Fortune News | Feb 29,2020
When Sultan Redi was just 10 years old, his father established Abo Bakery Shop in Asko, Kolfe District, in 1969. A fourth child, he grew up helping in the shop, and by the time he was an adult he had learned the particulars of the trade.
His father passed away almost two decades ago, and he has taken over operations of the shop ever since. He was able to grow the business and open four more bakeries at several locations throughout the city and employed 18 people. Business was good, in his own words, often selling 3,000 pieces of bread in a single day from one shop.
Business took a turn for the worse, however, beginning in 2008. It was bad enough that he was forced to close all four branches.
The problem started when inflation spiked to a record high of 64pc a decade ago, coupled with shortages in the supply of wheat, the third most consumed grain in Ethiopia, leading to high prices.
In 2011, after another bout of inflation swept in at 40pc, the government intervened to subsidise wheat. Imported wheat was distributed across nine regional states and the two chartered cities of Ethiopia, Dire Dawa and Addis Abeba.
Through the relevant trade and industry bureaus, wheat was given to large-scale flour mills on the condition that they sell the flour to bakeries at controlled prices. Bakeries who bought the subsidised wheat from the flour mills sold their bread at fixed prices.
In the implementation of the system, the Trade & Industry Bureau would assess the capacity of the bakery that requested the subsidised wheat from the flour mills and assigns it a certain quota. The assessment recognised many factors such as facilities, production capacity and location.
“In the beginning, the subsidies were working, and we were able to meet the demand,” said Sultan, who began buying subsidised wheat and selling his bread at a fixed price.
At the time, there were around 700 bakeries in Addis Abeba that were allocated a monthly quota amounting to a total of 12,800tn. They were organised into an association, Addis Abeba & Surrounding Bakery Shop Owners, of which Sultan became a president in 2012.
Authorities attribute the current shortage in the supply of wheat to problems in the procurement process for state subsidised wheat.
But as the number of bakeries and residents grew, so did demand. In 2016, the City Administration decided that bakeries should receive 45pc of their previously allocated quota as gaps in supply became more frequent.
The past three months saw another shortage of wheat supply in the city. Wheat was not distributed throughout December, and in the following month, only half of the new quota was supplied.
Following this reduction in supply, Shoa Bakery & Factory Plc, which has 16 branches in Addis Abeba, almost doubled its price of bread on January 31, 2019.
“But that only lasted for a day,” said Genet Kidane, manager of Shoa Bakery’s Piassa branch. “As the City Administration decided to give us our full quota, we resumed our old prices.”
To stabilise the market, full quotas were given to four bakeries that served a large number of people, including Shoa, Misrak, Rose and Hanan Bakeries, according to Solomon Bekele, basic commodity distribution head at Addis Abeba City Administration Trade & Industry Bureau.
But the other bakeries were forced to work with what they got.
“We can neither increase the price of the bread nor decrease its weight,” said Sultan. “At the current price, a quintal of wheat is being sold for around 1,900 Br on the market, more than double the price of subsidised wheat, which we can’t buy if we sell the bread at the fixed price.”
The reason this is causing a shortage, and thus price hikes, is the delay of the procurement of two million quintals of wheat slated for this year, according to the Ethiopian Trading Businesses Corporation.
The Corporation, through the Public Procurement & Property Disposal Services, floated a tender for the supply of the Wheat.
After two attempts by the Services to procure wheat for market stabilisation failed, Promising International won the third bid last June by offering a price of 1.39 billion Br. But disagreements led to the cancellation of the bid.
Another bid was floated that added three more months to the already delayed procurement. The bid was re-tendered, which Promising International Trading won, which is currently being transported into Ethiopia. The Agency floated another bid for four million quintals of wheat last month.
The shortage in supply though is not the result of the delay of the procurement but rather logistics problems, according to Yigezu Daba, director general at the Public Procurement & Property Disposal Service.
“There are one million quintals of wheat sitting in Djibouti,” he said.
Another reason that was alleged for the shortage was that 200,000tn of contaminated wheat had been supplied, which Etenesh G. Michael, corporate communications director of the Corporation, denies.
Experts, while supporting the government's current effort at subsidisations, point out that the shortage in wheat supply is a result of a much bigger problem - food insecurity and macroeconomics failures.
By subsidising wheat supply, the state is helping the lives of millions of people, says Mohammed Aman, assistant professor of agri-economics and agri-business at Haromaya University. But he argues that it cannot in any way be a long term solution to the problem.
“The private sector's role in the production of the crop has to be boosted starting with the distribution of the seeds to is production,” said Mohammed. “But most of the land that can produce wheat is already fragmented and occupied by smallholder farmers, making large-scale planting of wheat impossible without displacing farmers.”
He indicates that the long term plan should be changing dependency for wheat to other substitutable crops, a suggestion shared by Dinkinesh Abera, cereal crops agronomist at the Ministry of Agriculture.
“There is no possible way wheat demand can be met by smallholder farmers that depend on rainfall,” said Dinkinesh. “The agro-processing industry has continuously been growing and surpassed the wheat supply capacity of smallholder farmers.”
The Ministry of Agriculture is taking measures to address the problem, having allocated 80 million Br for the implementation of a project to grow wheat - which is habitable to high altitude areas - in lowland areas through irrigation this fiscal year.
With 20 million wheat producing farmers in Ethiopia, the nation produced 4.6 million tonnes of wheat and imported 1.7 million tonnes in the last fiscal year, while the state subsidised 34.7pc of imports at a cost of five billion Birr.
While overall wheat production in Ethiopia has been showing an increase, it has not matched the growing demand. In Addis Abeba, the number of bakeries has more than doubled in the eight years since 2010 to 1,475, while monthly supply only grew by a third to 16,800tn.
Shortage in supply has led bakeries to reduce their workforce or close shops.
Currently, Sultan sells his bread at the fixed price of 1.30 Br for 100g, 2.55 Br for 200g and 3.80 Br for 300g, which have been revised since first being set. The last revision on the price of bread was half a decade ago.
“Even with subsidies the price of 100g bread has to be raised to 2.50 Br to earn a profit,” he says. “I am contemplating buying the wheat on the market and selling it at my own price.”
PUBLISHED ON Feb 09,2019 [ VOL 19 , NO 980]
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