Jun 24 , 2023

Trade Minister Gebremesqel Chala’s imposition of a price floor on the exports of oilseed cakes has spurred a dispute with edible oil manufacturers, highlighting the delicate balance in the global agricultural market.

The Ethiopian Edible Oil Manufacturing Industries Association, a 600-member-strong lobby group, argues the minimum price – set three months ago – has resulted in a cash-on-hand squeeze due to a surge in soybean seedcake stocks, thereby threatening the domestic supply of edible oil. The Association’s Board Chairman, Mohammed Yusuf, revealed that an estimated 30,000qntl of oilseed cakes have been stockpiled in most factories’ storage areas.

As crude oil prices have declined over the past few months, so has the price of edible oil and demand for oilseed cakes. He asserted that the recently set price floors failed to factor in the volatility of international oil prices.

He also lambasted the price floors as “completely unnecessary.”

The vital concern stems from about 75pc of oilseed processing output being cake, primarily shipped to the United States and Europe. The recent slump in crude oil prices has suppressed the price of edible oil and demand for oilseed cakes, causing the stocks of soybean seedcake to surge.

In response to the industry’s discontent, Mesfin Abebe, an advisor at the Ministry of Trade & Regional Integration (MoTRI), argued that the pricing decision had considered the international market. He disclosed to Fortune that the Ministry revised the floor price two weeks ago, dropping it by six dollars for a quintal of soybean oil cakes, which he said reflected the international prices.

“We’re offering fair prices,” said Abebe, recalling the oil processing plants seeking the Ministry’s certification for export.

The recent policy adjustment pegged the minimum price at 62 dollars for a quintal. Abebe questioned why manufacturers would want to sell below this rate.

“They are not NGOs after all,” he told Fortune. “Why do they want to sell cheap?”

The Ministry of Agriculture, with the authority to restrict exports, lifted a ban on oilseed cake exports last December, its officials justifying the decision with a surplus at the domestic market. Despite the price floors, Ethiopia has still earned 3.1 million dollars this year from exporting oilseed cakes.

However, as the Trade Ministry maintains the essentialities of price floors, oil processors lament the resulting challenges in negotiating with international buyers, who can often find discounted offers from other countries.

Alemayheu Lema Edible Oil Processor entered the market this year. The major shareholder Genene Lemma disclosed the difficulties of finding buyers for oilseed cakes, a byproduct of soybean processing. His medium-scale processing plant has the capacity to process 250qtl of soybean daily; it is operating at 40pc capacity.

A quintal of soybean produces oil contents of up to 20pc, while the remaining by-product is oilseed cake, for which Genene searches for local buyers. Despite having regular customers for the oil, selling the oilseed cake domestically and abroad has proven to be an uphill task.

Genene cited the imposed price floors and stringent quality standards required by foreign buyers as significant hurdles in the international market.

“The buyers want to trace the oil cakes from their sources at the farms,” Genene said.

He was compelled to pause production due to the overwhelming build-up of oil cakes in their storage facilities, which he says is straining the working capital.

“Basically, no one wants to buy in the local market,” Genene asserted.

He projected a decline in domestic demand with the onset of summer, as pastoralists usually prefer to graze livestock on grass.

An agricultural economist, Assefa Tilahun (PhD) blamed a lack of understanding of oilseed cake’s value as animal feed among local pastoralists, despite the expansion of soybean cultivation area from 1.8 million to 7.9 million hectares this year.

“The high livestock yield in developed countries arises partly from their choice of animal feed,” Assefa said. “Proper animal feed is a game changer.”

The economist posits that better awareness of the value of oilseed cake for livestock nutrition could potentially stimulate domestic demand and reduce the stocks currently causing issues for processors.

However, the Association’s plea for intervention remains unaddressed. Under Adise Garkabo, the lobby group submitted a formal appeal to State Minister Kassahun Goffe last month, soliciting a meeting to discuss the working capital issues instigated by the price floor. The pushback from the Association’s leaders, the accumulated stocks, and the warnings of an impending squeeze on the edible oil supply has spurred debates on policy reforms.

PUBLISHED ON Jun 24,2023 [ VOL 24 , NO 1208]

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