized according to their future states of ownership. The public sector proclamation implied not only privatization of state-owned enterprises, but also organizational reorientation of the remaining state-owned enterprises to make them more efficient and profitable. The nine state corporations that dominated industry were dissolved to stimulate domestic and private investments. A new investment code was released and a privatization agency was set up. The financial sector (banking and insurance) was liberalized in order to stimulate investment in the private sector.

3 Ethiopian horticulture sector The domestic horticulture market tends to be very weak. Apart from tropical fruits and a few selected vegetables like onions, cabbage and tomatoes, local demand for horticultural produce is minimal. The EU market is one of the world’s largest markets for fresh fruits and vegetables. Negligible amounts of high-quality fruits and vegetables have been exported to countries in the Middle East (Saudi Arabia, Bahrain and Kuwait). Compared to some of its neighboring countries, Ethiopia has better soils, climate and irrigation opportunities. For small-scale growers, there is good potential to increase the exports of fresh fruits and vegetables to neighboring countries such as Djibouti, Sudan and Somalia. Major constraints of the sector, such as lack of improved infrastructure, bad postharvest handling, lack of special attention to regional trade, unorganized and less effective local markets, poor linkage between urban markets and rural producers, informal cross-border trade flow, seasonality of supply, poor grading, handling and transport facilities, have led to a general impression that Ethiopian produce is of poor quality and therefore only sold at the lower end of the market. The significant entry barriers to the sector are: economies of scale, high capital requirements, lack of knowledge and experience.

4 The fruit sub-sector in Ethiopia Fruit production is an important component of Ethiopian agricultural production systems. According to Central Statistical Agency (CSA) data, the country produced over 540 tons of fruits in 2012, equivalent to 5 billion Ethiopian birr (ETB). Production has been growing at 7% annually since 1997. Ethiopia has a diverse agro-ecology which is suited to the production of temperate, sub-tropical and tropical fruits. It has areas with altitudes ranging from 116 m below, to 4620 m above, sea level. The country is also endowed with abundant water resources of major river basins with an annual flow of 123,000 million m³, and ground water potential of about 2.56 million m³. This gives it a potential irrigable area of 3.5 million ha with a net irrigation area of about 1.61 million ha. Given the unique climatic and natural resources, almost all types of fruits and vegetables can potentially be grown in Ethiopia. But the most important ones are bananas (260,000 tons), mangoes (73,000 tons), avocado (62,000 tons), oranges (48,000 tons) and papaya (43,000 tons) accounting for 91% of the national fruit production (CSA, 2012; Han et al., 2013). Over three-quarters of the country is suitable for different types of fruits. Southern territories, Oromia and Amhara regions, are the major fruit producers, accounting for 59%, 31% and 6% respectively. Compared to their respective estimated potential in fruit production, the three regions have only achieved 9%, 14% and 1.4%. Over 98% of fruit grown in Ethiopia is consumed fresh in the domestic market. The principal fruit market in the country is Addis Ababa and its surrounding areas, absorbing 40% of national production. Per-capita fresh fruit and fruit juice consumption in the country is 5 kg and 0.02 kg per year, respectively. Due to the absence of markets, postharvest handling facilities and processing industries, a large part of the fruit is left untouched, with an estimated 20% produce waste.

Figure 1 Fruit production in Ethiopia

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In Ethiopia, fruit processing is limited mainly to extraction of fresh juice. Industrial processed and packed juice and syrup is mainly imported. Annual demand for industrial processed fruit juice is estimated to be 20 million kg or equivalent to USD 20 million. The figure below shows the volume of imported juice for 2010–2012. As can be seen from the data, imports grew by over 70% within three years, from 9 million to 15.5 million kg.

20

15

10

5

0

2010

2011

2012

Figure 2 Volume of imported juice, 2010–2012

Small-scale farmers are the principal suppliers of fruits in Ethiopia, accounting for an estimated 80% of national production. Most of these producers are located in the South, Western and Rift Valley regions of the country which usually depend on rain-fed systems. Unlike other crops such as cereals, fruits are backyard crops for smallholders. At commercial level, the main fruit producers are Lower Awash Agro Industry (Etfruit), africaJUICE, Jittu Horticulture and some private investors mainly along the Awash Basin.

5 The passion fruit Passion fruit (Passiflora edulis), is a vine species of passion flower that is native to Brazil, Paraguay, Uruguay and northern Argentina. It is cultivated commercially in warmer, frost-free areas for its fruit and is widely grown in Antigua, Argentina, Australia, Bolivia, Brazil, the Caribbean, Colombia, Costa Rica, Dominican Republic, East Africa, Ecuador, Haiti, India, Indonesia, Israel, Mexico, New Zealand, Panama, Peru, Portugal, Puerto Rico, Sri Lanka, South Africa, United States, Venezuela and Philippines. The passion fruit is round to oval in shape, either yellow or dark purple at maturity, with a soft to firm, juicy interior filled with numerous seeds. The fruit is both eaten and juiced. Passion fruit juice is often added to other fruit juices to enhance the aroma.

According to an FAO report published in 2011, world production of passion fruit increased from roughly 1.05 million MT in 2005 to 1.15 million MT in 2009. The FAO forecasted that global production would total 1.27 million MT in 2010. Brazil is the largest producer of fresh passion fruit, but domestic demand is such that the country imports juice concentrate from other countries, such as neighboring Ecuador. After Brazil, Ecuador, Indonesia and Colombia are the next largest producers of fresh passion fruit. In Africa, producers of the wrinkly purple variety include Kenya, South Africa and Zimbabwe, with Kenya leading the region in both production and trade. Passion fruit production in Kenya has grown from 53,396 MT in 2005 to 104,437 MT in 2010, and production for 2011 was expected to reach 122,362 MT (MoA and HCDA).

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Figure 3 Passion fruit ready for harvest

Source: Case study team members

Several distinct varieties of passion fruit with clearly differing exterior appearances exist. The bright yellow flavicarpa variety, also known as Golden Passion Fruit, can grow up to the size of a grapefruit, has a smooth, glossy, light and airy rind, and has been used as a rootstock for the Purple Passion Fruit in Australia. The dark purple edulis variety is smaller than a lemon, though it is less acidic than the yellow passion fruit, and has a richer aroma and flavor. The purple varieties of the fruit have been found to contain traces of cyanogenic glycosides in the skin.


6 Passion fruit contract farming scheme Apart from its nucleus estate plantation, the company plans to develop a large-scale passion fruit outgrower scheme by involving the local farmers in a win-win approach. The company developed the Outgrower Incubator Project which is co-financed by ICCO of the Netherlands, GIZ of Germany, and the Rabobank Foundation. The goal of this project is to develop and support over 1000 ha of outgrowers organized into cooperatives, to increase the supply of fruits to the africaJUICE processing facility and enhance community participation. It is believed that the project provides several advantages to smallholder farmers in the area. It promotes production technology transfer to smallholders, since yellow passion fruit is a new crop introduced by the company, and creates market linkages and stable farm incomes. The outgrowers also benefit from Fairtrade certification and premiums. The company has used different approaches to establish its passion fruit outgrower scheme. Prior to the actual implementation of the scheme, a baseline study was conducted to generate basic information including cropping patterns, income sources, and marketing issues. Initially, the company tried to establish the outgrower scheme with farmers who had access to irrigation. This approach failed immediately, due to the farmers’ wrong perception that their land could be taken over by the government as part of project expansion. In addition, these farmers were already engaged in the production of other vegetables that have high demand in the local markets. Farmers were also skeptical about the outcome of the new technology, i.e. passion fruit production. To overcome this problem, the company opted for those communities who did not have irrigation facilities. Considerable effort has been made to convince some innovative farmers to become outgrowers. Finally, an agreement was reached that farmers would engage in contract farming while the company would establish and supply irrigation facilities to outgrowers who previously had no irrigation access. The establishment of the irrigation facilities was financed by the Outgrower Incubator Project. Initially, 15 smallholder farmers covering about 14 ha were involved in the scheme. To date, 52 smallholder farmers on 66 ha of land are engaged in contract farming activities in passion fruit production. The aim is to reach about 600 ha in the next two to three years. The nature of the contractual arrangement involves a formal agreement between the outgrowers and the company for an average of three years. The formal contract is written both in the local language and in English. The Ministry of Agriculture (MoA) and Federal Cooperative Agency are involved during the contractual negotiation to build trust on the farmers’ side and create an enforcement mechanism. To manage the contract scheme, the company works with groups of farmers. The first contractual agreement between the company and a cooperative was signed in March 2012. Currently, the outgrower scheme is functioning with one cooperative. The company envisions involving the surrounding community through farmers’ organizations or cooperatives by allocating them a 5% stake. This will create a sense of ownership and enable the local community to take the lead in their own growth and development. The contract involves the provision of support services such as free seedlings, fertilizer, and training in quality and agronomic practices (pollination and crossing, pruning, weeding, etc.). Since the passion fruit plant is selfsterile, it requires manual crossing. The company’s staff provides extension services. On average, one outreach worker serves about 50 ha. The contract also involves the provision of finance (in-kind) on initial investment, which has been estimated at about 12,000 ETB per hectare. The loan repayment schedule is three years. The key informant survey indicated that the actual initial capital outlay for passion fruit production is estimated to be 24,000–25,000 ETB. However, about 50% of the actual investment is covered by the Outgrower Incubator Project (sponsored by GIZ, ICCO, Rabobank Foundation, and africaJUICE). The contract stipulates an irrigation fee of 500 ETB/ha per year, to be paid by farmers for pumping services. The company provides transport services for products from collection centers located near farmers’ plots to its processing unit. The pricing mechanism is based on the minimum global Fairtrade price. Thus, farmers do have the advantage of Fairtrade premium, which can be used for community development activities. The pricing mechanism is transparent involving farmers’ groups, cooperative agencies, and Fairtrade representatives. The payment schedule is influenced by the nature of passion fruit production. Passion fruit plants take about 10 months to give the first harvest and once harvesting has commenced, it lasts throughout the year, on a daily basis, except for a period of two to three months. In the scheme, there are three market days in a week and payment is made at the end of each month. The average productive life of a passion fruit plant is about five years.

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The approach used by africaJUICE is modeled as shown in Figure 4. Farmers supply the company in two ways: individually, or on a group basis through the cooperatives. Financial support Rabobank

Oromia Cooperative Agency in Legalizing Coops

Oromia Marketing Agency

DEVELOPMENT PARTNERS

FARMERS •• Provide land •• Provide labor •• Manage farm •• Deliver product as per specs

africaJUICE •• Guaranteed market @ floor + price •• Supply input on credit basis •• Provide agronomic support •• Supply seedlings

Financial & Technical support in Organization ICCO

Financial & Technical support in Irrigation GIZ

OUTGROWER INCUBATOR PROJECT •• Give advise •• Train farmers •• Organize farmers •• Manage relationships •• Liaise with other stakeholders

Figure 4 Key actors of the outgrower project

The project could be seen as a successful contract scheme for creating the following economic advantages to farmers: Passion fruit outgrower farmers can earn on average 90,000 ETB per hectare, which is a high income for a smallholder in the community. Since passion fruits grow on a trellis system, farmers can practice intercropping with their food crops and other vegetables (such as onions, tomatoes, and beans) between rows by using the new irrigation system. Another success indicator of the project is that there has never been any farmer default. Of course, for the time being, africaJUICE is the only company in Ethiopia that handles passion fruit production. There is no alternative market. The company has attracted the attention of big global companies such as Coca-Cola and Pepsi. These companies reportedly demand about 500,000 tons of tropical fruit juice.

• •

However, there are major problems in passion fruit production:

• There is a high maintenance cost for lattice poles due to termite problems in the area. It was noted that the

eucalyptus lattice pole is very expensive and sensitive to termite damage. However, efforts are being made to use alternatives such as lowland bamboo poles that are 30% cheaper. Currently, some 15,000 poles have been ordered for use. Passion fruit production is a labor-intensive activity, which means high labor costs for routine activities such as pruning, crossing, irrigation, and fruit picking.

•

7 Growing passion fruit—Challenges in the early stages of adoption Dr. Tadu Challa remembers the fierce resistance from farmers at the very start of project implementation. Among the reasons for resistance to timely adoption of the scheme were the following: Unlike other crops, the residues from passion fruit cannot be used as feed for farm animals. Tedious agronomic practices are required to cultivate passion fruit. Passion fruit is not used for food consumption at home. Farmers view passion fruit as a high-price export commodity and hence claim that the price per kg (4.31 ETB) they get for supplying passion fruit to africaJUICE is not attractive, even though the company sets this price based on the international market for the commodity. To resolve this resistance, the company encourages farmers to work in cooperatives. Payments are made to farmers on a monthly basis for the quantity of passion fruit collected and delivered to africaJUICE. High investment costs (poles, wire, etc.). No strong local cooperatives in the village. Lack of farmers’ awareness of the project. Lack of transparency between the company and the outgrowers. Lack of timely supply of inputs from the company.

• • • • • • • • •

As the staff were slowly leaving the office, Dr. Tadu Challa wondered what strategies he had to use to make africaJUICE Share Company more successful, and what risks he needed to take into consideration.

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EXHIBITS

Exhibit 1 Passion Fruit in the production field


Exhibit 2 World passion fruit production (2005–2010)

Exhibit 3 Location of the project area

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REFERENCES ACDI/VOCA (2014) Ethiopia – Agricultural Growth Program: Agribusiness and Market Development (AGP-AMDe). Available from: http:// www.acdivoca.org/site/ID/Ethiopia-Food-Security-Value-Chain-Agriculture-Growth-AGP-VCE [accessed 30 October 2014] Africa Department – Competence Centre Cooperation with the Private Sector (2012) Agribusiness – Ethiopia: Sustainable Supply Chain for Industrial Bamboo Production, GIZ and Fortune Enterprise Plc. africaJUICE website: http://www.africajuice.com/about_us.html Sopov M., Saavedra Y., Vellema W., Sertse Y., Verjans H. (2014) Is Inclusive Business for you? Managing and upscaling an inclusive company: Lessons from the field, Wageningen UR (University & Research Centre), Wageningen. USAID (2006) Ethiopia Agribusiness and Trade Expansion Activity, Monthly Update – September 2006. Available from: www.fintrac.com/.../ ethiopia%20atep/monthlyupdate_sept%202006.pdf.

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THE CASE OF AKAKI ANIMAL FEED PROCESSING PLANT PLC Addis Ababa, Ethiopia

IMPROVING THE ANIMAL FEED SECTOR IN ETHIOPIA—

Business Challenges and Opportunities for

AKAKI ANIMAL FEED PROCESSING PLANT PLC

Case study development team members: Alemu Zeleke (Wolaita Sodo University) Fantahun Tesafa (Bahir Dar University) Mequanent Muche (Jimma University) Wondemagegn Mesfin (Haramaya University) Workalemahu Tassew (Hawassa Univesity) Zegeye Tirfe (Adama University)

Addis Ababa, Ethiopia July 2014

picked up the phone, she turned to him with a dazzling smile and told him pointing at the phone, “This is money, Honey”. Her husband could not resist the beautiful and talented wife he was so proud of, and smiled back.

It was Sunday and Bisrat Woldemariam, mother of four and owner and manager of Akaki Animal Feed Processing Plant PLC, was enjoying an afternoon with her family. She really appreciated these rare moments. Business was booming and she was extremely busy making sure everything ran smoothly. She knew that her afternoon would be interrupted by several calls from different clients, and indeed, the phone rang again. Her husband frowned. Sometimes he had a hard time with such a busy wife, though he supported her to the maximum. As Bisrat

After Bisrat put down the phone, she went to lie down in the shade, hoping for a peaceful 30-minute nap. But her mind could not rest. Bisrat knew that she and her husband had come a long way in the feed-processing business, but she wondered what the next steps would be.

Bisrat Woldemariam graduated as a civil engineer in the United States. Her husband is a computer engineer with an MBA. Altogether she had spent more than 25 years in the USA, before deciding to come back to Ethiopia to raise her children as she had been raised in the Ethiopian culture. She appreciated the fact that the late prime minister of Ethiopia had approached her to encourage her to return home. She had been very enthusiastic in investing in a business in Ethiopia, as a way of contributing to the development of her country. Before investing in the animal feed business, she had investigated various business alternatives and realized that the animal feed sector was fairly untouched and offered very promising business opportunities.

1 Company profile Akaki Animal Feed Processing Plant is located in Addis Ababa, in Akaki-Kaliti sub-city. The processing plant has had a long-standing reputation ever since it first opened its doors in 1972 to process animal feed. The feed plant was nationalized by the military government in 1974 and remained under the command economy until it was privatized in October 2001. Currently, the company manufactures all kinds of animal feed. In addition to this, the plant is engaged in line business activities such as rearing dairy cattle and poultry, and fattening beef cattle of different origins including Borena, Jiru and Fogera. Fattened cattle are distributed at an average price to butcheries, supermarkets, hotels, and individual consumers for all occasions and nationwide festivities. The processing plant began with two mills and 26 employees in 2002, and 800,000 Ethiopian Birr (ETB), and expanded to four mills and about 60 employees by 2014. Currently, the annual turnover is 20 million ETB. The enterprise is known for creating jobs for the elderly, middle aged and youth. Interestingly, about 65% of the employees are women and about 10 employees are people living with HIV/AIDS. The salaries are increased every six months and incentives are offered to the workers. Employee turnover is minimal.

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In the early days, people were not really motivated to work hard, but Bisrat slowly changed the mindset of her staff. When feed or raw materials had to be offloaded from trucks, she would do the work herself if her employees were just hanging around. Then they gradually realized that Bisrat was not afraid of hard work, and felt ashamed. Those who did not exhibit a positive attitude eventually left the company, and Bisrat was happy she did not have to fire them. She provided training for the low-performing workers who wanted to stay on, rather than laying them off. According to Bisrat, “Sense of belongingness, sense of responsibility is a factor for success”. She spends three months every year in the USA and she is no longer afraid of leaving the business to be managed by her staff. “They do a better job when I am not here”, she says.

Company objectives Akaki Animal Feed Processing Plant was established for the following main objectives, namely to: improve animal production and reproduction through supply of quality concentrate feed; provide support services through professional advice; earn foreign currency through foreign trade; utilize industrial byproducts for efficient animal production; provide quick response to emergency feed solutions.

• • • • •

The company has experts with extensive experience in the field of concentrate feed preparation and animal production. The plant had been supplying balanced diets at fair prices for various types of animals within Ethiopia, neighboring countries, as well as Middle East Asia. Local customers include private and government enterprises and institutions, farmers, non-governmental organizations (NGOs) and the like. Since the acquisition of the company, the company has actively been working with Dashen Bank, Kaliti branch, for its banking needs. Due to unforeseen circumstances, the title deed transfer from the Ethiopian Privatization Agency to the buyer, took four years to materialize and even then, the prime minister’s office had to get involved in the matter to finally solve the problem. Meanwhile, Dashen Bank was able to stand by the company and extend the badly needed working capital without the need for collateral. All loans and debts taken at the time have now been fully and satisfactorily paid off. Currently, Akaki Animal Feed Plant is one of the five major animal feed-processing companies in Ethiopia, with the largest market share (80%) in the animal feed business. It has 37 years of experience with well over 300 employees combined with the farm project of Oral Agro Industry PLC, a sister company which produces cereal and oil seeds. The farm is managed by Bisrat’s husband. The company maximizes its profit by increasing the sales volume, rather than the profit margin, which can be as small as 10%. The enterprise has not undergone any differentiated phases in its lifecycle, with only some expansion taking place in terms of product differentiation and volume of supply. As mentioned above, the enterprise started by producing feed for poultry and cattle, and through time expanded its activities to include the production of animal feed for pregnant cows, calves, dairy cows, heifers, egg layers, broiler starter and finisher, growers, rats, rabbits and turkey. The plant now manufactures 16 types of feed.

2 Business environment Business challenges The major challenges to starting the business were mainly related to cultural issues, including language barriers and lack of trust. In addition, in Ethiopia things are not done smoothly and everything tends to take a long time. The business started with a huge capital investment and government policy was all supportive towards the animal feed business. Licensing was the easiest thing to obtain, but the challenges came afterwards, such as managing labor, controlling resources, consumption behavior of the society and related issues. Other important opportunities in the animal feed business included the high demand for raw materials such as corn, soya bean, oilseeds, animal byproducts (meat, bone meal, fish meal etc.) and industrial byproducts (wheat bran, molasses, etc.). Above all, the animal feed sector was very much in its infancy.

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Policy issues There is a favorable policy environment for investment in Ethiopia, especially in the agriculture sector where the country has ample and untapped resources. Various enterprises engaged in this sector were free to supply their produce to the market at the prevailing price. Animal feed export has been prohibited by the government, as the sector cannot yet satisfy domestic demand. There is a lot to be done to enhance the performance of animal husbandry in Ethiopia. Lately, this policy was relaxed and Bisrat could export to Somalia and Sudan. However, she had to stop exporting to Sudan as the animal feed was diluted with other material (adulteration) on the way to the buyer. Quality control has not yet been undertaken at sector level, which also hampers further development of the sector.

3 Input supply Input for the enterprise was primarily purchased from Merkato, the biggest open market in Africa. During that time, input prices were continuously rising resulting in ever increasing production costs. The company evaluated the situation and took the decision to start producing its own raw materials, including corn and soybean, by leasing 5000 hectares of land in Bench Maji Zone, Gura Ferda area. On top of this, to minimize the cost of production, the strategy was to purchase raw materials in bulk (above 500,000 quintals) during harvest time at the cheapest price and store them for use over a 6 to10-month period. In line with this, the enterprise imports other premixes from abroad. However, about 90% of the inputs for the feed production process is organic and locally produced.

4 Production The enterprise as a business was started with 26 employees and two machinery. Then, it was expanded to absorb about 60 employees and four machines. The enterprise gave various skills-oriented trainings to improve the performance of the enterprise in terms of the quantity and quality of its products. Quality control of the products is controlled by general manufacturing practices (GMP) and standard operating procedures (SOP). In this regard, the products from the feed plant are checked in a timely manner and certified. Nonetheless, the company had to face adulteration of its output by traders in the market. Due to the export ban, lack of awareness from potential buyers regarding the benefits of the using concentrate feed, and low purchasing power of smallholder farmers, the company has been operating below 50% of its capacity. As a result of value-added tax (VAT), the final price of feed used to be very high. Bisrat and her husband set up the Animal Feed Association in Ethiopia, which currently has 200 members and establishes on-going dialogue with the government on key issues regarding the animal feed sector. One of the key achievements of the association, after long discussions with key government officials, was the abolishment of VAT on animal feed in 2014.

5 Marketing The company currently has more than 500 customers in Ethiopia. However, not all of them are loyal. The biggest customer is the Ministry of Defense and the smallest is the next door neighbor who holds around 5–10 chickens. Pricing of raw materials is very much an emotional process, which results in volatile prices. Bisrat’s key principle is that there is always feed available for purchase. She never turns a customer away. To her, the customer is king when it comes to business, and Bisrat also ensures that she engages actively with them. Currently, the company has sales agents at Messalemia in Addis Abba and Mekele. Many will recognize Bisrat from television interviews when she is promoting the products of her company. The company also advertises its products at exhibitions and also organizes product demonstrations to customers at their poultry and cattle farms. The challenge of the enterprise remains the high cost of advertising. The sole media engaged in advertisement of business issues is ETV. This mass media is responsible for the promotion of various business issues and charges a fee for promoting certain commodities. However, the cost of promotion charged by the agency can be as high as 20,000 Ethiopian birr (ETB) for 20 minutes. The company also hands out free feed to selected customers for trial.

17


6 Further challenges to business development There are many challenges pertaining to the sector in general and the feed processing enterprise in particular, i.e. high cost of input, quality issues (lack of tractability of the product), distribution issues, export ban, cost of advertisement and other related issues. As far as the enterprise is concerned, inputs have paramount importance. The availability, accessibility and price of inputs are major factors that affect the overall performance of the enterprise. The major inputs for processing are soybean meal, noug, linseed, cotton seed, corn, molasses, meat and bone meal, lime stone and premix. Shortage of supply, combined with the high price of the inputs, would mean that the enterprise will not operate at full capacity. Therefore, storage facilities are essential for running a profitable business. Such challenges can be solved in various ways, e.g. purchasing inputs during harvest time and from various areas (outside the area where the enterprise is located), having one’s own production areas and producing agricultural products such as soya bean, maize, corn and the like. Akaki solved the challenges related to supply and high input costs by producing their own inputs rather than buying from different sources. The other challenge that the enterprise faced was with quality issues. Nowadays, there are different enterprises engaged in animal feed processing and supplying the market. The policy environment allows any entrepreneur and/or producer to supply their product to the market freely. In this regard the competition to own a large market share depends on the price and quality of the product. Quality products are exposed to adulteration and can be sold in the name of the quality brand. This is mainly due to lack of product traceability i.e. whose product in the market is produced by whom. Thus, in free-market situations like in Ethiopia, traceability becomes the prime challenge in the sector. “Most of the time we found our product in the market where the quality is compromised and sometimes totally changed but tagged with our enterprise name”. (Bisrat Woldemariam)

Generally, a lot needs to be done in this regard, and there needs to be a strong control system to address this issue. The other challenge that the enterprise faces is the distribution of feed products to different markets. By its very nature, the enterprise needs vast areas of land for its operations, such as Akaki and Kaliti. The enterprise is now highly diversified and has the capacity to address both local and export markets. However, due to legislation, it is obliged to limit its production levels to satisfy only the demand from the local market. As her 30-mintue rest was coming to an end, Bisrat’s mind was still working hard on what her options would be, and what strategies she would follow to further develop her business.

18


EXHIBITS

Exhibit 1 Photos of Akaki Animal Feed Processing Plant PLC

1.2

1.1

Exhibit 1.1 The premises of Akaki Animal Feed Processing Plant PLC Exhibit 1.2, 1.3 Inside the main feed plant and warehouse at Akaki; Bisrat giving a tour of her company.

1.3

Exhibit 2 Organizational structure General Manager Legal Team

Production

Finance

19

Marketing


Exhibit 3 Animal feed catalogue (nutrition profile) Animal feed catalogue Energy Feeds

% Dry Matter

% TDN

NEm NEg Mcal/lb Mcal/lb

% CP

% Fat

Ca, % DM

P, % DM

Grains Corn, 56 lb/bu

87

88

0.91

0.61

9.8

4.3

0.03

0.31

Corn, cracked

88

90

1.02

0.70

9.8

4.1

0.03

0.32

Barley, heavy

88

74

0.94

0.64

13.2

2.2

0.05

0.35

Oats

91

73

0.79

0.50

13.6

4.9

0.07

0.30

Milo

90

85

0.95

0.64

11.3

1.9

0.05

0.34

Wheat

89

76

0.83

0.54

11.6

3.1

0.07

0.33

Brewers grains, wet

21

70

0.74

0.47

26.0

6.5

0.29

0.20

Distillers grains, wet

25

90

1.02

0.70

26.0

9.9

0.32

1.40

Corn gluten feed

90

80

0.88

0.60

23.8

3.9

0.07

0.95

Hominy

90

91

1.03

0.71

11.5

7.3

0.05

0.57

Soybean hulls

91

80

0.88

0.59

12.2

2.1

0.53

0.18

Wheat midds

89

83

0.92

0.62

18.4

3.2

0.15

1.00

Molasses

74

72

0.77

0.49

5.8

0.0

1.00

0.10

Soybean meal—44

89

84

0.94

0.64

49.9

1.6

0.40

0.71

Whole soybean, roasted

90

94

1.07

0.75

42.8

18.8

0.27

0.65

Cottonseed meal

92

75

0.81

0.53

46.1

3.2

0.20

1.16

Whole cottonseed

92

95

1.08

0.76

24.4

17.5

0.17

0.62

Poultry litter

78

60

0.99

0.59

28.0

ND

2.30

2.00

Fish meal

90

72

0.75

0.47

66.0

8.0

6.40

3.60

Spring pasture

21

79

0.87

0.58

26.0

3.7

0.55

0.45

Summer pasture

22

67

0.72

0.43

19.5

3.2

0.40

0.27

Fall pasture

24

53

0.49

0.24

22.0

3.7

0.40

0.25

Stockpiled fescue

49

60

0.59

0.34

11.0

3.5

0.30

0.20

Fescue hay, ave.

91

54

0.56

0.31

10.5

5.3

0.43

0.32

Fescue hay, mature

91

44

0.34

0.10

8.7

4.7

0.41

0.30

Corn silage

35

69

0.73

0.45

8.5

2.6

1.19

0.24

Orchardgrass hay (2nd cut)

89

65

0.67

0.40

12.8

2.9

0.31

0.27

Alfalfa hay, bloom

91

55

0.52

0.26

17.0

3.4

1.19

0.24

High energy, others and by-products

Protein feeds

Urea forages

* % TDN = % total digestible nutrients; NEm = net energy for maintenance; NEg = net energy for gain; % CP = % crude protein Ca = calcium; P = phosphorous.

20

THE CASE OF ALFA FODDER AND DAIRY FARM PLC Addis Ababa, Ethiopia

Challenges in Managing a Dairy Company in Ethiopia

THE CASE OF ALFA FODDER AND DAIRY FARM PLC

Authors: Yemisrach Getachew (Haramaya University) Adugna Enyew (Jimma University) Hiwot Abayneh (Hawassa University) Kaleab Kebede (Haramaya University) Belets G/Michael (Samara University) Sintayehu Adissu (Samara University) Bogale Gebeyehu (Wolaita University)

Addis Ababa, Ethiopia July 2014

But the business and work environments frustrated her. She was getting close to breaking point. She was trying to weigh the pros and cons of staying in Ethiopia versus going back to the Netherlands. She knew that sooner or later she had to take a decision.

Mrs. Heleen Stam had just picked up her oldest child from school in Debre Zeit, and as they were driving home to the farm, her thoughts wondered back to the same topic that had kept her awake at night the last couple of weeks. She liked living in Ethiopia and her kids were definitely having a blast.

1 The Entrepreneur Mr. Bert Flier, a businessman from the Netherlands, is the owner and entrepreneur of Alfa Fodder and Dairy Farm PLC (also referred to below as Alpha Farm) in Ethiopia. During his involvement with another business, Genesis Farm¹, located in Bishoftu, he became aware of the need for fodder and for a new breed of high-quality dairy cows. In 2008, Bert took the initiative to start a fodder and dairy farm and identified Bishoftu as an ideal location, due to its favorable climate and the existence of potential markets in the form of businesses such as Alema Koudijs Feed PLC, which produces concentrates for animals, and Holland Dairy PLC, a milk-processing plant. Recognizing all these opportunities, he decided to sell his greenhouse in the Netherlands and to invest in fodder and dairy production in Ethiopia. However, he was not ready to move his family just yet from the Netherlands, and therefore planned to recruit a competent dairy farm manager to run the business. Following this decision, he published a vacancy announcement in a newsletter.

2 The Managers In the Netherlands, Mrs. Heleen Stam, a secretary, and her husband, a dairy farm professional, saw the job vacancy and applied. After getting the job, Heleen and her family were in a dilemma: whether or not to move to Ethiopia. Pregnant at the time, Heleen was unsure about the quality of health facilities in Ethiopia. Despite their initial hesitation, Heleen and her husband took a leap of faith and moved to Ethiopia where she served as office manager, while her husband was responsible for the technical aspects of fodder and dairy production at Alfa Farm.

3 The Beginnings Ethiopians have used milk as part of their diet for centuries. Most of this milk is produced by rural small-scale farmers. Although Ethiopia has the largest livestock population in Africa, the total milk production is very low in comparison with other African countries. This is because of the low average yield of 166 litres per cow per year. The constraints in the dairy sector include poor dairy genetics, animal diseases, unavailability of feed and fragile markets. Recognizing the challenges as well as the opportunities, Bert Flier decided to apply for an investment from the Private Sector Investment (PSI) program administered by the Netherlands Agency for International Business and Cooperation (EVD). The PSI program was launched in December 2008 to promote sustainable economic development by stimulating innovative pilot investments in developing countries. PSI provided 50–60% grant funding (subsidies) for investment projects that would bring economic development in 50 targeted countries, including Ethiopia. ¹Genesis Farms is a local company in Bishoftu specialized in the production of vegetables, flowers/plants, dairy products and eggs.

21


Bert applied to start a strategic alliance between Alfa Farm and a dairy processing factory, Holland Dairy PLC, in Bishoftu, and was granted the funds (see Exhibit 4). His company was established in June 2008 and registered at the Ethiopian Investment Agency as Alfa Fodder and Dairy Farm PLC. Operations started in January 2009, and in late February 2009, 2.7 ha of land were allocated to the farm. Buildings were constructed and good quality fodder crops were introduced, as well as improved animal husbandry practices at farm level. For Heleen Stam and her husband, the priority upon arrival in Ethiopia was to set up business operations. However, the institutional arrangements and public services posed many difficulties. According to Heleen, they faced challenges in land acquisition, importing materials, licensing, staff recruitment, receiving municipal services, bureaucratic systems etc., which they had never encountered in the Netherlands. These were the toughest issues they had to face and at times, they regretted moving to Ethiopia. “I sometimes wonder why some people have the wrong attitude in different offices; some persons do not fulfill their duties properly; imagine that we are carrying money on our backs and the situation here in Ethiopia is so different from that of the Netherlands. The municipality, the Woreda administration, the custom offices, etc. are full of bureaucratic procedures compared to the public institutions in the Netherlands.”

At times Heleen and her husband felt hopeless in the face of all these challenges, their daily mantra being that “God will help us”. Every morning when they woke up they would say a prayer: “God could you be with us,

don’t give us any challenge that we cannot withstand; give us strength to be one of the best players in the dairy chain”. Sometimes when Heleen felt regretful about their move to Ethiopia, her husband would say to her: “There will come the days when you and I will stand and look at an enormous profitable farm engaged even in research”.

Despite all the odds, Heleen and her husband were successful in establishing and expanding the business within a short period of time. Both were highly committed and took care of the animals and business operations effectively. Heleen’s managerial philosophy was based on three pillars: love, patience and wisdom. She explained that a business manager should practice love and respect towards all stakeholders and handle diverse feelings with patience. Moreover, a good manager should use wisdom in dealing with different people so that every stakeholder is happy and hardworking with the feeling of belonging. Though she came from a secretarial and science background, Heleen, alongside her husband and children, was successful in managing Alfa Farm. Despite the challenges, Alfa Farm is now self-sustaining and promises to be profitable in the near future. From time to time, however, Heleen still thinks about returning to the Netherlands.

4 The Company Alfa Fodder and Dairy Farm imported 160 animals from the Netherlands. Currently, they own 120 bulls for meat production, 70 milking cows, 250 feeder pigs, 2 boars and 30 sows. On the farm there are two water wells (each with a capacity of 70 m³ per hour). The average milk yield per cow per day is 24 liters and milking is done three times a day. Moreover, the farm owns 85 ha of land which is cultivated annually and the average harvest of corn silage is 45 tons/ha. The farm has a 4000 m² barn (another 3000 m² barn is to be constructed). The farm employs extensive machinery (tractors, transport equipment, irrigation material and harvest machinery) and has 33 employees, including four Dutch nationals working in management and establishment of the farm. Currently, the farm has four major enterprises: dairy cows, pigs, beef bulls and fodder production. Source: Alfa Fodder and Dairy Farm photo gallery (2014)

Dairy cows Alfa Farm purposefully decided to import Dutch dairy cows (Holstein Frisian). Loose housing was built and all necessities were provided. Now the farm produces 1500 liters of milk per day and dairy cows are milked three times a day with an average yield of 24 liters per cow per day. The milk produced is supplied every two days to Holland Dairy at 11.20 ETB (Ethiopian Birr) per liter. Currently, there are about 200 cows on the farm for milk production.

22


Pigs Pig farming is a new business in Ethiopia. Pigs are raised using a farrow-to-finish operation which produces around 600 feeder pigs annually. This has become an important part of Alfa Farm. Pork is supplied to local restaurants in Addis Ababa. Currently, 300 pigs are housed in the modern pig barn at the farm.

Beef bulls The local market for bull meat is characterized by the fattening of old oxen. A new market is being developed fattening young bulls to deliver better quality meat to the local market. These bulls are purchased at a young age and fattened for about 12 to 15 months.

Fodder production

Source: Alfa Fodder and Dairy Farm photo gallery (2014)

Maize silage is one of the main products produced on the farm. The fodder is mixed every morning. The fodder which is used as feed for dairy cows on the farm is a mixture of maize silage, spent grain and grass hay, with concentrates, rapeseed cake and molasses. The farm also delivers fodder, which is a mix of corn silage and spent grain, to local farmers three times a week. According to Heleen Stam, this is an important farm activity as one of their goals is to deliver feed to small-scale farmers. This also enables Alfa Farm to give practical advice to surrounding farmers tailored to their specific situations. About 7000 kg of fodder is delivered to local customers on a weekly basis.

23


5 The Dairy Sector in Ethiopia There are 10 million dairy cows in Ethiopia producing 3.2 billion liters of milk per year. The production per cow is estimated at approximately 1.54 liters per day for an average lactation period of six months (Beruk, 2014). Ethiopian cattle are reared mainly for milk production. Commercial offtake rates can be low, estimated at 10–12 percent of the national herd. The rural dairy smallholder system is responsible for the largest share of total milk produced, contributing 98% of the milk supply. Commercial milk processors use modern technology and a majority of their output is pasteurized milk in 500 ml packs. Mama Dairy also produces UHT milk. Currently there are about 22 main commercial processors (see Table 1). These companies have a daily processing capacity of 210,500 liters per day, but only attain about 59.88% of that capacity i.e. 126,050 liters per day. The three largest processing companies—Sebeta Agro Industry (Mama Dairy), Lame Dairy Processing (formerly the Dairy Development Enterprise or DDE) and Dire Dawa Dairy Processing Enterprise—have a capacity of producing about 115,000 liters per day i.e. about 54.63% of daily milk production. However, among the 22 commercial milk-processing companies, for three of them—Semit Agro Industry/Enat Milk, Beral Milk, and Harmonius Agro Industry—there is no evidence of processing capacity or attained level of processed milk. The private sector constitutes an important part of the dairy sector. It is engaged in providing farm inputs (feed and veterinary drugs), animal health care and milk processing and storage equipment, and serves as an important market outlet for milk and milk products. Out of the 22 commercial processors, nine operate in Addis Ababa and the rest in other major regional cities as indicated in the table below. Thus, the dairy farms in Addis Ababa and Debre Zeit are all competitors of Alfa Farm.

Table 1 Private sector dairy processors No

Areas of operation

Dairy enterprise

Daily processing capacity

Attained average capacity

(liters)

(liters)

1 Sebeta Agro Industry (Mama Dairy)

Sebeta

35,000

30,000

2 Lame Dairy Processing (formerly DDE)

Addis Ababa

60,000

30,000

3 Dire Dawa Dairy Processing Enterprise

Dire Dawa

20,000

20,222

4 MB PLC (Family Milk)

Addis Ababa

15,000

7,000

5 Yadeni Dairy Farm (Bora Milk)

Addis Ababa

15,000

7,000

D/Zeit

15,000

3,000

D/Zeit

10,000

3,000

8 Berta and Family PLC

Addis Ababa

9,000

6,000

9 Genesis Farms

D/Zeit

4,000

4,000

10 Holland Dairy

D/Zeit

4,000

4,000

11 Almi Tekus Wetete (Almi Fresh Milk)

Hawasa

4,000

3,000

12 Ruth and Hirut Milk Production & Milk Processing PLC

Addis Ababa

4,000

1,500

13 Abay fana Awash Agro-Industry

Adama

3,500

2,000

14 Chuye Milk and Milk Products Processing

Addis Ababa

3,000

1,000

15 Fantu and Family Dairy Farm

Addis Ababa

2,500

2,000

16 Zemen Milk

Mekele

2,000

150

17 Pinguin International Business PLC (cheese world)

Addis Ababa

1,800

600

18 Life Milk Processing Enterprise

Sululta

1,500

1,500

19 Semit Agro Industry/Enat Milk

Mojo

20 Beral Milk

Addis Ababa

21 Harmonius Agro Industry

Adama

22 Jantekel Dairy Cooperative Union (Facil Milk)

Gonder

1,200

300

24

Source: Current study survey result; Land O’Lakes, 2011

6 Ada’a Dairy Cooperative 7 Lema Dairy


The need to shift to modern processing Ethiopia has a tradition of dairy consumption, mainly in the form of traditional products such as butter and cheese, and some liquid and fermented milk. However, the average consumption of dairy products is low compared to neighbouring countries. The formal dairy value chain handles urban sales of processed and packed products of only around 2% of total consumption. This is below the increased demand for traditional as well as processed and packed products created by population growth, urbanization and improvements in income similar to many developing countries. In order to meet this demand, the Ethiopian dairy sector requires a transition, or even transformation, from mainly traditional dairy products marketed in rural localities, to processed and packed products marketed in the cities. This would help meet urban demand, which would gradually lead to import substitution. In a wider context it would also stimulate rural development through improved food security and income generation. The present market-oriented business environment offers opportunities for further development of the sector with the strong involvement of both local and foreign investors who are already engaged in production and/or processing. Production of quality dairy products for the market requires efficiency in the production process. Experiences in other countries show that dairy development should be addressed in an integrated approach to the value chain. Under this approach all aspects of the value chain (input, service supply, production, collection, processing, marketing and consumption) should be given due attention. Much can be learnt from examples elsewhere, but development options should be adapted to the local context.

Challenges The major challenge for dairy development in Ethiopia is the need to guarantee a reliable market for milk producers and processors. At the moment, the urban market is greatly affected by seasonal factors, such as fasting periods, which influence supply and demand. Other factors affecting the market include poor quality products, lack of product diversification, poor distribution systems and limited promotion of products. Investments in processing capacity for dairy products with a long shelf life are needed to acquire improved distribution, promotion and improvement of product quality. There is the need to identify options for improvements in the quality of traditional products and how to market them, not only through the usual informal settings, but also through formal channels. Milk in Ethiopia is produced mainly by small-scale producers alongside a number of medium and large-scale producers. Given the structure of Ethiopian agriculture, the major part of urban milk supply would also continue to be met by small-scale producers. Under these circumstances, a critical challenge would be the inclusion of small-scale producers and their transformation from subsistence to commercial dairy farming. This transformation would require institutional development at various levels to support commercial milk production, which includes developing an enabling environment in terms of government policy (regulations, subsidies, services, and market protection), research, education and extension, animal health services, and producer and processor organizations. It would also require access to resources like land and credit, as well as improved physical infrastructure such as roads and electricity. Transformation of this kind implies overcoming the challenges in production (improvement of breed, feed, seeds, fertilizer, semen, animal health and reproduction), organizing milk collection through cooperatives or private centers, improvement of milk in quality and quantity, farm advice and credit. Large-scale production of quality roughage (substance in the feed that aids digestion) and the establishment of commercial cattle-breeding farms in areas outside the milk sheds would be among the solutions for developing quality feed and quality animals. Provision of services in an organized system, whereby inputs are supplied in relation to milk collection and marketing requirements, has proven to be successful in many countries. The provision of services and inputs is organized either by private suppliers (SMEs in business hubs, or processors) or by farmers themselves in cooperative organizations (business hubs). Adopting the value chain approach for each area/milk shed and identifying the corresponding production systems will help detect the most limiting factors requiring attention and make an integrated development approach possible.

25


6 Challenges of Alfa Fodder and Dairy Farm PLC According to Heleen Stam, doing business in Ethiopia turned out to be more difficult than she had expected. She adds that Ethiopia is a wonderful country with adorable people, good ethics, though she felt that some people may have a wrong perception of white people, especially in relation to finance. She enumerated the major challenges of the farm. Managing the dairy value chain According to Heleen, it is difficult to manage the dairy value chain in a way that would be suitable for all stakeholders. The interests of the stakeholders are quite different. Getting land Heleen explained that getting land was one of the most difficult issues to address. In Ethiopia, you cannot own land, but you can lease it from the government for a set number of years. Consequently, Alfa Farm uses its allocated land very efficiently. Government policy (bureaucratic procedures) According to Heleen Stam, “Ethiopia is an amazing country; we love the people so much”. However, in contrast with public institutions in Holland where everything is easygoing and efficient, she found that in Ethiopia much effort was needed to push public officials to carry out their own tasks; the working environment was not encouraging. “We have to take care of different things”, she added. “The government offices have different interests which pushes them in different directions. In short we have to struggle with everything in Ethiopia.”

The attitude of the surrounding people There are a number of international NGOs operating in Ethiopia, but the impact on people’s livelihood appears insignificant. Moreover, a dependency syndrome seems to have developed as a result of the free resources local people have been receiving from the NGOs working in their communities. Consequently, those who live around the surrounding areas of Alfa Farm often expect to receive inputs for free. The other problem is that people seem not to trust foreign investors. Most investors promise different things to the communities but do not keep their promises, which creates obstacles to those businesses like Alfa Farm who genuinely want to help the people living in the surrounding areas. Regarding employment generation, the technologies used by Alfa Farm are capital-intensive and therefore generate little employment opportunity for people in the surrounding communities. Adapting to the challenges of the environment The environment (both business and personal) in the Netherlands, where Heleen Stam hails from, is very different in terms of culture, business ethics and bureaucracy. She was pregnant when she came to Ethiopia to manage Alfa Fodder and Dairy Farm. At the time she moved to Ethiopia, most restaurants were not concerned about milk quality. Through experience, Alfa Farm has built trust and confidence with customers. Currently, there is huge demand for milk from Alfa Farm, which as yet cannot be fully met.

7 Future plans and strategic options One of the major, future plans of Alfa Farm is to invest their profits in other ventures. With this investment, the company plans to expand by establishing branches in different regions of Ethiopia. In addition, the farm continues to share knowledge and experiences with different development partners. Moreover, it aspires to crossbreed cattle obtained from Holland with local breeds in Ethiopia and to involve the local community including through training, technology transfer, knowledge- and skills-sharing.

As she drove home, Heleen Stam thought about the pros and cons of her decision to stay in Ethiopia instead of moving back to the Netherlands. Alfa Fodder and Dairy Farm remains a capital intensive operation in a country where the government strongly encourages labor-intensive

agro-industry development. However, if Alfa Farm were to integrate its operations with other milk-processing farms, will the market for milk be sustainable? What marketing strategy will they need to adopt in the future to make their business more profitable?.

26


EXHIBITS

Exhibit 1 Total milk production and average daily milk production in Ethiopia

Source: Land O’Lakes Inc., 2010

Exhibit 2 Productivity per cow in Ethiopia and trends in milk yield per cow Productivity per cow Country

Yield (kg) 9,616

Israel

9,583

United States of America

9,118

Sweden

8,152

Denmark

8,131

Algeria

1,320

Morocco

1,102

Egypt

997

Angola

482

Sudan

378

Ethiopia

270

Nigeria

240

Bangladesh

206

Tanzania

174

Source: International Food and Agribusiness Management Association (IFAMA), 2014

Republic of South Korea

27


Value in 1000 USD

12 000 10 000 8 000 6 000 4 000 2 000 0 -2 000 -4 000 -6 000 -8 000 -10 000 -12 000

Export

Import

Net Trade

Export Average

Import Average

Net Trade Average

2005

2006

2007

2008

2009

Source: FAO/SFE, 2011

Value in 000 USD

Exhibit 3 Milk and milk products—Export/Import (2005–2009)

2005

2006

2007

2008

2009

Average

Export

73

107

67

96

123

93.2

Import

5,634

7,563

5,858

9,305

10,325

7,737.0

Net Trade

-5622

-7,456

-5,788

-9,209

-10,202

-7,655.4

Exhibit 4 Background to the PSI Initiative Project number Location Sector Applicant Local partner Start project Status Total budget

PSI09/ET/27 North West of Debre Zeit (Bishoftu town) Animal husbandry modern/intensive Flier Beheer B.V., Barendrecht, The Netherlands Holland Dairy PLC, Debre Zeit, Ethiopia 01 January 2010 Project in progress €1,499,940 (50% PSI contribution = €749,970)

Summary of the project Ethiopians have used milk as part of their diet for centuries. Most of the milk is produced by rural small-scale farmers. Although Ethiopia has the largest livestock population in Africa, the total milk production is very low in comparison with other African countries. This is caused by the low average yield of 166 litres per cow per year. The constraints the dairy sector is dealing with are poor dairy genetics, animal diseases, availability of feed and fragile markets. This project will introduce good quality fodder crops for dairy farmers and will show improved animal husbandry practices at farm level. Applicant Flier Beheer B.V. from The Netherlands will start a strategic alliance between Alfa Farms and the dairy processing factory, Holland Dairy PLC, in Debre Zeit. Alfa Farms will produce fodder crops for cattle like Lucerne, maize, triticale, grass and fodder beets and sell the total mixed ration (TMR) feed to at least 500 small-scale farmers in the area around Debre Zeit, enabling a 50% reduction of feed costs per litre milk produced. A demo farm will be started in Debre Zeit with the aim of training farmers in how to improve animal husbandry practices for improved milk production. As such, the project will improve the dairy chain around Debre Zeit.

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Results Result 1 Project inception phase

Result 2 Farm buildings constructed

Result 3 First forage crop harvested

Result 4 First milk delivered

Result 5 Farm fully operational

Corporate Social Responsibility The applicant started his activities in Ethiopia 10 years ago with a vision to reduce poverty. However, as a real entrepreneur he believes this can only be achieved sustainably by running a successful company. In Debre Zeit, Alfa Farm is a partner in the joint efforts of several Dutch business people. Company profits will be reinvested to continue the expansion of forage and food production. The company will implement integrated crop management practices and work in accordance with a human resource management (HRM) handbook and code of conduct.

Impact

• Long-term economic activity

The project partners will make an extra investment by importing 100 additional heifers, by increasing the area for fodder crop production by 100–150 ha and by starting a farm shop. Employment and working conditions In total, 62 people will be employed full time and 100–200 people will have seasonal work. Out of the 62, 12 persons will be employed at mid- and top management levels. Two years after PSI, there will be 25 managerial positions, 80 people at operational level and 200 to 600 seasonal workers. The latter will depend on the type of crops grown. The basic salaries will be 12% above locally paid wages for comparable jobs. The HRM and salary policies will include employee discounts on farm products, paid extra hours, farm meals, free education and training, personal development planning including management training, free first aid and a health-care prevention plan, free birth assistance for women and paid maternity leave, voluntary HIV prevention programme and testing, collective transport, child care on the farm, free English lessons, and safety standards. Transfer of knowledge New skills and knowledge levels acquired by local employees will be measured by recognised certification. At the start of the project, employee qualifications will be documented. Following the education and training received from Alfa Farm, the employees’ level of acquired knowledge will be tested by the Hope University College in Addis Ababa. However, the knowledge on forage production will be new for Ethiopia. At least 500 farmers will be trained in animal husbandry practices. Chain effects Increased sales of forage for animal feed will result in higher milk output per cow, as well as lower feed costs per litre of milk produced. Therefore, the farm income of at least 500 small-scale farmers will increase. Secondly, the dairy factories in that region will be able to source more and better quality milk closer to the source, enabling them not only to expand production, but also to switch to high-value dairy products. With a substantial increase in milk production in Ethiopia, there will be less need for imports of milk powder, saving on foreign currency expenditure. In future also, more foreign currency will be generated by exports of lucerne hay. Environment An environmental impact assessment will be executed during the first result (project inception phase). Forage will be produced according to integrated crop management principles. It is expected that the impact on the environment will be neutral. Position of women Six out of 12 management positions will be held by women. However, the positions will be open to both men and women. The seasonal workers will mainly be women. In total 150 women will be involved. On-farm child care will be available. Alfa Farm will cooperate with Hidi Clinic, not far from Debre Zeit, to offer emergency help and delivery assistance to women. Alfa Farm will support women by organising empowering discussions. Other impact Alfa Farm will supply drinking water to the neighboring community in an accessible place.

•

•

•

• • •

Source: http://www.rvo.nl/subsidies-regelingen/projecten/farming-future

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Exhibit 5 Blog article on ‘Maize to increase milk production’

“With the arrival of Dutch farmers at the Alfa Fodder & Dairy farm, the techniques of producing and preserving good quality maize silage have come to Debre Zeyit. In the bedding of Lake Hora, which falls dry for some months during the dry season, about 60 hectares of maize can be grown. Last year, this went quite well (though there were some problems with insects) and there was a good harvest. As there are no cows at the Alfa farm yet, all this maize can be sold to local farmers. Three times a week bags of maize silage are distributed to the nine dairy farms around Debre Zeyit. The maize is used to increase milk production of the stall-fed cows and to fatten bulls in the last months before slaughter. With a good combination of maize silage and concentrates fed with the local available straw and grasses, milk production can reach levels of over 25 litres per cow per day. Often these cows are purebred Holstein cows or cross-bred Holstein-Borana. The fattening bulls are of the local breed, mainly Borana. The other two days of the week, new farmers are visited and calculations are made to analyse if buying maize is beneficial for them. If the farmers are focused on milk production and have good management, buying maize is often very profitable and will increase milk yield with low extra costs. However, it is difficult to show benefits in a short time span and farmers are not willing to make big investments. Therefore the Alfa farm is constructing a new cow stable and will have 100 Holstein cows producing milk the coming year. If this works well, other large investors can adopt this concept. Because of the high demand for milk and because of the good nutritional value this can give many more Ethiopian people access to an improved diet all over Ethiopia.”

REFERENCES Background to the PSI project: http://www.rvo.nl/subsidies-regelingen/projecten/farming-future [accessed July 2014] Beruk, Yemane (2014) ‘Grain production as contribution to animal feed in Ethiopia’, Paper presented at Windsor Golf Hotel and Country Club Nairobi, Kenya. Information about Alfa Fodder and Dairy Farm PLC: http://alfafarms.com/index.php/en/about-alfa-farm [accessed July 2014] IFAMA (2014) ‘Inclusiveness of the Small-Holder Farmer, Key Success Factors for Ethiopian Agribusiness Development’, International Food and Agribusiness Management Review Volume 17 Special Issue B, p. 85. Land O’Lakes Inc. (2010) The Next Stage in Dairy Development for Ethiopia: Dairy Value Chains, End Markets and Food Security, Cooperative Agreement 663-A-00-05-00431-00, Addis Ababa, Land O’Lakes Inc., pp. 20, 21. Pictures taken on the farm: https://plus.google.com/photos/106543218751487678910/albums/6069344582067445297?banner=pwa&gp src=pwrd1#photos/106543218751487678910/albums/6069344582067445297?banner=pwa&gpsrc=pwrd1 [accessed July 2014] Wouters, Bram and van der Lee, Jan (2010) ‘Pathways to Growth: Outlook for Dairy Development in Ethiopia’, Background paper for National Workshop on ‘Enhancing Dairy Development in Ethiopia’, Ethiopia, Wageningen UR. Available from: http://edepot.wur.nl/164124 [accessed July 2014] Yilma, Z., Guernebleich, E., Sebsibe, A. (2010) A Review of the Ethiopian Dairy Sector, Edited by Rudolf Fombad, FAO Sub Regional Office for Eastern Africa (FAO/SFE), p. 44.

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Source: http://doriekeblogs.files.wordpress.com

Posted December 5, 2010 by Dorieke (http://doriekeblogs.wordpress.com/2010/12/05/ maize-to-increase-milk-production/):

CASE STUDY ON ELERE POULTRY FARMS Bishoftu, Ethiopia

Authors: Demeke Afewerk (Hawassa University, [email protected]) Misgina Tamirat (Jimma University, [email protected]) Adem Feto (Adama Science and Technology University, [email protected]) Messele Kumilachew (Adama Science and Technology University, [email protected]) Getachew Nigussie (Jimma University, [email protected])

CASE STUDY ON ELERE POULTRY FARMS Bishoftu, Ethiopia July 2014

for a child per day in every household in Ethiopia”. Yet, he could not set aside his main concerns. Was entering the poultry business a good idea? What strategies did he have to adopt to scale up his efforts?

Mr. Fanta was driving home, bursting with energy. He’d managed to reach another group of farmers, who’d agreed to buy his chickens to produce poultry meat. Another small step towards achieving his dream “to see chicken at each meal, and one egg

1 The inspiration leading to Elere Farms and the sleepless start-up nights Immediately after graduation Mr. Fanta joined the Ministry of Agriculture in Ethiopia, where he was employed for 6 years, after which he spent 14 years working for NGOs. While working for the latter, he had the chance to visit different parts of the country. One day, while he was conducting a baseline survey on nutrition and protein intake, he observed that there was a huge protein deficiency among children in the country. He also noticed that there was a shortage of protein supply in the country, which he considered a key factor leading to this protein deficiency. In addition, he had also had the opportunity of visiting a poultry farm abroad. Armed with all these lessons and experiences, an interesting business idea came to his mind. Mr. Fanta decided to start a poultry farm to help solve the critical issue of protein deficiency in his country, in line with the World Health Organization’s vision “to see chicken at each meal, and one egg for a child per day”. However, to finance the type of business he wanted to establish, he needed more than the 90,000 ETB (Ethiopian Birr) which he had saved from his salary. Access to finance proved the greatest challenge for Mr. Fanta who, after spending sleepless nights and exploring various possibilities for obtaining funding, took the risky decision of selling his home for 650,000 ETB as a last resort. The farm was established in 2008 and he invested all the money in constructing houses, infrastructure and buying a few local-breed chickens.

2 The early challenges and the passion to secure external financing Operating the business did not come easily. Initially, most of Mr. Fanta’s chickens died. He didn’t have a house to live in, and had very little money even to hire a farm guard and technical personnel. Consequently, he had to wear many hats, including guarding his own farm and filling the skills gap by consulting agricultural field experts in his district. Moreover, securing the finance needed for his business still proved elusive. Mr. Fanta was referred by a friend to contact the Development Bank of Ethiopia, and so he prepared a project proposal on setting up a poultry farm and applied for a bank loan. However, after reviewing his proposal, the bank challenged the project’s feasibility for three reasons: the absence of collateral the lack of strong arguments in favour of the project feasibility the poor financial analysis.

• • •

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Given these reasons, the proposal was rejected. However, Mr. Fanta was committed to realizing his vision. He didn’t give up. He went personally to see the general manager of the bank, but because of his weak communication skills, he had difficulty convincing the bank of the merits of his plan. Eventually, and due to Mr. Fanta’s persistence, his loan request was finally approved. Even today, that event stands out in his memory as a very special day. The secured credit from the bank enabled him to purchase the required inputs i.e. machines (setter, hatcher and feed processor) for further expansion of his business. Additional land was also secured from the town municipality.

3 The poultry-eating culture in Ethiopia The demand for poultry meat is mainly influenced by population growth and rising incomes. With a current population of around 82 million in Ethiopia, and roughly 6 persons per household, there are around 13.5 million households, 60% of which are Orthodox, 25% Muslim, 10% Protestant and 5% from other religions. Members of the Orthodox Church live according to the strict rules of the Old Testament, which restricts certain foods they eat. Usually, Ethiopians eat only chicken, fish, beef, goat or sheep. In some areas certain types of bird, similar to chicken, are also eaten. Ethiopians who live according to the rules of the Church spend almost half of the year fasting, with stricter groups following a rigid vegan diet by cutting out meat, dairy products and eggs during fasting time. This means that there is some demand for chicken, demand for chicken and eggs remainshigh throughout the year, peaking around the special holidays. The low season occurs during the Orthodox fasting period which lasts for two consecutive months (56 days). Another fasting period starts around 45 days before the Ethiopian Christmas, which is on 7th January. When breaking fast in the evening, people spend the night in church, whilst at home the mothers with their oldest daughters prepare the traditional culinary specialty doro wat, a chicken stew, which takes several hours to prepare. The preference for local chicken and eggs over the modern variety probably has its origin in the way chicken is prepared and eaten. Apart from doro wat, Ethiopians do not eat much chicken meat. Doro wat requires cooking the chicken meat for a longtime, around seven hours, and the traditional chicken, with its tougher meat structure, is more suited to this method of preparation. The dish is eaten on special occasions, requires careful preparation and special (and expensive) ingredients. As a result of this status, chicken is not seen as something you can eat every day and which can be prepared simply, quickly and easily. In addition to this, the more western methods of preparing chicken are not common in Ethiopia and therefore chicken is not considered fast and cheap food as is the case in many other countries. Since chicken can only be bought (or at least, mostly) whole, it represents a fairly big investment for families. On the other hand, other types of meat such as cattle, can be bought by the gram, making it possible for those on a tight grocery budget to eat meat. Food-purchasing habits Ethiopian consumers prefer to buy their groceries at the local market, including chicken which is bought live and slaughtered at home. When buying chicken, consumers perform extensive quality control on the product, something which is more difficult to do on packaged food in a modern supermarket.

4 Favorable conditions in Ethiopia Policy framework Since 1991, the Government has been implementing its strategy of Agricultural Development-Led Industrialization (ADLI) which sees agriculture as the engine of growth. Its main thrust has been to: 1. improve agricultural extension services; 2. promote better use of land and water resources; 3. enhance access to financial services; 4. improve access to domestic and export markets; and 5. provide rural infrastructure. The country’s first poverty-reduction strategy, known as the Sustainable Development and Poverty Reduction Program, was successfully implemented over a three-year period with strong support from development partners. The program consolidated the gains realized under the ADLI strategy and promoted civil service and judicial reforms, capacity-building, good governance, and decentralization and empowerment (FDRE/MOARD, 2010).

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Numerous investment opportunities The major technical constraints are under-nutrition and malnutrition, high prevalence of diseases, relatively low genetic potential for productive traits, poor management practices and weak market infrastructure. Improved technological applications, efficient and effective input supply systems, better management options, access to knowledge and credit are required on the supply side. New private investment is sought in the production and processing of agricultural products. Investment is also required to provide agricultural support services such as pest and disease control, agricultural machinery, cold storage, etc. A number of crops are grown organically.

5 The poultry sector in Ethiopia Apart from Addis Ababa, the greater part of poultry production and (potential) consumption takes place in Debre Zeit and Nazreth, situated in Oromiya Region. Together they cover 95% of commercial poultry production in the country. Oromiya Region has around 34.4% of the national chicken population and accounts for 36% of annual national egg and poultry production (FAO, Animal Production and Health Division, 2008). The total poultry population at country level is estimated to be about 45 million (see Exhibit 1). Ethiopia has the largest livestock population in Africa and the contribution of livestock and livestock products to the agricultural economy is significant. Recent figures indicate that the livestock sector contributes about 12–16% of national GDP, 30–35% of agricultural GDP, 15% of export earnings and 30% of agricultural employment. Despite the country’s significant livestock population, the sector has remained underdeveloped and its potential has not been efficiently and effectively used. Livestock contributes to the livelihoods of 60–70% of the population. Smallholder farmers represent about 85% of the population. Generally, productivity is relatively low, quality feeds are difficult to obtain, support services are deemed inadequate, and there is an immediate and growing shortage of poultry products in all major areas of Ethiopia. Moreover, during the last decades, the dependency of large hotels and international organizations on imported poultry products has increased (Pangi and Abebe, 2008). Consequently, the economic prospects for poultry industry performance and development are rather attractive both at smallholder level and on a more commercial scale.

Poultry production systems FAO classifies poultry production systems into four different categories (FAO, 2008): Sector 1 Industrial integrated system with high level of biosecurity and birds/products marketed commercially • (e.g. farms that are part of an integrated broiler production enterprise with clearly defined and implemented

standard operating procedures for biosecurity).

Sector 2 Commercial poultry production system with moderate to high biosecurity and birds/products • usually marketed commercially (e.g. farms with birds kept indoors continuously; strictly preventing contact

with other poultry or wildlife). Sector 3 Commercial poultry production system with low to minimal biosecurity and birds/products entering live bird markets (e.g. a caged layer farm with birds in open sheds; a farm with poultry spending time outside the shed; a farm producing chickens and waterfowl). Sector 4 Village or backyard production with minimal biosecurity and birds/products consumed locally. This sector is by far the largest production system in Ethiopia.

• •

As in many other Africa countries, rural/village-level or backyard poultry production contributes significantly (approximately 96%) to national egg and poultry meat consumption in Ethiopia (see value chains for backyard poultry production (Exhibit 4) and commercial broiler production (Exhibit 5)).However, very little research and development has been carried out on indigenous chickens, despite their important contribution to protein supply in the country. It appears that there are few farmers who entirely specialise in or depend on poultry production. For small- to medium-scale farmers, the income from poultry product sales is not enough to make a living. This problem is aggravated by the insufficient and highly irregular availability of day-old chicks (DOCs). As DOCs must be ordered a long time in advance, it is hardly possible for a family business to rely on poultry production alone, especially during the lengthy period between the order and delivery of the chicks. Even large-scale poultry farms, mainly owned by investors, do not rely on poultry as their sole source of revenue. Other sources of income include sector-related activities such as feed milling, slaughtering birds from other producers and brokering birds. Often, money is also invested in completely unrelated activities like car spare parts, supermarkets and transport.

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Housing Housing construction (basic structure) is usually fairly well-developed, often using stone as well as mud (rammed-earth) walls. The latter can last up to ten years. However, ventilation is often an issue, as many houses do not have appropriate systems to stimulate good airflow. Moreover, houses with sufficient air inlet capacity often have poor covers over the air ducts, which can result in sharp temperature drops at night. Floor quality is also rather poor, often with holes in the concrete, which prevents proper cleaning and disinfection of surfaces.

Feed There are a few commercial producers of specialised poultry feed in the country. Feed mills generally use locally produced raw materials. Premixes and concentrates are usually imported since there is no, or insufficient, production of good quality premixes and concentrates in the country. Virtually no quality testing is done on poultry feed, hence the quality varies and so levels of energy, protein, etc. cannot be taken for granted. Furthermore, in order to reduce costs, many farmers ‘dilute’ the purchased feed with their own raw materials, such as maize, noug cake and bone meal, and do not add sufficient amounts of premixes.

Equipment Poultry farm equipment is available through several distributors. All equipment are imported as there is no production in Ethiopia. Equipment distributors maintain close relationships with several companies abroad i.e. in countries such as Belgium, Italy, The Netherlands, India and China. Customers include farmers at all levels. Small- and medium-scale farmers mostly buy drinkers and feeders, while large-scale farmers need more comprehensive solutions including hatchery and climate systems.

Animal health Currently the commercial poultry sector in Ethiopia is very small and of minor economic importance, especially when compared to the cattle and small ruminant sectors. Consequently, there is limited knowledge about poultry management, disease diagnosis and disease control systems. The National Veterinary Institute produces some key vaccines for poultry: live and inactivated Newcastle Disease, IBD, Fowl Pox, and Fowl Typhoid. Other important vaccines are not available from local producers. Vaccination programs are non-existent, but commercial poultry producers carry out regular vaccinations against the most important diseases. There is no data available on the efficacy of vaccination in the field. And there is no organized cold-chain management. Vaccination is used as a control tool during disease outbreaks. In virtually all cases, vaccination is done on schedule. Some of the larger producers purchase their vaccines from abroad, either directly or through local distributors. Locally-made vaccines are only available from the National Vaccine Institute in Debre Zeit. The rearing and management of layer pullets is usually up to standard. Broiler-keeping, however, has its difficulties. The quality and health of broiler DOCs is usually fairly good, but due to a variety of reasons, after one or two weeks they tend to catch various diseases which affect their uniformity and growth rate. Well-kept broilers are able to reach a live weight of over 2 kg in 45 days. In most cases, the fattening period takes one to two weeks longer. Biosecurity measures in general are either hardly existent or poorly enforced. Most farms have some form of footbath, the effectiveness of which is doubtful at most, given the dirty state of most of the baths. In addition, farms do not provide visitors with separate footwear.

Marketing channels The chicken and egg marketing channels in Ethiopia are informal and poorly developed. Chickens and eggs are sold to households within the villages, on roadsides and in local and urban markets (ILRI, 1995).

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6 Prices and currency devaluation Over the years, chicken and eggprices have increased significantly. In January 2005, it was possible to buy 4 eggs for 1 ETB and the price of a chicken at the local market ranged from 20 to 25 ETB. At that time, bread could be bought for 0.50 ETB and 1 kg of tomatoes for 2 ETB. Moreover, it is common knowledge in Ethiopia that economic development is impacted by inflation and currency devaluation, reducing the monetary value as the price of various food items rise. During the 1970s and 1980s, imported exotic breeds made up 1% of total national poultry production with an estimated rise in 2004 to 2.18% (CSA, 2004–2005 ). Over the last 20 years, the share of exotic chicken in total annual poultry meat and egg production has increased by 118%.

7 Elere Farms—products, value addition, and returns Elere Farms produce the following major products: broiler meat, parent stock, commercial chicken and poultry feed. Initially, the farm did not produce poultry feed. However, Mr. Fanta realized that he could minimize costs by producing feed on the farm and so he purchased feed-processing machines and obtained the necessary inputs from small-holder farmers and wholesalers. The parent stock used for poultry production was not available in the country, but imported from The Netherlands (see Exhibit 3.1). Elere Farms mainly sell their products to households, hotels and restaurants, supermarkets, micro and small enterprises, non-governmental organizations, Ministry of Agriculture, smallholder farmers and other poultry farms. Customers can use their own transport facilities, but the vehicles are checked for dust and other particles and to ensure that the chickens travel in the right conditions. Transport is arranged early in the morning when temperatures are still low to reduce stress on the birds and ensure they reach their destination in good condition. By the end of the first year, profits for Elere Farms increased threefold and since then, their returns have increased year after year. Sales in 2013 were 36,000 pullets per week and earnings were around 200,000 ETB per day. In the same year the firm’s physical capital reached 20 million ETB. Poultry feed production was at full capacity, and 200,000 ETB per month were paid in taxes to the government. Sales take place against advance payment or on a cash basis, except in a few cases when customers buy on credit.

8 Prospects for Elere Farms After four years building a business worth 20 million ETB in capital and doing what he liked most, Mr. Fanta was not satisfied with the success he had already achieved. He kept on working to realize his dream of reaching every corner of the country with Elere poultry products. One of his biggest operational challenges remains the shortage of electric power. Since operations, especially the incubators and the hatchery, are totally dependent on electricity, any technical failures may cause huge losses. Consequently, the frequent power interruptions present the highest threat to Mr. Fanta’s business. Customer satisfaction is also a big concern, since most of the farm’s customers have little knowledge of poultry operations. After buying poultry products (especially day-old chickens), customers often call Mr. Fanta for help whenever an issue arises. It is a great relief for Mr. Fanta to see his customers become more professional and successful in their own businesses. Like his competitors, Mr. Fanta would also like to expand his business to serve the increasing demand in the sector from farm households, micro enterprises and competing big commercial farms. He has plans to produce improved parent stock locally to substitute the imports from The Netherlands, and to export to other African countries. As Elere Farms continue to thrive, Mr. Fanta tries to find reassuring answers to the following questions: Was it a good idea to go into the poultry business? What are the challenges for the future? What possible strategies should be followed to overcome these challenges? How can operations be scaled up?

• • •

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EXHIBITS

Exhibit 1 Poultry types

Indigenous Type of poultry

Number

Hybrid

%

(1000)

Number (1000)

Exotic %

Number (1000)

All %

Number (1000)

%

Cocks

4.206

9.37

29

0.06

145

0.32

4.381

9.76

Cockerels

2.097

4.67

14

0.03

59

0.13

2.170

4.84

3.97

8.84

27

0.06

127

0.28

4.125

9.19

1.340

2.99

8

0.02

45

0.1

1.393

3.10

Chicks

17.530

39.05

55

0.12

422

0.94

18.000

40.11

Laying hens

14.158

31.54

123

0.27

532

1.19

14.814

33.00

All poultry

43.304

96.46

256

0.57

1.332

2.97

44.893

100.00

Pullets Non-laying hens

Exhibit 1.1 Estimated number of poultry by type and breed, Ethiopia—2012/13

Cockerels 5.34% Non-Laying Hens 3.03% Pullets 9.65%

Exhibit 1.2 Distribution of poultry by type

Chicks 38.91%

Source: CSA, 2012

Cocks 10.30%

Laying Hens 32.77%

100 90 80 70 60 50 40 30 20 10 0

Month

Sept . Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug.

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Source: DZARC, 2009

Price (ETB per bird)

Exhibit 2 Seasonality of prices for live chickens, 2008/09

Source: The Holland Africa Poultry Partners, 2011

Estimated number of poultry by type and breed


Exhibit 3 Photos of Elere Farms

3.2

Exhibit 3.1 Poultry parent stock at Elere Farms


3.1

Exhibit 3.2 Eggs ready for the hatchery

Exhibit 4 Value chain for backyard poultry production in Ethiopia GOVERNMENT MULTIPLICATION CENTERS/ EXTENSION SERVICE/NGOs

BACKYARD FARMS Source: Ayele, G. et al., 2010

VILLAGE MARKETS

VILLAGE COLLECTORS

TRADERS

CONSUMER MARKETS

Exhibit 5 Value chain for commercial (modern) broiler production in Ethiopia IMPORTED DOC

BREEDERS—HATCHERIES (imported/own parent stock)

Integrated for Alema and ELFORA

Via traders

BROILER PROCESSORS

TRADERS

CONSUMER MARKETS

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Milled feed

FEED MILLS

Poultry litter/wastes

Offals, wastes, feathers

BY-PRODUCT CONSUMERS

SUPERMARKETS, RESTAURANTS, HOTELS, KIOSKS

Source: Ayele, G. et al., 2010

COMMERCIAL BROILER FARMS


REFERENCES Andargachew, K. (1990) Sheep Marketing in Central Highlands, An MSc thesis presented to the School of Graduate Studies of Alemaya University, Ethiopia, 117 pp. Ayele, G. and Rich, K.M. (2010) Poultry Value Chains and HPAI in Ethiopia, African/Indonesian Team Working Paper 25. Branckaert, R., Gaviria, L., Jallade, J., and Seiders, R. (2000) Transfer of technology in poultry production for developing countries, SD dimension. Available from: http://www.fao.or/sd/cddirect/cdre0054.htm [accessed 30 October 2014) Classen, I. and Duns, H. (2012) Poultry Veterinary Health Strengthening in Ethiopia. Cloezeman, S. (2012) Consumer Research and Chicken Eggs. CSA (Central Statistical Agency) (2012) Agricultural Sample Survey, Addis Ababa, Ethiopia. DZARC (Debre Zeit Agricultural Research Center) (2009) Annual Report, Debre Zeit. Eshetu, Y., Mulualem, E., Ibrahim, H., Berhanu, A. and Aberra, K. (2001) ‘Study of gastro-intestinal helminthes of scavenging chickens in four rural districts of Amhara region, Ethiopia’, Revue Scientifique et technique (International Office of Epizootics), 20(3):791–796. FAO (2008) Poultry sector country review. FDRE and MOARD (Federal Democratic Republic of Ethiopia, Ministry of Agriculture and Rural Development) (2010) Ethiopia’s Agricultural Sector Policy and Investment Framework (PIF): 2010–2020, Addis Ababa, Ethiopia. ILRI (International Livestock Research Institute) (1995) Livestock Policy Analysis, ILRI Training Manual, Nairobi, Kenya. Kohls, R.L. and Uhl, J.N. (1985) Marketing of Agricultural Products, 5th ed., Macmillan, USA. Mengesha, M., Tamir, B. and Dessie, T. (2011) ‘Village Chicken Constraints and Traditional Management Practices in Jamma District, South Wollo, Ethiopia’, Livestock Research for Rural Development, 23 (37). Available from: http://www.lrrd.org/lrrd23/2/meng23037.htm [accessed 30 October 2014]. Moges, F., Abera, M. and Tadelle, D. (2010) ‘Assessment of village chicken production system and evaluation of the productive and reproductive performance of local chicken ecotype in Bure district, North West Ethiopia’, African Journal of Agricultural Research, 5(13):1739–1748. Pagani, P. and Wossene, A. (2008) Review of the new features of the Ethiopian poultry sector: Biosecurity implications, FAO Consultative Mission Report. Serkalem, T., Hagos, A. and Zeleke, A. (2005) ‘Sero-prevalence study of Newcastle disease in local chickens in central Ethiopia’, International Journal of Applied Research in Veterinary Medicine, 3 (1). Tadelle, D. (2001) ‘The role of scavenging poultry in integrated farming systems in Ethiopia’, Debre Zeit Agricultural Research Center, Debre Zeit, Ethiopia. Available from: http://www.fao.org/ag/aga/agap/frg/conf96.htm/tadelle.htm [accessed 30 October 2014]. Takele, T. and Oli, W. (2011) ‘Uses and flock management practices of scavenging chickens in Wolaita Zone of southern Ethiopia’, Tropical Animal Health Production, 44:537–544. Vernooij A., et al. (2012) ‘Poultry Production in Ethiopia’, in Poultry in Ethiopia: A survey of Production, Value Chain and Marketing of Commercial Poultry in Ethiopia, The Hague, Netherlands-African Business Council. Vernooij, A. (2012) Poultry in Ethiopia: A survey of Production, Value Chain and Marketing of Commercial Poultry in Ethiopia, The Hague, Netherlands-African Business Council.

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THE CASE OF FRIENDSHIP AGRO INDUSTRY PLC Addis Ababa, Ethiopia

Integrated Poultry Farming

THE CASE OF FRIENDSHIP AGRO INDUSTRY PLC Addis Ababa, Ethiopia July 2014

Authors: Bushra Bedaso (Samara University, [email protected]) Eshetu Tefera (Adama Science and Technology University, [email protected]) Hiwot Mekonen (Haramaya University, [email protected]) Milkessa Temesgen (Ambo University, [email protected]) Yayenababa Abayneh (Hawassa University, [email protected]) Zerihun Nigussie (Bahirdar University, [email protected])

the third training session he had done in the week, and it was only Wednesday. Business had taken off and so the key challenges he now faced included how to manage such a fast-growing enterprise and what strategies he should take to further enhance the company’s competitiveness.

Abel Mekonnen had just finished a training session for potential new customers on how to start poultry farming for laying hens, where he also covered other topics including what were the key challenges and what services his company could provide the customers in the future. This was

1 Background Abel Mekonnen frequently recalls that afternoon four years ago, when he met four of his friends for coffee. That afternoon changed his life. At that time, he and his friends were university graduates working for different companies. What they also shared in common was a dislike to being bossed around by somebody else. In addition, their salaries were far from being at the level where they could lead comfortable lifestyles. It was during that life-changing afternoon when Abel asked the significant question: “Why don’t we start our own business?” His friends initially laughed at the idea, not taking the suggestion seriously. However, days passed and they could not put Abel’s idea out of their minds. Ashenafi, an electrical engineer, took the first step and called Abel to discuss options for the business. They met to explore different enterprises and to consider their options for investment. They called their other friend Yosef, a civil engineer, and shared their plans with him. He agreed to be part of the group. Their other two friends were not included in the venture, having shown little interest in Abel’s idea. And so the three friends organized their group based on trust, dedication, interest and hard work. Said Abel, “I was working as a teacher at the International Community School of Addis Ababa (earning EBT 13,000/month) for six months. The average salary for a teacher at that time was EBT 4,000. I was the first Ethiopian to quit my job there, despite the relatively high salary, good health care, and paid education for my five children. I even had a company car, which would have been mine after five years. I knew I had to make a sacrifice, so I quit. I asked myself the question: Do I use my time efficiently?” Identifying the right business that would help them reach their vision proved a huge challenge for the new entrepreneurs, especially since they did not have much money to do a lot of things. So they analyzed six different businesses and scored them according to various criteria e.g. ability to generate quick returns, low level of capital investment, easy management. They concluded that poultry farming would meet their objectives and—at that point—started looking for start-up capital. “Our pockets were empty, but our hearts were full”, Abel remarked.

39


Between them they had only 18,000 ETB and needed additional finances which they ended up getting in the form of credit from a micro finance institution. Altogether they had 45,000 ETB which they used to finance the business, including making their first purchase of day-old chickens. In order to overcome the problem obtaining enough DOCs, they reached an agreement with a company supplying chickens to buy from them, or to use their incubator in case there were future shortages of day-old chicks. Upon starting the business in 2010, the entrepreneurs had only one employee to help them with the production and distribution of eggs (see Exhibit 7 for the cost price of eggs). They had 80 chickens laying eggs and a single shop selling the eggs. Currently, three-and-a-half years later, they have 68 employees, seven shops, 40,000 chickens, a training center, a metal workshop to produce improved cages, a vegetable garden, a poultry farm (Exhibit 1), a feed-processing plant, a business plan preparation service and lorry rental facility. Moreover, providing poultry-based advisory services and continuous supervision of client producers is also part of their operations. Friendship Agro Industry PLC, as the business was named, is currently the first company providing poultry feed and trainings in Addis Ababa. Feed sales have reached 1 million ETB per month and not less than 14 million ETB per annum. Interestingly, the three people who established the business had no background in agriculture. Abel, the production manager of the poultry business, is a chemist by profession. His colleagues, Ashenafi and Yosef, are electrical and civil engineers respectively. However, they had the enthusiasm to learn everything about poultry production and to combine that with the knowledge from their professional fields. Their engineering background helped them in equipping the poultry house with electricity (heater) supply and in designing their own bird cage. They even secured a government patent for their cage design (see Exhibit 1). Compared to imported ones, the new cage has proved to be better for both the chickens and the producer; the feeder and drinking station are more convenient for the chickens. The new cage can have several floors, custom made according to the wishes of the customer, thus allowing more chickens to occupy each square meter area in the shed (see Figure 1).

The current organizational structure (see Exhibit 5) consists of the management board, which is the decision-making arm of the business, followed by the general manager, the secretary, and the marketing, production, finance and human resources departments. The board meets every month to look at business performance, discuss challenges, explore solutions, take strategic decisions and follow up on implementation.


Abel received training from the National Veterinary Institute (NVI) on how to vaccinate chickens and so used to vaccinate them himself. However, he strongly believed that this had to be done by professionals, and so he hired three veterinarians to take care of the health of the chickens. Currently, Abel’s main responsibilities are to manage the farm, organize and provide trainings, and explore opportunities and new markets for further development.

Figure 1 Improved cage by Friendship Agro Industry (Place: farm site at Bishoftu, Feb. 2014)

40


2 Overview of the poultry sub-sector in Ethiopia In Ethiopia, chicken farming is the most widespread enterprise particularly for smallholder-based farming systems. Poultry farming provides farming families with protein and income (Tadelle et al., 2003). Ethiopia has a large chicken population, estimated to be 50.38 million (Exhibits 2 and 3) according to the Central Statistical Agency (CSA) figures for 2012/13. Recent estimates put the figures at around 48.8 million (96.9%) for indigenous poultry, hybrid chicken at 0.54% and exotic chicken breeds mainly kept in urban and peri-urban areas at 1.3 million (2.56%) (CSA, 2012/13). The majority (99%) of these birds are maintained under a traditional system with little or no improved inputs for housing, feeding or health care. The most dominant chicken types reared in this system are local ecotypes, which show a large variation in body position, plumage color, comb type and productivity (Teketel, 1986; Tadelle et al., 1996; Halima et al., 2007).

Poultry production systems in Ethiopia Three production systems can be identified in Ethiopia and each is important depending on the agro ecology of the location. These production systems are characterized mainly by the objectives of the producers, the inputs used, and number and types of birds kept on the farm. These systems are (i) traditional (backyard) production (ii) commercial production and (iii) small-scale intensive production. Traditional (backyard) production system In Ethiopia there are currently about 56 million chickens, 99% of which is indigenous. The traditional production system is practiced by almost every family in the rural, urban and pre-urban areas. It is estimated that an average of six indigenous birds are kept by every family. This system is characterized by minimum input, leaving birds to scavenge for most of their food, and by no investment other than the cost of purchasing the birds and a simple night-time shelter. Almost all birds kept under this system are non-descript indigenous breeds of low performance. Broodiness is highly pronounced and egg production is estimated to be 40–60 per bird per year. Egg weight is low, ranging from 39–42 grams. The weight of male birds at an age of 12 months is about 1.52 kg and for females it is much less than this. Commercial poultry production system Currently, this sector, involving both private and government enterprises, is still in its early development stage. It contributes only about 1% of the country’s poultry production. Small-scale intensive poultry production system This is a newly emerging system in urban and pre-urban areas, particularly along the roads from Addis Ababa– Debre Zeit–Nazareth and Addis Ababa–Sebeta roads. It is characterized by small flock size (usually 50–500 birds). It is organized along commercial lines.

Opportunities in the sector There is an increased demand for foods of animal origin in developing countries because of high human population growth, urbanization and higher incomes (Abdullah et al., 2011), as well as a shortage of animal protein. The genetic diversity of indigenous chickens is much higher than other livestock species which have good adaptability to climate and disease. In this regard, the demand for poultry meat and eggs and the relative ease of establishing a poultry business are the driving forces behind the growth in this sector (FAO, 2011; Daghir, 2009). Poultry flocks are vulnerable to climate change because birds can only tolerate narrow temperature ranges. And the use of various production systems continues to impact negatively on the environment. Major problems (constraints) of the sub-sector are: poor knowledge of farming and production systems; poor utilization (quantity and quality) of poultry feed (see Exhibit 1 for poultry feed ingredients, and for nutritional requirements of poultry feed); lack of suitable genetic material; husbandry and management constraints (suitable housing and proper feeding equipment are the main problems); diseases (newcastle disease, coccidiosis, salmonellosis respiratory infections and parasitic diseases limit poultry production in Ethiopia); institutional and socio-economic constraints (lack of institutional support, lack of health services, shortage of necessary inputs and lack of trained extension workers).

• • • • • •

41


3 Company evolution Interim market assessments made during the earlier poultry farming years led the company into other areas of the poultry sector i.e. egg production. The national chicken and egg consumption is indicated in Exhibit 6. The company’s focus shifted to layer hens to produce more eggs and to increase market share. With increasing market demand for eggs, the company decided to increase the number of layer hens. This required expanding space to accommodate more hens. Given the initial established location of the business, getting more land was not the best option for increasing production. Alternative options were sought to accommodate more layer hens. The owners found that using cages to increase hens per plot of land was the most feasible option, and so the company started to produce its own cages, which were subsequently certified and patented. The company now produces cages for its own use and for sale to other poultry businesses. Abel is also eager to venture into other areas of the sector, such as by-products/waste from poultry farming. The company started producing feed and vegetables for its own use and for sale to the market. Different vegetables are produced at the company’s production center located at Debre Zeit. There are a number of similar enterprises or companies supplying poultry products in and around the capital city. Among them are Genesis Farms, ELFORA, Elere Farms, Alema Farms, etc.

Growth in turnover for the company

Number of employees: 87 staff; 27 university graduates.

Table 1 Growth in turnover for the company

Year

Turnover (ETB)

2014

23 million

2013

14 million

2012

6 million

2011

1.5 million

2010

0

4 Marketing Friendship Agro Industry PLC has three major customers. Supermarkets and pastry houses in Addis Ababa are the major buyers of eggs. In the case of feed, cages and vegetables, the company serves all types of buyers by allowing custom supply in terms of volume/size (from small amounts to bulk orders) to meet the needs of customers at different levels of business scope. Exhibits 4 and 6 illustrate trends in poultry meat consumption. There are three main marketing strategies used by the company. 1. The first strategy is providing integrated services such as training to customers (poultry care, feed use), information supply and follow-up. Services are made available to customers of Friendship Agro Industry PLC as a precondition for success and access to company products.

2. The second strategy is increasing market share. The company prefers using local materials in feed production. The use of home-sourced inputs were relatively cheaper and also engaged more people in the local labor force.

3. Increasing sales of cages. The company knows their cages are the best quality available in the market.

“The challenging period for us is the fasting period of 40 days. This is the only time when everybody is fasting; in other periods not all the people fast. During those 40 days we are not able to sell any eggs. What we do is we store our stock and sell it in the non-fasting season. In other periods, demand is really high.” (Abel Mekonnen)

42

Source: Abel Mekonnen, General Manager

“Until now, we have not shared any profit of the company; I am still an employee of the company getting a salary. This allowed us to reinvest profit and grow”. (Abel Mekonnen)


5 Linkages with other organizations For technical support, the company has close links with the National Veterinary Institute and Poultry Center. Close ties are also maintained with the financial institutions which supplied the initial investment capital. The Ethiopian Health and Nutrition Research Institute provides information on feed formulation. Friendship Agro Industry also has relations with NGOs such as RISE and World Vision that work on women’s empowerment in the country. Moreover, the company trains women’s groups in poultry production, management and marketing in close cooperation with the sub-city women’s associations.

6 Challenges for the company After the business took off, the next challenge came from the people (family, neighbors, friends, etc.) around the entrepreneurs. Some considered poultry production to be an ‘inferior job’ for engineering graduates, whilst others would ask “How come you clean chicken litter?” Ironically, those who were making fun of them, where themselves now active in the poultry business. “It is very difficult to work with people; they get different messages than you are trying to convey when you are communicating. There is a lot of misunderstanding. So now we take the time to discuss issues. Also our farm manager was trying to steal the pullets from our farm in Debre Zeit. We got a phone call one day from the neighbours of our farm that we should hurry back before he empties the farm.”

During the early stages of the business, the entrepreneurs would go to various mills to have their corn and soya ground to prepare feed for their chickens. In a culture where women would normally be expected to do this type of task, the entrepreneurs encountered some ridicule from family and friends, with some wondering why educated men would want to do this type of work instead of the usual practice of working in an office. Despite this, the entrepreneurs stuck to their idea believing in the potential of their business, and focused on overcoming their initial challenges, one of which was the difficulty in securing the starter poultry stock they required. According to Abel, “I myself at that time was forced to go to Genesis Farms, which is situated in Bishoftu town, once in two weeks, to negotiate access to the starter stock.” It was after six months that the business secured 80 starter chickens. The business was also confronted with challenges in the feed processing section of the agro-industry. Abel was astonished that “the purchasing section bought corn with a high level of moisture at a lower price. When

that got into the processing stage, it developed a fungus which unexpectedly infected the chickens. As a result some of our customers lost their stocks.” The business still does not own an incubator of its own.

Friendship Agro Industry was buying feed from another place, but they quickly realized that this was not cost effective. To minimize their costs, they decided to buy different machinery to help produce quality feed for use on their own poultry farms and to also supply the market. While they were supplying feed to the market, they faced big challenges in terms of the quality they supplied, to the extent that they lost their market initially. In order to overcome this problem they invested in quality assurance. The company introduced an improved quality control system and started selling chickens accompanied by full end-to-end packages. In order to show that they had quality products, they took samples of their feed to the Agriculture Office and to other customers for testing. Friendship Agro Industry keeps increasing its market share. Client loyalty has grown: “Once a client comes here he never goes away”. This is because of the different services they are providing to their customers. Within three years, the company was already contemplating selling across the East Africa region. Currently, they are selling in Somaliland (30,000 pullets). Company growth has been spectacular so far, and the goal for 2015 is to achieve a turnover of 90 million ETB. To do that, Friendship Agro Industry needs to establish different branches of its business across Ethiopia. Considering this impressive growth, Abel wonders what the biggest challenges for the company will be in the coming years, and how to overcome them.

43


EXHIBITS

Exhibit 1 Photos of Friendship Agro Industry PLC

1.2

1.3

1.4

Exhibit 1.1 The poultry farm in Debre Zeit town (place: farm site at Bishoftu, Feb. 2014) Exhibit 1.2 Inside view of poultry house made of mesh wire (place: farm site at Bishoftu, Feb. 2014) Exhibit 1.3, 1.4 Patented chicken cages designed by the farm (place: distribution center at Addis Ababa, Feb. 2014); Price per cage: 225 USD (for 100 chickens)

44


1.1



1.5

1.6

Exhibit 1.5 Sample chicken feed ingredients processed by the farm (place: distribution center at Addis Ababa, Feb. 2014) Exhibit 1.6 Nutritional requirements of feed formulation (place: distribution center at Addis Ababa, Feb. 2014)

Exhibit 2 Estimated number of poultry in Ethiopia by type and breed

Poultry in Ethiopia Type of Poultry

All Number

Indigenous %

Number

%

Hybrid Number

Exotic %

Number

%

5,190,884

10.3

5,019,894

9.96

40,958

0.08

130,032

0.26

Cockerels

2,687,894

5.34

2,612,154

5.19

11,109

0.02

64,631

0.13

Pullets

4,863,762

9.65

4,703,986

9.34

35,030

0.07

124,746

0.25

Non-Laying Hens

1,525,680

3.03

1,481,920

2.94

10,557

0.02

33,204

0.07

Chicks

19,602,682

38.91

19,144,542

38.00

25,072

0.05

433,067

0.86

Laying Hens

16,506,239

32.77 15,852,818

31.47

148,737

0.30

504,684

1.00

All

50,377,142

100.00 48,815,313

96.90

271,465

0.54 1,2790,364

2.56

45

Source: CSA, 2012/13

Cocks


Exhibit 3 Distribution of poultry by type in Ethiopia Cockerels 5.34% Non-Laying Hens 3.03% Pullets 9.65% Chicks 38.91% Cocks 10.30% Source: CSA, 2012/13

Laying Hens 32.77%

Exhibit 4 Meat production trends in Ethiopia

Source: FAOSTAT, 2004

Exhibit 5 Organizational structure of the company General Manager Secretary

Production Department

Administration and Finance Department

Daily Laborers

Shops

Post Sale

Training and Marketing

Purchasing Section

Farm

Metal Work

46

Feed Processing Section

Finance Section

Human Resource Section

Source: Company Document, 2014

Marketing Department


Exhibit 6 The calorie consumption pattern of Ethiopia by source Consumption Patterns Per capita calorie intake

Beef

Mutton and goat meat

Chicken

Other meat

Dairy products

Egg

Honey

Total

National

17.5

8.8

3.6

0.5

0.4

34.6

1.1

0.7

67.3

Urban

39.2

19.3

8.6

0.7

0.3

23.1

3.5

1.2

95.8

Rural

13.1

6.7

2.6

0.5

0.4

36.9

0.6

0.7

61.4

Exp. Quintiles Q1

9.0

4.0

1.6

0.4

0.1

18.9

0.3

0.3

34.7

Q2

11.4

6.0

2.2

0.5

0.6

32.3

0.4

0.7

53.9

Q3

14.8

7.2

2.9

0.5

0.1

31.7

0.6

0.5

58.3

Q4

19.2

9.3

3.8

0.5

0.7

41.4

1.0

0.7

76.7

Q5

31.3

16.6

7.1

0.6

0.4

46.1

3.0

1.4

106.6

Exhibit 7 Cost price of eggs (birr)

Exhibit 8 Cost price of broilers (birr)

Purchase doc Feed 5 to 6 kg á 9 birr Health (vaccinations, medication) Various costs electricity, water, litter Housing, equipment Labour costs staffing as with 6,000 layer unit, but extra

Purchase price pullet Feeding during rearing period

90 birr

12–22 weeks, 6 kg á 9 birr Layers meal for 60 weeks (60 × 7 days × 0.12 kg × 8 birr)

54 birr 403 birr

Health (some medication, disinfection measures)

5 birr

Various costs: water, electricity

Litter costs approx. 25 birr per bale (15 kg) Amount needed: 1 bale per 250 birds − 0.1 birr per bird

5 birr

Housing, equipment Housing

Maintenance (2 birr) Equipment (1 birr)

6 birr

Labour

0.5 birr

Total costs 563.5 birr Returns: selling price of old hen 50 birr Total 513.5 birr Cost price per egg 513.5 ÷ 330 = 1.55 birr

47

50 birr 2 birr 3 birr 5 birr 3 birr

peak work for loading and cleaning make total daily wages 220 birr

Total costs Cost price per kg (1.7 kg slaughtered weight on average) without labour costs

100,000 birr ÷ 3000 − 33 birr per bird, depreciation over a 10 year period − 3 birr per bird

22 birr

85 birr 50 birr per kg slaughtered weight

Source: Author’s calculation using HICES (2004/05)

(camel, pork, crocodile…)

Fish and fish products


REFERENCES Abdullah, R.B., Wan Embong, W.K. and Soh, H.H. (2011) Biotechnology in animal production in developing countries. Proceedings of the 2nd International Conference on Agriculture and Animal Science, November 25–27, 2011, Singapore, pp. 88–91. Costa, N.D., (2009) Climate change: Implications for water utilization in animal agriculture and poultry, in particular. Proceedings of the 20th Annual Australian Poultry Science Symposium, February 9–11, 2009, University of Sydney, Australia. CSA (2012/13) ‘Agricultural sample survey report on livestock and livestock characteristics’. Statistical bulletin number 570, 2:20–28. Daghir, N.J. (2009) ‘Poultry production in hot climates: Book reviews’. Journal of Applied Poultry Research, 18:131-134. Farrell, D. (2010) ‘The role of poultry in human nutrition’. Poultry development review. Food and Agriculture Organization of the United Nations, Rome, Italy, p. 2. http://www.fao.org/docrep/013/a1709e00.pdf FAO (2009) Report of the FAO expert meeting on how to feed the world in 2050. An Analysis of the Poultry Sector Country Review. ftp;//ftp.fao.org/docrep/fao/012/ak542e/ak542e19.pdf FAO (2010) Poultry Meat and Eggs: Agribusiness Handbook. Director of Investment Centre Division, FAO, Rome, Italy, p. 77. FAO (2011) The state of food and agriculture—Livestock in the balance. Food and Agriculture Organization of the United Nations. http://pigtrop.cirad.fr/ FAOSTAT (2011) Statistical Database of the Food and Agriculture Organization of the United Nations, Rome, Italy, 2004. http://faostat.fao.org/ Haagsman, H.P., Hellingwerf, K.J. and Roelen, B.A.J. (2009) Production of Animal proteins by cell systems. Desk study on cultured meat (Kweekvlees). Faculty of Veterinary Medicine, October 2009, http://www.new harves.org/img/files/production of animal_proteins_1207.pdf [accessed 17 November 2014] Halima, H. (2007) Phenotypic and genetic characterization of indigenous chicken populations in northwest Ethiopia. Ph.D Thesis. University of the Free State, Bloemfontein, South Africa. Kitalyi, A.J. and Mayer, A. (1998) Village chicken production systems in rural Africa. Household Food Security and Gender Issues, Animal Production and Health Paper 142, FAO, Rome, Italy. Mengesha, M. (2011) ‘Climate change and the preference of rearing poultry for the demands of protein foods’, Asian Journal of Poultry Science, 5; pp. 135–143. Tadelle, D., Million, T., Alemu, Y. and Peters, K.J. (2003) ‘Village chicken production systems in Ethiopia: Use pattern and performance valuation and chicken products and socioeconomic functions of chicken’. Journal of Livestock Research. The Holland Africa Poultry Partners (2011) Poultry in Ethiopia: a survey of production, value chain and marketing of commercial poultry in Ethiopia.

48

DEBRE BIRHAN LEGUME PROCESSING COOPERATIVE ENTERPRISE

Challenges of

DEBRE BIRHAN LEGUME PROCESSING COOPERATIVE ENTERPRISE July 2014

Case team members: Berhanu Megersa, MSc (Jimma University, [email protected]) Osman Chane, BSc (Samara University, [email protected]) Mohammed Aman, MSc (Haramaya University, [email protected]) Tigist Tarekegn, MSc (Ambo University, [email protected]) Amsalu Mitiku, MSc (Jimma University, [email protected])

Legume Processing Cooperative Enterprise. Mr. Nigussie Shewangizaw, the chairperson of Debre Birhan Legume Processing Cooperative Enterprise, was on his way to the general assembly meeting to discuss the future strategy of the cooperative. He knew that they had achieved a lot in the past years, but he was wondering what else they could do to further the development of the cooperative. As he was walking to the meeting, he recalled how things had started.

On the northern outskirts of the small but fast-emerging town of Debre Birhan is a busy legume-processing centre, where over 100 local entrepreneurs (organized into 7 processing cooperatives) are engaged in splitting lentils and other legumes. This rather large, traditional industrial zone has created employment opportunities for over 1000 people, and annual production of processed lentils is close to 3000 metric tons. In the midst of this is the Debre Birhan

Long before merchants of Debre Birhan acknowledged and reaped the benefits of legumes merchandizing, Mr. Nigussie had participated in lentil flaking and processing of field peas and faba beans. He established a processing plant with 40 other colleagues where they had been freely granted 10,000 m² of land on the northern outskirts of Debre Birhan in late 2006. The initial capital at the time of establishment was 97,000 Ethiopian Birr (ETB). Funding for the enterprise was obtained both from the local government (in the form of credit) and from members. After returning the vested money, the capital of each member has currently reached about 100,000 ETB, bringing the aggregate capital of the cooperative to about 4,000,000 ETB. Currently, faba (fava) beans, field peas, and flaking of lentils, and shiro (floured pea/faba bean) are processed at the plant. Unlike the conventional cooperative model, Mr. Nigussie’s cooperative adopted a model of shared facilities but independent business operations i.e. the members own the compound, machines and equipment, but independently run their warehouses, inventories, supplies and market. When asked about his current business, he answered: “It is feasible, but the point is that we even have bigger untapped opportunities; we have

the market and the manpower, but we are severely constrained by working capital and old machines.”

1 Legume production Ethiopia The eight main legumes widely grown in Ethiopia are: faba bean (Vicia fava L.) chickpea (Cicer arietinum L.) field pea (Pisum sativum L.) grass pea (Lathyrus sativus L.) and lentil (Lens culinaris Medik.) grown in the cooler highlands, haricot bean (Phaseolus vulgaris L.) groundnut (Arachis hypogaea) and soybean (Glycine max L.) grown in the warmer mid and low altitudes of the country.

• • • • • • • •

Table 1 shows the national production volumes of these eight legumes for previous years.

49


Table 1 Total production volumes (tons) 2008

2009

2010

2011

2012

Faba bean

688,667

695,984

610,845

697,798

714,796

943,964

Haricot bean

241,418

329,775

362,890

340,280

387,802

463,008

Chickpea

286,820

312,080

284,640

322,839

400,208

409,733

Field pea

231,934

267,093

235,872

257,031

263,266

327,378

Grass pea

166,000

165,000

202,000

174,000

305,000

325,581

Lentil

94,103

94,773

123,777

80,952

128,009

151,500

Groundnut

44,685

46,887

46,425

71,607

103,479

124,419

Soybean

8,401

7,899

4,279

15,824

35,880

63,653

Table 1 Total production volumes (tons) by small-scale farmers for eight selected legumes

Overall, faba bean is the largest leguminous crop in Ethiopia, followed by haricot bean and chickpea. Field pea and grass pea serve as important food-security crops in many areas and still account for more than 300,000 tons each. In total, Ethiopian legume production accounts for almost 3 million tons. At present, virtually all legume production in Ethiopia is undertaken by smallholder farmers with limited external inputs on plot sizes of up to 1.5 ha. Only for soybean is large-scale farming quickly picking up, with major investors focusing on the crop, especially in the regions of Benishangul-Gumuz and Gambela. Given the high population pressure, farm sizes are small and 56% of farming households farm on less than one hectare.

2 Lentil production in Ethiopia Among the different pulses grown in Ethiopia, lentil has a growing demand in domestic and international markets. The lentil (Lens culinaris) is a brushy annual plant of the legume family, grown for its lens-shaped seeds. It is about 40 cm tall and the seeds grow in pods, usually with two seeds in each. Lentils originated in Central Asia and have been consumed since prehistoric times. They are one of the first foods to have ever been cultivated. Lentils are high in fiber, low in fat and cholesterol-free. Lentils have the second highest protein content (30%), after soybean. Lentils are also high in vitamins and minerals, including foliate, vitamin B1, manganese, magnesium, phosphorus, copper, potassium etc. Lentil is a popular crop among farmers, mainly for the following reasons: It is drought resistant. There is increased demand from processors and wholesalers, which has also boosted the market price. It is an important crop for household consumption. It has a lower labor and input requirement, especially compared to teff or wheat. The lentil stalk fetches a good price as cattle feed.

• • • • •

Tigray 8%

Amhara 55%

Figure 1 Lentil Production—Regional Share

50

Source: Landscaping Study, Legume Value-Chains in Ethiopia, 2014

Oromya 37%

SNNP 0% B/G 0%


2007


Particularly in Ethiopia, lentil is one of the heavily consumed pulse crops. It is usually eaten fried, roasted and boiled whole or split, in stews or vegetable soups. It is also ground into powder to prepare shiro (a pulse-tomatoonion sauce), azifa (a green lentil salad), and hilbet (lentil paste). It is also widely used in crop rotation practices to improve soil fertility. Mesir wat or lentil stews, are especially popular during fasting days and local consumption is very high during these days (more than 200 days per year for Ethiopian Orthodox Christians). The demand for this commodity, both in local and international markets, has increased significantly in recent years. Its local price is higher than most pulse crops and this has probably also caused the sharp increase in production of more than 60% between 2006 and 2012. The North Showa Zone of the Amhara Region and the East Showa Zone of Oromia are the two leading lentil-producing zones of the country (Figure 2). Together they account for more than 40% of the national lentil production. Productivity is lower than most other legumes, and stands at 1.2–1.3 tons per hectare. North Showa(R3)

East Showa

South Wollo

200,000 150,000 100,000 50,000 0

2006/07

2007/08

2008/09

2010/11

2011/12


Production (qu)

250,000

Figure 2 Lentil Production Trend for Top 3 Zones

The common practice is to plough the land during late April, but in some cases a second tillage is done in June. Crop rotation is a common practice for lentil, and intercropping is not practiced. The farm inputs which are necessary for lentil production are seeds, fertilizer, labor and chemicals. Most growers use their own labor for the production activities, but a few wealthy farmers use casual laborers from nearby villages. Forty birr per day is the average wage during the peak working months. Commonly, farmers keep seed reserves from the previous production year. Though most farmers do not trust marketed seeds, in rare cases they use local markets and neighboring farmers as seed sources. There is only one improved seed variety introduced and adopted by local farmers—Alemaya. Farmers get this seed mainly from the cooperatives and offices of agriculture. Fertilizer is the second critical input used by lentil farmers. The only source for fertilizer is the cooperative. Most farmers take fertilizers on credit through the cooperative system, with an interest rate of 12%. They usually use 2 quintal DAP fertilizer per hectare of land. In rare cases, chemicals, which are used to treat pests and diseases, are also used by farmers. The chemicals are available from cooperatives and private shops in the nearby cities. The commonly used chemicals are Dimethoate and Karate, both insecticides. Harvesting and postharvest handling activities are done manually. Harvesting is done by pulling the stalk from the ground; this is mentioned as one reason why soil gets into the final product. Threshing is also done manually by rotating cattle over the harvested stalks in an open field. The field is usually creamed by wet cow dung to make the ground smooth and reduce the inclusion of soil or weeds. After threshing it will be blown by the wind to separate the seed from the straw. The grain will then be packed and sent to the market or stored at home in a mud container. No further postharvest processing or value addition is undertaken at farmers’ level. Farmers listed pests, weeds and natural calamities (excess rain) as the main constraints for lentil production. Especially root rot, wag, guitle and kishkish are the main types of pests limiting the lentil production potential of the zone. Though lentil can stand a wide range of temperatures, it is rather sensitive to high rainfall. Lentil prefers between 300 and 500 mm of rain per year. In addition to those problems, lack of improved seed is also mentioned as a constraint in the process.

51


3 The lentil value chain It is estimated that most of the lentil produced (around 60%) goes to local wholesalers based at Debre Birhan, the zonal capital, followed in second place by cooperatives with 25%, and local collectors 5%. The remaining produce (10%) is reserved for home consumption and seed for the next growing season. According to data, the marketable surplus of lentils in North Showa is around 90%, indicating that lentil is mainly produced for commercial purposes. Farmers in North Showa have relatively close links with their cooperatives. Through the cooperatives, farmers are linked to sources for improved seed, fertilizer, chemicals and farming tools. In addition, some of the cooperatives provide market information and credit services, as well as purchase of the lentil produce. The Wodera Union, which unites a number of local cooperatives, links to the small and medium-level processors based at Debre Birhan and supplies them around 50% of their total lentil stocks. Debre Birhan University, which hosts about 10,000 students, is the second biggest client for the Wodera Union and buys an estimated 30% of the total supply. Big processors and wholesalers in Addis Ababa are the remaining clients.

COOPS

LENTIL PRODUCERS Farm saved seed 10%

LOCAL WHOLESALERS

Unsplit 50%

Unsplit 5%

Unsplit 3%

Byproduct 3%

Unsplit 12% Unsplit 24%

PROCESSOR

Unsplit 12%

Unsplit 21%

LOCAL LOCAL TRADERS Unsplit BALTENA

SEED

Unsplit 3%



FEED INDUSTRY

UNIONS

Unsplit 23%

Split 27%

Lost 6%

Split 18%

CENTRAL TRADER

Split 5%

EXPORTER

3%


Byproduct 3%

LOCAL CONSUMER

FEED INDUSTRY

Lost 6%

Split 52%

RETAIL

Figure 3 The lentil value chain in North-Showa (Amhara)

A very interesting feature of the lentil value chain is the importance of the medium-level processors. The major activities involved in processing are: manual cleaning to remove sand and other admixture; washing using water to remove dust and other soluble materials; soaking the lentils in water-filled containers to separate and remove the cotyledons (1); draining the soaked lentils in ventilated sacks for 24 hours to drain the water (2); sun-drying the lentils for a full day to make them ready for milling (3); grading the lentils into four classes based on size suitable for uniform splitting/milling; milling/splitting by electrical mill—this is the ultimate goal in the process (4); blowing by wind to separate the straw from the seed; mixing the four different grades again; weighing and packing—the final task.

• • • • • • • • • •

Processors select the raw lentils on the basis of the following criteria:

• size (the bigger the better) • shape (round preferred over flat or irregular shaped) • admixture (the lesser the better) • color (red is preferred) • water absorption capacity (time taken to absorb water) • seed cover (the thinner the better).

52


HOUSEHOLD


Consumers also use most of the above criteria when buying lentils, and especially the proportion of foreign matter and the taste are important. According to interviewed consumers, the red lentils taste better. Processors can be found in different sizes and levels of organization. They range from large-scale (more than 500 employees) to small-scale, even family-type, businesses. They can be organized as cooperatives, partnerships and private companies. What is common to all is the end product. Big processors have a relatively large output, are more sophisticated in terms of technology and are more stable in capital. Most of these processors are found in Beki, 30 km north of Debre Birhan. They receive the lentil from the local wholesalers, the cooperatives and the Wodera union, and sell the processed lentil to the big wholesalers based in Addis Ababa and Adama. The small- to medium-level processors often supply directly to local retailers, as well as directly to consumers. The graphs in Exhibit 3 reflect the comparative advantage of lentil over other legumes. The comparative advantage is mainly due to the current high market price for lentils—at 1500 ETB (60 Euros) per quintal, almost double that of field pea—and the relative low production cost and labor requirements. Yields are relatively good in the area of Jiru, with 2.6 tons per hectare. According to farmers, the market for lentils is rarely a problem, though the price fluctuation is quite substantial during the year, increasing from 1300 ETB (52 Euros/quintal, 2014) at harvest, to 1600 ETB (64 Euros/quintal, 2014) at the end of the season. This is directly reflected in the percentage of marketed product, which is at 90 % indicating that almost all is sold (while 10 % is retained for the following year’s seed). In these areas, field peas are used for home consumption more than lentils. The sharp increase in export prices is mainly because of the prohibition of unprocessed lentils in 2012. So, the 2012 price only reflects the price for split lentil. In addition, export quantities between 2010 and 2012 were low. Again, the margins in the chain are relatively low, leaving a margin of 100 ETB per quintal (4 Euros/quintal) between farm-gate and Addis wholesaler. This indicates that no excessive rent-seeking behavior or market monopolization of middlemen or wholesalers takes place in the lentil value chain.

4 Debre Birhan Legume Processing Cooperative Enterprise Currently the enterprise has a membership of 39, including only three female members. Mr. Nigussie thought back to the past scenario of working individually and selling a maximum of only 0.2 tons of lentil per head per week. After realizing the benefits of working cooperatively, the enterprise reached a capacity of processing and supplying 7 tons of lentil per head per week. He also thought about the unequal share of women with regard to ownership and labor participation. In the case of the former, the male dominance in the sector has led to less control by women. In the latter, the women constitute more than 75% of the labor force in the enterprise (see Exhibits 4.1 and 4.2). Besides, the manual nature of the operations and the limited number of available sieving and milling machines (see Exhibit 4.5 and 4.6) are among the challenges to the progress of the enterprise. As a result, a worker only winnows 1.5 tons of lentils per day and gets paid 30 ETB/ton. This situation is also similar to other African countries where legumes are purely subsistence and semi-subsistence crops. According to a report by the Consultative Group on International Agricultural Research (CGIAR, 2012) women are more visible in production roles, in the marketing of perishable products like leafy vegetables, and in seed and small-scale processing (e.g. groundnuts for home use and local sale), while men tend to dominate in the marketing of grain in the value chain. The lentil processing in Nigussie’s cooperative follows the following chain:

Purchasing raw material

Soaking in water

Dripping

Drying on plastic sheet

Flaking

Sieving

Winnowing

Grading

Packing

Loading

Figure 4 The value chain of Debre Birhan Legume Processing Cooperative Enterprise

The innovation of the cooperative is seen at the lentil-soaking stage. Water is collected in advance and used repeatedly (see Exhibits 4.3 and 4.4).

53


In 2006, the government policy that encouraged small-scale business cooperatives was indicated as a favorable business imitative that enhanced cooperation among individuals interested in investing in the sector. This, however, does not mean that there are no limitations. Rather, except for the monetary contribution, technical advice for the new small and micro enterprises is lacking or limited. Mr. Nigussie condemns the fact that “There is

no technical or/and professional support, no supportive follow up at all, as if we only needed money.”

In his case, the cooperative was able to pay back the money they received as financial support from the government within three months. Before joining the processing enterprise, Mr. Nigussie had been involved in livestock trading; where he lost substantial amounts of merchandise in Addis. This incident led him to start a new business i.e. legume flaking, and faba bean and field pea processing. As he recalled, there was no cooperative involved in these businesses on the outskirts of Debre Birhan. However, over time, new cooperatives are now emerging following the merits reaped by Mr. Nigussie and his counterparts. Accordingly, there are now seven other cooperatives in operation. The Debre Birhan Legume Processing Cooperative Enterprise has now installed three flaking and another two grading machines, and every member has equal access to flake and grade their produce at a reasonable rent price. However, the dividend has barely been shared among the members i.e. only twice since the enterprise’s establishment.

Despite the absence of institutional support, especially in human resource development, training and advisory services, Mr. Nigussie and his cooperative members have won three national/regional state prizes for best performance and pioneer actions. The main markets for the enterprise are in Addis Ababa (Mesalemia Commodity Exchange) and Shewa Robit. Accordingly, 42 tons of lentils per week are transported to these markets for sale to customers. The enterprise supplies three different grades of lentils and the price, which is determined by cooperative members, varies across the grades. Mr. Nigussie and his counterparts are exploring the possibility of opening a new processing plant in Shewa Robit. The cooperative uses tap water to wash and soak the lentils to make them easier for flaking. In the last four years since their installation, the flaking machines have slivered about 30 tons of produce per day, while the grading machines have a capacity to sieve 5 tons per hour. Nonetheless, the enterprise is still looking for additional flaking and grading machines which have greatly improved the production and supply of the produce. Every member of the cooperative is expected to abide by the rules and regulations of the cooperative, including paying their monthly contribution, paying rent per ton for grading and flaking, and participating regularly in meetings. However, every member is also able buy inputs at any price as long as they are hard working. Staying positive even in the face of tough times and thinking out of the box has helped Mr. Nigussie’s enterprise. Despite creating jobs for more than 2000 workers, and offering contributions to local aid and development, Mr. Nigussie feels that the local authorities have neglected them. He is worried that the new penal complex building near his processing plant could be the threat for the closing down of his enterprise. With the comparative advantage of proximity to main markets, Beki Cooperative, which is situated 50 km away from the main markets of Addis Ababa and Shewa Robit, is the main competitor of Mr. Nigussie’s enterprise. Nevertheless, despite the saturation of the market by this competitor, Mr. Nigussie has still managed to execute his business. Mr. Nigussie once tried to promote his product at Gonder Bazar, which is about 700 km from his workplace, but his failure on that occasion cost him a lot. Hence, he has given up promoting his company at promotional events. Of course, he believes that his present customers are enough to absorb his total produce. However, Mr. Nigussie and his counterparts are looking to open new processing plants and to expand their capacity by adding more processing and flaking/milling machines. Nevertheless, they have realized that ineffectiveness is caused by lack of a marketing strategy. The image of Debre Birhan Processing Cooperative has remained in customers’ minds as a symbol of good quality products. To strengthen the cooperative, he arranges weekly meetings with the members. In the past, the enterprise supplied its products to Debre Birhan University for two consecutive years. However, the contract is no longer operational. Hence, the enterprise does not have permanent and regular customers anymore. The major challenges for the enterprise are shortage of water supply, electricity, latest technology, access to warehousing, inconsistent follow-up for cooperative improvement and stagnant integration.

As he approached the meeting venue for the general assembly, Mr. Nigussie wondered what strategies he should recommend to the cooperative members for the enhancement of business performance.

54


EXHIBITS

Exhibit 1 Average Annual Lentil Production for ‘Meher’ Season

(2006/07–2011/12) in 1000 tons

10,000 8,000 6,000 4,000 2,000 0

55

Wag Hemra Centeral Tigray East Gojam

12,000

West Shewa South Gonder

14,000

North Gonder South West Shewa South Tigray

16,000

South Wollo North Wollo North Shewa(R4)

Average Production (tons)

18,000

North Shewa(R3) East Shewa

Exhibit 2 Top 10 Lentil producers (Average production in tons)


Exhibit 3 Economics of the lentil value chain

Wheat

Teff

Lentils

24,343

Sold Consumed + Seed

ETB/ha

11,219 ETB/ha

5,116

Lentils

ETB/ha

Exhibit 3.1 Profit margin per ha (ETB/HA)

Wheat

Exhibit 3.2 Consumed vs Marketed

Transport 240 ETB Price of seeds 2000 ETB

Current price

1350 Price at harvest

Harvesting 2000 ETB

Fertilizer 3117 ETB

1 65 0

1525

Price before next harvest

Threshing 1067 ETB

Teff

Weeding 1333 ETB Land Preparation 1000 ETB

Exhibit 3.4 Price trend within a year (ETB/quintal)

1,000 800 600

932 US$/MT

400 200

2010

2011

0

2012

Exhibit 3.5 Export price trend (US$/MT)

Addis Ababa/Adama

874 US$/MT

1,200

Farmgate/Jiru

ETB/quintal

1,600 1,400

Regional Trader/Debre Birehan

1,800

3,646 US$/MT

Exhibit 3.6 Price across chain (ETB/quintal)

56


Exhibit 3.3 Production cost components (ETB)


Exhibit 4 Photos of Debre Birhan Legume Processing Cooperative Enterprise

4.1

4.2

4.3

4.4 4.4

4.5

4.6

Exhibit 4.1, 4.2 Women sieving lentils, Debre Birhan (Photo by Mohammed Aman, 2014) Exhibit 4.3, 4.4 The innovative dipping tanker, Debre Birhan (Photo by Mohammed Aman, 2014) Exhibit 4.5, 4.6 Sieving machine, Debre Birhan (Photo by Mohammed Aman, 2014)

57


REFERENCES CGIAR (2012) CGIAR Research program on grain legumes: Leveraging legumes to combat poverty, hunger, malnutrition environmental degradation. Combe, E., Pirman, T., Stekar, J., Houlier, M.L. and Mirand, P.P. (2004) ‘Differential effects of lentil feeding on photosynthesis rates in the large intestine, liver and muscle of rats’. Journal of Nutrition Biochemistry, 15(1):7–12. Ethiopian Commodity Exchange Authority (2009) Lentil production, supply, demand and marketing issues in Ethiopia. [Accessed at www.ecea.gov.et/doc/Lentil%20Crop%Profile.pdf] Joep van den Broek, Yared Sertse, Gertjan Becx (2014) Landscaping Study: Legume Value Chains in Ethiopia. Mitchell, D.C., Lawrence, F.R., Hartman, T.J. and Curran, J.M. (2009) ‘Consumption of dry beans, peas and lentils could improve diet quality in the US population’. Journal of the American Diet Association, 109(5):909–913. Shelby, D.H. and Dennis, B.A. (2004) ‘Market segmentation strategy, competitive advantage, and public policy: Grounding segmentation strategy in resource-advantage theory’. Australasian marketing journal, 12(1):7–25.

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