Viewpoints | Jan 25,2020
The federal government will stop subsidies on imported wheat altogether, replacing the long-held practice with a new distribution scheme. The move comes barely two weeks after fuel subsidy scale-backs pushed retail prices for petroleum products to record-highs at pumping stations.
The government has been importing and distributing wheat at subsidised prices to stabilise the market for a decade. It continued to supply subsidised wheat until two years ago, though no amount has been bought for market stabilisation purposes since then. Global wheat prices hovered near 160 dollars a tonne five years ago, but the figure has doubled since, reaching 315 dollars a tonne this month.
Foreign wheat procurement put pressure on the federal budget. In the five years since 2012, the government spent 33.7 billion Br importing 4.1 million tonnes of wheat and distributed at discounted prices. In 2017, the bill shot up to 10.4 billion Br. Flour plants were supplied wheat for a discounted price of about 550 Br a kilo, which they milled and sold for a profit margin of less than four percent. In turn, bakeries sold bread made with subsidised flour at less than three percent margins. The imported wheat that went to cooperatives was sold with a five percent profit margin.
The rising import bills have pushed the Ministry of Finance to find ways to cut back on wheat subsidies gradually. It is becoming difficult for the government to continue subsidising wheat imports, reads a report prepared by the Ministry in 2017. The scheme was inefficient due to the rampant misuse in the value chain. Some bakeries were selling off the subsidised flour at higher prices rather than making bread, according to officials.
The federal government is moving to stop subsidies on wheat and introduce a new distribution scheme to stabilise the market, according to Ashenafi Mamuye, head of the team responsible for market research and monitoring fast-moving consumer goods at the Ministry of Trade & Regional Integration (MoTRI).
The flour processed by the millers will no longer be supplied to bakeries, instead it will go to cooperative unions for direct distribution to consumers. The new scheme will be implemented with the 400,000tn of wheat bought for market stabilisation earlier this month, Ashenafi disclosed.
The procurement carried out through the United Nations Office for Project Services (UNOPS) cost 11 billion Br, amounting to 2,750 Br a tonne. Officials expect the wheat to cover demand for six months and plan to distribute it through cooperative unions. Federal officials have plans to work with over 350 large-scale millers across the country to produce flour and distribute it in quotas allotted to each regional state.
Consumers will receive between five and 10Kg of flour each. Distribution is expected to begin once authorities approve pricing at the Trade Ministry.
The Ministry has consulted with regional state administrations before deciding on the new scheme, according to Ashenafi. It was also piloted last year using 670,000qtl of wheat obtained from the Disaster & Risk Management Commission.
"The approach has been proven successful," said Ashenafi.
Processed flour from millers sells for 4,200 Br a quintal in the market. Through cooperatives, however, a quintal goes for about 4,000 Br.
A team within the Trade Ministry has proposed the imported wheat be distributed at 300-500 Br a quintal less than the market price, according to Ashenafi.
There are about 80,000 cooperative unions in the country, composed of 24 million consumers.
According to Ayalsew Worqineh, head of communications at the Ethiopian Cooperatives Commission, a discussion has been held with players in the market and government officials to provide solutions for operational challenges noticed in cooperatives. Among these is sourcing operation funds. The Addis Abeba City Administration has allocated one billion Birr in a revolving fund for cooperatives based in the capital. This is targeted at increasing the supply of staple foods provided through the unions, including teff and wheat.
Assefa Admassie (PhD), an agricultural economist, acknowledges the new distribution scheme to improve the old approach. The expert, however, cautions that the unions have to modernise their supply systems and attain better efficiency for the plan to achieve its goals.
The annual demand for wheat is estimated at 7.6 million tonnes, of which about 5.8 million is met by domestic production. The government has implemented cluster and off-season irrigation-based farming programmes, through which 172,000ht of land was harvested last year, yielding close to 700,000tn of wheat.
Supply is expected to increase this year, according to Ayalsew.
PUBLISHED ON Dec 25,2021 [ VOL 22 , NO 1130]
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