On a side road across the African Union Headquarters, in Lideta District, lies a whole body painted makeshift bus-turned-stall serving as a distribution centre for bread. Registered under Werkenesh Melaku & Friends, the stall was opened last year by six people with 80,000 Br borrowed from a microfinance institution. It is one of the many hundreds of former Anbessa City Bus scattered.

The bread comes from Sheger Bread & Flour Factory, a recently opened industrial-scale bakery in the outskirts of Addis Abeba. The stall was supplied with as much as 3,000 loaves of bread a day in the early days. In recent weeks, no more than 1,200 loaves have made it to the shelves.

On the morning of Thursday, December 16, 2021, the stock of 1,200 pieces of bread, packed in 10 and 20 Br bundles, ran out in less than two hours. Dozens of customers were turned away. At least, the supply would be sufficient to cover the needs of around 120 people, as a single buyer is limited to 12 loaves, for 20 Br.

Supplies running out so quickly does not amount to good news for the owners. Instead, it makes them wary of the rising costs they incur in light of fewer sales.

When the Sheger Bread & Flour Factory venture was kicked off last year as a collaboration between MIDROC Investment Group and the Addis Abeba City Administration, the stall owners in Lideta had high hopes of running a profitable business. The 3,000 loaves they received daily translated into 18,000 Br in monthly profits, sufficient to cover rent and interest payments on the loan they took to establish their stall. The profit margin from each loaf of bread stood at twenty cents.

They pay 1,035 Br in monthly rent for the stall to the City Administration. It was initially 690 Br, but the stall owners would not say they were unaware of the eventual increase. The contract they signed with the administration says rent could increase until it hits 1,385 Br a month at the end of this year. With the 5,000 Br in monthly loan repayment and the 42,000 Br they shell out for the supply of bread; expenses have put the business under stress.

The Association barely nets 7,200 Br a month from the business now, a little more than 1,000 Br for each member. One of these members, who depends on the stall to support three children, says life would have been impossible to sustain had it not been for the income generated by her spouse.

Around two months ago, following discussions with distributors, the wholesale price was increased by 40 cents a loaf, pushing the retail price up by the same amount to 1.5 Br. Even with the increase, low-income households still prefer to buy from shops that distribute Sheger Bread since a loaf of bread in other markets across the city goes for at least 3.50 Br.

Solomon Kebede, a 50-year-old father of two, working as security personnel around the Sarbet area, is a frequent customer at Sheger retail shops.

“The bread is of higher quality compared to others in the market, not to mention the lower price,” he told Fortune.

But this comes at a considerable cost to the company. The problem lies with a chronic shortage of wheat and the ever-increasing cost Sheger Bread faces. It cost the company 2.5 Br to bake a loaf of bread while loaves were distributed at 1.30 Birr and retailed at a little over one Birr. The factory recorded a loss of 140 million Br last year.

Sheger Bread & Flour Factory, located in Akaki Kality District, was established last year with a 900 million Br investment. The plan was to supply two million loaves of bread a day at a subsidised cost. With a design capacity to bake about 80,000 pieces of bread an hour, it is the first industrial-scale bakery supplying over 380 cooperatives and designated shops across the city.

The bakery sources inputs from the market and receives 60,000 quintals of wheat a month through the Addis Abeba Trade Bureau at a subsidised price, according to Daniel Miesa, communications head at the Bureau. The City Administration also shares the balance between the bakery cost and the wholesale price. Although a disparity is seen among flour mills and bakeries, most have seen their fair share of struggles to source wheat from the local market over the past two years.

Yared Tilahun is the general manager of Acha Food Complex, established eight years ago. Acha sources wheat from producers in Bale, Oromia Regional State, and operates a mill in Gelan, in the outskirts of Addis Abeba.

"The price has gotten high, but it's available," said Tilahun.

A quintal of flour retails for as high as 4,200 Br, a 400 Br jump from the end of last year. The rise is consistent with a broader trend where a basket of food prices has increased, pushing inflation to 38.9pc last month. According to the Ethiopian Statistical Service, the price of bread and cereals recorded a 42.8pc annual growth.

Although Acha Food can produce 820tn of flour a day, it operates at less than half its capacity.

“We can kick up our production to full if we don't have to compete with imported flour,” says the manager.

Rising prices and supply constraints can be traced back to low agricultural productivity and underdeveloped mechanised farming. Low output in tandem with fast-growing demand has led to a significant amount of foreign currency spent every year on imported wheat.

The annual demand for wheat is estimated to be about 7.6 million tonnes, close to three-fold more than what the country needed in the 1990s. Over 4.5 million smallholder subsistence farmers have been producing more than two-thirds of this, leaving a 1.8 million tonne in shortfall. The federal government spends about 700 million dollars annually to buy wheat from the outside, which has grown from 600,000tn to 1.7 million tonnes a year over a decade. However, the past two years have been rocky as several attempts to buy wheat have failed.