20

16

Business Opportunities

on the Production and

Marketing of Major

Agricultural Chemicals in

Ethiopia

TAK-IRDI Tak.irdi@ymail.com Takirdi@gmail.com Addis Ababa, Ethiopia

Prepared by:

Business Opportunities on the Production and

and Marketing of Major Agrochemicals in

Ethiopia

SUBMITTED TO:

Addis Ababa Chamber of Commerce and Sectorial Associations Mexico Square, P.O.Box 2458

Addis Ababa, Ethiopia

Phone 251 1 15 518 055 or 251 1 5 500 934

Fax 251 115 511 479

Email addischamber@gmail.com

Website: www.addischamber.com

SUBMITTED BY:

TAK-Innovative Research and Development Institution (TAK-IRDI)

Yeka Sub-City, Woreda 05 House No 490-491

In front of Marathon Building, 1st floor room number B-6

P.O. Box 1416 code 1250

E-mail: tak.irdi@ymail.com or takirdi@gmail.com

Tel: +251 911 66 57 48/0911 15 36 43

Addis Ababa, Ethiopia

December 2016

Table of Contents

Acronyms ....................................................................................................................................................... i

Acknowledgements ....................................................................................................................................... ii

Executive summary ...................................................................................................................................... iii

1-Introduction ........................................................................................................................................... - 1 -

1.1. Background .................................................................................................................................... - 1 -

1.2. Objective ........................................................................................................................................ - 2 -

1.3. Scope of the work .......................................................................................................................... - 2 -

1.4. Methodology .................................................................................................................................. - 3 -

1.5. Organization of the report ............................................................................................................. - 3 -

2- Sectoral Position in the Economy ......................................................................................................... - 4 -

3- Agro-chemicals in Ethiopia ................................................................................................................... - 8 -

3.1. Production of agro-chemicals ........................................................................................................ - 8 -

3.2. Import of agro-chemicals ............................................................................................................... - 9 -

3.2.1. Import o fertilizers ................................................................................................................ - 10 -

3.2.2. Import of pesticides .............................................................................................................. - 11 -

3.2.3. Major supplier of agro-chemicals ......................................................................................... - 11 -

3.2.4. Current condition of supply chain analysis ........................................................................... - 13 -

3.3. Consumption pattern of agro-chemicals ..................................................................................... - 15 -

3.3.1. Fertilizer consumption .......................................................................................................... - 15 -

3.3.2. Pesticides consumption ........................................................................................................ - 16 -

4- Review of rules and regulation with regard to agro-chemicals .......................................................... - 18 -

4.1. Rules and regulations for fertilizers production and marketing .................................................. - 18 -

4.2. Rules and regulations for pesticide production and marketing .................................................. - 19 -

5- Key opportunities for the production and marketing of agro-chemicals ........................................... - 22 -

5.1. Market potential for agro-chemicals ........................................................................................... - 22 -

5.1.1. Forecasts of fertilizers demand ............................................................................................. - 22 -

5.1.2. Forecasts of pesticides demand ............................................................................................ - 23 -

5.2. Government incentives ................................................................................................................ - 24 -

5.3. Country’s resource base .............................................................................................................. - 24 -

6- Conclusions and recommendations .................................................................................................... - 26 -

6.1. Conclusions .................................................................................................................................. - 26 -

6.2. Recommendations ....................................................................................................................... - 27 -

7- References .......................................................................................................................................... - 30 -

8- Annex .................................................................................................................................................. - 32 -

8.1. List of persons and organizations consulted ................................................................................ - 32 -

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Acronyms AACCSA Addis Ababa Chamber of Commerce and Sectoral Association

ADLI Agricultural Development Led Industrialization

AGOA African Growth and Opportunity Act

AISE Agricultural Input Supply Enterprise

ASPIF Agricultural Sector Policy and Investment Framework

ATA Agricultural Transformation Agency

CAGR Compound Annual Growth Rate

CIF Cost Insurance and Freight

CSA Central Statistics Agency of Ethiopia

DAP Diammonium Phosphate

EPA Ethiopia Environment Protection Agency

EPID Extension and Project Implementation Department

ETB Ethiopian Birr

FAO Food and Agriculture Organization

GDP Gross Domestic Product

GOE Government of Ethiopia

GTP Growth and Transformation Plan

IFPRI International Food Policy Research Institute

IMF International Monetary Fund

ISO International Organization for Standardization

LSMS-ISA Living Standard Measurement Study-Integrated Surveys on Agriculture

MoA Ministry of Agriculture (Former name)

MoANRM Ministry of Agriculture and Natural Resource Management

MoARD Ministry of Agriculture and Rural Development (former name)

MoFED Ministry of Finance and Economic Development

NFIA National Fertilizer Industry Agency

NFSAP National Fertilizer Strategy and Action Plan

POPs Persistent Organic Pollutants

QSAE Quality and Standards Authority of Ethiopia

TAK-IRDI TAK-Innovative Research and Development Institution

USD United States Dollar

WDI World Development Indicator

WEO World Economic Outlook

ii

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Acknowledgements

TAK-Innovative Research and Development Institute (TAK-IRDI) greatly appreciates the close

collaboration with Addis Ababa Chamber of Commerce and Sectoral Associations in the

preparation of this study. Royal Embassy of Denmark in Addis Ababa financially supports the

implementation of this study. The management is also grateful to experts and representatives

of the business community who participated in the in-depth interviews and focus group

discussions.

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Executive summary In order to provides an overview of investment opportunity in the production and marketing or

agro-chemicals in Ethiopia a desk review and in-depth discussions were conducted. Based on

these inputs the study identifies the followings.

Background on agriculture: Despite Ethiopia’s resource endowment to produce sufficient food

for domestic consumption and export, it remains a net importer of basic food items.

Smallholder farming with low productivity dominates Ethiopia’s agricultural sector and high

dependency on rain fed agricultural systems. An important component of the causes of low

agricultural productivity in Ethiopia is the low use and adoption of productivity enhancing

technologies such as improved seed varieties, pesticides and fertilizers.

The status of production/import and use of agro-chemicals: Ethiopia is totally rely on import

to fulfill the local demand for agro-chemicals mainly from China but also from Belgium India

France and United States for pesticides and Russia, Saudi Arabia and Morocco for fertilizers .

However the government recognize the negative implication of heavy reliance of imported

good, efforts have been underway to produce agro-chemicals mainly fertilizer in the country.

In terms of Import volume, the major agro-chemicals in Ethiopia is fertilizers distantly followed

by insecticides, herbicides and fungicides.

The use of agro-chemicals (fertilizer, insecticide, herbicide and fungicide) is growing rapidly.

However, the coverage and application rate is very low among smallholder farmers while the

annual nutrient depletion rate is very high. This indicates that consumption of agro-chemicals in

the country is expected grow even further.

Supply chain: Supply chain analysis reveals that high capital requirement, high transportation

cost, lack of adequate market information and a long domestic supply chain characterize import

and distribution of major agro-chemicals in Ethiopia.

Legal and policy framework to produce and market agro-chemicals: The country has rules and

regulation with regard to fertilizers and pesticides production and marketing in the country.

Furthermore, the fertilizer sector reforms explicitly encourage private sector participation.

However, it should be noted that there is a capacity gap for the enforcement of the legal and

regulatory framework. This affects the operations of government, the private sector, and other

stakeholders in the fertilizer sector. Moreover, the heavy involvement of government in

distributions and even price determination has a crowing out effect on the private sector

participation. With respect to pesticide production is marketing the bottom line is that there

are no policy constraints for the private sector to engage in the production and marketing in

the country if they observe the stated rules and regulations.

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Market potential for agro-chemicals: The study shows that the demand for the major agro-

chemicals (fertilizers and pesticides) are expected to grow exponentially. Under a very

conservative estimate where the current usage and application rate is assumed to hold fertilizer

demand is expected to increase more than two and half time the current amount while

pesticides is expected to more than triple by the end of 2020. However, in the face of the

current growth pattern and government commitment for healthy and adequate food supply for

allthrough increasing agricultural productivity, the actual demand is expected to be much more

than these estimates. In other words, the need of improving the efficiency through the usage of

agrochemicals is drives the market demand.

Key opportunity for the private sector to engage in the production and marketing of agro-

chemicals in Ethiopia: The application rate particularly for fertilizers remains low. Furthermore,

fertilizer is applied on only half of the cultivated land. As the country grows the application rate

as well as the coverage is expected to increase significantly. The implication is that there is huge

and untamed demand. For example, it has been confirms that every minerals useful to

manufacture almost all imported mineral products are abundantly available within the country.

In addition, the Government is pursuing a policy of industrialization that gives emphasis in

utilizing locally produced minerals as the main raw materials as well as gives priority for locally

produced industrial products.

In general, Ethiopia’s unique and untapped natural resources, its geographical location and

proximity to Middle Eastern and European markets, the government commitment to

sustainable development and availability of different kinds of government incentives make

agrochemical production and supply enterprises attractive to private investors.

Thus, by addressing the constraints and investing on key infrastructure, it is possible to

stimulate the flow investment into the sector.

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1-Introduction This section of the report starts by presenting the rational for the study and proceed to present

the objective, scope and methodology of the study. The final sub-section describes the outline

of the report.

1.1. Background

The Government of Ethiopia (GOE) long recognized importance of the agricultural sector and

adopted agricultural development led industrialization (ADLI) policy. The main goal of the

agricultural policy is not only achieving the sustainable increase in agricultural production and

productivity of smallholder farmers but also accelerate agricultural commercialization and agro

industrial development in the country (ASPIF, 2010-2020).

Because of Government focus and donors support, notable progress has been made so far.

However, the country remains structurally food insecure with widespread poverty in rural

areas. The main reasons are the largely traditional smallholder based agricultural production

methods, limited use of modern agricultural inputs, low mechanization rate, limited access to

agricultural finance and quality advisory services, insufficient market information and

infrastructure, lack of adequate agro-processing industry and weak agricultural training and

vocational education system.

To transform the sector, agricultural productivity has to be improved substantially. As

productivity increases, household incomes are expected to increase which in turn stimulating

the growth of non-farm activities among rural households. Asfaw, et al. (2012) argue that

achieving agricultural productivity growth will not be possible without developing and

disseminating improved agricultural technologies/use of agro-chemicals that can increase

productivity to smallholder agriculture farms.

Agrochemicals are the chemicals profoundly used in the agricultural land to improve the overall

productivity. This is achieved through improving the crop soil condition or protecting it from

various pest and disease infestations. In Ethiopia Fertilizers and pesticides form the major part

of agrochemical consumption. While fertilizers include various macronutrient and

micronutrient based products, pesticides can be further divided into insecticide, herbicide and

fungicide. Like many African countries, the use of agrochemicals in Ethiopia is very limited

showing greater scope for future growth. That is there is a need of improving the efficiency of

the agriculture sector through the usage of agrochemicals. Further, with the economic

improvement, farmers have become more aware of the necessity of agrochemicals application

in the land. The implication is that the potential market demand for agrochemicals in the

country is huge.

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Since in most African countries agricultural sector supports the survival and well-being of the

majority of their population, the demand for agrochemicals is expected to be substantial. For

instance, the South African agrochemicals market is estimated to grow at a compound annual

growth rate (CAGR) of 4.5% during 2015-2020.

This indicates an opportunity for the private sector to get hold of this highly under developed

market. In order to attract the private sector in this area, there is a need to study the business

opportunity of agro-chemical production and marketing in the country.

Recognizing this, Addis Ababa Chamber of Commerce and Sectoral Association (AACCSA) plans

to commission this study on Business Opportunities on the Production and Marketing of Major

Agricultural Chemicals. This report presents results of the study and outline key

recommendations.

1.2. Objective

The main objectives of the study is provides an overview of investment opportunity in the

production and marketing or agro-chemicals in Ethiopia.

1.3. Scope of the work

The scope of the study is set out in the Terms of Reference, and state:

a) Review of the current status of the sector

i. Sectoral position in the economy

ii. Production Status (volume of import, local production and productivity)

iii. Major Producers in the sector

iv. Type and level of technology

v. Consumption pattern (both import and domestic production)

vi. Current condition of the supply chain

vii. Bottlenecks and challenges

viii. Review of Government policy and incentives

b) Future Outlook and Appraisal of Sectoral Investment Potentials

i. Key areas of opportunity in the short, medium and longer term and prospects for their

future business development;

ii. Market potentials and forecast demand and supply aspects of the sector; domestic, export

Supply potential for regional and overseas markets

iii. Barrier to entry

iv. Finance and issues Sector development- (Capacity building requirements)

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1.4. Methodology

The assessment used a combination of quantitative and qualitative methods by collecting both

primary and secondary data collection.

The study employed a desk review of research results, reports and a rapid key informant

interview with managers and experts. The desk review relied on analysis of the existing

literature on agricultural chemical supply system, as well as current agricultural policies and

strategies in Ethiopia. Institutional and legal frameworks with regard to agrochemicals

particularly The National Fertilizer Strategy and Action Plan of Ethiopia, Proclamation no

20/1990, Proclamation No.137/1998, Proclamation No. 299/2002, Proclamation No. 300/2002

and Proclamation 674/2010 have been reviewed. For comparison purpose, data was collected

from FAOSTAT (FAO, 2016), and World Development Indicator (WDI, 2016).

Furthermore, to get a deeper understanding of the issues, interview has been conducted key

stakeholders in the sector including relevant government institutions. These interviews were

primarily used to assess the constraints limiting production and marketing of major agricultural

chemicals.

The scope of this paper is nevertheless limited to agricultural chemical special emphasis given

to major agro-chemicals that are in use in Ethiopia.

1.5. Organization of the report

The report starts by briefly presenting the needs for conducting business opportunity

assessment on the production and marketing major agro chemicals. Chapters 2 briefly present

the status of the economy in general and zoom in on the role and status of the agricultural

sector. Chapter 3 describes agro-chemicals production, import, supply chain and consumption

pattern. Data from FAO and World development indicator are primary used. Chapter 4 reviews

the legal framework with regard to production and marketing of agro-chemicals in the country.

Chapter 5 contains key opportunities for the private sector. This section is sub-divided into

three sub-sections corresponding to the major opportunities that are identified by the study.

Finally, chapter 6 concludes the study by highlight major findings, key constraints, and presents

recommendations that are believed to promote the participating of the private sector.

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2- Sectoral Position in the Economy

Ethiopia with total area of 1.14 million square kilometer and the population of about

90,074,000 (CSA, 2015) is Africa's second largest country in terms of population. The country

witnessed rapid economic growth, with GDP growth averaging 10.9% between 2004 and 2014

led the pack of fastest-growing economies — not just in Africa, but in the world — in 2015. The

economy grows by more than seven and half folds from 2000 to 2015 and reached 61.6 billion

USD. The country is set to expand 8.1% in 2016, according to International Monetary Fund

(IMF) estimates.

Source: Computed from IMF World Economic Outlook (WEO), April 2016

In terms of GDP per head, the performance of the country is impressive, GDP per head has risen

by close to 150% in the past decade and the government has stated Ethiopia will become a

middle-income country by 2025.

8.2 8.2 7.9 8.6 10.1 12.4

15.3 19.7

26.8

32.5 29.9

32

43.1 47.7

55.5

61.6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDP, current prices, billion $US

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Source: Computed from IMF World Economic Outlook (WEO), April 2016

In Ethiopia, agriculture is the second most dominant sector next to service sector of the

country’s economy. Agricultural production accounts for 42% of GDP, employs 84% of the

country’s population (MOA, 2013), and supplies 90% by value of all exports. The sector is also

the main source of capital to be accumulated for the process of establishing the future

industrialized Ethiopia, which again shows the determinant role played by the sector to bring

about sustainable economic development for the country in the years to come.

Source: Computed from World Development Indicators (WDI)

-5

0

5

10

15

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Real GDP Growth, %

Real GDP Growth, % (Ethiopia)

Forecasted growth of real GDP, % (Ethiopia)

Real GDP Growth, % (Sub-Saharan Africa)

Forecasted growth of real GDP, % (Sub-Saharan Africa)

0

10

20

30

40

50

60

70

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Agriculture, Value Added (% of GDP)

Ethiopia Kenya Sub-Saharan Africa

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Cereal production, which has a major share in the agriculture sector, is also growing rapidly.

Compared to in 1996 cereal production in the country grows by more than two and half times

in 2015 and reached 23.6 million metric tons.

Source: Computed from World Development Indicators (WDI)

A predominant portion of agricultural production takes place at the subsistence level. Farmer’s

use of traditional farm implements and subsistence farming system as well as limited use of

modern farm technologies that resulted to the sector’s poor performance (i.e. low productivity

of agricultural sector). For example, in 2014 cereal yield per hectare was estimated at 2,325 kg

for Ethiopia, which is only 60% of what the rest of the work produce during the same year.

Source: Computed from World Development Indicators (WDI)

9.4

23.6

-

5.0

10.0

15.0

20.0

25.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Am

ou

nt

in M

illio

ns

met

ric

ton

nes

Cereal Production in Ethiopia

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cereal yield (kg per hectare)

Ethiopia World

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Generally, Ethiopian agriculture is characterized by small-scale, rain-fed farming with limited

use of modern inputs. However, the sector is expected to play key role in the Growth and

Transformation plan II. In order to improve the contribution of the sector to countries GDP, the

productivity should be enhanced significantly. The short-term means is to increase agricultural

productivity per unit area (intensification) by adopting package of technologies of agricultural

chemicals like fertilizer and pesticides is the main component (Bekele, 2000). In other words,

the increase in yield must come from intensification of agriculture by the use of fertilizers and

other inputs.

Furthermore, according to the ministry of agriculture crop losses due to non-usage of pesticides

were estimated to 30% of the yield each year, which could have been avoided, had farmers

used effective agro-chemicals.

Source: Computed MOA (2014 Annual report unpublished)

Therefore, intensifying agriculture by agro-chemicals should be a strategic component to

increase the productivity and production of agriculture. In this regard, Gianessi and Williams

(2011) contend that herbicide use, in particular, remains a major unexploited means of

increasing yields and saving labor on Sub-Saharan African farms.

Weed 33%

Rodents and other 15%

Disease 26%

Insect 26%

Losses caused by different pests (%)

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3- Agro-chemicals in Ethiopia

An agrochemical is any substance used to help manage an agricultural ecosystem, or the

community of organisms in a farming area. Encyclopedia Britannica1 defines agrochemicals,

any chemical used in agriculture, including chemical fertilizers, herbicides, and insecticides.

Most are mixtures of two or more chemicals; active ingredients provide the desired effects, and

inert ingredients stabilize or preserve the active ingredients or aid in application. Thus,

agrochemicals include inorganic fertilizers and pesticides. Fertilizers are substances that are

added to farmlands to encourage plant growth and to increase crop yields. Pesticides on the

other hand include chemically synthesized compounds, devices or organisms that are routinely

utilized in agriculture to manage, destroy, attack or repel pests, pathogens and parasites.

Pesticides include both organic and inorganic moieties and may be classified into different

groups based on their chemical composition. These pesticides include organochlorines,

organophosphates, carbamates, formamidines, thiocyanates, organotins, denitrophenols,

synthetic pyrethroids and antibiotics (Bohmont BL. 1990).

In Ethiopia the major agrochemicals in use are fertilizers (DAP and Urea) and pesticides

(Insecticides, Herbicides, Fungicides and other). Thus, the analysis will be based on this

classification.

3.1. Production of agro-chemicals

Ethiopia is net importer of the agrochemicals the country demand for agrochemicals is

dependent on international producers with the exception of one factor which formulates

pesticides using imported active ingredients and solvents from foreign countries, mostly from

Italy and Israel within the country.

The implication is that there is total reliance on imports for consumption needs. These indicate

that private investors wishing to invest on production of agrochemicals in the country have a

clear advantage to fulfill the local demand and can exporting the manufactured agrochemicals

to other African countries.

Recognizing the potential vulnerably to global economic shocks from a heavy reliance

on imports goods, Ethiopia is moving towards producing, its own fertilizer during the next few

years. Additionally, soil fertility mapping, a project currently being completed by the Ethiopian

Agricultural Transformation Agency (ATA), is near completion and will identify which lands need

what type of fertilizer and in what quantity (ATA, 2015). The aim of the mapping is to make the

use of fertilizer in the farming system more efficient and economical.

1http://www.britannica.com/

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Currently the government is constructing four fertilizer factories in the Tigray, Amhara, Oromia

and Southern regional states, with annual capacities of 25,000tns of fertilizer. However, the

construction projects face delays. For instance, Yayu Fertilizer Factory, which is being

constructed at YayuWereda, Illubabor zone in Oromia Regional State was expected to be

completed by the end of 2014/15. However, at that time only 20pc of the construction

completed.

3.2. Import of agro-chemicals

Agricultural Input Supply Enterprise (AISE) is the major importer of agro-chemicals in the

country. The Agricultural Inputs Supply Enterprise (AISE) is a public enterprise established in

1985 and accountable to the Ministry of Agriculture (MoA). The Enterprise has 31 million Br in

assets, including 22 warehouses, 7 distribution and sale outlets and 36 vehicles.

Following the issuance of the National Fertilizer Policy, some private companies entered into

the sector (Jayne et al., 2003). However, the government gave favorable treatments toward

regional holding companies, which competed with the private companies. The favorable

treatments included the allocation of foreign exchanges for the importation and distribution of

fertilizer through government administered credit to farmers. Because of these favorable

treatments toward regional holding companies, private companies found it impossible to

compete with them, and all of the private companies exited from the market by 2000. Since

then, the distribution system of inorganic fertilizer has been dominated by AISE and a small

number of the regional holding companies (Spiel man et al., 2010). For instance as of 2004 only

20 organizations are actively involved in importation and sale of pesticides (EPA, 2004).

The logic for giving monopoly power to AISE is to take advantage of economies of scale and

reduce transaction costs. While the centralized procurement system has proved useful with

respect to ensuring the allocation of foreign exchange and timely fertilizer procurement, there

is lack of competition within the fertilizer supply chain.

In terms of Import volume the major agro-chemicals in Ethiopia is fertilizer distantly followed

by insecticides, herbicides and fungicides.

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Source: Computed from Ethiopian Revenues and Customs Authority Database

3.2.1. Import o fertilizers

The most import fertilizers in Ethiopia are Urea and DAP which account about 53 and 47percent

of the total fertilizer import during 2006-2015.

The latest data indicates that in 2015 the country imported about 341 thousand tones (270

Urea and 71 DAP) of fertilizer at a cost of more than 5 billion birr which is about 8% of the

country’s GDP. This is a decrease from a tool time high since 2006 where the country imported

about 730 thousand tones fertilizer at a cost of 8 billion birr in 2012, which account almost 20%

of the GDP.

Fertilizer 72%

Insecticides 20% Herbicides

7%

Fungicides and others

1%

Other 8%

IMPORT COMPOSITION IN 2015

0

100

200

300

400

500

600

700

800

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Imp

ort

of

fert

ilize

r in

th

ou

san

d t

on

ns

Fertilizer import

Urea DAP

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Source: Computed from Ethiopian Revenues and Customs Authority Database

Recently there has been a policy shift towards promoting the importation of a more diversified

portfolio of fertilizers. Through the Agricultural Transformation Agency (ATA), 14 types of

fertilizers have been recommended for use in Ethiopia, which are in line with the recently

completed National Soil Mapping. This policy change will likely increase the adoption of

fertilizer by smallholder farmers as well as the productivity. It also encourages the private

sector to engage in the production and marketing of these fertilizes in the country.

3.2.2. Import of pesticides

As can be seen from the graphs below the volume of pesticides import in Ethiopia shows a

positive trend since 2006 except fungicides, which only account less than 3% of total pesticide

import of the country in 2015. The growth is particularly strong for herbicides, which grows on

average of more than 7 % during 2006-2015.

In 2015, the country imported about 8.6 million kg (Net weight in kg) of pesticides at a total

cost of about 1.3 billion birr, which accounts more than one fifth on county’s expenditure on

agro-chemicals in the same year.

Source: Computed from Ethiopian Revenues and Customs Authority Database

3.2.3. Major supplier of agro-chemicals

A recent data on countries agro-chemicals (fertilizers and pesticides) indicates that more than

three forth of the import is from three countries. More striking is that over 90 % of fertilizer

import is sourced from China Russia and Saudi Arabia in 2015. This makes the country

vulnerable to shocks in these three countries.

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

In t

ho

usa

nd

to

nn

es

Volume of pesticides import in Ethiopia

Insecticides Herbicides Fungicides and other

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China is the biggest supplier of fertilizers to Ethiopia. In 2015, Ethiop import a abut ETB 3.2

billion (CIF value) worth of fertilizer. For the same year, import from China account about 62.

Russia and Saudi Arabia are the second and third largest supplier of fertilizer to Ethiopia, which

account 16 and 12.6 percent of total fertilizer import in the same year respectively. Morocco

and Egypt also supply fertilizer to Ethiopia. Other countries that supply fertilizer to Ethiopia

include United Arab Emirates, Korea, France, Israel and India, which have a combined share of

import less than 1% in 2015.

Source: Computed from Ethiopian Revenues and Customs Authority Database

Similarly, import from only three countries; China (45.5%), Belgium (17.2%)and India (13.7%)

account more than 76% total pesticide import of the country in 2015 which is estimated at ETB

687 million (CIF value). Again, we would like to highlight that depending on a small number of

country makes Ethiopia vulnerable even to minor shocks that only affect these countries. The

country also imports pesticides from France and United states, and to some extent from

Germany, Switzerland, Swaziland, Indonesia and Israel, United Kingdom, South Africa and

Netherland.

China 62%

Russian Federation

16% Saudi Arabia 13%

Morocco 8%

Egypt 1%

Malaysia 0.024%

UAE [VALUE]

Korea [VALUE]

France 0.009%

Israel 0.008%

India 0.004%

[CATEGORY NAME]

< 1%

MAJOR SUPPLIER OF FERTILIER IN 2015

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Source: Computed from Ethiopian Revenues and Customs Authority Database

3.2.4. Current condition of supply chain analysis

The country depends on imported agro-chemicals the supply chain analysis mainly focus on the

current supply chain of importing agro-chemicals in the country. The key issues in importing

agro-chemicals is that there is a considerable economies of size in international procurement

and shipping implying that importers particularly fertilizer importers are required to have a high

degree of liquidity. This requires adequate and effective financial sector. Trader must have

adequate access to credit or financial resources in order to maintain inventory and provide a

reliable supply of inputs. However, it should be noted that the shortage of foreign exchange is

quite common in the country.

Furthermore, to import high amount of agro-chemicals, the private sector must be able to

perceive the effective demand and it must be high enough to prompt them to provide the

input. However, there is lack of reliable market information about the effective demand in the

country. In addition, in Ethiopia, traders have long perceived low effective demand due to the

isolation of farmers in rural areas and lack of a clear communication pathway between farmers,

traders, and extension workers.

Since engaging in agro-chemical trader requires huge investment, suppliers would like to know

the level of risk involved in entering the market. In Ethiopia, particularly for fertilizer the

government fixes the price and if falls below the international price it discourage the private

sector.

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

China

Belgium

India

France

United States

Germany

Switzerland

Swaziland

Indonesia

Israel

United Kingdom

South Africa

Netherlands

Major supplier of pesticides 2015

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The other key consideration of the supply chain is the cost of transport and other transaction

costs. It is estimated that the cost of transport from Djibouti is around $0.06mt/km while it is

around $0.10mt/km from AISE warehouses to cooperative unions. The costs of transportation

are high because long distances must be covered and ground transport infrastructure is

generally poor. This high transportation cost is further exacerbated by the spatial distribution of

smallholder farmers across the country.

The implication is that though there are no tariff barriers to entry into the business of importing

agro-chemicals in Ethiopian, potential entrants to the industry are constrained by non-tariff

regulations such as the absolute cost advantage, economies of scale and high initial capital

costs.

The supply chain analysis particularly for fertilizers, which are the major agro-chemicals in the

country, shows that marketing of the product passes through long chains and involves a

number of actors that attributes to the late delivery of the product to the end users and high

cost of fertilizer relative to resource poor smallholder farmers. All the key informants have

unanimously reported that late delivery is still a big concern, which needs an immediate

remedy.

To sum up, the followings are major supply chain constraints

High capital requirement: The chemical industry requires huge capital investments.

Raising such capital is difficult, especially when credit facilities are inadequate and

interest rates are high

High transportation costs: Transport costs are high because long distances must be

covered and ground transport infrastructure is generally poor.

High risks: The chemical industry is full of risks and uncertainties. Chemical supply is

carried out under unpredictable conditions; there is an expiry date if the chemicals are

stored for long.

Long fertilizer supply chain and late delivery: A long domestic supply chain characterizes

the marketing of agro-chemicals in the country particularly for fertilizers.

Lack of market information: Lack of reliable demand information makes it difficult for

the suppliers to forecast and plan their supplies accordingly.

Inadequate financial services: Absence of adequate financial services has raised the cost

of financing chemical procurement and distribution activities.

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Poorly developed rural infrastructure: Lack of well-developed rural infrastructures such

as roads and warehouses contributed to high transportation and delivery costs of

inputs.

3.3. Consumption pattern of agro-chemicals

In Ethiopia the major agrochemicals in use are fertilizers (DAP and Urea) and pesticides

(Insecticides, Herbicides, Fungicides and other). Thus, the analysis will be based on this

classification.

3.3.1. Fertilizer consumption

The data shows that fertilizer consumption in Ethiopia is growing very rapidly at around 10

percent per annum and is estimated at 550 thousand tons in 2011. This faster growth rate

creates more demand than ever happened in the nation. This is good opportunities for private

investors and producers at local level. In fact, interview with key informant from MoANRM

reveals that the country almost excessively depend on import to full fill the local demand.

Source: Computed from faostat

In order to further, understand the use of agro-chemicals in Ethiopia a nationally representative

datasets provided through the Living Standard Measurement Study-Integrated Surveys on

Agriculture (LSMS-ISA) is used. The data shows that in Ethiopia, almost half of cultivating

households use inorganic fertilizer in any amount in the main growing season (Sheahana and

Barrett, 2014). A study by IFPRI showed that about 56% of farmers in the four main regions of

Ethiopia used chemical fertilizer on at least one plot in the agricultural year 2011-12, including

both Belg and Meher seasons (Minot and Sawyer, 2013). This percentage is higher than the 49%

0

50

100

150

200

250

300

350

400

2007 2008 2009 2010 2011

Tho

usa

nd

s to

nn

es

Fertilizer consumption

DAP Urea

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of farmers using fertilizer in the 2008 IFPRI Ethiopia Agricultural Marketing Household Survey

also carried out by IFPRI.

The implication is that the potential demand could be twice the current amount. The other

point work mentioning is that fertilizer consumption per hectare of land though growing is low

even compared to neighboring country such as Kenya indicating that there is huge potential

demand. For instance, a recent data from FAO shows that in 2013 fertilizer consumption as

measured by kilogram per hectare of land in Ethiopia is about 19 kg which is only one third of

what Kenya’s farms applied to their land.

Source: Computed from World Development Indicators (WDI)

3.3.2. Pesticides consumption

On the other hand, use of other agro-chemicals such as pesticides is less common. From global

perspective Zhang et al., (2011) found that excluding South Africa the share of pesticide use in

Africa is only one percent of global pesticide consumption. Overall agro-chemical use statistics

taken from the LSMS-ISA household survey data shows that 30 percent of cultivators applying

agro-chemicals (8.4 percent use pesticides, 27.2 percent uses herbicides, and 3.5 percent uses

fungicides) to their fields in the main cultivating season (Sheahana and Barrett, 2014). Similar

figure is reported by IFPRI study, which is about 31%. This percentage is higher than the share

reporting pesticide use in the 2008 survey (21%) (Minot and Sawyer,2013).

The amount of pesticide uses is presented below. As can be seen from the graphs, the use

pesticides use grow at about 18% per annul. The latest data available on pesticide us is 2010.

The country uses about 3109.7, 638.4 and 377.1 tones (of active ingredients) of Herbicides,

Insecticides and Fungicides & Bactericides respectively.

0

10

20

30

40

50

60

2000 2002 2004 2006 2008 2010 2012 2014

Fertilizer consumption (kilograms per hectare of arable land)

Ethiopia Kenya Sub-Saharan Africa

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Source: Computed from faostat dataset

0

500

1000

1500

2000

2500

3000

3500

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Herbicides uses in tonnes

0

200

400

600

800

1990 1995 2000 2005 2010 2015

Insecticides uses in tonnes

0

100

200

300

400

1990 1995 2000 2005 2010 2015

Fungicides and other uses in tonnes

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4- Review of rules and regulation with regard to agro-chemicals

From the legal aspect article 43 of the constitution states that people has the right to improved

living standards and to sustainable development, consultation and participation regarding

matters that may affect their wellbeing, sustainable development, and enhanced capacity for

development and meet their basic needs provided for. More clearly, article 44 of the

constitution clearly states people right to clean, healthy environment, and proper

compensation. Thus, any undertaking related to agro-chemicals should cognizant of these

broad right enshrined in the constitution.

Environmental impact assessment proclamation (Proclamation No 299/2002) and The

Environmental Pollution Control proclamation (No 300/2002) are also relevant proclamation

with regard to production and marketing of agro-chemicals in Ethiopia. The former requires

major development programme, plans and projects of the private and public sectors to conduct

environmental impact assessment study before their approval. While the later aims at

eliminating when not possible, to mitigate pollution as undesirable consequence of social and

economic development activities.

The labor proclamation (42/93) is also another legal requirement that obliges that an employer

shall take the necessary measures to safeguard the health and safety of the workers. While

public health proclamation (200/2000) prohibits discharging of untreated liquid waste

generated from septic tanks, seepage pits and industries into water bodies, or water

Convergences and prohibits the disposal of solid or liquid or any other waste in a manner,

which contaminates the environment or affect the health of the society, etc.

4.1. Rules and regulations for fertilizers production and marketing

Ethiopia has a National Fertilizer Strategy and Action Plan (NFSAP) whose overall objective is to

enhance fertilizer use through curtailing the major bottlenecks of the fertilizer sector in the

period 2008-2015. It is an addendum to the National Fertilizer Policy issued in 1993 with the

objective of liberalizing the fertilizer sector (Simtowe, 2015). It envisages increasing fertilizer

demand and efficient use, ensuring timely supply of fertilizers in appropriate quality and

quantity with competitive price, and exploiting and utilizing locally available fertilizer resources

thereby increasing sustainable agricultural productivity

Ethiopia has a fertilizer law, cited as the Fertilizer Manufacturing and Trade Proclamation

No.137/1998. The proclamation provides guidelines for the manufacturers, importers and

distributers of fertilizers in Ethiopia. It provided detailed registration requirements, conditions

for suspension or cancellation of certificates in case of breach of the law such as in the case of

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sale of adulterated fertilizers and associated penalties. The Law also empowers the Quality and

Standards Authority of Ethiopia (QSAE) to carry out inspection on imported fertilizers and to

certify the quality of the same. Moreover, the law empowers the National Fertilizer Industry

Agency (NFIA) to decide the type of fertilizer to be imported or to be locally manufactured.

The Agency is also empowered with other duties such as the issuance of certificates,

establishment of teams of inspectors, establishment of laboratories for fertilizer testing and

performing testing activities on fertilizers as well as fertilizer price establishment and

enforcement. The Law also provides for an establishment of the inspectorate that is responsible

for the enforcement of the Law by conducting fertilizer quality inspections.

However, it should be noted that though the explicitly state the need to regulate the quality of

fertilizer imported and produced locally, there is lack of capacity in the existing institutional

framework operating within public service in order to deal with quality problems adequately.

Furthermore, more the capacity for the enforcement of such regulatory requirements is weak.

4.2. Rules and regulations for pesticide production and marketing

As far are pesticide is concerned, the government of Ethiopia has developed policies and legal

frameworks related to safe production and use of pesticides. The Ethiopian environmental

policy, which was formulated in 1997, provides the general policies and legal frameworks of

pesticide production and marketing. More specifically, the policy highlight the use of biological

and cultural methods in an integrated manner to control pest and diseases and aim to safe

guard human and environmental health by adequately regulate the agricultural chemicals.

The agricultural policy also has relevant policy direction with regard to pesticide use. This include

urging the farmers to control non–migratory pests before they move to the nearby farm

areas,

If these pest population increases and beyond the control of farmers, government

should support these farmers,

Importation and handing over of crop protection technologies should be based on

testing their effectiveness,

spraying pesticides considered as effective control of Migratory pests,

the need for the establishment of plant quarantine system to prevent intrusion of exotic

pests or move out of the country,

Development of pesticide registration and control system, etc.

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Proclamation 20/1990 specifically addresses the issue of pesticides registration. This the

proclamation covers agricultural, household, public health, and industrial pesticides; provides

registration and control responsibilities to Ministry of Agriculture; seeks to promote safer

pesticide handling and use in the country; requires that all pesticides should be registered on

the basis of demonstrated product effectiveness and safety for humans, non-target organisms

and the environment; prohibits importation of highly hazardous, severally restricted or banned

pesticides (including most organochlorines) and obliges that all pesticides must display labels

that meet specific MoA label requirements.

More over the proclamation requires data specification; common name of the active

ingredient, according to International Organization for Standardization (ISO) standard; chemical

name; empirical and molecular weight; chemical and physical properties of the active

ingredients; the formulation products; and efficacy data to make the registration complete.

Since this decree lacked several important details, a new pesticide Registration and Control

Proclamation No 674/2010 was enacted in 2010. Both national and international experts

participated in the preparation of this new proclamation. The proclamation contains 8 parts

and 37 articles. The proclamation provides clear guides to:

conduct the registration and control of all types of pesticides under one legislative

control through MoA

incorporate all relevant definitions in connection to pesticide legislation

include internationally accepted definition of a “Pesticide” so that problems in legal

enforcement would not occur as the result of coining different definitions for one term

“pesticide”

clearly specify the role of federal and regional organs

include more strong and clear provisions with regard to offences and penalties

give more power to pesticide inspectors and to specify their role in detail

include a provision that a pesticide dealer is obliged to keep all pesticide sell and import

records and report on the same to the Ministry when so requested

include relevant detailed provisions on disposal

clearly define the role of the Advisory body

include provisions on Occupational safety

This makes it by far the most comprehensive proclamation that provides adequate information

for government as well as private sector who wishes to engaged in the production and

marketing of pesticides in Ethiopia.

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Key international conventions that Ethiopia ratified that have importance in pesticides

managements include Rotterdam convention, Prior Informed Consent (PIC), Basel convention,

Stockholm convention (POPs), Bamako Convention (1991).

Rotterdam Convention: The convention aim first to promote shared responsibility and cooperative efforts among Parties in the international trade of certain hazardous chemicals in order to protect human health and the environment from potential harm; and second to contribute to the environmentally sound use of those hazardous chemicals, by facilitating information exchange about their characteristics, by providing for a national decision-making process on their import and export and by disseminating these decisions to Parties. Source: http://www.pic.int/

Basel Convention The Convention aim is to protect human health and the environment against the adverse effects of hazardous wastes. Its scope of application covers a wide range of wastes defined as “hazardous wastes” based on their origin and/or composition and their characteristics, as well as two types of wastes defined as “other wastes” - household waste and incinerator ash. Source: http://www.basel.int/ Stockholm convention (POPs) The Convention is to protect human health and the environment from persistent organic pollutants Source: http://chm.pops.int/default.aspx

Bamako Convention The conventions:

Prohibit the import of all hazardous and radioactive wastes into the African continent for any reason;

Minimize and control trans boundary movements of hazardous wastes within the African continent.

Prohibit all ocean and inland water dumping or incineration of hazardous wastes.

Ensure that disposal of wastes is conducted in an “environmentally sound manner ".

Promote cleaner production over the pursuit of a permissible emissions approach based on assimilative capacity assumptions

Establish the precautionary principle. Source: http://www.unep.org/delc/BamakoConvention

Thus, any private or public sector that plan to engaged in the production and marketing of

pesticide should take note of provisions of these national legal requirements and international

conventions

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5- Key opportunities for the production and marketing of agro-

chemicals

There are a number of opportunities for the private sector to engage in the production and

marketing of agro-chemicals in Ethiopia. The major opportunities are categorized into three;

market potentials, government incentives and country’s resource base.

5.1. Market potential for agro-chemicals

5.1.1. Forecasts of fertilizers demand

Currently, the application rate for fertilizer in Ethiopia remains a small proportion of world

average and is expected to increase significantly in order to accelerate food production and

agricultural growth. This provides a clear opportunity for the private sectors. In this regards it

vital that government policies and investments support a competitive private sector-led

fertilizer industry in order to encourage an increased and sustainable supply of fertilizers.

In addition, while most arable land in the country needs nutrient replenishment, fertilizer

application is only done on about 50 per cent of the total cereal planted farms. Which further

shows the existence of huge and untamed demand?

Given the current fertilizer application rate, total fertilizer consumption is estimated at 550

thousand tones in 2011and is forecast to grow by 155% and reach 1,400thousandtonnes by the

end of 2020.The following figure indicates the forecasts of Ethiopia’s demand for total fertilizer

from 2007 to 2020, against the actual consumption in the preceding five years.

However, both fertilizer application rate and percentage of fertilizer production are expected to

grow. Thus, demand for fertilizer could be much more than this figure.

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Source: Computed from faodata

5.1.2. Forecasts of pesticides demand

At the current rate of pesticide application and pesticide usage, pesticide consumption is

expected to more than triple and reaches about 14 thousand tones of active ingredients by the

end of 2020. However, it is worth repeating the fact that first, only 30 percent of producers use

pesticides. Second pesticide use rate is very small. For instance, FAO data shows that in 2010

total pesticide consumption (Herbicides, Insecticides and Fungicides & Bactericides) was

estimated at 4 thousand tones of active ingredients. During the same year, total area under

cereal production is about 9.7 million hectare. The pesticide application per hectare is very

small and is expected to grow significantly.

Thus, the combination growth in pesticide use and pesticide application rate will further

increase the demand for pesticides significantly.

Source: Computed from faodata

0

400

800

1200

1600

2006 2008 2010 2012 2014 2016 2018 2020 2022

Tho

usa

nd

to

nn

es

Forecasts of Ethiopia demand for fertilizer

Fertilizer consumption ( in tonnes) Forcasted fertilizer consumption ( in tonnes)

0

5

10

15

2005 2008 2011 2014 2017 2020

Tho

usa

nd

to

nn

es

Forcasted demand for pesticide

Pesticide demand Forcasted demand for pesticide

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5.2. Government incentives

In the country, there are different incentives set up by the government to promote the

participation of the private sector in the country’s economic development. For example,

recognizing the potential role of the private sector, the government of Ethiopia has created a

conducive investment environment to ensure and promote private investment to play a leading

role in the development of the national economy. In addition, the investment policy and legal

reforms (Investment Proclamation (Amendment) No 849/2014) favors the private sector.

It should be noted that agro-industrial project is a high priority area of the government and

thus eligible for comprehensive incentive packages.

Furthermore, the government is actively constricting industrial development zone at various

selected sites in major cities such as Addis Ababa, Dire Dawa and Kombolcha. The zones

currently operating harbor an increasing number of private business establishments within

them. These project aims at offering cheap labour, improving power supply and transport

infrastructure to attract manufacturing businesses.

The industrial zones offer land for factories at $1 per square meter a month, tax holidays for up

to seven years and customs and other services on site for those investing in the nation of about

90 million people. There is also income tax exemption period is 10 years in Addis Ababa and

Special Zone of Oromia surrounding Addis Ababa and 15 years in other areas. Investors are also

attracted because the country benefits from the United States' African Growth and Opportunity

Act (AGOA) trade pact allowing duty-free exports to the U.S. market.

Finally, there is a strong support from international development partners towards the

manufacturing industry in the country.

5.3. Country’s resource base

Ethiopia is endowed a vast array of natural resources including sulfur, potash, coal and

limestone, which are key ingredient for the production of different types of fertilizers.

Ethiopia has plenty of Sulphur deposits in the Danakil Depression and around Dofan deposit in

the central rift area, which c be mined and used in the production of fertilizers. In fact there is

aluminum Sulfate and Sulfuric Acid Factory, Ethiopia situated in Melkassa, 130km east of Addis

Ababa (Ministry of Mines and Energy, 2010).

As far as potash is concerned, Ethiopia has huge resource base for high-grade, shallow and

excellent quality of potash in the Danakil Depression. In fact, more than 10 private companies

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have been in the process of potassium development during the implementation course of GTP I

(Ministry of Mines and Energy, 2010). Potash minerals can be used to produce fertilizer and the

existence of huge and quality resource base gives the country completive advantage to produce

fertilizer locally. Recognizing the potential, the government plans to export Potassium during

the implementation course of second Growth and Transformation Plan (GTP II).

Coal is essential raw materials to produce nitrogenous fertilizer. Ethiopia has also huge coal

deposit particularly in Delbi, Moye and Yayu. The coal deposits in these areas are considered

the best whereas, Chilga and Mush valley coal deposit as significant deposits requiring further

investigation (Ministry of Mines and Energy, 2009).

A limestone is also another ingredient for the production of fertilizers. The data from Ethiopia’s

Ministry of Mines and Energy shows that Ethiopian has also huge limestone resources in Abay

river valley and its tributaries including Jemma, Mugher and Wonchit. Limestone resources are

also found in Tigray, Dire dawa and Oromia regions.

The other key resource the country possesses is human capital. The expansion of higher

education and large government investment in the sector is increasing the availability of skilled

labor, and this large availability of skilled labor is a huge opportunity for the industrial sector to

expand more rapidly.

This clearly shows that the country has skilled and easily trainable labor and almost all the raw

materials/minerals useful to manufacture almost all imported fertilizers.

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6- Conclusions and recommendations

These sections briefly present the major findings and highlight the key constraints. Then it

draws recommendation to promote the role of the private sector in the production and

marketing of agro-chemicals in the country.

6.1. Conclusions

Despite Ethiopia’s resource endowment to produce sufficient food for domestic consumption

and export, it remains a net importer of basic food items. Smallholder farming with low

productivity dominates Ethiopia’s agricultural sector and high dependency on rain fed

agricultural systems. An important component of the causes of low agricultural productivity in

Ethiopia is the low use and adoption of productivity enhancing technologies such as improved

seed varieties, pesticides and fertilizers.

Ethiopia is the major users of fertilizers in sub-Saharan Africa. However the country totally rely

on import to fulfill the local demand for agro-chemicals mainly from China but also from

Belgium, India, France and United States for pesticides and Russia, Saudi Arabia and Morocco

for fertilizers. This makes the country highly vulnerable to global economic shocks. Recognize

the negative implication of heavy reliance of imported good, efforts have been underway to

produce agro-chemicals mainly fertilizer in the country. In terms of Import volume, the major

agro-chemicals in Ethiopia are fertilizers distantly followed by insecticides, herbicides and

fungicides.

The use of agro-chemicals (fertilizer, insecticide, herbicide and fungicide) is growing rapidly.

However, the coverage and application rate is very low among smallholder farmers while the

annual nutrient depletion rate is very high. This indicates that consumption of agro-chemicals in

the country is expected to grow even further.

Supply chain analysis reveals that high capital requirement; high transportation cost, lack of

adequate market information and a long domestic supply chain characterize import and

distribution of major agro-chemicals in Ethiopia.

The country has rules and regulation with regard to fertilizers and pesticides production and

marketing in the country. Furthermore, the fertilizer sector reforms explicitly encourage private

sector participation. However, it should be noted that there is a capacity gap for the

enforcement of the legal and regulatory framework. This affects the operations of government,

the private sector, and other stakeholders in the fertilizer sector. Moreover, the heavy

involvement of government in distributions and even price determination has a crowing out

effect on the private sector participation. With respect to pesticide production is marketing the

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bottom line is that there are no policy constraints for the private sector to engage in the

production and marketing in the country if they observe the stated rules and regulations.

The study shows that the demand for the major agro-chemicals (fertilizers and pesticides) are

expected to grow exponentially. Under a very conservative estimate where the current usage

and application rate is assumed to hold fertilizer demand is expected to increase more than two

and half time the current amount while pesticides is expected to more than triple by the end of

2020. However, in the face of the current growth pattern and government commitment for

healthy and adequate food supply for all through increasing agricultural productivity, the actual

demand is expected to be much more than these estimates. In other words, the need of

improving the efficiency through the usage of agrochemicals is drives the market demand.

The application rate particularly for fertilizers remains low. Furthermore, fertilizer is applied on

only half of the cultivated land. As the country grows the application rate as well as the

coverage is expected to increase significantly. The implication is that there is huge and untamed

demand.

Ethiopia has every minerals useful to manufacture almost all imported mineral products are

abundantly available within the country. In addition, the Government is pursuing a policy of

industrialization that gives emphasis in utilizing locally produced minerals as the main raw

materials as well as gives priority for locally produced industrial products.

In general, Ethiopia’s unique and untapped natural resources, its geographical location and

proximity to Middle Eastern and European markets, the government commitment to

sustainable development are the key opportunities for the private sector.

6.2. Recommendations

One key challenge that potentially discourages the participation of local investor in the

production of agro-chemicals is that production is capital-intensive and characterized by

substantial economies of scale. For instance factories producing different kinds of fertilizers

(DAP and Urea) must be large to be competitive. To address this capital constraint, government

could promote joint venture initiatives where the government or foreign investor jointly invest

with the local investors can engage in the sector.

Production and marketing of agrochemicals requires intensive care as it is dealing with

chemicals, huge investment and skilled labor. In this regard, there is a need to develop market

responsive training curriculum particular in TVETs and short-term certificate programs. In the

short run, this short-term certificate programs are expected to fill the skill gap of new

graduates. However, in the long run it is important to integrate specialized courses in both

diploma and degree program of related field at university and college level.

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Though the country formulated conducive environment in terms of police and regulations,

practical implementations of these polices and regulation is not yet started. The

implementation of these rules and regulation requires coordination among different bodies of

the government. In order not to hinder private investors to enter in to the business, thus, there

is a need to give more focus on the actual implementation of these rules and regulation and

improve coordination among key institutions that are responsible to issue license, regulate the

sector and provide support for investor.

The government is committed to bring growth in environmental sustainable manner. In this

regards there is a push to use organic compounds in order to reduce any unintended effect on

the environment. On the other hand, government is also committed to transform the

agricultural sector by increasing production and productivity. These two goals seem to

contradict each other and may hamper the growth of agro-chemicals production and marketing

business. In truth, however these two goals of the government are compatible. What it means

is that only effective agro-chemicals that do not pose significant environmental risk should be

produced or imported in the country. In this regards therefore, there is a need to inform and

engage potential producers, importers distributors and other relevant stakeholder on the

country’s rules and regulation with regard to production and marketing of agro-chemicals.

Furthermore, it is important to improve the extension services and link them to the private

input supplier so that farmers apply the correct amount of fertilizers and pesticides on their

land.

To encourage the private sector participation in the production, importation, distribution and

marketing of agro-chemicals it is important to share the results of this study to wider

audiences. In addition there is a need to undertake very strong and tangible value chain

analysis to nourish and supplement the current business opportunity study.

There is lack of reliable market information about the effective demand in the country. Thus,

investments to improve the quality and availability of market information with regard to

demand and willingness to pay for agro-chemicals of major buyer can contribute to better

decision making in the production and marketing of agro-chemicals and reduce price volatility

in output markets.

As concern grows for maintaining and improving the quality of the environment and protecting

the human health, expanding the agro-chemical industry in the country should also take into

account the potential environmental impacts. The country enacted a number of proclamations

with regard to environmental protection. However, the capacity to implement and enforce

those standards becomes more crucial than ever. Thus, there is a need to improve the capacity

of quality control inspection of the environmental regulatory body in terms of human resource

and equipment so that quality control and inspection is conducted smoothly. The private sector

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should also be informed about the specific environmental regulations of the country with

regard to production and marketing of agro-chemicals.

High level of demand for agro-chemicals, availability of raw materials/inputs, and high rate of

returns on investment and availability of different kinds of government incentives make

agrochemical production and supply enterprises attractive to private investors. Furthermore,

the geographical location of the country makes export of agro-chemicals both to African as sell

as Middle East countries relatively easy. Thus, by addressing the constraints identified above

and investing on key infrastructure, it is possible to stimulate the flow investment into the

sector.

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TAK-IRDI

8- Annex

8.1. List of persons and organizations consulted

No Organizations Contacted Person

1 Ministry of Agriculture and Natural Resource (MOANR) Ato Amsalu Geletu 2 Ministry of Agriculture and Natural Resource Ato Zebdiyos

3 Ministry of Agriculture and Natural Resource Ato Yismaike

4 Ministry of Agriculture and Natural Resource Ato Efrem Demissie 5 Ministry of Agriculture and Natural Resource Ato Degife Tabezaw 6 Agriculture Input Supply Enterprise (AISE) Ato Abera Beneberu 7 Agriculture Input Supply Enterprise Ato Shibiru Demissie 8 Ministry of Industry Lij Alem Yirga

9 Ministry of Industry Bekele Berihun Arefayne 10 Oromia Chamber of commerce Ato Eyaros Bekele 11 Agricultural Transformation Agency 12 Supra Floritech PLC Masiresha Ketema 13 Mullo Farm PLC

14 Green Life Produce PLC Hayimanot H/Giorgis

15 Red Fox Ethiopia PLC Wondimagegn Fantahun

16 Luna Fruit PLC Tesfalidet 17 Minaye Flowe PLC 18 Maranque Plants PLc Daniel Getachew 19 Ethiopian Cutting PLC Solomon Desta 20 Gilbo Seeds & Seedling Agri PLC Meaza 21 joytech PLC Abera 22 Almetal Impex PLC Yilkal 23 Derban Flower PLC 24 Abyssniya Flower PLC