Feb 10 , 2024

In a concerted effort to extend financial support during the soybean harvesting season, authorities have initiated a credit scheme for edible oil manufacturers through the Ethiopian Commodity Exchange (ECX) warehouse receipt system.

The Ministry of Industry(MoI) was receiving continuous appeals from soya bean processors over financial constraints restricting their operational capacity. This prompted a meeting of stakeholders from the Ministry of Regional Trade & Integration and the Ministry of Agriculture two months ago.

The warehouse receipt system, which has been available for maize, wheat, and malt barley until now, allows for the acquisition of loans from seven commercial banks registered by the ECX with the commodity held as collateral.

Domestic edible oil processors began registering for the system last week at the Capital Hotel on Haile Gebre Silase St during a stakeholder meeting over contract farming.

Muna Jemal,  Head of expansion and incentive facilitation at MoI, conveyed that the move to secure finance was spurred by the industries' plea for assistance in acquiring soybeans due to insufficient financial resources.

"Supporting manufacturers is our mandate," Muna told Fortune.

Launched in 2011, the warehouse financing system has enabled farmers, unions, and processors to access loans from banks as part of an effort to minimize difficulties in accessing working capital.

Merchandise stored at ECX warehouses will be checked for quality by resident experts, who will issue a receipt of approval, which can be used to ask for a loan from the affiliate banks.

Birahanu Tiruneh, warehouse receipt manager at the Exchange, explains that banks will ask for final approval after receiving the receipts to issue loans worth up to 70pc of the warehouse stock.

"Soybeans were added to help processors take advantage of price variations," he told Fortune.

Derese Kasu, the general manager of Kunifira Agro Processing PLC, has been struggling to secure a bank loan for plant inputs, despite the facility's capacity to produce up to seven million litres of oil daily.

"We are operating at less than half capacity," he told Fortune.

Kunifra, which was established with two million birr paid-up capital nine years ago, requires around 420 quintals of soybean daily to operate at optimal levels.

"The loan cap has made things worse," Derese claims.

He explained that even with the decline in the price of soybeans, most edible oil processors are not capable of mustering enough working capital to secure the necessary inputs.

Addis Gerkabo, the manager of the Ethiopian Edible Oil Manufacturing Industries Association (EDEOMIA), indicates that factory liquidity has been rapidly deteriorating for four years, with complaints from 126 members becoming more common.

"Soybean is the primary input for edible oil industries," he told Fortune.

Oromia Bank, which had 1.58 billion Br profits during the previous financial year, is one of the seven commercial banks that have an existing arrangement with the ECX to provide loans for the three other commodities.

Teferi Meknonen, President of the Bank, is not quite sure that they will be financing any of the stock in commodity warehouses due to a careful selection process of loan disbursements going forward.

"It is not an ideal time to freely give out loans," he told Fortune.

The precipitous fall in the international price of soybean from 1,200 dollars last year to 540  has resulted in the oversupply of the commodity despite diminishing global demand.

Sisay Asmare, president of the Ethiopian Pulses, Oil Seeds & Spices Processors & Exporters Association(EPOSPEA), indicates that the rise in logistics costs during harvest season has made soybeans unwanted in commodity markets.

"The ECX financing does nothing for us", said Sisay.

A global shortage in soybeans last year resulted in a sharp rise in demand, fueling a domestic price war between exporters and processors which has had reverberations until now.

Esayas Lemma, Crop Development Director at the Agriculture Ministry, points to last year's price war as causing an overproduction of soybeans, which is currently harming farmers despite not benefiting the processors.

"It is the farmers who are actually impacted," Eyasu told Fortune.

Data from the Ministry of Agriculture indicates that the amount of soybean harvested over the past two years has almost tripled from  7.7 million quintals to around 19 million.

Yenegeta Alemneh, a farmer from Jawi Zone in Amhara Regional State, is planning to harvest up to 80 quintals of soybean from this three-hectare plot this year and wait before he starts selling it.

"The market is horrendous," he told Fortune.

Yenegeta is caught between the decision of finding buyers who can purchase all his harvest at the market price of 2,500 Br, 28pc less than last year, or taking a loan to purchase preservative chemicals until the market improves.

"The security concern only makes things worse," he says.

Agricultural economist Shimeles Araya(PhD) points to the need to create a value-added supply chain to create market linkages that can benefit both the farmers and processors.

"The warehouse financing is a temporary relief," he told Fortune.

Shimels says the severe mismatch between demand and supply points to a deeply rooted market failure unattended to by any of the key stakeholders.

PUBLISHED ON Feb 10,2024 [ VOL 24 , NO 1241]

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

Put your comments here

N.B: A submit button will appear once you fill out all the required fields.

Editors' Pick