Fortune News | Jul 02,2022
The Ministry of Trade & Regional Integration has issued a stern warning to exporters to immediately ship tens of thousands of tonnes of cash crops its officials say have been found stored with them or face potential confiscation. Sesame accounts for over a quarter of the volume.
Ministry officials say they discovered 60,000tn in cash crops at warehouses in 105 exporters' possessions following investigations in Adama town, Oromia Regional State, Addis Abeba, and its surroundings. Exporters sourced the commodities through contract farming, investment, vertical integration, and the Ethiopian Commodity Exchange (ECX) to ship abroad but sat on the cash crops.
The deadline the Ministry set for exporters to sell cash crops acquired through vertical integration – labelled "illegal" for trade in anything other than coffee – using the Ethiopian Commodity Exchange (ECX) passed last week.
“If any crops are found, they'll be confiscated,” warns Mesfin Abebe, director of agricultural product export trade at the Ministry. Exporters who sourced the commodities legally have been given until the end of the financial year to register them.
Mefin suspects more warehouses are hoarding and illicitly acquired crops.
"We'll conduct further investigations soon," he said.
The crackdown comes as the government scrambles for foreign currency to deal with troubling imbalances and deficits. Over the past decade, the export of oilseeds such as sesame has seen volumes decline by eight percent annually. Oilseeds are among the top foreign currency earners, accounting for nearly 12pc of the 3.6 billion dollars in export revenues last year. The import bill registered 14 billion dollars, resulting in a negative trade balance of 10.4 billion dollars.
Over the first six months, exports generated 1.9 billion dollars, 20pc higher than the same period last year. Close to 70pc of the revenues was obtained from exporting agricultural commodities such as coffee, sesame, khat and oilseeds.
“The commodities [found in the warehouses] should be exported to generate hard currency for the country,” said Mesfin.
Calculated based on a minimum price set at 1,685 dollars a tonne, the cash crops could potentially translate to over 100 million dollars in export revenues. Officials say they follow up with the exporters to help ship the commodities out.
“Almost half of the exporters have begun the process,” said the Director.
Anley Alemu Import & Export is among the companies that received the notice last week. The Ministry alleges the company had 75tn of mung bean, 33.7tn of white kidney beans, and 63tn of red kidney beans at its warehouse in Addis Abeba. Anley, a major shareholder, says sluggish demand in the international market was behind the decision to store the cash crops. Incorporated in 1994, the company is engaged in commodity trade and the freight cargo business.
Most exporters do trade using loans from commercial banks; none would attempt to hoard for fear of the build-up of interest payments, according to Anley.
Exporters that acquired the crops "illicitly" or through the ECX trading floor must present a special permit from the Ministry to trade their crops through ECX’s platform. The Exchange opened a special window for sesame trade last month. However, the window has yet to handle any transactions. Only one trader has thus far presented a permit, disclosed Mergia Bayissa, deputy chief executive officer (CEO) of warehouse and quality operations.
After acquiring 66.7qtl of sesame from the ECX trading floor last year, Comet Trading Plc was looking to source more to fill a 20-foot shipping container before exporting. Unable to meet its target, Comet recently sold the 66.7qtl back to the ECX after securing a permit from the Trade Ministry, according to Awot Mohammed, export manager at the company.
“We couldn't find more for export as not enough sesame was available," said Awot.
The security situation in the country's north, the primary source of sesame and where militarized conflict has been raging for a year and a half, has made it difficult for exporters to get their hands on the oilseed. According to the Trade Ministry over 48,000ht of farmland dedicated to sesame cultivation near the border with Sudan has been left unplowed.
ECX executives expect more cash crops to flow into their trading floor despite the low turnout.
"It's illegal to trade these crops outside the ECX platform," said Mergia.
Anwar Mohammed, an expert specialising in the commodity market, says international demand for crops like sesame remains high. He believes exporters are reluctant to ship the commodities abroad for various reasons, including the hope that the crops could be sold for higher prices shortly.
Another factor Anwar pointed to is the central bank's revised forex retention policy. The National Bank of Ethiopia (NBE) altered its forex retention rules in January this year, for the third time, compelling commercial banks to surrender 70pc of export revenues and remittances. Exporters are left with 20pc or less of their earnings, half of what they were allowed before the rules were updated.
Anwar observes many exporters had been stocking up on commodities like sesame in hopes of earning forex to finance imports.
"The government is left with the only option of tightening its grip on the exporters to collect more forex," he said.
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