Commentaries | Jun 05,2021
A mother of three, Netsanet Hadgu, usually buys consumer goods once a month. However, when her family goes through those goods faster than she thought, the 42-year-old widow prefers to walk to the nearby kiosk, 100 metres away from her home, to fill up her stock.
Though the recent upsurge in the cost of living has become a part of her daily routine, Nestanet's recent experience stands out. Charged 580 Br for five-litre cooking oil, she had an unpleasant argument with the storekeeper before taking the item and handing over the money.
"I bought the same product for 200 Br lower last month," Netsanet says. "How could this happen"?
The shopkeeper had an answer.
"I'm not the producer," Kemal Kemil, who claims to make a margin of up to 20 Br from five-litre of edible oil, retorted. "I just bring the item from Mercato and sell it here."
Judging by the current price volatility in the market, it appears that his argument holds water. It requires quite a lot of effort to acquire the edible oil in Mercato, where most of Ethiopia's wholesalers and retailers meet.
Unlike last year, wholesalers, deprived of accessing the item from local producers, have to wait for an average of two months to receive their orders. The market has been trying to fix itself. The large bulk of edible oil products are brought into the country through contraband routes, while very few businesses are allowed to import the product. With the removal of edible oil importers from the forex priority list by the National Bank of Ethiopia (NBE), consumers like Netsanet had no choice but to get the product from local plants.
"I would be delighted to buy the oil made in Ethiopia, had it been readily available for us," says Netsanet.
Meeting demand for edible oil is a distant prospect but this is somehow in contrast to the changes seen at the production level.
Even wholesalers in Mercato, pictured above, report that they have yet to lay their eyes on any domestically manufactured edible oil products.
The domestic capacity of producing edible oil skyrocketed nearly 800 million litres a year in only five years. It was seven million litres then. However, the supply shortfall remains a little over 50 million litres. This year, two industrial-scale edible oil plants—Phibela Industrial and WA Oil Factory—have begun production. Owned by Belayneh Kindie and Worku Aytenew, both plants are erected in Gojjam of the Amhara Regional State and claim to have consumed an aggregate investment of almost 10 billion Br.
Nonetheless, the news of inaugurations of the plants with fanfare, and the presence of Prime Minister Abiy Ahmed (PhD) and Deputy Prime Minister Demeke Mekonnen, had traders and consumers wonder where their products could be found.
"I haven't even had the chance to see the newly produced edible oil," said Saleh Abdulmajid, a wholesaler in Mercato. "Let alone sell it."
If traders in Merkato, a place that takes pride in its reputation as the largest open market in Africa, could not find the oil brands from these plants, market watchers wonder what they could have missed.
Over 30 private companies and five state-owned enterprises are enlisted to distribute the palm oil produced by these plants. The plants are not encouraged by officials at the Ministry of Trade & Industry to sell their brands other than through these selected distributors. It is a bargain the managers have made with the federal government, for the preferential treatment they received when importing inputs and raw materials from abroad. The distributors can only supply consumer cooperatives.
In Addis Abeba, six distributors were shortlisted by the Ministry of Trade, with the commitment to supply 146 consumer cooperatives found in the 11 districts. They follow official guidelines based on quotas and wholesale prices set by the authorities.
The authorities intended to ease the shortage in the supply chain, hoping to fight hoarding and upward price surges in the retail market. The outcome is to the contrary, even for the cooperatives.
Yohannes Demissie serves as a board chairperson of Andinet Consumers Cooperative, which receives 55,000 litres of edible oil a month. It is hardly sufficient.
"We're able to satisfy less than a quarter of the demand," Yohannes told Fortune.
He blames officials at the city's Trade Bureau for using an outdated quota. It failed to take into account the growth in demand.
"So much has changed since last year, but our quota remained the same," said the Board Chairperson. "While there is a supply disruption, sometimes that makes things more complicated."
Mubarek Ahmed, a wholesaler in Mercato, has seen how finding cooking oil has become increasingly difficult. The traditional importers were nowhere to be found.
"This year, there was a period when I was unable to get edible oil for almost two months from importers," said Mubarek.
Market watchers observed a drastic and sudden fall in imports of edible oil, supplying 95pc of the market only two years ago. The authorities have introduced a new policy hoping to offset the foreign currency crunch, allowing businesses to bring edible oil in using their resources through franco valuta, permits issued to importers of goods on which no foreign currency would be provided.
Companies are permitted to import necessities such as sugar, edible oil, wheat, rice, cereal flour, and milk through the scheme. Businesses interested in using the scheme must show proof that they have 250,000 dollars in deposit and authenticated by the central bank before they are issued the permit. Few have come forth so far.
Experts think the shortage faced by traders like Mubarek can be addressed by fully liberalising the supply chain. Andualem Kidane, a marketing expert, is one of these who promotes the idea that traders be allowed to supply the product, while the role of authorities should be limited to regulating hoarding practices and introducing reforms targeted at solving bottlenecks faced by businesses involved in the supply chain.
"The current distribution system is highly regulated," said Andualem. "It's very traditional and would worsen the shortage."
For others following trends in the industry, working on the supply side by boosting production capacity will bridge the gap between demand and supply.
Alemu Lobe, agro-processing and pharmaceuticals sector director at the Ministry of Trade & Industry, buys into this.
"The only sustainable solution is increasing the production capacity of the existing plants while pushing for the realisation of pending projects, which would play a big role in boosting annual yield," says Alemu.
Two projects for cooking oil plants, with the capacity to produce 480,000 litres of edible oil daily, are nearing their completion. Though the authorities hope the new plants entering the market will ease the shortage, existing plants face limitations to utilising their full capacity.
Shemu Industries, which opened its new refinery in Dire Dawa with an investment capital of 1.6 billion Br, is one of them. It needs 1,106tn of crude palm daily to produce processed edible oil at full capacity, which stands at 950tn.
"It's been almost a year since the central bank approved our request for letters of credit to import input, particularly crude palm," said Frezer Debele, general manager of Shemu Industries.
The price of crude palm has skyrocketed by 101.7pc from last year, reaching 1,163 dollars a ton.
Another challenge deterring producers from making the most of their full capacity is the interruption of electric power. Phibela, inaugurated this year with an investment capital of 4.5 billion Br and a production capacity of 1.5 million litres of edible oil a day, suffers from a reliable electric power supply.
"There appears a deliberate breaking of lines connecting our plant with the national grid," alleges Enyew Wassie, managing director of Phibela. "This has impacted our productivity, forcing us to incur 15,000 Br loss every day for fuel."
Yet for Netsanet, who is desperately waiting until the edible oil market stabilises, the challenges faced by the plants are far from justifying the shortage haunting consumers like her.
"If the price change continues like this, I don't know where it'll go," she said, distraught. "It's so unpredictable."
PUBLISHED ON
Jun 19,2021 [ VOL
22 , NO
1103]
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