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Study of Agro-Food Processing Industries in Ethiopia: Policy and Strategy

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 FDRE, Policy Study and Research Center

Industrial Policy Study and Research Department

Study of Agro-Food Processing Industries in

Ethiopia: Policy and Strategy Options for its
Development (2015-2025)

FDRE, Policy Study and Research Center - PSRC

and
Bahirdar University, Institute of Technology – BiT

By

Addis Ababa, Ethiopia Solomon Workneh (PhD)

Fentahun Tesafa (Asst Prof)
Admasu Fanta (Asst Prof.)
February, 2017 Melkamu Mengistnew (Msc)
 FDRE,
POLICY STUDY AND RESEARCH CENTER

About PSRC
FDRE, Policy Study and Research Center founded in March 2014 as a government policy and
strategy research center. It is established by recognizing the need for policy related researches
and knowledge based decision making process in the fast growing and transforming economy of
Ethiopia. The PSRC is expected to be the major think tank center in Ethiopia that analyses policy
implementation, structural and programmatic issues, and generate policy and strategy proposals.
The PSRC has five major departments and one is Industrial Policy Study and Research
Department (IPSRD). For more information as well as other publications by PSRC and its
affiliates, go to www.PSRC.gov.et

FDRE, Policy Study and Research Center

P.o.box 1072/1110
Tel: +251-11-6613767
+251-11-6610462
Fax: +251-11-6621821
E-mail: policy.s120@gmail.com
Website: www.psrc.gov.et

ABOUT THIS RESEARCH REPORTS

The FDRE, policy study and research center (PSRC) research reports contain research materials
from PSRC and/or its partners. The researches are circulated to the concerned Ministries and
related sectors in order to stimulate discussion and critical comment. The opinions in this
research are those of the authors and do not necessarily reflect that of PSRC‟s. Comments may
be forwarded directly to the IPSRD and the authors through e-mail:
policystudy2006@gmail.com.

Report Citation:

It is cited as Industrial Policy Study and Research Department (IPSRD) and Bahirdar Institute of
Technology -BiT. Study of agro-food processing industries in Ethiopia: policy and strategy
options for its development (2015-2025).

ii
 Preface
As stipulated in the Second Growth and Transformation Plan (GTP II), Ethiopia is committed to
tuning its growth direction from agriculture-led to industry-led economy. In this plan, the role of
industries in general and the manufacturing sector in particular is considered as the main sector
towards which the economy evolves. Today, even though the service sectors have come to
dominate the economies in most of the rich countries, manufacturing remains critical to the rapid
economic transformation of developing countries like Ethiopia. Ethiopian government has
recognized the importance of this sector and paid greater attention than ever.

Based on the industrial development strategy of Ethiopia, one of the priority sub-sectors in the
manufacturing sector is Agro-processing industries. This study has focused on Agro-food
processing industries (AFPI). Based on the fundamental principles outlined in the Ethiopian
Industry Development Strategy (2002), this AFPI policy and strategy draft is formulated
considering the main guiding principles such as: promoting industrialization on the basis of
comparative and competitive advantages; pursuing both export-led and import substitution agro-
food industrialization; strengthening SMEs in the AFPI and continue to support those
transforming into medium enterprises; focusing on coping mechanisms of the competitive
environment associated with trade liberalization; stimulating agricultural transformation through
creating sustainable demand; addressing market and product diversity of AFPI.

The study has been conducted following scientific methods and approaches. A number of
consultative and validation workshops has been done with the stakeholders and professionals
which enabled us to enrich the content of the research. Moreover, important lessons have been
taken from successful countries in this field like India. The study has identified major policy and
strategic issues such as input supply industry (raw material, packaging, and spare parts),
infrastructure and facilities, technology transfer and competent human resources, market and
product diversification, attractiveness of AFPI, and institutional support for AFPI, which would
be supposed to implement for the coming ten years and beyond.

The FDRE policy study and research center, Industrial policy study and research department
believes that the research output of this study would help all stakeholders to acquire clear
development directions in the implementation of the programs and projects for further
development of Agro-food processing industries.

Amare Matebu Kassa (PhD)

Lead Researcher and Coordinator
Industrial Development Policy Study and Research Section

iii
 Contents
Tables .................................................................................................................................................. vi
Figures............................................................................................................................................... viii
Acronyms ............................................................................................................................................ ix
Executive summary ............................................................................................................................. 1
1. Introduction ............................................................................................................................... 31
1.1 Background and Context ..................................................................................................................... 31
1.2 Status and Contribution of AFPI to the National Economy ............................................................. 33
1.3 The Rationale to Formulate AFP Industrialization Policy and Strategy ........................................ 34
1.4 Guiding Principles in Formulating AFP Industrialization Policy and Strategy ............................. 36
1.5 Scope of the AFP Industrialization Policy and Strategy ................................................................... 39
2. Methodology and Approaches followed in Policy and Strategy Development .................... 41
3. Overview of National and Industrial Development Policies and Strategies in Ethiopia .... 47
3.1 Agro-Food Industrial Development Framework of Ethiopia ........................................................... 49
3.2 Agro-Food Industry in Ethiopia: Some Stylized Facts ..................................................................... 50
3.3 Future Directions of Agro-Food Industrialization ............................................................................ 58
3.4 Linkage between Industrial and National Development Policies and Strategies ............................ 63
4. Comparative Advantages and Competitiveness of Ethiopia in AFPI .................................. 70
4.1 Resource Endowments of the Country for AFPI Development ....................................................... 70
4.2 Targeted Agro-Food Industry Subsectors.......................................................................................... 74
4.3 Profiles of targeted Agro-Food Industry subsectors ......................................................................... 77
4.3.1 Honey processing (bulk, table) & honey wine ........................................................ 77
4.3.2 Coffee products manufacturing............................................................................... 77
4.3.3 Fruit & vegetable products manufacturing ............................................................ 78
4.3.4 Wheat flour and pasta manufacturing ................................................................... 80
4.3.5 Edible oil (including cold pressed/virgin) manufacturing ..................................... 81
4.3.6 Teff based products manufacturing (Injera, Teff flour, Injera crumb) .............. 81
4.3.7 Meat Processing ........................................................................................................ 82
4.3.8 Maize processing (edible oil, starch/flour, glucose & corn flakes) ....................... 82
4.3.9 Dairy products manufacturing ................................................................................ 83
4.3.10 Malt manufacturing................................................................................................ 83
5. Benchmarking AFPI to Industrialization in the Global Context ......................................... 84
5.1 The globalization process and new rules in trade and industrial policy .......................................... 92
5.2 Review of AFPI development policies and strategies of successful developing economies ............ 93
6. Vision, Goal and Objectives of AFPI Development Policies and Strategies ...................... 104
7. Situational and Stakeholder Analyses ................................................................................... 105

iv
 7.1 Situational analysis............................................................................................................................. 105
7.2 Stakeholder Analysis .......................................................................................................................... 107
8. Strategic Issues ........................................................................................................................ 118
8.1 Input supply industry ........................................................................................................................ 124
8.2 Product diversification and improvement........................................................................................ 128
8.3 Infrastructure and facilities ............................................................................................................... 129
8.4 Technology transfer and competent human resources ................................................................... 138
8.5 Attractiveness of AFPI to investors .................................................................................................. 140
8.6 Policy and institutional supports for AFPI development ................................................................ 147
9. Strategic Interventions and Policies ...................................................................................... 165
9.1 Input Supply Industry Development ................................................................................................ 170
9.2 Infrastructure Development .............................................................................................................. 173
9.3 Market and Product Diversification and Development for AFPI .................................................. 180
9.4 Promoting Attractiveness of AFPI to Local and Foreign Investors............................................... 180
9.5 Knowledge and Technology Transfer and Capacity Building ....................................................... 189
9.6 Policy and Institutional Interventions for AFPI Development....................................................... 192
9.6.1 Policy Interventions and Recommendations ........................................................ 192
9.6.2 Institutional Setup and Regulatory Framework .................................................. 206
9.7 Cross Cutting Issues ........................................................................................................................... 222
10. Agro-Food Industry Development Directions and Programs ............................................. 223
11. Implementation Plan .............................................................................................................. 232
12. Logical Framework Analysis ................................................................................................. 243
13. Monitoring and Evaluation Plan ........................................................................................... 246
Annexes ............................................................................................................................................ 255
References ........................................................................................................................................ 309

v
Tables
Table 1: Agriculture, industry and manufacturing share of GDP and percentage growth of value added,
for Ethiopia and sub-Saharan Africa (2000-2014) .............................................................................. 47

Table 2: Agriculture, service, and manufacturing share of GDP, and percentage growth of value added,
for Ethiopia 1980-2014 including the last three planning periods ....................................................... 49

Table 3: Annually exported and imported volume (‘000 tons) and value (million USD) of processed
food over PASDEP and GTP periods, Ethiopia .................................................................................... 51

Table 4: Annually exported and imported volume (‘000 tons) and value (million USD) of raw food
items over PASDEP and GTP periods, Ethiopia .................................................................................. 53

Table 5: Percentage share of each industry category to GDP of Ethiopia over 2000-2015.................... 55

Table 6: Percentage share of each manufacturing category to industry sector's GDP over 2000-2015 . 56

Table 7: Employment, export and import status of medium and large AFPFs in Ethiopia over 2006-2014
........................................................................................................................................................ 57

Table 8: Number and share of existing large and medium food and beverage firms over last 3 plan
periods, Ethiopia .............................................................................................................................. 58

Table 9: Estimated percentage share of each industry sector to GDP of the country over the plan
period.............................................................................................................................................. 59

Table 10: Estimated percentage share of each manufacturing category to industry sector's GDP in the
plan period ...................................................................................................................................... 59

Table 11: Production volume and number of new AFPFs proposed to be established in Ethiopia over
2016-2025 by subsectors .................................................................................................................. 60

Table 12: Volume of raw materials needed for the new AFPFs by subsectors over the plan period,
Ethiopia ........................................................................................................................................... 61

Table 13: Distribution (in number) of the newly proposed AFPI establishments over the plan period . 62

Table 14: Industry attractiveness and strategic feasibility.................................................................. 76

Table 15: Export value of honey in millions USD over 2000-2013 ....................................................... 86

Table 16: Number of beehive stock and annual honey production of Ethiopia and comparator
countries over 2000-2013 ................................................................................................................. 86

Table 17: Strengths, weaknesses, opportunities and threats of AFPI in Ethiopia ............................... 106

Table 18: Stakeholder analysis........................................................................................................ 108

vi
Table 19: Identification of strategic issues ...................................................................................... 121

Table 20: Analysis of strategic issues .............................................................................................. 122

Table 22: Estimated budget required for establishing the new agro-food processing and related firms
by 2025.......................................................................................................................................... 229

Table 23: Estimated budget required for establishing AFPI related infrastructure and facilities ........ 230

Table 24: Estimated budget for short term trainings to existing and new agro-food processors by staff
categories and size of firms ............................................................................................................ 231

vii
Figures
Figure 1: Share of agriculture and manufacturing sectors to GDP and growth of value added for
Ethiopia and SSA (2000-2014) ........................................................................................................... 48

Figure 2: Annual exports & imports of processed food over PASDEP and GTP periods ....................... 52

Figure 3: Annual exports and imports of raw food items over PASDEP and GTP periods ..................... 54

Figure 4: Trends of processed and raw food exports and imports over PASDEP and GTP periods (2006-
2013) ............................................................................................................................................... 55

Figure 5: UNIDO's Assessment Framework........................................................................................ 76

Figure 6: Yield of honey in KG per beehive stock in Ethiopia and comparator countries over 2000-2013
........................................................................................................................................................ 87

Figure 7: A: Share of honey export to production of Ethiopia and comparator countries in % over
2000-2013........................................................................................................................................ 88

Figure 8: Total value in million USD obtained from export of pack-house value added fresh fruits, and
processed fruits & vegetable products (2000-2013) ........................................................................... 89

Figure 9: Value in million USD obtained from export of pack-house value added fresh fruits, and
processed fruits and vegetables in Europe markets (A) and in Middle East and African markets (B)
over 2000-2013 ................................................................................................................................ 91

Figure 10: Evolution of crop production in Brazil (including & excluding sugar cane) – from 1990-12 .. 94

Figure 11: Evolution of area and productivity for the main 63 crops – from 1990-12 .......................... 95

Figure 12: Brazilian meat production – from 1990-12 ........................................................................ 96

Figure 13: Brazil’s exports and imports of agricultural and agro-processed products – from 1990-12 .. 96

Figure 14: Payments and receipts made by Brazil for Intellectual Property (IP) .................................. 97

Figure 15: Trademark and patent applications made in Brazil over 2011-14 ....................................... 98

Figure 16: Production, Import and export of dairy products in India over 1961-2011 ........................ 100

Figure 17: Logistic performance index of 15 selected countries from Africa, Asia and Latin America . 131

Figure 18: Logistic performance index for Ethiopia and 4 regional groups ........................................ 131

Figure 19: Trade performance indicators for Ethiopia and 4 regional groups (2007-2014) ................. 133

Figure 20: Trade performance indicators for Ethiopia and 4 regional groups (2007-2014) ................. 135

viii
Acronyms

ADLI Agriculture Development-Led Industrialization

AFPF Agro-Food Processing Firms
AFPI Agro-Food Processing Industry
AGOA African Growth and Opportunity Act
AGP Agricultural Growth Program
AIGC Agro-Industrial Growth Corridors
ATA Agricultural Transformation Agency
AVAP A single Village a Single Product
BoTIUD Bureau of Trade, Industry and Urban Development
BoTI Bureau of Trade and Industry
BoUID Bureau of Urban and Industry Development
CAADP Comprehensive African Agriculture Development Program
CABs Conformity Assessment Bodies
CF Contract Farming
COMESA Common Markets for Eastern and Southern Africa
CSA Central Statistical Agency of Ethiopia
CRM Certified Reference Materials
DBE Development Bank of Ethiopia
EBA Everything but Arms
EFBPIDI Ethiopian Food, Beverage and Pharmaceutical Industry Development Institute
EMDIDI Ethiopian Meat and Dairy Industry Development Institute
ECAE Ethiopian Conformity Assessment Enterprise
ECX Ethiopian Commodity Exchange
EEPA Ethiopian Electric Power Authority
FeMSEDA Federal Micro and Small Enterprises Development Agency
FCA Federal Cooperative Agency
FMHACA Food, Medicine and Health Care Administration and Control Authority
ENAO Ethiopian National Accreditation Office
ERCA Ethiopian Revenue and Customs Authority
ESA Ethiopian Standard Agency
GDP Gross Domestic Product
GoE Government of Ethiopia
GTP Growth and Transformation Plan
HLIs Higher Learning Institutes

ix
HMF Hydroxy Methyl Furfural
IDS Industrial Development Strategy
IPDC Industrial Parks Development Corporation
IAFIPs Integrated Agro-Food Industrial Parks
IAIPs Integrated Agro-Industrial Parks
IP Intellectual Property
IQF Individually Quick Frozen
ISO International Standards Organization
MEs Medium Enterprises
MFIs Micro Finance Institutions
MLE Medium and Large Enterprises
MMICs Model Middle Income Countries
MoA Ministry of Agriculture
MoANR Ministry of Agriculture and Natural Resources
MoFED Ministry of Finance Economic Development
MoLF Ministry of Livestock and Fishery
MoI Ministry of Industry
MoT Ministry of Trade
MoST Ministry of Science and Technology
MoU Memorandum of Understanding
NBE National Bank of Ethiopia
NGOs Non Governmental Organizations
NQI National Quality Infrastructure
PASDEP Plan for Accelerated and Sustained Development to End Poverty
PCP Program for Country Partnership
PT Proficiency Test
RTC Rural Transformation Centers
RIs Research Institutes
SDPRP Sustainable Development for Poverty Reduction Program
SSA sub-Saharan Africa
SMEs Small and Micro Enterprises
TVET Technical and Vocational Education Training
VAT Value Added Tax
WB World Trade
WTO World Trade Organization

x
 Executive summary
In view of the important role that could be played by the agro-food processing industry (AFPI) in
bringing about significant change towards achieving structural transformation of the country‟s
economy, it is found necessary to fine-tune deep into the sector. In doing so, there would be
improvement in international competitiveness and sustainable development of the industry
through harnessing potentials and comparative advantages as well as overcoming challenges and
bottlenecks. This is most relevant to Ethiopia, as the growth of this sector has also strong pull
and push effects on the agricultural sector to grow sustainably and rapidly, where the livelihoods
of more than 85% of the population, 45% of the real GDP and 75% of the foreign exchange
earnings of the country is derived from.

The agro-food processing sector needs an in-depth attention in addressing its important
peculiarities that deter its development and competitiveness. This sector is characterized by
biological raw materials that are usually perishable, variable in quality, and not regularly
available throughout the year to justify agribusiness‟s risky nature. The biological process of
agriculture and the seasonality of production impose strict schedules for all activities along
agricultural value chains, implying the need for effective coordination among all agents. It is also
crucial to acknowledge that we are in a time when the global demand for convenient, safe, and
nutritious food is huge and showing continually increasing trend which is suggestive of the need
to invest in knowledge, technology and quality control and assurance infrastructure so as to
increase our presence in international agro-food trade. All these peculiarities of the agro-food
processing industry could not be addressed well with the generic industrial sector policies and
strategies. This more than justifies a need for a focused approach to strategically support the
agro-food processing sector.

Basing on the fundamental principles outlined in the Ethiopian Industry Development Strategy
(2002), this AFPI policy and strategy is formulated considering mainly guiding principles such
as: (1) promoting industrialization on the basis of comparative and competitive advantages; (2)
pursuing both export-led and import substitution agro-food industrialization; (3) strengthening
SMEs in the AFPI and continue to support those transforming into medium entreprises; (4)
focusing on copping up mechanisms of the competitive environment associated with trade
liberalization; (5) stimulating agricultural transformation through creating sustainable demand;

1
(6) addressing market and product diversity of AFPI; and (7) adding more value to raw
agricultural products including those already entered in the international market.

The study was conducted following scientific methods and approaches in collecting qualitative
and quantitative data from primary and secondary sources to get an input and baseline
information in identifying strategies and policy interventions needed for AFPI development.
Primary data collection tools and instruments used were questionnaires for firm survey,
checklists for KIIs and FGDs, observation and visit, and workshops (inception, progress, and
validation). Quantitative data have been collected from firm survey and national (CSA, NBE,
and ERCA) and international (FAOSTAT and WB data base) organizations. The study was
reinforced by international benchmarking conducted to identify AFPI best practices with the
objective of identifying improvements to be adapted in the study. Section 2 describes in more
detail methods and approaches followed in the study.

In section 3, overview of national and industrial development policies and strategies of Ethiopia
and its performance with regard to the development of manufacturing and agro-food industry
was discussed. It points out the contribution of AFPI to real GDP, manufacturing value added,
employment and foreign exchange earnings of the country. Basing on the achievements of the
country‟s last three development plans, lessons learning and benchmarking of selected model
middle income countries‟ performances, and in consideration of the country‟s vision of
becoming a middle income status by the year 2025, the future direction of the AFPI was
projected leading towards the goal and objectives of the plan period. This section discusses that
percentage share of industry to GDP of Ethiopia during the three plan periods implemented over
2000-2014 (before SDPRP, during SDPRP, PASDEP and GTP periods) has shown slight growth
from 9.8% (before SDPRP) to 12.3% (during GTP). While manufacturing‟s share to GDP was
stagnating at 4.2%, AFP industry‟s contribution to GDP has been remarkably growing from 0.5
to 1.5% over the same period. When considered from the point of view of contribution to
industry sector‟s GDP, manufacturing has shown a decreasing trend from 42.9 (before SDPRP)
to 34.5 (during GTP) while AFPI has grown significantly from 5.6 (before SDPRP) to 12.5 %
(during GTP). AFP was a major activity to have contribution to manufacturing industry‟s GDP
by 36.2 % (GTP) up from 14.4% (before SDPRP).

2
The annual average value obtained from the export of raw agricultural food commodities (996
million US $) over 2006-2013 while the import of raw materials of similar category was
significantly large (596 million US $), about 60% of export values. Yet, processed food import is
much higher (429 million US $) than its exported counterpart (64 million US $). This situation
calls for an improved orientation towards export marketing and import substitution of processed
food commodities. The impressive performance made by AFPI compared to other manufacturing
subsectors in contributions to manufacturing value added remained unpronounced because of its
lack of export orientation and its high focus on the local uncompetitive market.

Section 4 discusses the resource endowments of the country, comparative advantages, and
opportunities to be tapped to achieve international competitiveness. Based on these endowments
and comparative advantages, targeted agro-food industry subsectors that need to be promoted
during the plan period are selected and ranked. This section also reports that Ethiopia‟s export
competitiveness and the development of manufacturing industry are challenged by lower
logistics productivity. An important factor in the logistics productivity is trade costs which are
assessed using the World Bank Logistics Performance Index (LPI). Ethiopian logistics
performance was compared with countries from Africa, Asia, and Latin America in addition to
four regions of the world over the years of 2007 to 2014. The results of such comparison
indicated the country‟s insufficient logistics performance signifying the need to improve its
condition to achieve the set AFPI development output.

Section 5 deals with benchmarking of our AFPI to industrialization in the global context since
manufacturing and export performance of the country is influenced by such global factors as
globalization, technological change, regional integration and global competition, making global
comparisons more relevant to define a well suited AFPI development policy and strategy.
Identification of best practices for competitiveness of AFPI was found useful to determine
factors that led role model countries to achieve large share to GDP of manufacturing value added
with AFPI products being the major manufacturing activities. Our manufacturing and AFPI
performance is compared with other economies selected based on such criteria as neighborhood
in sharing similar geographical advantage, being immediate competitors given similar factor
endowments, being potential competitor economies that are likely to pose competitive threat to
our AFPI‟s comparative advantage, and to learn best practices from role model economies.

3
Ethiopia‟s steady GDP growth during the last two decades is well recognized, its performance
with regard to industrial and manufactured export capacity, industrialization intensity, and export
quality was however unimpressive so that it is positioned 140th out of 142 countries in the
UNIDO‟s competitive industry performance index (CIP) rank in 2012. This signifies the fact that
there is plenty of room for improvement and is time to accelerate the slow catch up process
which is indicated by a 3 point rank improvement from 1990 to 2012. Over the same period,
Vietnam‟s leapfrogging of 39 positions in the CIP ranking to be 55th was quiet impressive
compared among the selected comparator countries.

Ethiopian MVA has grown significantly over the last decade (544 million USD in 2005 to
1350.3 Million USD in 2014). Still, the level of industrialization adjusted for population size is
the least (14 USD) among countries selected to benchmark its performance. Ethiopia‟s weak
performance of manufacturing industry is not only exhibited by its lowest share to the GDP but
also by its poor international market participation and competitiveness as indicated by the
meager share of manufactured export.

Indicators show however that Ethiopia is in a pole position to benefit from its catch up process to
improve competitiveness and international market presence as it can build on the already
functioning AFPI which takes biggest share of the MVA of the country. Addressing bottlenecks
and challenges of the existing AFPI, exploiting geographical advantage for market proximity
coupled with the availability of ample labor at a competitive cost could bring about significant
contribution towards economic structural change and achieving vision 2025. The fact that
Ethiopia has the lowest labor cost and share of wage to food and beverage MVA, among others,
can be exploited to attract manufactured export oriented FDI in the AFPI.

Ethiopian potential to year round availability of honey, for instance, could make the country a
world hub of good quality product which can become among the major export earner
commodities of the country. Compared to comparator countries, Ethiopian honey export
phenomenon is a recent experience surpassing only Tanzania in terms of export value obtained
during 2013. China, Argentina and Germany are countries that are performing well in export
earnings from honey and managed to maintain steady growth over the years from 2000 up to
2013. This section also discusses the fact that Ethiopia is rich in beehive colony stock, next to
china among the comparator countries. Still, this big number of beehives is not reflected in the

4
country‟s honey production volume which was found out to be indicative of poor productivity.
While china achieved up to an impressive 50 kilograms of honey per beehive, Ethiopia‟s honey
productivity is stagnating at less than 10 kilograms suggesting the need to modernize the sector
so as to be internationally more competitive. Existence of Ethiopia and its comparator countries
in international honey markets, especially in Middle East and Europe where the country
possesses geographical proximity compared to most of the comparator countries, can be
witnessed from the share of exported honey to that of produced per annum. High export
orientation of Argentina, Germany and China is evident throughout the period of observation
(2000-2013). Despite Egypt‟s lower honey production and productivity, its export orientation in
2013 was better by far than Ethiopia. Germany‟s honey export volume outweighs its production
signifying its re-exportation after adding value to obtain a much significant unit value.

This section also reviews AFPI development policies and strategies of some selected successful
developing economies that appreciated AFPI to be among the sectors identified for its high
potential to spur growth and create jobs because of its strong backward linkage with the primary
agricultural sector. It discusses Brazil, a country whose share of manufacturing value added to
GDP in 2014 was 13%. Brazil‟s manufacturing value added in turn is represented by food and
beverages manufacturing (21%), chemical and chemical products manufacturing (11%) and the
manufacturing of coke, refined petroleum products & nuclear fuel (10%), as major
manufacturing activities. Brazil‟s agro-based product exports increased from USD 9.6 billion in
1991 to USD 87.6 billion in 2011, and agro-processed products have been responsible for almost
two thirds of total exports.

Brazil‟s attention to science, technology and innovation was remarkable in achieving

competitiveness through innovation and differentiated products and services. According to the
world development indicators of the world bank, Brazil‟s knowledge and technology generation
and transfer indicated by sharp increase in annual payments it made to patents (5.9 billion $ in
2014), received revenue from IP transfers (375.1 million $ in 2014), increasing trend of new
number of annual patent applications both by residents (4,659) and non-residents (25,683),
increasing trend of scientific and technical papers was registered suggesting the country‟s
commitment not only in terms of allocation of budget and strengthening research infrastructure

5
but also in terms of ensuring the transfer of the generated knowledge to industry and new
companies.

Like most Latin American countries in the 1990s, changes in economic policy such as
privatization and the lowering of trade barriers, exposed Brazilian companies into fierce
international competition while they are still lack efficiency in management or technological
capabilities. Appreciating the need to promote innovativeness for competitiveness, Brazilian
Government has taken an initiative to strengthen the technological capability of its industry
through passing The Innovation Law in 2004, which was designed to provide incentives for
research and innovation works. Moreover, the Law of Goods (2005) provides tax incentives for
companies which invest in in-house R&D activities.

It was pointed out by researchers that in general, Brazil has adjusted its agricultural policies in
response to the constraints and opportunities arising in both domestic and international markets,
while maximizing the advantages it has in terms of agricultural land availability and a good
climate. It doesn‟t have a predetermined „model‟ for intensifying its agricultural performance. ,
Rather, in spite of changes in focus and endowments, it has, (since the second half of the 1960s)
maintained traditional agricultural policies such as rural credit, minimum prices, insurance,
research and extension. In general, these policies have stimulated market-oriented production
rather than subsistence agriculture.

The Indian dairy sector is the other proven success from which countries like Ethiopia, whose
rural population is leaving scattered in the hinterland, could draw lesson and adapt best practices
to improve livelihoods of smallholders through ensuring milk market access and hence stimulate
production, productivity, and year round income.

During the pre-independence era and after that, quantity of milk produced in India was not able
to satisfy the demand of its urban consumers, and rural producers did not have access to market
that brings remunerative prices for their milk. In the absence of a year-round remunerative price
for milk, rural producers did not have any incentive to increase milk production through
investing in better breeding, feeding, and management of animals. Also, the milk pricing policy
followed before 1970 was believed by many to have been both anti-producer and anti-dairy
development. Procurement of milk was left to middlemen and no attention was paid to create an

6
organized system for milk procurement which in turn created a negative feedback incentive for
farmers who didn‟t have reason to increase their production.

With the aim to increase milk production to satisfy the increasing demand for milk by its urban
dwellers, the government of India implemented different successive dairy development plans
(such as the Key Village Scheme (KVS), and the Intensive Cattle Development Plan (ICDP).
The implementation of these successive plans for about 2 decades (1950-70) however didn‟t
bring about change in milk production and thus milk production continued to stagnate while per
capita milk availability further reduced until the introduction of the „operation flood‟, also
termed as the „white revolution’.

India was transformed from a milk-deficient into world's largest milk producer nation thanks to
the Operation Flood which was launched in 1970. In 1998, it surpassed USA in milk production
volume and in 2010-11 contributed about 17 percent of global milk production output.
Operation flood was so successful that it has doubled India‟s per capita milk availability in 30
years, and has made dairy farming India‟s largest self-sustainable rural employment generator.
India's milk supply comes from millions of small producers, dispersed throughout the rural areas.
These farmers maintain an average herd of one or two milch animals, comprising cows and/or
buffaloes. Ample labor and a small land base encourage farmers to practice dairying as an
occupation subsidiary to agriculture.

The main objectives of Operation Flood, which were increasing milk production, augmenting
farmer income, and providing fair prices for consumers have been successfully achieved. It was
mainly focused on dairy development through producers' cooperatives and milk production
based on milk sheds in the rural areas. It has been instrumental in helping farmers mould their
own development. They are linked with milk consumers in 700 cities and towns through a
national milk grid. It also helped eradicate the need for middlemen thereby reducing the seasonal
price variations. As a result of the cooperative structure the whole exercise of production,
processing and marketing of milk and milk products has become economically viable for farmers
to undertake on their own.

In 2012, India‟s three tier cooperative system had created 133,349 village dairy cooperatives
(points of collection) federated into 177 milk unions (dairy processors) and 15 federations

7
(marketing of dairy products) that procured on an average 25.1 million liters of milk every day.
These village dairy cooperatives have nearly 13.9 million farmers as members.

Unlike its preceding strategies that focused only on the upstream segment of dairying, operation
flood has achieved to revert dairy trade balance during mid 70‟s and after 2011, a surge in export
value of dairy product has been registered.

The research team has visited India where, like Ethiopia, agriculture sector is the largest
employer in the economy and source of livelihood for many smallholder farmers. Being aware of
the tremendous opportunities in the demand side for processed food and with strong
determination to tap the potential to be one of the largest food suppliers to the world, the
government of India has long ago identified the sector as priority. Consequently, Ministry of
Food Processing Industries (MOFPI) was set up in 1988 to formulate and implement policies and
plans for food processing industry.

Among the key interventions MoFPI has undertaken are the food processing knowledge
institutions that were set up to address technology and skill gaps hindering the development of
the food processing industry. These are National Institute of Food Technology Entrepreneurship
and Management (NIFTEM) and Indian Institute of Crop Processing Technology (IICPT). These
world class and autonomous institutes have as a focal point high quality teaching, research,
consultancy, skill development, business incubation, and enterprise development. The pilot scale
food processing plants based in their campuses are not only meant to serve as experiential
learning sites, but also as technology parks to assist the transfer and commercialization of
research generated technology and showcase the available technology to industry to facilitate
scaled up production. Add to this, aiming to promote food processing industry among rural
entrepreneurs, NIFTEM and IICPT have self-contained business incubation centers established
for providing technical as well as monetary assistance to entrepreneurs planning to start a
processed food unit.

Another innovative approach of the MOFPI is the launching of mobile processing units by IICPT
during the 9th five year plan (1997-2002) so as to reduce the postharvest loss in fruits and
vegetables. The unit is well equipped with modern fruit and vegetable processing equipment. It is
a common phenomenon to see a sudden drop in market price of fruits and vegetables during

8
harvest season leaving farmers with the option of throwing away their produces. This unit can
reach rural production sites and be rented out to farmers for adding value to fruits and vegetables
which could be further processed by bigger manufacturing companies. This scheme was meant to
fetch farmers better income, reduce postharvest loss and ensure more product available for
consumers.

MoFPI and its institutions recognized the importance of international accreditation and
standardization and hence have given due emphasis on food safety and quality. Accordingly,
they have installed fully functional, accredited, and modern laboratory facilities to give testing
services for researchers and other clients seeking the food quality testing services. They have
segregated laboratories meant for teaching and demonstration purposes. In both institutes,
operation of laboratory equipment and machinery, and testing is being carried out by persons
with high academic qualification having hands-on experience at the same time.

In Ethiopia, HLIs have very young history of dealing directly with food process training and
research activities. It is just a little more than a decade gone since such discipline has been
launched in some universities. With the aim to assist the food industry especially in developing
the necessary knowledge and skill sets, these universities are offering BSc and MSc programs in
Food Science and Technology established as departments under the umbrella of certain
institutes/faculties common to many other disciplines. They are neither autonomous nor food
science and technology specialized institutions unlike NIFTEM and IICPT of India. Even though
they share the mission of the university under which they operate, their major undertaking is to
provide trained labor to the industry. Still, the industry is complaining about lack of skill and
hands-on experience exhibited by graduates.

Though the GoE also has established two autonomous institutions (FBPIDI and MDIDI) under
the umbrella of MoI to technically support the development of food industry through skill
development and R&D, they are relatively new and are not currently in the best position to serve
the development of the industry. This is because the necessary state-of-the art research, business
incubation, and technology transfer facilities relevant to most of the subsectors of AFPI are not
in place. In addition, they are not adequately staffed with regard to appropriate qualification and
experience in scientific and technical research.

9
Another important intervention taken by India‟s MOFPI is the mega food park scheme that is
instrumental in developing a strong and vibrant food processing industry through creating
increased employment in rural sector and enable farmers to reap the benefits of modern
technology and to create a surplus for exports. The agricultural sector in India suffers from
bottlenecks leading to an estimated wastage of 25-30% of agricultural produce (Chari and
Raghavan, 2012). India lacks agricultural raw materials of processable quality (Mukherjee et al.,
2013). According to the report of MoFPI (2015), only 7 per cent of the total Indian perishable
produce is processed, which is extremely low compared to countries such as the US (65 %),
Philippines (78 %) and China (23%). In view of tackling of such bottlenecks, MOFPI released in
2005 a vision document (Vision 2015) that set out targets for the food processing sector. It set
targets for enhancing the level of processing of perishable products, value addition and increase
India„s share in global food trade by 2015. To achieve these targets, the Government earmarked
certain investments that were to be disbursed through specific schemes. One of such schemes
enacted by the MOFPI is the Mega Food Park scheme, which is based on the cluster approach for
developing food processing industries (MOFPI, 2005).

The team has the opportunity to visit Patanjali Herbal and Food Park Pvt. Ltd (PHFP), one of the
operational mega food parks, located in Haridwar, Uttarakhand, India. This park was operational
since 2010. PHFP has installed state-of-the-art processing machineries imported from countries
that are global leaders in specific food processing machineries and plants such as multi-fruit and
vegetable processing line from Alfa Laval (Sweden based global leader), and Tetra-pak
(Sweden) and Volpak (Italy). In doing so, the park tried to meet the technological requirement
(machinery and equipment) of Mega Food Park preconditioned by MoFPI. The food park is
doing well with regard to capacity utilization. The major reason mentioned for this was the fact
that it installed multi-fruit and vegetable processing lines that are able to function always despite
seasonality. Apart from different fruit and vegetable products, PHFP units for manufacturing of
products such as flour and different spices which run throughout the year using common
facilities year round. It has also put in place fully functional and modern R&D/Laboratory
facilities. The food park has also become source of employment for about 20,000 persons as
direct, indirect and contract employees. Of which the park engaged more than 11,000 farmers.

10
In terms of export, PHFP‟s exports include food supplements, juices, and spices to various
countries/regions such as UAE (United Arab Emirates), Middle East, Canada, the US and the
UK. It was pointed out during the visit that the park‟s export is growing from year to yearmainly
due to the existence and functioning of world class food testing and quality assurance
infrastructure serving as common facility within the park.

Section 6 indicates vision statement of the AFPI development plan to be realized as of 2025
followed by goal and objectives to be attained. Accordingly, the goal of this plan is increasing
the contribution of AFPI to the structural transformation of the economy with the objectives of
achieving the following by 2025:
 Increasing the contribution of agro-food processing industry to real GDP of the country
from the current 1.5 to 6.7%;
 Increasing its contribution to the manufacturing value added to 39.4% from the current
status of 36.2%;
 Increasing its contribution to employment from the current 56 to 290 thousands (i.e.,
employment has to grow annually by 17.9%)
 Enhancing its contribution to foreign exchange earnings of the country by: (a) increasing
food exports from the current 97.2 to 333 million USD (i.e., food exports have to grow at
least by 13.1% annually); (b) reducing food imports from the current 678.7 to 167 million
USD (i.e., needs food imports to reduce by 13% annually); and (c) reducing raw material
imports from current 738 to 181 million USD (i.e., needs to reduce raw material imports by
13% annually)
 Improving remarkably the productivity and efficiency of AFPI through increasing: (a)
capacity utilization of existing medium and large sized AFPFs to at least 95% from the
current 68% and (b) supply of local raw materials to at least 90% from the current 65.8%,
besides others

For the achievement of this long term vision, the manufacturing sector especially the agro-food
industry is expected to play a prominent role. Compared to the current model middle income
countries (MMIC), the current 12.3 and 4.2% contribution of the industry sector and
manufacturing sector to GDP of Ethiopia has to grow stepwise to 30.7 and 17% respectively; and
the agro-processing sector is expected to take the largest share (6.7%) of contribution of the

11
manufacturing sector to GDP. Put differently, for the manufacturing sector to achieve a share of
55.4% of industrial sector GDP, the agro-food industry is expected to share at least 39.4% of the
manufacturing value added (MVA) of the country. The contribution of the industry sector to total
employment of the country has to grow from the current 5 to 20.5% by 2025. The manufacturing
industry is expected to contribute 780 thousands of the total employment in the same period. Of
which AFPI contributes to 37% of the manufacturing sector employment opportunities.
Achievement of this will however require the implementation of 566 additional new AFPFs with
10 main categories, besides improving capacity utilization (through usage rate improvement and
technology upgrading) of existing AFPFs at least to 95 from 68% by 2025. These newly
established 566 (151 large and 415 medium) agro-food processors have to produce an additional
volume of about 11 million tons of manufacturing value added over the plan period, and hence
they need a marketable surplus of at least 17.2 million tons of agricultural raw materials. This
implies that on average 1.72 million tons of raw materials will be needed annually to produce 1.1
million tons of agro-processed food, besides existing firms.

Situational and stakeholder analysis of the AFPI is depicted in section 7 in a SWOT analysis
matrix and as part of strategic planning process with the intention of connecting the objectives
and strategies with actionable tactics to be carried out during the plan period. In Section 8, the
strategic issues of the agro-food industry were identified, analyzed, and discussed with the
following six main categories.

I. Input supply industry (Raw materials, packaging and spare parts)

Considering the wheat milling industry for instance, the increasing rate of mushrooming of
wheat milling firms together with the growing consumption trend of white wheat flour and
derived products is far greater compared to the rate of growth of wheat production of marketable
surplus. Twenty years ago, there were about 50 wheat processing firms. Currently wheat flour
milling and derived products manufacturing firms are about 300. Despite the fact that the
country‟s annual average production of wheat over 2008/09 to 2014/15 is 3.2 million tons, the
lion share of this production is consumed at households and little is left as marketable surplus-
i.e., only about 19% of the annual production is marketed. In addition, the quality of wheat
supplied is not always up to the requirements of the industry. Among the reasons for failing to
meet the quality requirements are lack of focus on market and limited awareness of farmers

12
about growing the right type of wheat, focusing on yield rather than quality, small landholding
resulting in small amount of wheat sold per smallholder leading to mixing during aggregation.
The complicated value chain dominating currently is also among the culprits facilitating
deliberate and deceptive mixing and adulteration.

With regard to tef, the existing few firms requiring tef as raw material are not directly suffering
from lack of tef in the market. This is because the product (injera) they are allowed to
manufacture and export is so perishable that the quantity of tef they need to match their
production capacity is easily fulfilled. However, the story would have been different had they
been allowed to diversify their products (into flour and injera crumb for example). Despite the
overwhelming demand of tef in the international market that would have enabled Ethiopia to
earn immense foreign exchange, its export is allowed only in the form of injera with the intention
of preventing the undesired effect of short supply of the grain for local consumption (food
security issue). The high international retail price of tef is indicative of the high attention given
to it by international and affluent societies. It is found wise to devise a mechanism to increase
and diversify export of tef product without adversely affecting the local supply.

The amount of oilseeds (such as, noug, linseed, rapeseed, sesame, groundnut, sunflower,
cottonseed, etc) supplied in the domestic markets is far below the demand of the edible oil
processing subsector. The productivity and production of oilseeds is very low compared to other
conventional/staple crops, suggesting that the national agricultural research and extension system
has given less attention for improving the productivity and production of oil crops. This lack of
focus on oilseed research and extension can be evidenced by the fact that yield and area coverage
of noug and linseed (among the dominant oilseeds in Ethiopia) didn‟t show increasing trend. In
fact, linseed‟s yield and area of harvest were decreasing from 2008 to 2013. This has
substantially contributed to the fact that oil expellers are forced to operate at less than 20% of
their design capacity. Some are leaving the business, and still others are on verge of closing their
manufacturing operations.

Lack of raw material in quantity and quality is also highly reflected in the honey export sector.
Despite Ethiopia has a potential to produce and export varieties of honey year round owing to the
diverse agro-ecology and seasonal variation occurring across its different geographical locations,
honey exporting is a recent phenomenon for the country. The few honey processors are not in a

13
position to satisfy the overwhelming purchase order they receive from abroad. In fact, only 1.3%
of what is produced is exported annually. In addition, due to low productivity of the honey
sector, the local price is often too high that poses difficulty for the exporting companies to obtain
honey at reasonable price that would enable them compete pricewise internationally.

The few dairy processing firms of the country, which are mostly located in Addis Ababa and its
surroundings, are working at far below their operating capacities because of insufficient raw milk
supply, among other reasons. Milk supply also shows seasonality nature. During winter and non-
fasting times, the supply dramatically reduces while it becomes good during rainy and fasting
periods. The milk production potential of the country shall be exploited through developing and
implementing mechanisms that stimulate much more milk production. The country‟s endowment
with large population of cattle and shoats is not reflected in the few export abattoirs that operate
below their production capacity owing to lack of adequate supply of livestock of appropriate quality.

Difficulty to access affordable and diverse types of appropriate packaging materials is limiting the
ability of the food processing industry to enhance product quality to meet standards of increasingly
discriminating consumers in international market and to some extent in local market. The fact that
food and beverage account for 69% of the global consumers of packaging industry as of 2009 (at a
value of US$ 380 billion for food alone) is a worldwide phenomenon. There is no single appropriate
packaging material in the country for shelf stable fluid food (milk, juices, jams, jellies, honey, peanut
butter, etc). Glass, tetra pack (paper layers with PE lining), metal, and rigid plastic materials are not
produced in the country leaving import of such packaging material the only option, which increases
cost. In fact, this is found to be the biggest of all problems for SMEs engaged in food processing
operation not to flourish as intended. SMEs are unable to compete pricewise since the unit cost of an
imported packaging material is higher owing to their meager order size. Existing packaging
materials manufacturers in the country are not only few in number but also produce only flexible
packaging materials suitable for dry solid products and only pasteurized milk (a liquid milk
characterized by very short shelf life requiring cold chain transportation and storage facilities).

There are also no domestic firms, which can adequately supply spare parts by properly identifying
the needs of AFPFs. When AFPFs face unanticipated machine defect (mainly due to unexpected
electricity on and offs), there are limited ways that enable them to find it locally and replace it
immediately.

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II. Infrastructure and facilities (Quality control and assurance, reliable power, competitively
priced transport logistics, cold chain, and milk procurement infrastructures)
Ethiopia has laid national quality infrastructure (NQI) foundation and started to set up quality
assurance and control system with the objective of improving the quality of its products leading
to more sales and increased industrial production. Commodities need to comply with food
quality and safety requirements and have to be shipped along with quality certificates when
crossing border. Obtaining a quality certificate that is acceptable everywhere requires the
services of conformity assessment bodies (CABs) which shall be accredited by a third party
accreditation body. Ethiopian national accreditation office (ENAO) is currently doing well for its
young age as it has already upgraded itself from an affiliate to associate membership of
International Laboratory Accreditation Cooperation (ILAC) and now on verge of promoting
itself to a status of full membership. It is a great opportunity to have an accreditation body
locally that becomes soon a full IAF member and hence is of high international acceptance. We
shall make full advantage of the success achieved by ENAO in becoming an internationally
accepted institution by ensuring the proper functioning of other segments of NQI since ENAO
alone is not enough to solve food quality assurance and control problems.

The challenge to transform Conformity Assessment Bodies (CABs) into accredited ones is not as
such easy. In order for a CAB to be accredited, it has to furnish calibration certificate, it has to
have a competency certificate for the lab analyst from a recognized body, it has to comply with
the requirements of laboratory environmental condition that may influence the test results, and it
also needs to put in place Proficiency Test (PT) mechanism for inter laboratory comparison of its
results to take corrective action in case of result disagreements. These requirements, though
difficult to set up at the required intensity during initial stage, are vital and a must to have in
order to facilitate cross border trade. The availability of a well functioning laboratory testing
facility at the right quantity and geographical distribution is often a challenge due to the high
investment and running cost in addition to the challenging accreditation requirements.

Once establishment of well functioning accredited testing facilities is achieved, there must be a
mechanism put in place to make AFPFs seek its services so as to facilitate their access to market.
Normally AFP firms are not willing to be inspected as long as the market is there for their sub-
standard products and when poor implementation of mandatory standards dominates. Due to this

15
reason, customers seeking testing and certification services of ECAE, the major conformity
assessment organization in the country, are very few. Only bottled water, beer, and soft drinks
are certified by the enterprise so far, and even that happened due to the fierce intercompany
competition. About 51 edible oil processors and 3 winery and salt manufacturers are certified by
ECAE. Compared to the large number of food processing companies operating in the country,
these certified ones are very few to represent the sector. Owing to the poor inspection work, one
can suggest that food products manufactured in Ethiopia are generally not yet well known from
quality perspective. Since most processed food products do not have mandatory standards,
nobody is requesting the respective manufacturer a compliance certificate and hence they do not
intend to come to ECAE. This lack of customer is further aggravated by the fact that the cost of
food testing is very expensive (because of expensive instrument and consumables) and mostly
unaffordable to manufacturers. Lack of private for profit CABs in the country could be partly
explained by such financially demanding nature of the investment. For example, during the time
when ECAE was not able to test for pesticide residues in its facility and thus sent samples
abroad, it was requested to pay 1,220 Euros per sample. This is impractical not only from high
cost point of view but also from longer delivery times and limited access to foreign exchange. To
test for pesticide residue and adulteration of honey, samples are usually sent to Uganda. Now
ECAE is capable of testing adulteration in honey and is on verge of accreditation process.
However, after all these investments, no regulatory body and other willing customer come to
ECAE requesting for the services. Notwithstanding the fact that ECAE currently has accredited
facility for microbial quality testing of foods, it is only getting daily two samples on average. The
enterprise envisions expanding its existing microbial quality accredited test services but at the
current poor demand it is questionable to do so.

Another most common challenge of all AFPFs is lack of access to consistent power supply.
Unforeseen and recurrent power outage is the most crippling feature of the problem related with
power and affecting all AFPFs. The problem associated with lack of consistent and foreseeable
electricity supply has created far reaching negative consequences hampering the development of
AFPFs. Increase of overhead cost of production due to paid salary and other expenses made
despite downtime, loss of product that is on production line at times of interruption, breakage of
some sensitive parts of the processing machines which further aggravate the situation because of
lack of immediate local access to spare parts. AFPFs are more hampered by electricity problem

16
than their non-agro based counterparts because of the fact that they are mostly dealing with time-
sensitive raw materials that are prone to be wasted until they pass the last unit operation.

III. Technology transfer and competent human resources (Innovation, skill upgrading)
Nowadays it is tougher to compete in the international market especially in the front of quality.
The competition is even tougher when it comes to food commodities because of the fact that it is
a commodity which is edible and thus has to fulfill more stringent food safety and quality
requirements. Manufacturing of food product of acceptable quality and safety requires process
knowledge and skill. In the food industry, just as any other industry, product and process
development is considered a vital part – indeed the lifeblood – of smart business strategy (FAO,
2006). The source of such product and process development is mostly a research output carried
out by HLIs, RIs or in an in-house R&D unit of a company. Currently, development of a research
output into marketable product, which originates from HLIs/RIs or within a company, is
uncommon. The processing of some of raw materials into products is not difficult from process
engineering point of view. For example, honeycomb processing into honey, milk into
pasteurized/UHT could be a lot easier to transfer technology and skill compared to processing of
milk into numerous downstream products such as varieties of cheeses. There are more than 1000
types of cheese products whose process is more complicated as optimization of interactions of
physico-chemical parameters is needed for optimum quality. In general, while the process
engineering aspect of some food products is easier to adopt, others are more difficult to imitate
by just looking at the product. Unlike a hardware product, a food product is difficult to imitate
through reverse engineering because the components (ingredients) have undergone chemical &
physical changes through the course of processing. It is also difficult to successfully replicate a
food process from a documented procedure or a patent. This suggests the need for research to
come up with acceptable product.

The case of potato chips manufacturing can be taken to exemplify the aforementioned critical
situation. Good quality potato chips can be exhibited by its golden yellow color, minimum oil
uptake and crispness, among other quality attributes. Thus, a feasible investment on potato chips
manufacturing operation requires not only availability of potato in quantitative and qualitative
terms, appropriate machinery and equipment etc but also the knowledge and skill to produce a
product of high market acceptability, chips of golden yellow color, minimum oil absorption,

17
highly crisp, etc. At the moment, lack of such similar knowledge and skill is a bottleneck
hindering the entry of many primary agricultural products into agro-processing. It is this lack of
knowledge and skill that hampers, among other reasons, the growth and development of new and
diverse agro-food processing enterprises, especially SMEs. In fact only 8.8 % of the 5043 SMEs
graduated at the end of GTP 1 period in to medium industries were engaged in AFP related
activities. Even those all were not strictly manufacturing food items. They mostly are engaged on
food catering services.
The lack of knowledge and skill is especially hindering Ethiopia from obtaining the highest
economic benefit that could be reaped through exploiting its indigenous technologies of high
comparative and competitive advantages. Such indigenous knowledge and skills are not normally
studied in industrialized foreign countries and after all, no such technology is expected to be
transferred to us. The age old knowledge in production of injera of tef grain which could be
further diversified into injera crumb, and honey wine are best examples that are already attracted
the attention of international market actors and need to be extensively studied to be produced
with utmost safety, quality and consistency.

Even though our universities have been under extensive reform process to expand their missions
from teaching into research and community services, little transfer (commercialization) of the
created knowledge and technology (especially those related to manufacturing activities) is
manifested. In order for universities to support the development of the manufacturing industry
and hence meaningfully execute its missions, they need to be transformed into becoming centers
of entrepreneurship, technological development and effective transfer of commercially
exploitable research outputs.

IV. Market and product diversification (Access to markets, diversity of manufactured foods)
In order for the set goal and objectives to be met, increasing the export sales volume of existing
and new products in existing and new market destinations, is found to have paramount
importance. Therefore improving access to local, regional and global markets is an intervention
focused by this study so as to harness the untapped opportunities such as geographical location,
preferential access to premium markets, other comparative and competitive advantages through
implementing interventions specifically discussed and pointed out under section 9.3.

18
V. Attractiveness of AFPI to investors (Conducive business environment and incentives,
implementation of investment incentives, industrial parks development)
The private sector lacks initiative for investing their capital on value adding manufacturing firms,
rather they preferred to invest in service delivering activities (such as, hotels). One of the main
reasons for this is that the private investors believe they could not derive immediate returns from
manufacturing activities, which are more risky and uncertain compared to investing in service
sector. Add to this, the agro-food processing business requires relatively sophisticated
technology and technically skilled human resource to properly perform the processing operation.
This is a common problem especially in regional states.
The domestic investors in the regional states are more willingly enter in the traditional
merchandise businesses (which are prone to rent seeking activities) than in value adding
manufacturing firms. Investors usually argue that they could get immediate returns if instead
invested their money on merchandise businesses, as it does not require value addition,
sophisticated technologies and technically well qualified human resources, unlike the
manufacturing businesses.
VI. Policy and institutional supports for AFPI development (Demand driven value chain
development, smallholder farmers and SMEs inclusive business development, agro-food
industrialization in rural areas, export oriented and import substituting focused industries
promotion, level playing fiscal and monetary policies)
Based on firm level and stakeholders consultations it is suggested that the AFPI in Ethiopia
generally lacks the following policy and institutional supports:
 Limited access to credit services
 Shortage of foreign exchange
 Uncoordinated linkage among value chain actors and stakeholders
 Poor support to graduating and promoting participation of SMEs for AFPI development
 Lack of support to promote agro-food industrialization in rural areas
 Limited capacity of industrial associations to effectively mediate information, technology
transfers and conflict resolutions of legal matters
 Lack of level playing field among agro-food processing subsectors
 Weak management of domestic and export markets for AFPI
 Lack of implementation capacity and commitment of the state

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To strengthen and promote our AFPI into internationally competitive and profitable business, it
is crucial to address the aforementioned strategic issues and effectively exploit the vast potentials
and comparative advantages of the country so as to strengthen and promote AFPI to become
internationally competitive and profitable commercial business, the following strategic
interventions, policies and support services need to be implemented by the plan period (2015-
2025). To do so, the plan was built with the following six strategic pillars within which strategic
interventions, policies, and institutions are identified and analyzed as discussed in detail in
section 9. The six strategic pillars are summarized hereunder.
1. Developing Input supply industry
Access to reliable Developing a reliable information network among raw material supply chain actors
supply of local raw (producers, MoANR, MoLF, MoI, processors and exporters)
materials Establishing commercialized farms mainly through mobilizing and strengthening rural
youths as a driver and trustworthy contract arrangements with food processors
Establish agro-food industries around potential areas through intensifying integrated
agro-industry parks (IAIPs)
Minimizing post-harvest loss of crops through improving access to low cost handling
and storage technologies and infrastructure
Strengthen and promote farmers’ cooperatives to manage raw material procurement,
processing, and marketing of processed foods
Access to reliable Developing locally manufacturing packaging industry to address diverse packaging
supply of packaging needs of food processing industries
materials Importing appropriate packaging materials abroad in bulk by coordinating/pooling
demands of AFPFs (mainly for SMEs)
Promoting packaging services as a common facility within IAIP
Access to reliable Establishing domestic firms manufacturing spare parts
supply of spare parts Strengthening and promoting domestic firms’ capacity to deliver maintenance and
repair services

2. Developing infrastructure
Strengthening food Establishing accredited laboratory facilities at strategic locations where most AFPFs are
quality assurance and found as well as in research labs of universities and research institutes
control infrastructure Promoting implementation of mandatory food safety and quality standards while at the
same time providing strong technical supports
Improving CAB’s access to certified reference material (CRM) and proficiency test (PT)
through allowing imports duty free and avoiding delay of delivery
Introducing mobile food testing laboratory (MFTL) mainly to reach AFPFs in rural
Ethiopia as well as deliver lab services at least cost
Access to reliable Installing dedicated electric transmission lines connecting AFPFs directly from sub
electric power stations at least for firms established in the industrial zones

20
 Setting up mechanism to provide precautionary information regularly to AFPFs about
electric outages
Facilitating and supporting private sectors to involve in manufacturing/supply of electric
transformers and other accessories
Access to Improving selectivity of inspections to reduce cost, transit time and corruption
competitively priced Establishing appropriate cold storages with better technology at every export
cold storages and destination
logistics
Improving competence and quality of logistic services (like sea, air and road
transportation)
Promoting development of cold storages and transport for fresh and pack house value
added fruit and vegetable products
Promoting establishment of milk collection centers at strategic locations of the milk
sheds, and means of appropriate transportation of collected milk to processing sites

3. Improving knowledge and technology transfer and technical capacity building

Improving Cultivation of innovation within HLIs and RIs through developing institutional technology
knowledge and transfer policy
technology transfer
Revitalize FBIDI and MDIDI to make them capable of supporting the development of the
industry
Strengthening internal innovation (In-house R&D) in AFPI
Developing joint ventures with FDI and partnership with multinational and global firms to
get access for technology development and transfer in AFPI
Promoting research to standardize indigenous products and processes
Introducing Village Adoption Program (VAP) by HLI especially in RTCs of IAIP
Human resource Establish HLI/RI affiliated skill focused and specialized training centers
development Improve career structure of laboratory professionals so as to curb the high turnover and
promote vertical development of the profession
Integrating the training and education systems of HLIs with AFPI development and
diversity

4. Improving market and product diversification and development for AFPI

Improving access to Establishing market information centers at least at industrial towns that can exchange
local, regional and reliable information among key value chain actors in AFPI
global markets Promote value added product development, and strengthen institutions engaged in
research, development and innovation (incubation centers and technology parks)
Establish food safety and quality management standards and regulations, and
strengthen institutions responsible for their oversight and enforcement
Optimally use the international and preferential market access to EU, USA and
regional markets
Developing appropriate marketing strategies based on membership to regional blocs
(such as, COMESA, WTO, etc)

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 Developing strategy to engage Ethiopian diasporas and embassies towards marketing
strategy development and implementation
Effective segmentation and positioning of markets and products depending on
country’s comparative and competitive advantages
Diversifying Strengthening and promoting existing priority AFI subsectors to expand and/or
processed food upgrade their capacity for developing and diversifying food products
products Establishing new AFI subsectors for diversification and development of food products

5. Promoting attractiveness of AFPI to local and foreign investors

Ensure conducive Developing appropriate promotion and relationship building mechanisms to
business attract local and foreign investors in AFPI and diversify products and output
environment and markets
incentives for Preparing subsector based investment promotion and incentive schemes
investors considering the regional state dynamics of the country
Strengthening and promoting domestic firms involve in AFPI support services
(such as, packaging, spare parts, and equipment suppliers)
Protecting infant AFPFs (especially import substitutes) by establishing a level
playing field
Provision of special incentives and continued support to SMEs on the path of
graduation
Promoting investment initiatives of multinational companies through
developing PPP or joint ventures
Align local, regional and national legislation and regulation to assist AFI
businesses to reduce costs of product development, manufacturing and
bringing products to market
Strengthening and establishing appropriate institutional setup for promoting
domestic and FDI
Institutionalizing one stop shop (a single window) services for investors
Improve Establishing awareness creation forum among AFPFs at strategic locations
implementation of Establishing TV promotion program regularly conducted with documentary
investment films showing best performing firms
incentives Providing capacity building training for investors in AFPI before accessing
incentives and setting up mechanisms to follow up implementation and
providing technical supports
Establishing appropriate regulatory systems for enforcing punishment onto
investors who misused incentives for unintended purposes
Adopting zero tolerance for corruption in government and private institutions
Improve implementation capacity of the state (state capacity building)
Industrial park Establishing pilot AFI parks at strategic locations of agriculture potential areas
development Scaling up best practices of proven AFIPs to other potential areas countrywide

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6. Policy and institutional interventions for AFPI development

Through stakeholders‟ consultations and review of policy documents and policy related research
reports that took our country as the case and other successful developing economies with similar
development history, the policy interventions and institutional arrangements recommended for
AFPI are summarized with the following six main categories.

 Demand driven value chain development in AFPI

 Accessing smallholder farmers to AFPI
 Agro-food industrialization in rural areas
 Small and medium enterprises (SMEs) development
 Focus on export promotion and import substitution
 Improving fiscal and monetary policies

Demand driven value chain development in AFPI

It is important to think in an integrated (value chain) approach to identify the best entry points
that benefit both smallholder farmers and AFPI in Ethiopia. Here we consider that enhancing the
inclusion of smallholders in local, national, and global value chains‟ perspective is a good
strategy to increase production, income and employment opportunities for these smallholders.
Many NGOs and public support organizations are increasingly involved in value chain
development, although mainly in strengthening individual farmers and their organizations to
increase productivity and quality and address an immediate local market demand (the push effect
in value chain development). These markets to a large extent are informal and of a spot nature,
making them less reliable and create high transaction risks both for smallholders and buyers. It is
recognized that market opportunities can be best explored by strong private sector actors closer
to these markets. Strengthening of these downstream private sector actors is therefore seen as a
strategy to maximize market opportunities by aligning more upstream actors towards these
market requirements (the pull effect in value chain development). This alignment is not only
imperative for the individual businesses, but also for the necessary institutional support and
service requirements of all actors in this specific business to business (B2B) value chain. These
services include the services provided by public sector and other development partners. Like
strengthening upstream actors (individual farmers and their organizations to increase

23
productivity and quality of agricultural products), it is equally important to strengthen the
downstream value chain actors and creating a “pull” for value chain development. An effective
value chain development enhancing the growth and competitiveness of AFPI in general requires
rethinking of a comprehensive approach comprised out of four key elements: sector
development, business development, knowledge development and learning, and service
delivering capacity development. While sector development provides opportunities for value
chain actors, business development transforms the opportunities into concrete results.
Knowledge development and service capacity development assure the sustainable up-scaling of
the value chain development approach.

Accessing smallholder farmers to AFPI

Purchasing industrial raw materials from large numbers of fragmented small-scale farmers will
lead to high transaction costs and increased risks and smallholder farmers are less reliable in
honoring trading agreements, as they do not have technical skills and technologies to produce the
right products at the right time (quality, timeliness, and consistency). With low and inconsistent
production volumes, dispersed production, weak negotiation positions, limited capacity to
upgrade and meet formal market requirements and poor access to information, technology and
finance, the transaction costs for farmers to link with modern AFPI are daunting. In addition, the
type of partner network and choice of smallholders inclusive business model will depend on the
nature of the product (perishable, differentiated or branded product or bulk commodity) and the
nature of the end buyer (branded retailer, wholesaler, etc.), which determine the nature of
economic dependency between chain actors. A collaborative partner network is much more
important with perishable commodities such as fresh vegetables, dairy and meat, which require
traceability and have higher food safety risk profiles. There are potential efficiency gains in
developing locally adapted business models that build on the comparative advantage of
smallholders, in terms of land, price, farm management, quality, and innovation. Any
adjustments in pursuit of greater inclusiveness must not undermine the most sensitive elements
of a model (the cost structure, the value proposition and the integrity and safety of the product)
especially when managing supply from large numbers of small producers.

If agricultural growth is to reap benefits in terms of food security and human development, it has
to happen in a labor-intensive way on small farms. In order to thrive, smallholders need access to

24
the basics: (1) Land and inputs (water, fertilizer, and quality seeds), (2) Knowledge, (3)
Functioning markets (requiring adequate infrastructure and market information), (4) Affordable
credit and (5) Risk management mechanisms. All are important since inability to get one often
translates into sub-optimal outcome or failure. Accessing these basics presents a challenge to
most of SSA‟s smallholders.

Agro-food industrialization in rural areas

The other important policy intervention for AFPI development is promotion of agro-food
industrialization in the rural areas, where agricultural raw materials are potentially produced,
potentially capable cooperatives/unions and resourceful and rich farmers are available. As an
entry point, it shall be better to strengthen and promote rural youths to participate in
commercialization of agriculture especially in teff and milk production and milk processing
industry development to efficiently utilize their farming experiences, innovativeness and
productive work force. Nowadays there is an emerging high global demand for teff related
processed foods understanding the importance of its nutritional and health values. It is thus
recognized there is a need to mobilize and strengthen rural youths and private investors to
involve in commercialization of teff production and developing teff based food processing
industry dedicated to export markets as high export potential markets for teff products are
currently emerging and at the same time important to worry about the local demand (food
security issue) of our society. Until the food security issue addressed well, it is important to
involve only rural youths and private investors (but not smallholder farmers) in commercialized
production and processing of teff. The other enterprise suggested for an effective intervention in
rural industrialization is milk processing industry. Here it is important to encourage group of
potential farmers and youths, and farmers‟ cooperatives and unions to participate in the milk
industry.

Small and medium enterprises (SMEs) development

The Micro and Small Enterprises Development Agency at country and regional level has carried
out its activities related with AFPI development linking mainly with its urban agriculture and
agro-processing directorate. SMEs participated in AFPI have brought about significant change
with regard to employment generation. For example, the number of enterprises that entered in
milk processing, fattening, poultry production, etc is now being run by university graduates. In

25
general, promising start is evident in developing SMEs that utilize agricultural resources of the
country. This promising start is not going forward without a challenge and hence still there is a
lot to do so to come up with the intended result. As stated in FeMSEDA‟s strategic plan of
GTP2, there are 5,404 small enterprises that have been graduated to medium industries (not only
with agro-food processors). Thus, there is a need to strengthen their roles for AFPI development
through supporting them to address the following challenges: lack of access to technology, lack
of packaging materials, limited access to financial resources, and lack of processing skill.

Focus on export promotion and import substitution

Why does the government import those food products (e.g., edible oil) from abroad while they
can be manufactured domestically? And at the same time exports significant portion of raw
oilseeds to abroad. This will discourage the domestic firms to enter in this market. It is thus
suggested that the GoE should not focus its attention only for strengthening and promoting
private sectors to invest on export oriented industries, it is also equally important to worry about
import substituting industries.

Over 2006-2013 (including PASDEP and the first three years of GTP) period, the country has
registered a positive balance on trading of processed foods only for tea and honey and a negative
balance for other processed foods (such as, meat, animal oils and fats, coffee roast and extract,
dairy products, animal feeds, bakery products, sugar and sugar confectionery, macaroni and
wines). The foreign exchange earnings from tea and honey together however accounted only less
than 5% of more than 70 million US dollar earned from the total exported processed foods over
2006-2013 while the trade deficit increased from 236 to 581.5 million US dollar from PASDEP
to GTP period. This implies that the foreign exchange earnings from exports of processed food is
totally exhausted and even extra foreign exchange from other sources is used for importing of the
same processed foods from abroad. Overall, about seven folds of the foreign exchange earnings
from processed food exports is spent annually for processed food imports over 2006-2013.

On the other hand, the country has registered a negative balance on trading of raw materials only
for cereals and apple over the same period while a positive balance for other raw foods (such as,
oilseeds, coffee, avocado, banana, orange, papaya, pineapples, potato, tomato and onion). This
implies that Ethiopia exports a larger portion of raw materials abroad while at the same time

26
shortage of raw materials remains a major problem for the domestic agro-food processing
industries. The volume of annually exported raw oilseeds and coffee accounted for more than 46
and 27% of 450 and 707 thousand tons of total exported raw materials while the foreign
exchange earned from exports of these two raw materials was less than 35 and greater than 61%
of 761.7 and 1,385.5 million US dollar obtained from total raw materials exported over 2006-
2013, respectively. This implies that although a larger volume of oilseeds is exported as
compared to coffee, the country has got a significantly lower amount of foreign exchange from
oilseed exports than coffee. While cereals took the lion share (more than 98 and 89%) of the total
volume and values of raw material imports, oilseeds and coffee together took the lion share
(more than 74 and 95%) of the total volume and values of raw material exports over the same
period respectively. On the other hand, meat, animal oils and fats together with sugar and sugar
confectionery took the largest share more than 84 and 90% of the total processed food exports
and imports respectively. This also implies that there is lack of diversified and well developed
export oriented and import substituting agro-food industries in the country. It is thus suggested
that it would be better to strengthen and promote edible oil millers, milk product manufacturers,
flour millers and bakeries, macaroni and pasta manufacturers, and malt manufacturers mainly as
import substituting industries, while honey processors, meat processors, coffee processors, fruit
and vegetable product processors, and teff based product processors mainly as export oriented
industries. It is also recommended to update the investment incentive packages on regular basis
to further strengthen and promote the export oriented and import substituting industries. In doing
so, it is important to conduct incentive evaluation study regularly at every specified period (for
e.g., every 5 years). Based on the information obtained from this evaluation study, it would be
possible to update the incentives considering the regional state dynamics and diversity of AFPFs
in the country.

Improving fiscal and monetary policies

Modifying the current credit delivery system used by the Development Bank of Ethiopia.
Nowadays the DBE claimed that a borrower (e.g., a manufacturer) has to provide a 30% on-cash
reserve so as to get a loan amount of 70% project‟s total investment fund. Most of the agro-food
processing firms reported that this on-cash reserve request ultimately created shortage of
working capital especially on those already established (on-going) firms so that they could not

27
enter the production phase timely. The firm level and stakeholder consultations forwarded a
solution of at least the on-going firms should be able to continue with the former credit delivery
system of the NBE (i.e., 30% collateral in the form of physical asset) so that they may not face
shortage of working capital as they could use this 30% on-cash for the purpose, instead. The 30%
on-cash reserve might be well adopted in case of newly established firms. Even for the new firms
it is also important to revise (reduce) the 30% on-cash reserve into 10% at least for those MEs
graduated from SMEs.

Revision of capital required for graduating SMEs into MEs: The amount of capital required by
SMEs in order to transfer to MEs is 1.5 million birr (including both physical assets and cash
income), which was determined about five years ago. In reality, when one checks whether they
are transformed into MEs, they are not actually transformed. Because the indicator for their
transformation is simply the amount of capital they possessed including physical assets and most
SMEs already invested most of their capital for establishments, they stopped their operation as
soon as they transformed into MEs unless they got credit on the basis of 10-90% similar to their
SMEs stage. Thus, to realize whether a given SME actually transformed into ME, it is necessary
to raise the threshold amount of capital required up to 3-5 million birr. This also needs further
investigation to determine the minimum amount the SME should meet to graduate into ME.
Some of the interventions are summarized in the table below.

Improving access to Facilitating and strengthening domestic banks to provide investment and working
credit capital for manufacturing expansion
Facilitating the provision of capital loan to domestic investors from international
financial sources
Improving the current on-cash reserve requirement (from 30 to 10%) to increase the
amount of loan to 90% of the investment required at least for graduating SMEs
Readopting the former credit delivering system (30% collateral in physical asset) at
least for on-going firms
Revision of capital required for graduating SMEs into MEs
Improving access to Encouraging banks to give priority for targeted AFPFs in foreign exchange rationing,
foreign exchange to which GoE has given due attention as driver of the economy
Strengthening existing and establishing new import substituting firms to save the
foreign exchange spent for food imports
Mobilizing and supporting Ethiopian diasporas to invest in AFPI through special
incentive schemes
Strengthening and promoting competitiveness of existing export oriented AFPFs able
to cover foreign exchange need by their own
Diversifying food exports through facilitating establishment of new export oriented

28
 AFPFs exploiting agricultural potentials of the country
Improve land Facilitating easy access to land for manufacturing expansion and agricultural raw
acquisition for material production (adequacy and timeliness)
expansion
Promoting agro-food Organizing groups of potential farmers to share land, capital and indigenous
industrialization in knowledge in AFPI establishments through providing special incentives and technical
rural areas supports
Strengthening and promoting the existing potential cooperatives/unions to establish
AFPFs through special incentives and technical supports
Organizing women and youths in SMEs to participate in providing AFPI support
services (such as, transportation, storage, packaging materials, maintenance and
repair) in collaboration with FeMSEDA
Mobilizing and strengthening rural youths as a driver in commercialization of
agricultural raw materials production
Organizing women and youths associations to participate in vegetable, fruit and
livestock production
Improve coordination Organizing a platform for stakeholders in AFPI at industrial towns, most AFPFs found
among value chain Strengthening and promoting SMEs participation in AFPI through creating sustainable
actors and linkage with MLEs and establishing a dependable and modern information exchange
stakeholders systems
Strengthening and promoting the role of industrial associations for effective mediation
and conflict resolution of legal matters
Improving efficiency Reorganizing structure of the regional industry bureaus in line with structure of MoI
of service delivery by while at the same time establish a strong and sustainable integration among them
industry bureaus Strengthening the institutional capacity to create industrial linkages both domestically
and internationally
Improve management Establish an independent institution responsible for managing export (external)
of local and export markets of manufacturing industries directly accountable for PMC
markets for AFPI Establish an independent institution responsible for managing domestic (internal)
markets of manufacturing industries directly accountable for PMC

Section 10 discusses agro-food industry development directions and what specific programs and
projects need to be devised during the plan period. The following six major programs are
suggested from firm level and stakeholder consultations, document review and benchmarking
and within which about 14 projects are recommended.

1. Raw material supply industry development program

2. Packaging materials and spare parts manufacturing industry expansion and development
program
3. Infrastructure development and investment promotion program- including agro-food
industrial park development, service delivering capacity development (like repair and

29
 maintenance, storages, transportation/distribution, marketing, and logistics), AFPI related
infrastructure establishments (such as, cooling tanks and transports, testing equipment, milk
collection centers, cold storages, and skill focused training centers)
4. Skill, knowledge and technology development and transfer program
5. Agro-food industry expansion and development program- focusing on export oriented and
import substituting industries, and market diversification and development
6. Agro-food industrial research and extension program- enhancing internal innovation of the
industry sector and for better adaptation and promotion of knowledge and technology
transfer from external innovations- abroad (FDI and donors) and domestic universities and
other research institutes

This section also details the budget and human resource development plan. In sum, a total of
222.3 billion birr is required in the plan period for agro-food industry development in the
country. Among which the private sectors, FDI, public sectors, and donors are expected to cover
72.6, 23.6, 3.7, and 0.1% respectively. The private sectors and FDI are expected to take the lion
and second share respectively in such investments in agro-food industry.

Finally, Sections 11-13 deal with implementation plan, logical framework analysis, and M & E
plan, which analyze the intervention measures required to pursue the strategy as a
comprehensive AFPI growth and development initiative. It reflects a log-frame based
intervention-logic whereby the different sets of outputs and activities contribute to overcome the
key binding constraints, translated as immediate and intermediate objectives to be achieved. The
outputs and activities cover institutional, policy and infrastructure interventions.

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1. Introduction

1.1 Background and Context

Ethiopia is an agrarian economy, where the annual contribution of agriculture and its allied
activities to real GDP of the country accounts on average 45% while industry and service sector
accounts for 12% and 43% respectively over its last three development plan periods (2003-
2014). Agriculture also contributes to the livelihood of more than 80% of the population and
75% of the foreign exchange earnings of the country. In view of this fact and to guide and
manage the sector‟s development and eradicate poverty, the government has designed and is
implementing various development plans, policies and strategies, and programs.

Agriculture Development Led Industrialization (ADLI) has been the principal policy and
strategy of the government since the beginning of 1990‟s. The plan puts priority in transforming
agriculture from a subsistence to market oriented economy and aims for agriculture to become a
driving force for eradicating poverty and enhancing economic development. Based on this
overarching policy, several other policy documents such as rural development policy and
strategy, the food security program, Sustainable Development and Poverty Reduction Program
(SDPRP), Plan for Accelerated and Sustained Development to Eradicate Poverty (PASDEP), and
the Growth and Transformation Plan (GTP) have been implemented. These policies and
development programs enabled the country to achieve remarkable economic growth despite the
structure of the economy remained unchanged.

Transforming agriculture through increasing production and productivity alone without giving
due emphasis to markets wouldn‟t drive maximum benefit to all participants (smallholders,
processors, and other main actors) of the economy. The success in development of the
agricultural sector is strongly associated with the extent to which it is linked with sustainable
market that specifically needs to economically benefit the primary producers. Given that this is
always true for any commodity, it is more emphasized when it comes to most primary
agricultural commodities since it is dealt with biological commodities that deteriorate in value as
time after harvest goes. Thus there is a need to think in advance about the creation and
sustainability of market access in order to increase further production and productivity to the
level that matches the production potential of the country. Sustainable market would be attained

31
mainly through establishing agro-processing industries in order to convert primary agricultural
products into other value added commodities for market.

In this study, agro-processing industry is generally described as a component of the

manufacturing sector where value is added to agricultural raw materials through processing and
handling operations. It is an important source of employment and income generation worldwide.
Agro-food processing industry is a subset of agro-processing industry that produces food
products, which is subjected to additional challenges to win the trust of consumers due to
associated safety and quality concerns. We are now in a time when the global demand for
convenient, safe, and nutritious food is high and showing continually increasing trend. Add to
this, the processed food market, more importantly the export one, is facing stringent
requirements owing to the fact that the consumer around the world is aware, like never before, of
safety, nutrition, and wholesomeness of the food they consume. Governments around the world
are keen to protect their citizens and hence set tough rules and regulations to be met when
importing food items. On top of that, competitiveness with internationally renowned agro-food
processing companies, which have gained international prestige for their fancy and high aesthetic
products, has faced additional challenges.

The AFPI of the country is operating currently at its infancy and cannot satisfy even the domestic
market, a situation indicated by imports of processed foods for which there is potential raw
material base. Annual average food imports of the country (including primary products of
agricultural origin) over 2010-2013 was valued to 1.3 billion USD.

Although AFPI faces these challenges, it has also tremendous opportunities for its development.
The country is blessed with immense agricultural production potential exhibited by its diverse
agro-climatic conditions, huge water resources for irrigation and power supply, vast arable land,
and cheap labor. Add to this, increase in per capita income; growing number of population living
in condominium, higher urbanization and growing number of women in the workforce stimulate
greater demand for high-value commodities, processed products, and convenient foods.

In view of addressing the challenges and efficient use of the potentials, the country‟s agro-food
processing industry shall be strengthened and promoted through rendering multifaceted supports
to improve its competitiveness in local and international markets. Unlike the non-food subsector,

32
the AFPI requires special policy support to reap maximum benefit to the level that matches the
immense potential of the country. Subject to a facilitative enabling environment put in place in
support of operations across agro-food value chains and in response to bottlenecks, the country
could achieve the envision of becoming African agro-food processing powerhouse by 2025.

1.2 Status and Contribution of AFPI to the National Economy

Owing to implementation of several long and medium term strategies and programs, the country
has registered remarkable economic growth. However, the structure of the economy still remains
unchanged. Over the first four years of GTP1 period (2011-2014), the share of agriculture,
service, and industry sectors to GDP of the economy was 45, 43 and 12 %, respectively. The
manufacturing sector contributes only 4.2 % to GDP of the economy over the same period. In the
same fashion, AFPI contributes 1.5 % of the GDP and 12.5 % of the industrial sector‟s GDP.
However its contribution to the manufacturing value added (MVA) is significantly large
(36.2%), implying its importance and stubbornness despite facing crippling challenges. The
contribution of manufacturing and AFPI to total employment of the country was about 265 and
62 thousands and their contribution to foreign exchange earnings was 400.4, and 97.3 million
USD respectively over the same period.

Compared with sub-Saharan Africa, the manufacturing sector was small and has a relatively
stagnant share of GDP, about 5% on average over 2000-2014. The share of agriculture (45%) to
GDP of Ethiopia is much larger than the SSA average (16.6%) and remained to be the largest
sector of the economy in the same period. In contrast, share of industry (12.2%) and
manufacturing (5%) are much lower in Ethiopia than the average for SSA 30.5 and 11.8%
respectively, and their shares remained to be very small throughout the period.

The number of medium and large AFP enterprises operating in the year 2013/14 was 753
accounting for 27.3% of the total manufacturing enterprises existing in the country. The grain
mill and bakery products are by far the dominant enterprises of AFPI (64.7%) signifying lack of
diversity of the subsector. The capacity utilization of total firms in AFPI was on average 68%
(CSA, 2013/14). Grain mill and bakery, which take the largest share of the AFPI, was operating
below this average capacity.

33
The annual average export earnings from the AFPI over 2011-2013 was 97.3 million USD,
where meat and meat products are worth to mention (82.3%) among the exports of processed
food. The annual expenditure for importing of processed food was 678.7 million USD, about
seven folds of processed food exports, while importing of raw materials for AFPI was 737.7
million USD over the same period, of which animal and vegetable oils and fats, and sugar and
confectionery accounted for 91%. Coffee, vegetables, and oilseeds cover more than 95% of
1385.3 million USD earned from total raw material exports of the country. This implies
significant portion of these agricultural products are largely unprocessed. Although export
earnings from processed food have shown slight increasing trend over the last few years, it has
not yet matched the expenditure made for importing of raw materials.

To improve the contribution of AFPI to the structural transformation and achievement of the
vision of becoming a middle income country by 2025, it is of paramount importance to put in
place operative policy and strategies considering the unique features of the AFPI.

1.3 The Rationale to Formulate AFP Industrialization Policy and Strategy

Up until recently, Ethiopia has focused on agricultural development led industrialization (ADLI),
adopted in 1990‟s. The assumption was then it would pursue this strategy for about 15 to 20 years.
It is now almost 20 years since ADLI was approved. Since agriculture is the sector on which the
livelihood of majority of the Ethiopian population relies and the GDP depends, it has played a
decisive role for the economic take-off. However, agriculture never lasts in leading the economy in
any country.

It has to gradually evolve particularly because manufacturing has a greater spillover effect in
technological advancement, in economies of scale and in being competitive globally. With a vision
of becoming a middle income status by 2025, a structural change is needed where manufacturing
will lead the economy. Structural change is a shift from low to higher productivity activities. With
this in mind, the Government of Ethiopia (GoE) has formulated its vision that Ethiopia needs to be
the leading African manufacturing power-house by 2025. In 2013 the country has adopted the
Industrial Development Roadmap (2013-2025) to bring about manufacturing sector transformation
by defining priority subsectors. The roadmap identifies agro-food processing industry as a priority
subsector to be developed as part of 13 years structural transformation.

34
For the past two decades, the development policies drawn by the GoE greatly contributed to
increasing agricultural production and productivity and enhanced to reducing the national food
insecurity and poverty. Nevertheless, transforming agriculture through increasing production and
productivity alone without worrying about markets wouldn‟t drive maximum benefit to all
stakeholders along the value chain. This is the time to consider the sustainability of market
access to further increasing production and productivity to the level that matches the country‟s
potential. Sustainable market would then be attained mainly through establishing diverse agro-
processing industries that effectively convert primary agricultural products into other
commodities for wide-ranging markets, which can in turn reduce wastage and enhance
production and productivity through encouraging farmers. To achieve this objective and
structural change to happen, compared to the current model middle income countries (MMICs),
the current 4% contribution to GDP of the manufacturing industry has to grow stepwise to 17%
and the agro-food processing industry is expected to take the largest share of contribution of the
manufacturing sector to the economy (6.7 %) by the year 2025.

The development of Ethiopia‟s AFPI however has been very much limited in terms of production
capacity, employment creation, foreign exchange earnings, technology acquisition, and
investment. Most of the local firms are not compliant with international food manufacturing
practices. Many factors contributed to the underdevelopment of the agro-food processing
subsector. One of the most significant gaps has been lack of sectoral long-term vision that is in
line with the country‟s ambitious goal of economic and social development. Although the
country has a long-term industrial policy and strategy, it is more generic that could not address
the unique features of AFPI that cause different challenges and that may require to design tailor
made approaches and supports/interventions of the government accordingly. The agro-food
processing subsector therefore needs an in-depth attention in addressing its important
peculiarities deterring its development and competitiveness. This subsector is characterized by
biological raw materials that are usually perishable, variable in quality, and not regularly
available throughout the year to justify agribusiness‟s risky nature. The biological process of
agriculture and the seasonality of production impose strict schedules for all activities along
agricultural value chains, implying the need for effective coordination among all agents.
Agricultural production process also depends on climatic factors over which there is little
control. It is also crucial to acknowledge that we are in a time when the global demand for

35
convenient, safe, and nutritious food is huge and showing continually increasing trend. All these
peculiarities of the agro-food processing industry subsectors could not be addressed effectively
with generic industrial sector policies and strategies. This more than justifies a need for a focused
approach by government to strategically support the agro-food processing industry.

1.4 Guiding Principles in Formulating AFP Industrialization Policy and Strategy

Basing on the fundamental principles outlined in the Ethiopian Industry Development Strategy
(2002), this agro-food processing industry policy and strategy is formulated considering mainly
the following guiding principles, besides others:

1. Promoting industrialization on the basis of comparative and competitive advantage

AFPI is a subsector which uses raw agricultural produces, the production of which in turn is
highly labor intensive in the case of Ethiopia. It is therefore in line with one of the fundamental
principles of Ethiopian Industry Development Strategy (2002) stating the government‟s support
to the development of industries that use labor abundantly. We have abundant cheap labor
compared to other AFPI competitor countries to enhance our international competitiveness.
However, our comparative advantage is not only explained by the cheap labor, natural resources,
geographical location, etc but also by our being source of indigenous knowledge, technology and
some unique crop species and process technology that give us peculiar comparative advantages.
This AFPI policy and strategy gives special focus to promote the development of AFPI targeting
full exploitation of the real comparative advantages of the country.

2. Pursuing both export-led and import substitution agro-food industrialization

It is obvious that, over several years, Ethiopia has attempted to meet its foreign exchange
demand mainly through exporting primary/raw agricultural products to which the price elasticity
of demand is very inelastic in the world market. This led the country to receive very low prices
for exports of raw materials relative to the processed ones. Moreover, the share of export market
for the processed foods of our AFPI is very limited, accounting only for 4.3% over 2011-2015
(GTP1 period). Unless the GoE promotes export-led agro-food industrialization to improve the
competitiveness and sustainable growth of export-oriented subsectors of the AFPI, shortage of
foreign exchange still remains critical and will become very serious if the country decides to

36
shift a significant share of its raw agricultural produces for value adding activities, from which
the country earned large part of the foreign exchange. In addressing the issue of foreign
exchange and enhancing sustainable growth of the economy in general, the GoE has to devise
special incentives, policy and institutional interventions, and support services for some selected
export-oriented AFP subsectors. This does not mean it is not important to worry about import
substitution.

At this moment, the country‟s imports remarkably outweigh exports of processed food. It is
evident that the gap between the two (trade deficit) is increasingly widening up from time to
time. Accordingly, the policy interventions and support services needed for AFPI development
are stated by giving due emphasis to strategic import substitution and export development areas
and hence to attract heavily both domestic and foreign direct investments in these areas to
significantly reverse such a trade deficit into surplus situations.

Import substitution is achieved when the local AFPI becomes in a position to compete with
imported food products. Therefore, achieving local market competitiveness signifies that our
AFPI is in a pole position to compete in the international market arena. The fact that Ethiopia is
becoming an important tourist destination, a place where lots of international and regional
conferences are held, and increasing international standard hotel services require the import of
premium standard processed food products. The issue of import substitution is not only
explained in its advantage to save foreign exchange expenditure, we can also consider as a good
indicator of local AFP firms in being internationally competitive when they penetrate these local
premium markets.

3. Strengthening SMEs in the AFPI and continue to support those transforming into MEs
SMEs are known to be vehicles to employment and job creation and key to entrepreneurial
environment needs of a country. Compared to other sectors of manufacturing, SMEs in Ethiopia
are not bringing about significant change in this regard which is exhibited by the fact that it takes
only 8.5% share of the 703 graduated manufacturing SMEs to the next growth level during the
1st GTP period. In fact those very few SMEs that are engaged in the AFP related businesses
mostly work in such a way that their production process is generally inconsistent and their
product lacks aesthetics and standard in packaging. Most of them are engaged in fresh food
business coupled with own retail services like bakery. Generally it is not common to see in the

37
country SMEs that are in a position to process, preserve and package food products/intermediates
to be retailed away from production site. Conversely, metal and wood work manufacturing
SMEs took 71.9% of the graduated SMEs, indicating the relative ease to competently run such
manufacturing establishments. The crippling technological challenges, among others, call for an
in-depth scrutiny to unleash SME‟s demonstrated contribution to the industrialization process.

4. Focusing on copping up mechanism of the competitive environment associated with

trade liberalization
Internationalization of firms and integration of markets are the most relevant trends in the
international economy. These trends are driven by the decline in barriers to international trade
and investment flow, increasing freedom to move goods, services and knowledge among
countries and in different locations. The accelerated pace of technological change, price and
trade liberalization, the growing importance of super national rules have exposed national
economies to much more intense competition than ever before. It is now time for us to cope up
with such unavoidable and imminent challenges and design policies and strategies in response to
these challenges so as to become competitive in a market where level playing field for all is the
dominant factor.

5. Stimulating agricultural transformation through creating sustainable demand

Achieving increased agricultural production to the level that matches potential is not possible
without having sustainable access to potential markets. In fact, in some perishable raw
agricultural commodities, increased production alone without having access to market, which
reasonably rewards the primary producer with fair profit, was believed to have counterproductive
effect. Building trustworthy and sustainable relationship between producers and processors for
the benefit of both parties is paramount important in achieving the required inertia for increased
production and productivity. Encouraging the establishment of direct relationship between
producers and processors in which both parties win is given enough attention as it will enhance
competitiveness of processors through reduction of raw materials transaction costs, and
encourages production through assuring deserved and reasonable prices for smallholder‟s
produces.

38
6. Addressing diversity of AFPI sector
Considering the fact that agro-food processing industry subsector is characterized by high
diversity in raw material nature, production processes and product types makes it imperative that
subsector specific intervention is required to come up with specific solutions in addition to
addressing effectively common challenges and bottlenecks with common interventions. The raw
materials of some agro-food industries are so perishable than others that they could not be
transported long distances to reach their processing facilities. Still others need cold chain and
smooth road facilities to reach processing facilities located somehow distantly. The packaging
material needs of dry and durable foods and some other upstream products are less demanding
than other fluid foods hindering diversity of product types. These and other characteristics of raw
materials and finished products of agro-food processing industry require finding sector specific
solutions.

7. Adding more value to raw agricultural products including those already entered in the
international market
Increasing value to raw agricultural commodities mainly through processing and certification
before exporting is known to have multifaceted advantages for the growth and development of
the country. As a manufacturing activity, value added processing of primary agricultural
produces has largest multiplier effect on other economic sectors, resulting in higher productivity
and diversified employment opportunities, and also serves as a source of innovation. In this
connection, pursuing value addition to the traditional raw commodity exports (such as coffee and
oilseeds) including new diversity was among the most important guiding principles followed in
preparing this AFPI development strategy.

1.5 Scope of the AFP Industrialization Policy and Strategy

The scope of this industrial policy and strategy mainly covers agro-food processing industries in
Ethiopia giving special attention to those food industries that intensively use the nation‟s
abundant agricultural products/resources to which the country is expected to have comparative
and competitive advantages over other nations in the world. This policy and strategy document
addresses general bottlenecks and constraints of AFPI sector in addition to that of some selected
AFPI subsectors. Accordingly the following sub-sectors are identified and given due focus
during the strategic plan period.

39
Oilseed and pulse based products: Ethiopia is home for some high value oilseed crops and
oilseeds are among the relatively high export earner commodities. The earnings from raw oilseed
export could be more pronounced if the current upstream processing may be supported with
more value added processing. Adding more value to raw oilseeds would have tremendous
spillover effects to other sectors like that of livestock, create more jobs, and would enhance
foreign export earning significantly than is obtained from raw seeds. The fact that more value
addition is advantageous to oilseed also applies to pulses as the volume of export is growing
from year to year.

Honey: Ethiopia has a huge natural resource base for honey production and other hive products,
and beekeeping is traditionally a well-established household activity in almost all parts of the
country. Beekeeping is environmentally friendly activity that can be integrated with agricultural
practices like crop production, animal husbandry, horticultural crops and conservation of natural
resources. Thus, it would be one of the most important intervention areas for sustainable
development of Ethiopia.

Cereal based products: Cereals and derived products with high potential export market as a
reflection of big comparative and competitive advantage has drawn attention. Teff and teff
products for which Ethiopia accumulated indigenous knowledge that could be exploited
commercially at global level, especially in Europe and USA are found important. Wheat based
agro-food industry, which takes by far the largest share of the agro food industry of the country
was also the focus of this study as it faced problems that are repeatedly reported such as quality
and availability of raw materials, wheat value chain related problems, etc

Dairy products: Notwithstanding the fact that there is great potential in the country to produce
huge quantity of milk, short supply in high demand areas and associated increasing price of milk
is now evident. Potential production areas are far away from processing centers and producing
households in the potential areas are located scattered apart in areas where infrastructure is poor,
thus making milk collection very difficult. Increasing milk production and productivity through
proper breeding, health service provision, improved feed availability, and operative quality
control and assurance system coupled with sustainable and efficient milk collection and
diversified processing system would foster the rapid development of the sector to reach export
status after import substitution. As raw milk is the most perishable product that need to be cooled

40
down to a refrigeration temperature within 2-3 hours of milking (depending upon the ambient
temperature) so as not to lose its processing ability at a later stage that still needs to be carried
out during the subsequent 5-6 hrs. The current dairy processing enterprises are located in and
around Addis Ababa producing mostly pasteurized skimmed milk which itself is highly
perishable. Constraints hindering the establishment of dairy processing enterprises at potential
milk shade areas and bottlenecks of manufacturing of diverse and durable dairy products shall be
overcome so as to tap the immense potential.

Fruits and vegetables: Cognizant of the fact that Ethiopia possesses a great potential for diverse,
exotic and high value fruit and vegetable crops, the existence of wide international market for
pack-house value added fresh fruits and vegetables etc, are valid reasons for focusing on these
high value crops. The untapped large global market for pack-house value added fresh fruits and
vegetables would be a great opportunity for the country in marketing the diverse and exotic
products. Fruits and vegetables are high value crops while only pack-house value added owing to
the fact that consumers prefer them intact.

Coffee: Ethiopia is Sub-Saharan Africa‟s leading producer of Arabica coffee, commanding an

important share of the world specialty coffee market. Although Ethiopia has diversified into
other crops in recent years, notably horticultural goods and oilseeds, coffee remains the country‟s
most significant commodity export. The growing benefit obtained from export of the high quality
and reputable raw coffee could be maximized through adding value through processing and
certifications.

Meat: The immense resource potential Ethiopia possesses in livestock is still untapped owing to
multifaceted problems the sub sector encounters. The production aspect of livestock is not only
full of constraints related to access to health, breed and feed services but also is not mostly
market oriented. The sector could fetch tremendous foreign earnings subject to overcoming
bottlenecks and constraints.

2. Methodology and Approaches followed in Policy and Strategy

Development
Ethiopian Policy Study and Research Center (EPSRC), the client organization, as reported in the
ToR, is keen to prepare the national agro-food processing industry (AFPI) development policies

41
and strategies aiming to provide tailor made supportive services that help strengthen and promote
the competitiveness and sustainable growth of the sector. To do so, first it is important to address
a number of challenges (threats and weaknesses) and to efficiently use potentials (opportunities
and strengths) of AFPI in the country. In addressing these and other related issues, a survey
research and stakeholders consultations was conducted primarily to get an input and baseline
information in identifying strategies and policy interventions needed for agro-food industry
development. The study was conducted through four phases. This section therefore briefly
discusses what research methods are used to achieve the objectives of each phase of the study.

The team of this study developed the appropriate questionnaires and interview guidelines
(checklists) for respondents such as, agro-food processing firms (AFPFs) and other stakeholders,
respectively. Before embarking on the field work, the client organization (EPSRC) and the
consultant team agreed upon the tools and procedures to be used for data collection. The team
also conducted different workshops/forums such as, inception workshop with representatives of
EPSRC, consultation forums with representatives of each of the stakeholders, and finally after
submitting the first draft report to EPSRC the validation workshop was carried out at national
level in order to obtain valuable comments from participants of key stakeholders of the industry.

Sampling

The AFPI in Ethiopia has highly diversified components. Most of them need little capital and use
labor intensively while a few are basically capital intensive. Some can be established by small
domestic investors and peasant associations while others need the support of internationally
renowned foreign investors. Raw materials of some agro-food industries are so perishable than
others that they could not be transported long distances to reach their processing facilities. Still
others need cold chain and smooth road facilities to reach processing facilities located somehow
distantly. The packaging material needs of dry and durable processed foods and some other
upstream products are less demanding than other fluid foods hindering diversity of product types.
With such different state of affairs, it is difficult to give a general “one fits all” solution to the
development of AFPI. It is thus important to investigate in detail the behavior of each component
of the industry to come up with a solution that is specific to each subsector (Ethiopian Industrial
Development Strategy, 2002)

42
The population in this study comprises a set of processing firms involved along the value chain
of AFPI in Ethiopia. A multi-stage stratified sampling was used to select a sample of AFPFs
representing the population characteristics from the final sampling units. Before choosing AFPFs
(as units of observation or data analysis), the final sampling units were divided into 12 categories
based on the following three factors, namely stage of processing of firms (upstream and
downstream), size of firms (small, medium and large), and nature of products (perishable, less
perishable and durable). In doing so, it is possible to identify the unique features of AFP
subsectors that cause different challenges and that may need to design tailor made
supports/interventions of the government accordingly. A total sample of 49 AFPFs was covered
in the study. The study also considered areas having unique characteristics related with the
growth of AFPFs (like the wheat belt of Ethiopia). Non-existing AFPFs, especially the upstream
ones with minimal processing, was proposed considering the resource potentials of the country,
the outcome of benchmarking and feedback from stakeholders.

Data collection and analysis

The process of formulating strategic issues and policy interventions in general followed
participatory approach. There is a need to collect both primary and secondary data from the
relevant sources to determine the status, challenges, opportunities, and prospects of agro-food
processing industries in the country. The team used the following data collection methods and
tools, among others:

Document review: An in-depth review of relevant documents was made to collect background,
historical and baseline information for the study. Some of the documents include the last three
national development plans of Ethiopia (SDPRP, PASDEP and GTP), Industrial Development
Strategy of Ethiopia (2002), government policies, strategies and proclamations, a series of
Ethiopian CSA and NBE publications, World Bank and IMF publications and other relevant
scientific papers. Add to this, strategies, industrial policies, and institutional setup (focusing on
AFPI) for accelerated and sustained industrial development of other fast growing developing
economies were reviewed to draw important lessons that need to be adapted in the Ethiopian
industrial context/scenario.

Firm/enterprise survey: The survey focused on the major factors that shape the business
environment. These factors can be accommodating or constraining for firms and play an

43
important role whether a country will prosper or not. An accommodating business environment
is one that encourages firms to operate efficiently. Such conditions strengthen incentives for
firms to innovate and to increase productivity- key factors for sustainable development. A more
productive private sector, in turn, expands employment and contributes taxes necessary for
public investment in health, education, and other public services. In contrast, a poor business
environment increases obstacles to conducting business activities and decreases a country‟s
prospects for reaching its potential in terms of employment, production, and welfare. To get such
information, the firm survey is administered to a sample of 49 firms representing the subsectors
of AFPI in Ethiopia. In the survey a wide array of qualitative and quantitative information was
collected through face-to-face interviews with firm managers, owners, and production section
and marketing section heads regarding the business environment in the country and the
productivity of their firms. The main topics covered in the survey include challenges and
opportunities of the business, raw materials supply, infrastructure, finance, trade, regulations,
taxes and business licensing, bureaucratic level of government officials (corruption, crime and
informality), technology transfer, research and innovation, labor, firm‟s performance, and
perceptions about obstacles to doing business. The qualitative and quantitative data collected
through the survey tried to connect a country‟s business environment characteristics with firm
productivity and performance.

Key informant interviews (KIIs): Primary data were also collected from stakeholders of AFPI in
Ethiopia. The respondents were interviewed using an interview guide (checklist) prepared to
initiate the questioning and to ensure the information flow would be within the research
objectives. Some of the key stakeholders participated in the KIIs include BoA, MoA, BoIUD,
MoI, MoT, EIC, ERCA, MoFED, Industrial Park Development Corporation, National and
Regional Research Institutes, ATA, and Agricultural/Food Product Exporters. Thus, to uncover
valuable insights and find a real story about the agro-food processing sector, a comprehensive
and in-depth interview was conducted with carefully selected strategic leaders and stakeholders
including different ministries, agencies, corporations, research institutions, experienced experts
and professionals. Both macro and sector level in-depth interviews were conducted. In sum, 60
KIIs were conducted with regional and national level stakeholders (see the list in Annex 9).

44
Focus group discussions (FGDs): If well executed, FGD can reveal a wealth and detail
information and deep insight. It was conducted with the relevant stakeholders on the selected
issues (particularly for identifying the common challenges and opportunities, and prioritizations
of problems) in AFPI. FGD is a typical qualitative data collection tool and therefore qualitative
variables are expected like gender and environmental issues, linkages between stakeholders,
processing and marketing systems, level of participation between actors, etc. The FGDs were
conducted with selected participants who have strategic influence and important contribution to
the development of a policy framework for the agro-food processing sector. Core sector
directorates and experts in the MoI, public and private sector actors in the development of
industry, factory owners, managers, and technical staff were invited to participate in FGD.
Overall, 22 FGDs were conducted at regional and national level (see the list in Annex 9).

Observations and visit: Insightful information was obtained through personal observation of
agro-food processing industries and industrial zone/complex visits in selected country. A 12-days
exposure and experience sharing visit to India as a model/benchmarking country was conducted
to carry out comparative analysis and get valuable insights to further enrich the study.

Workshops: Inception, progress and validation workshops/forums were held with client
organization and stakeholders in order to obtain valuable inputs and feedbacks.

Before analyzing the collected data, they were organized, classified, edited, and encoded in the
way that fits to enter into the computer and to undertake the analysis as well. The data were
analyzed using SPSS statistical software. The first stage in processing quantitative data was the
coding process, followed by data entry using Microsoft Excel. The qualitative data were
analyzed manually by transcribing all conversations directly into Microsoft Word, where the data
were edited and separated into several identified variables. The analysis was done by
determining consistent patterns and summarizing the appropriate details revealed in the data.
Thus, in identifying the strategic issues that need to be addressed in the plan period (2015-2025),
first it is important to analyze the data collected from stakeholders and focus group discussants
on specific issues to describe the existing situations of agro-food processing industries in
Ethiopia. The overall assessment results of the situational analysis were then summarized using a
SWOT analysis format, which assesses the strengths and weaknesses of the value chain

45
organization (internal factor analysis) and the opportunities and threats of the value chain
environment (external factor analysis) of AFPI in Ethiopia. In general, the data collected from
key informants and focus group discussants were summarized with a brief narrative analysis.

This strategy in general begins with studying the current situation of agro-food processing sector
in the country. The status of the sector in reference to small and medium scale industries were
evaluated critically. Through undertaking situational analysis, the study identified the challenges
encountered, the successes achieved, and the gaps to be filled in the sector. Here is also
examined a number of factors such as, provision of finance, supply of industrial inputs and raw
materials, human resources and capacity building, research development, technology transfer and
gaps, incentives, policy implementations and institutional supports. Then the researchers
developed and presented a detail and clear picture of what the Ethiopian AFPI requires to
effectively manufacture and market its products in order for the sector to play a leading role for
the nation‟s economy in terms of realizing the country‟s vision to achieve middle income status
by 2025.

The study, which helps prepare the strategy plan, was conducted through four phases. The first
phase is the literature review in which the team specifically aims to achieve the following
outcomes: develop the appropriate questionnaires and checklists that can serve as guidelines for
interviewing the different stakeholders/actors of agro-food industry, set the right approaches and
methods to be adopted for the study, clearly define objectives and scope of the study, develop
criteria for selecting targeted agro-food industrial products/firms and draw lessons about policies
and strategies that need to be adapted under Ethiopian circumstances from successful countries
having similar development history. In achieving these outcomes, the team thoroughly reviewed
different industrial policy and strategy related documents and research papers. In the second
phase, the current status of agro-food industry in Ethiopia was assessed specifically with the aim
to: determine contribution of the industry to job growth, value addition and GDP of the
economy; identify the most binding constraints and opportunities of agro-food industry in the
country; refine categories of agro-food processing firms in the context of Ethiopia considering
their characteristics (especially by size and products); selection of targeted agro-food products;
evaluate impacts of the past industrial policies and strategies on the industry, identify their
bottlenecks during implementations and suggest their possible solutions; and finally recommend

46
corrective policy measures/reforms needed to enhance the competitiveness and sustainable
growth of the industry. In this phase, the relevant data and information were collected mainly
through firm survey, key informant interview and focus group discussion. The third phase is
benchmarking, which focuses on identifying the comparative advantages of Ethiopian agro-food
industry against its successful competitors in Latin American countries (for e.g., Chili, Brazil and
Argentina) and in East Asian countries (like China and Vietnam). The last, most important,
phase is preparation of agro-food industrial development policy and strategy document. The
ultimate outcome of this phase in particular and the study in general is to prepare such document,
consisting of implementation plan, M & E plan, regulatory and institutional frameworks, and
policy recommendations and policy matrix in it.

3. Overview of National and Industrial Development Policies and

Strategies in Ethiopia

In the past two decades, Ethiopia has been following Agriculture Development Led
Industrialization long term strategy to transform its economy. Although tremendous efforts have
been made and remarkable economic growth achieved, the Ethiopian economy remains
structurally unchanged. Still the manufacturing sector is small and has a relatively stagnant share
of GDP, about 5% on average over 2000-2014. Ethiopia‟s agriculture share (45%) of GDP is
much larger than the SSA (16.6%) average and remained to be the largest sector of the economy
in the same periods. In contrast, shares of industry and manufacturing are much lower in
Ethiopia than the average for SSA and their shares remained to be very small throughout the
period (Table 1 and Figure 1).

Table 1: Agriculture, industry and manufacturing share of GDP and percentage growth of value added, for
Ethiopia and sub-Saharan Africa (2000-2014)

Agriculture Industry Manufacturing

value added value added value added
Year Ethiopia SSA* Ethiopia SSA* Ethiopia SSA*
% % % % % % % % % % % %
GDP Growth GDP Growth GDP Growth GDP Growth GDP Growth GDP Growth
2000 47.8 3.1 17.1 -0.3 12.2 5.3 33.8 5.6 6 6.7 13.0 5.2
2001 45.6 9.6 18.4 4.6 12.9 5.1 31.8 6.7 6.2 3.8 13.3 2.5
2002 41.7 -1.9 20.4 15.1 13.7 8.3 30.2 3.1 6.2 1.8 13.2 2.7
2003 40.1 -10.5 19.3 3.1 13.9 6.5 30.5 6.6 6.2 1.2 12.9 0.4

47
2004 42.3 16.9 17.2 3.9 13.9 11.6 31.7 5.1 5.9 7.3 12.7 4.9
2005 44.7 13.5 17.1 5.8 12.8 9.4 32.2 5.9 5.3 13 12.3 6.1
2006 45.9 10.9 16.4 5.1 12.5 10.2 31.7 3.7 5 10.3 11.6 6.3
2007 45.5 9.4 16.4 4.8 12.5 9.5 31.6 5.6 4.9 9.9 11.4 6.5
2008 48.4 7.5 16.8 5.7 10.9 10.1 32.5 1.8 4.4 9.3 11.3 3.2
2009 48.6 6.4 17.5 4.2 10.3 9.7 29.7 -1.1 4.1 8.6 11.0 -5.3
2010 44.7 5.1 15.1 4.7 10.2 10.8 28.4 5.4 4.3 9.2 11.2 6.2
2011 44.7 9 14.7 3.4 10.5 15 29.2 3.7 4 9.2 10.9 5.5
2012 48 4.9 14.7 3.8 10.3 19.6 28.5 2.2 3.7 11.8 10.7 3.9
2013 45 7.1 14.2 4.3 11.9 24.1 27.9 2.4 4 16.9 10.9 4.3
2014 42.3 5.4 14.0 4.1 15.4 21.2 27.6 -0.2 4.2 11.3 11.0 3.4
Average 45.0 6.2 16.6 4.8 12.2 11.6 30.5 3.7 5.0 8.6 11.8 3.7
* SSA regional aggregate excluding high-income economies
Source: World Development Indicator World Bank data base (2015) and own computation

Figure 1: Share of agriculture and manufacturing sectors to GDP and growth of value added for
Ethiopia and SSA (2000-2014)

As indicated in Table 2, the industry sector and manufacturing subsector have shown remarkable
growth improvement from an annual average of 4.2 and 3.2 % over the years 1980-1989 in the
Derg regime to 14.3 and 10.7 % over the years 2006-2014 in the current regime, respectively.
However, the contribution of industry sector to the country‟s GDP is smaller; even it reduced to
4.3 from 4.9% in case of manufacturing subsector across the two regimes for the same periods.

48
In this respect the Ethiopian economy needs a more dynamic growth enhancing the industrial
sectors especially the manufacturing subsector so that it can reduce its dependence on rain-fed,
fragile, and climate change vulnerable agricultural sector.

Structural change is therefore one of the important steps in economic development. Most growth
theories argue that the way to growth is through capital (both human and physical) accumulation
and improved factor productivity which is possible by technological advancement.
Technological progress is particularly the means for sustained long-run growth. Ethiopia has
scarce and limited resources which prevent massive capital accumulation for industrial
development. Given this limitation, improvement of factor productivity through efficient
utilization of resources and technical change via learning-by doing, adoption of new
technologies, and imitation are possible means to increase industrialization in the country.

Table 2: Agriculture, service, and manufacturing share of GDP, and percentage growth of value added, for
Ethiopia 1980-2014 including the last three planning periods

Agriculture Service Industry Manufacturing

value added value added value added value added
Year
% % % % % % % %
GDP Growth GDP Growth GDP Growth GDP Growth
1980-1989 (Derg) 53.6 0.6 36.0 4.6 10.3 4.2 4.9 3.2
1990-1999 56.5 2.5 33.5 2.7 9.9 0.9 5.0 -0.2
2000-2002 45.0 3.5 42.0 7.0 12.9 6.3 6.1 4.1
2003-2005 (SDPRP) 42.4 5.9 44.1 8.6 13.5 9.2 5.8 7.1
2006-2010 (PASDEP) 46.6 7.8 42.1 15.3 11.3 10.1 4.5 9.5
2011-2015 (GTP)1 45.0 6.6 43.0 10.9 12.0 19.9 4.0 12.3
2006-2014 45.9 7.3 42.5 13.3 13.3 14.3 4.3 10.7
2003-2014 45.0 7.0 42.9 12.1 12.1 13.0 4.7 9.8
1
Excluding data of 2015

Source: World Development Indicator data base (2015) and own computations

3.1 Agro-Food Industrial Development Framework of Ethiopia

Data and information relevant to propose the future directions and development framework of
Ethiopia were collected with a particular emphasize to agro-food processing industry (AFPI)
through reviewing the implementation status and effects of the existing industrial development
policies and strategies on Ethiopian economy, reviewing other relevant research papers and
reports published by international and national organizations related with agro-food industry of

49
Ethiopia as compared to other successful developing economies in this regard, gathering data
from a series of CSA publications that help estimate the resource endowments of the country
with respect to the raw material needs of AFPI, performance and productivity of food processing
firms, and finally through conceptualizations of the knowledge and experiences derived from
firm level consultations, and key informants and focus group discussions with stakeholders of the
industry as well as benchmarking of successful countries having similar development history.

3.2 Agro-Food Industry in Ethiopia: Some Stylized Facts

Pursuing both export-led and import substitution industrialization is among the key pillars of
industrial development stated in the Ethiopian Industrial Development Road Map (2013).
Ethiopia imported food products ranging from Birr 3,595.6 million in 2005 to Birr 9,872.5
million in 2009, including some primary products of agricultural origin. Cereals took the largest
share of imports, with a yearly average value of Birr 2,826.7 million during this five years
(PASDEP) period to be followed by animal and vegetable fats and oil products with a yearly
average of Birr 1,485.5 million over the same period (Feyissa et al 2011). Substituting this food
import through creating enabling environment for operative domestic agro-food processing
establishments would contribute its part to narrow the trade deficit in addition to creating
tremendous employment and income generation opportunities. For example, most primary
agricultural food commodities, both from crop and livestock origin, are neither shelf stable due
to their inherent biochemical nature nor safe to be consumed raw. Hence, they shall be preserved
and made safer through value added processing so as to be kept for long period of time and be
transported to deficit areas at reasonable cost. We are now in a time when the global demand for
convenient, safe, nutritious food is high and showing continually increasing trend. In addition,
the processed food market nowadays, especially the export one, is facing stringent requirements
owing to the fact that the consumer around the world is aware like never before of safety,
nutrition and wholesomeness of the food they consume. Governments around the world are keen
to protect their citizens and hence set tough rules and regulations to be met when importing food
items. Thus this subsector, unlike the non-food ones, is especially demanding and requires
special policy support to derive maximum benefit to the level that matches the immense
comparative advantage the country possesses.

50
Table 3: Annually exported and imported volume (‘000 tons) and value (million USD) of processed food over
PASDEP and GTP periods, Ethiopia

PASDEP: 2006-2010 GTP1: 2011-2015

Export Import Export Import
Food items
Tons million Tons million Tons million Tons million
(‘000) USD (‘000) USD (‘000) USD (‘000) USD
Meat, animal oils & fats 0.94 29.15 178.21 188.29 1.83 82.52 331.64 428.16
Coffee roast 0.02 0.07 0.10 0.26 0.02 0.15 0.02 0.11
Coffee extract - - 0.02 0.05 - - 0.05 0.15
Tea 0.64 1.00 0.03 0.12 0.47 0.95 0.09 0.27
Dairy products 0.22 0.16 2.30 19.46 0.04 0.43 2.15 19.13
Animal feeds 11.42 1.74 0.69 0.63 19.86 5.37 0.84 1.28
Bakery products 0.77 1.41 1.45 2.19 2.65 4.90 7.70 16.96
Sugar & sugar confectionery 14.45 9.17 125.21 64.17 0.01 0.02 281.90 190.93
Honey 0.31 0.96 0.01 0.02 0.79 2.80 0.02 0.82
Macaroni 0.20 0.11 4.04 3.37 0.04 0.27 17.35 18.53
Wines 0.04 0.05 0.56 1.23 0.05 0.06 1.11 3.13
Total 29.03 43.81 312.60 279.78 25.76 97.23 642.88 678.71
1
Excluding data of 2014 & 2015
Source: FAOSTAT, own computation

Ethiopia can reap tremendous benefit and become African agro-food processing hub by
exploiting its agro-food processing potential which is exhibited by its suitable agro-ecology for
diverse commodities, fertile soil and fresh water if facilitative enabling environments comprising
policies, rules and infrastructure are put in place in support of operations across the whole of
agro-food value chains. It also has domestic market potential indicated by the increase in
processed food imports (Table 3) from year to year; increases in per capita income, growing
number of population living in condominium, higher urbanization and the growing numbers of
women in the workforce engender greater demand for high-value commodities, processed
products and convenient foods.

51
 Figure 2: Annual exports & imports of processed food over PASDEP and GTP periods

As indicated by Figure 2, Ethiopia exported and imported annually on average about 29 and 313
thousand tons of processed food respectively over PASDEP (2006-2010). In this period, the
country registered a trade deficit of 288 thousand tons of processed food annually. In monetary
terms, it has shown a trade deficit of 236 millions USD every year over PASDEP, to which
exports and imports of food accounted for 44 and 280 millions USD respectively. The deficit has
become significantly severe during GTP, indicated by an annual average deficit of processed
food over the first three years of GTP (2011-2013) was 617,120 tons valuing about 582 millions
USD. The annual exports and imports of processed food were 25,758 tons with the export value
of 97 millions USD and 642,878 tons with the import value of 679 millions USD respectively.
This suggests that the demand for processed food increasingly grows from PASDEP to GTP
wherein the domestic agro-food processing firms could not satisfy although their number
increases over time. This would be an opportunity for existing firms to expand their capacity and
upgrade their production lines and for new firms to enter in the agro-food industry.

52
Table 4: Annually exported and imported volume (‘000 tons) and value (million USD) of raw food items over
PASDEP and GTP periods, Ethiopia

PASDEP: 2006-2010 GTP1: 2011-2015

Export Import Export Import
Food items
Tons million Tons million Tons million Tons million
(‘000) USD (‘000) USD (‘000) USD (‘000) USD
Oilseeds 234.15 259.40 11.31 18.20 330.94 480.39 2.84 6.03
Coffee green 173.53 490.20 13.62 34.66 193.91 845.36 0.04 0.20
Cereal 14.60 4.50 1,421.00 458.00 62.82 24.76 1,868.03 729.85
Apple - - 0.37 0.40 - - 0.48 0.75
Avocado 0.01 0.003 - - 0.011 0.003 - -
Banana 2.31 0.39 - - 7.53 1.53 - -
Orange 2.68 0.97 0.07 0.02 3.51 1.49 0.01 0.01
Papaya 0.35 0.07 - - 0.51 0.10 - -
Pineapples 0.02 0.01 - - 0.007 0.003 0.003 0.001
Potato 9.86 2.43 0.05 0.07 72.57 21.09 0.05 0.07
Tomato 5.95 2.17 0.005 0.002 21.31 7.84 0.00 0.00
Onion 6.77 1.56 0.57 0.10 13.76 2.95 4.19 0.96
Total 450.22 761.70 1,447.00 511.44 706.88 1,385.51 1,875.64 737.88
1
Excluding data of 2014 & 2015
Source: FAOSTAT, own computation

As indicated in Table 4, Ethiopia annually exported and imported on average about 450 and
1,447 thousand tons of agricultural raw materials respectively over the PASDEP (2006-2010),
during which the country imported a surplus of 997 thousand tons over exported. The country
however has registered a trade surplus of more than 250 millions USD annually in the raw
materials market in the same period, wherein the values of exports and imports of raw materials
were about 762 and 511 millions USD respectively. This indicated that the domestic raw
material industry supplied raw materials at expensive price of 1,692 USD/ton, which is about 5
folds of the imported price (353 USD/ton). Thus, the local raw materials could not be supplied at
competitive price. This would become stronger during GTP where the price of local raw
materials (1960 USD/ton) is 398 % over imported one (393 USD/ton) (see Figure 3). It is
therefore important to think about how to transform the smallholder agriculture into
commercialized farms of raw materials production.

53
Figure 3: Annual exports and imports of raw food items over PASDEP and GTP periods

When we see the trends of processed and raw food items over 2006-2013 (Figure 4), raw
material exports and processed food imports increased over the entire periods at a higher rate
which would in turn affect negatively the growth of domestic industries. The food exports
remain low and stagnant although little improvement has shown in GTP period. Although the
country exports huge amount of raw materials, the import of raw materials still remain high. This
seems contradictory when one looks at from AFPI development perspective.

54
 Figure 4: Trends of processed and raw food exports and imports over PASDEP and GTP periods (2006-2013)

The share of the industry sector in general and the manufacturing subsector in particular to GDP of
the country is currently much less despite impressive and steady growth rate registered during the
past decade (Tables 5 and 6). Similarly its contribution to foreign exchange earnings of the country
is not satisfactory (see Table 3 above).

Table 5: Percentage share of each industry category to GDP of Ethiopia over 2000-2015

Industry category Average Before SDPRP: SDPRP: PASDEP: GTP1:

2000-14 2000-02 2003-05 2006-10 2011-15
Industry sector (IS) 10.9 9.8 10.9 10.3 12.3
Manufacturing industry (MI) 4.1 4.2 4.1 3.9 4.2
LM2 Scale MI 2.6 2.6 2.5 2.5 2.9
2
SM scale MI 1.5 1.6 1.6 1.4 1.3
Agro-food industry (AFI) 0.9 0.5 0.6 0.7 1.5
LM Scale AFI 0.6 0.3 0.4 0.5 1.1
SM scale AFI 0.3 0.2 0.2 0.2 0.4
1 2
Excluding data of 2015 LM = Large and Medium, SM = Small and Micro
Source: A serious of NBE publications, own calculations

55
Table 6: Percentage share of each manufacturing category to industry sector's GDP over 2000-2015

Manufacturing category Average Before SDPRP: SDPRP: PASDEP: GTP1:

2000-14 2000-02 2003-2005 2006-2010 2011-15
MI to IS GDP 37.9 42.9 37.9 37.6 34.5
LM MI to IS GDP 24.3 26.2 23.1 24.3 23.8
SM MI to IS GDP 13.6 16.7 14.8 13.3 10.6
AFPI to IS GDP 8.0 5.6 5.2 6.8 12.5
LM AFI to IS GDP 5.3 3.4 3.2 4.4 8.6
SM AFI to IS GDP 2.7 2.2 2.0 2.4 3.8
AFPI to MI GDP 21.9 14.4 13.7 17.9 36.2
LM AFI to MI GDP 14.5 8.7 8.4 11.6 25.2
SM AFPI to MI GDP 7.4 5.7 5.4 6.3 11.1
1
Excluding data of 2015
Source: A series of CSA and NBE publications, own calculations

Despite the government made efforts and initiatives to provide enabling environments to the
industry sector, the processing activity in the agro-food industrial subsectors in Ethiopia is still at
infancy and could not be advanced as its great potential and comparative advantage suggests.
According to a series of CSA large and medium manufacturing industry survey reports, the
employment, export, and import status of Ethiopia‟s existing AFPFs over PASDEP and GTP
periods is summarized as of Tables 7. In the GTP period, the average level of employment in agro-
food processing firms grows by 32 % from about 44 thousands of workers while the number of
firms increased by 47 % from 472 in the PASDEP. Although the income earned from trading of
processed food increased remarkably by 269 % from 9.2 billion birr, the contribution of export
markets remains very low which only improved to 4.3 from 3.6 % in the PASDEP. Similarly while
the consumption of raw materials grew by 326 % from 3.8 billion birr in the PASDEP, the share of
local supply reduced to 66 from 74 %. This suggests that GoE together with other concerned
stakeholders is still expected to put much effort towards ensuring an enabling environment and
support services for the AFPI and the raw materials production sector to grow rapidly and
sustainably until they could potentially produce and supply their products both to local and global
markets with competitive price and quality.

56
Table 7: Employment, export and import status of medium and large AFPFs in Ethiopia over 2006-2014

Plan Sales Raw materials purchase

periods Year # firms # employees Total Local Export Total Local Import
(Bill. birr) (%) (%) (Bill. birr) (%) (%)
2006 373 35,660 5.19 88.4 11.6 2.10 79.4 20.6
2007 381 36,049 5.75 96.0 4.0 1.89 76.2 23.8
PASDEP 2008 485 41,681 8.36 96.9 3.1 3.28 72.1 27.9
2009 548 44,957 11.02 97.5 2.5 4.68 68.9 31.1
2010 572 60,110 15.58 98.2 1.8 6.86 75.2 24.8
Average 472 43,691 9.18 96.4 3.6 3.76 73.6 26.4
2011 686 67,072 22.31 94.5 5.5 9.00 73.3 26.7
2012 640 54,492 NA NA NA NA NA NA
GTP I1
2013 687 52,441 36.77 95.6 4.4 18.73 63.4 36.6
2014 753 55,970 42.56 96.4 3.6 20.30 64.6 35.4
Average 692 57,494 33.88 95.7 4.3 16.01 65.8 34.2
1
Excluding data of 2015
Source: A serious of CSA publications, own calculations

According to CSA (2014) manufacturing industry survey report, there are 753 medium and large
sized agro-food processing firms in Ethiopia in the year 2014 comprising 13 subsectors (Table 8).
However, only the two subsectors (grain millers and bakeries) are the dominant ones in the AFPI
over the last three development plans of the country (SDPRP, PASDEP and GTP). The share of
these two subsectors in terms of the number of firms in the country over these three planning
periods (2003-2015) is more than 65%. This implies that the diversification of processed foods in
Ethiopia is very limited, which in turn affects negatively the country‟s opportunities to which it
could have comparative advantage for exploiting an increased demand of both local and global
markets for various food products, especially for highly valued fruit and vegetable ones.

57
Table 8: Number & share of existing large and medium food & beverage firms over last 3 plan periods, Ethiopia

Food & beverage firms Base year-2002 SDPRP-2005 PASDEP-2010 GTP-2014

# % # % # % # %
Meat, fruit &vegetables 9 3 7 2 10 2 41 5
Vegetable & animal oils & fats 30 11 26 7 36 6 35 5
Dairy products 2 1 3 1 35 6 16 2
Grain mill products 60 21 74 20 174 30 275 37
Prepared animal feeds 3 1 5 1 7 1 7 1
Bakery products 124 44 192 52 199 35 212 28
Sugar & sugar confectionery 12 4 10 3 21 4 21 3
Macaroni & spaghetti 3 1 7 2 16 3 18 2
Food products n.e.c. 9 3 11 3 13 2 31 4
Distil-rectify-blending of spirits 11 4 14 4 15 3 14 2
Wines 1 0 2 1 2 0 7 1
Malt liquors and malt 7 2 7 2 7 1 9 1
Soft drinks & mineral waters 11 4 12 3 37 6 67 9
Total number of firms 282 100 370 100 572 100 753 100
Growth of firms (%) - 31.2 54.6 31.6
Source: A serious of CSA publications, own calculations
3.3 Future Directions of Agro-Food Industrialization
Vision 2025 envisages that Ethiopia shall become a middle income country with its society
leading a better quality of life by the year 2025 and that agro-food industrialization shall be given
due attention in achieving such a vision. For the achievement of this long term vision in general
and the objectives of the GTP II medium term plan in particular, the manufacturing sector
especially the agro-food subsector is expected to play a prominent role. Compared to the current
model middle income countries (MMIC), the current (annual average of the first four years of
GTP I period) 12.3 and 4.2 % contribution of the industry sector and manufacturing sector to
GDP of Ethiopia has to grow stepwise to 30.7 and 17% respectively; and the agro-processing
sector is expected to take the largest share (6.7%) of contribution of the manufacturing sector to
GDP (Table 9). In other words, in order for the manufacturing sector to achieve a share of 55.4%
of industrial sector GDP, the agro-food processing sector is expected to share at least 39.4% of
the manufacturing value added (MVA) of the country (Table 10). The contribution of the
industry sector to total employment of the country has to grow from the current 5 to 20.5% by
2025. The manufacturing industry is expected to contribute 780 thousands of the total
employment in the same period. Of which AFPI will contribute to 37% of the manufacturing
sector job opportunities.

58
Table 9: Estimated percentage share of each industry sector to GDP of the country over the plan period

2015* 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Industry category base

Industry sector (IS) 12.3 13.7 14.1 14.7 15.5 16.6 18.1 20.0 22.6 26.1 30.7
Manufacturing industry (MI) 4.2 6.6 7.1 7.7 8.4 9.2 10.3 11.5 13.0 14.8 17.0
LM Scale MI 2.9 4.2 4.4 4.8 5.2 5.8 6.4 7.2 8.2 9.5 11.0
SM scale MI 1.3 2.5 2.6 2.9 3.1 3.5 3.8 4.2 4.7 5.3 6.0
Agro-food industry (AFI) 1.5 3.7 3.9 4.2 4.4 4.7 5.0 5.4 5.8 6.2 6.7
LM Scale AFI 1.1 2.2 2.3 2.5 2.7 2.9 3.1 3.4 3.7 4.0 4.4
SM scale AFI 0.5 1.5 1.6 1.7 1.7 1.8 1.9 2.0 2.1 2.2 2.3
* The annual average share of each industry over the first four years of GTP I
Source: A series of NBE and CSA publications to estimate the base and own estimations
The country has to design different development policies, strategies and programs with the main
ambition of becoming one of the middle income countries by 2025. At this time since the
manufacturing sector is considered as a driver of the economy, it is planned to grow more than
55% of the industry sector contributing towards the achievement of vision 2025 (Table 10).
Table 10: Estimated percentage share of each manufacturing category to industry sector's GDP plan period

Manufacturing 2015* 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
category base
MI to IS GDP 34.5 48.4 50.3 52.2 54.0 55.6 56.8 57.5 57.5 56.8 55.4
LM MI to IS GDP 23.8 30.5 31.5 32.6 33.7 34.8 35.6 36.2 36.5 36.4 35.8
SM MI to IS GDP 10.6 18.0 18.8 19.6 20.3 20.8 21.2 21.2 21.0 20.4 19.5
AFPI to IS GDP 12.5 27.3 27.9 28.3 28.5 28.4 27.9 26.9 25.6 23.8 21.8
LM AFI to IS GDP 8.6 16.1 16.6 17.0 17.3 17.4 17.3 17.0 16.3 15.4 14.3
SM AFPI to IS GDP 3.8 11.2 11.3 11.3 11.2 11.0 10.5 10.0 9.3 8.4 7.5
AFPI to MI GDP 36.2 56.3 55.5 54.3 52.8 51.1 49.1 46.9 44.5 42.0 39.4
LM AFPI to MI GDP 25.2 33.2 33.0 32.6 32.1 31.4 30.5 29.5 28.4 27.2 25.9
SM AFPI to MI GDP 11.1 23.1 22.5 21.7 20.8 19.7 18.6 17.4 16.1 14.8 13.5
* The annual average share of each manufacturing category over the last four years of GTP I
In achieving this vision, the AFPI is required to grow at least 16% on average per annum over
the plan period in order to meet 6.7% and 39.4% contribution to the overall real GDP and MVA
of the country respectively. Thus, the industry sector and the manufacturing sector respectively
have to grow on average 34 and 29% annually. This will in turn increase the employment
opportunities and the foreign exchange earnings of the country by 17.9 and 13.1% respectively
per annum. Achievement of this will however require the implementation of 566 additional
AFPFs with 10 main categories (Table 11) together with improving capacity utilization (through

59
 usage rate improvement and technology upgrading) of existing AFPFs at least to 95 from 68 %
by 2025.
Table 11: Production volume and number of new AFPFs proposed to be established in Ethiopia over
2016-2025 by subsectors
No. Agro-food industry subsectors Production Production capacity Number of firms
volume (tons) (tons/firm)
Large Medium Large Medium Total
1 Honey and honey-wine processing 38,448 1,044 522 15 44 59
2 Roasted & roasted-ground coffee 7,140 - 4,176 - 2 2
manufacturing
3 Fruit & vegetable products manufacturing
3.1 Potato chips manufacturing 51,846 - 2,570 20 20
3.2 Frozen French fries manufacturing 414,770 - 48,960 8 8
3.4 Potato flour manufacturing 51,846 - 3,060 17 17
3.5 Pack-house value added F &V production 395,724 30,600 13 - 13
3.6 F &V Juice manufacturing 84798 7,650 3,825 4 13 17
3.7 F &V concentrate manufacturing 84798 7,000 4,000 6 15 21
4 Flour and pasta manufacturing
4.1 Wheat flour manufacturing 1,881,300 49,800 29,880 23 25 48
4.2 Pasta manufacturing 806,272 14,940 7,470 32 43 75
5 Edible oil manufacturing 608,079 24,600 12,300 10 30 40
6 Tef based products manufacturing
6.1 Injera 142520 - 1,566 - 91 91
6.2 Injera crumb 142520 - 3,132 - 46 46
6.3 Teff flour 665092 - 313,200 - 2 2
7 Meat processing 147,100 18,207 10,404 3 8 11
8 Maize processing
8.1 Maize starch & germ oil 1,692,979 130,500 13 - 13
8.2 Corn flakes 188,109 - 12,528 - 15 15
9 Dairy products manufacturing
9.1 Pasteurized & UHT milk manufacturing (HL) 2,834,831 129,000 77,400 9 22 31
9.2 Cheese, yogurt & butter manufacturing (HL) 217,416 18,576 9,288 5 14 19
9.3 Milk powder manufacturing 217,416 15,480 - 14 - 14
10 Malt manufacturing 158,077 35,640 - 4 - 4
Total 10,831,081 151 415 566

In order to produce an additional volume of about 11 million tons of manufacturing value added
over the plan period by the newly established 566 (151 large and 415 medium) agro-food
processing firms, there needs to be a marketable surplus of at least 17.2 million tons of
agricultural raw materials (see details in Table 12) that would be only supplied to these newly

60
established firms during the planning period. This implies that on average 1.72 million tons of
raw materials will be needed annually to produce 1.1 million tons of agro-processed food,
besides existing firms.

Table 12: Volume of raw materials needed for the new AFPFs by subsectors over the plan period, Ethiopia

Agricultural raw
Agricultural material needed
No. Agro-food industry subsectors raw material (ton/firm)
needed (tons)
Large Medium
1 Honey and honey wine processing 40,050 1,088 544
2 Roasted & roasted-ground coffee manufacturing 49,930 - 29,203
3 Fruit & vegetable products manufacturing
3.1 Potato chips manufacturing 185,165 - 9,180
3.2 Frozen French fries manufacturing 829,539 - 97,920
3.4 Potato flour manufacturing 235,665 - 13,909
3.5 Pack-house value added F &V production 395,724 30,600 -
3.6 F &V Juice manufacturing 169596 15,300 7,650
3.7 F &V concentrate manufacturing 217431 15,256 8,718
4 Flour and pasta manufacturing
4.1 Wheat flour manufacturing 2,508,401 66,400 39,840
4.2 Pasta manufacturing 1,075,029 19,920 9,960
5 Edible oil manufacturing 1,737,369 70,286 35,143
6 Tef based products manufacturing
6.1 Injera 114016 - 1,566
6.2 Injera crumb 142520 - 3,132
6.3 Teff flour 665092 - 313,200
7 Meat processing 294,200 36,414 20,808
8 Maize processing
8.1 Maize starch & germ oil 2,821,632 217,500 -
8.2 Corn flakes 268,727 - 17,897
9 Dairy products manufacturing
9.1 Pasteurized & UHT milk manufacturing (HL) 2,834,831 129,000 77,400
9.2 Cheese, yogurt & butter manufacturing (HL) 724,720 61,920 30,960
9.3 Milk powder manufacturing 1,672,431 119,077 -
10 Malt manufacturing 210,769 47,520 -
Total 17,192,835

Table 13 indicated the distribution of these newly proposed firms that need to be established
across the planning periods as follows.

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 Table 13: Distribution (in number) of the newly proposed AFPI establishments over the plan period

No Existing AFP firms Total 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
1 Honey and honey wine processing: Large 15 1 2 2 2 2 2 2 1 1
Medium 44 2 5 5 5 5 5 5 4 4 4
2 Roasted/ roasted-ground coffee manufacturing 2 1 1
3 Fruit & vegetable products manufacturing
3.1 Potato chips manufacturing 20 1 1 2 2 3 3 3 2 2 1
3.2 Frozen French fries manufacturing 8 1 1 1 1 1 1 1 1
3.4 Potato flour manufacturing 17 1 1 2 2 2 2 2 2 2 1
3.5 Pack-house value added F &V manufacturing 13 1 1 2 1 2 2 1 1 2
3.6 F &V Juice manufacturing: Large 4 1 1 1 1
Medium 13 1 1 1 1 2 2 2 1 1 1
3.7 F &V concentrate manufacturing: Large 6 1 1 1 1 2
Medium 15 1 1 2 1 2 2 2 2 1 1
4 Flour and pasta manufacturing
4.1 Wheat flour manufacturing: Large 23 2 2 2 3 2 3 3 2 2 2
Medium 25 2 2 2 2 3 2 3 3 3 3
4.2 Pasta manufacturing: Large 32 2 2 3 3 4 4 4 4 3 3
Medium 43 3 3 3 4 5 5 5 5 5 5
5 Edible oil manufacturing: Large 10 1 1 1 1 1 1 1 1 1 1
Medium 30 3 3 3 3 3 3 3 3 3 3
6 Tef based products manufacturing
6.1 Injera manufacturing 91 9 9 9 9 9 10 9 9 9 9
6.2 Injera crumb manufacturing 46 4 4 4 4 5 5 5 5 5 5
6.3 Teff flour manufacturing 2 1 1
7 Meat processing: Large 3 1 1 1
Medium 8 1 1 1 1 1 1 1 1
8 Maize processing
8.1 Maize starch & germ oil 13 1 1 1 1 1 1 1 2 2 2
8.2 Corn flakes 15 1 1 2 2 2 2 2 1 1 1
9 Dairy products manufacturing
9.1 Pasteurized & UHT milk manufacturing: Large 9 1 1 1 1 1 1 1 1 1
Medium 22 2 2 2 2 2 2 2 2 3 3
9.2 Cheese, yogurt & butter manufacturing: Large 5 1 1 1 1 1
Medium 14 1 1 1 1 1 1 2 2 2 2
9.3 Milk powder manufacturing 14 1 1 1 1 1 1 2 2 2 2
10 Malt manufacturing 4 1 1 1 1
Total 566 38 50 55 57 61 66 66 62 56 55

62
3.4 Linkage between Industrial and National Development Policies and Strategies
The major economic/national development policies and strategies are reviewed and the path for
the industrial development in the current context will be envisaged in order to elucidate the scope
of the AFPI Development Policy and Strategic Plan of Ethiopia in relation to the overall national
policy framework.

Industrial development in Ethiopia is still at infancy stage and has a narrow base. Its linkage with
the agricultural sector is also weak. Nevertheless, due to an array of reforms and the opening up
of the economy and the creation of conducive investment environments, a steady growth of
industrial sector has been registered in the past years.

From the existing realities of Ethiopia, it is obvious that there is an acute scarcity of capital in it.
In contrast, a country is endowed with a large number of working age population and a
potentially cultivable land although land is still relatively scarce in some parts of the country,
particularly the northern and central high lands. It is believed that faster growth and hence
economic development could not be realized unless the country adopts a strategy that help raise
extensive utilization of labor resources and enhance productivity of land resources aimed at
capital accumulation. Pursuing a development strategy that does not make extensive use of the
human power and intensive use of the land resources forfeits the considerable contribution that
these resources could make to growth and capital accumulation.

With this intention the country has devised Agriculture Development-Led Industrialization
(ADLI) as a long-term strategy since 1990s to achieve faster growth and economic development
by making use of technologies that are labor intensive, but land augmenting (such as fertilizer,
improved seeds and other cultural practices). During the first stage of ADLI, agriculture is to
play a leading role in the growth of the economy. But the extremely small ratio of urbanization
of the country made inadequacy of domestic demand for agricultural products as a critical
constraint. This implies that agriculture has to be made internationally competitive, and that part
of its production has to be oriented towards exports.

For agriculture continues to serve as an engine of growth and repercussion effect on other
economic sectors (say, industrial sectors) in the coming years, there has to be progress in terms
of commercialization with more intensive farming and increasing proportion of marketable

63
outputs. This will create opportunities for industries to get their inputs partly or fully from the
agricultural sector domestically, and agriculture in turn will increase the demand for industrial
products.

The accelerated and sustainable growth in agriculture therefore leads to increased quantity and
quality of agro-industrial raw materials supplied (forward production linkage) to the industrial
and export sector. This will increase the demand for agricultural products, the income and the
standards of living of farmers, which in turn encourage farmers to use improved technologies
such as fertilizer, improved seeds and farm implements (backward production linkages). The
increased income of farmers leads to increased demand for consumer goods and services
(industrial products) and thereby promotes industrialization. These linkages will lay the
foundation for accelerated and sustainable growth in the agriculture, industry and trade sectors.
The rationale for adopting and implementing the rural and agricultural-centered development
strategy has thus emanated from this basic principle.

Unless industry and service sectors grow in conjunction with agriculture sectors, it is not
possible to ensure accelerated growth and sustainable development of the economy. In an
agrarian economy like Ethiopia, the resources for the development of industry sector need to be
generated via primarily creating strong bondages between agriculture and industry, and
subsequently exploiting these linkages via the concerted efforts of the private sectors. In this
regard, the government had recognized the key role of the private sector that plays directly in the
production, processing and marketing of agricultural products. The government would then make
every effort to enhance and strengthen the contribution of the private sector (domestic and
foreign) in the agricultural and industrial development endeavors.

Industrial development strategy of Ethiopia

Ethiopia‟s development goals are laid down in the Plan for Accelerated and Sustained
Development to End Poverty (PASDEP) and its industrialization goals are set out in the
Industrial Development Strategy (IDS). PASDEP is the country‟s second poverty reduction
strategy paper, drafted for the five years period 2005/06-2009/10, next to Sustainable
Development for Poverty Reduction Program (SDPRP), 2002/03-2004/05. It has a much more
explicit focus on private sector development, competitiveness and growth than its predecessor.

64
The Industrial Development Strategy (IDS), which was approved in 2002, is regarded as the
country‟s first-ever comprehensive IDS. It recognizes the need for deep institutional reforms of
the national institutional system, which is characterized as non-transparent, bureaucratic, anti-
democratic, etc. The plan spells out how “developmental” enterprises are to be supported.

Consequently, a number of tangible institutional changes have been implemented, including the
establishment of new (or strengthening of existing) specialized capacity building and technology
institutes for some subsectors (leather and leather products, textile and apparel, sugar industry,
metal, dairy and meat, horticulture), and the elaboration of a detailed sector strategy for the
leather industry (Zerihun, 2008). Ambitious reforms have been initiated in complementary areas,
for e.g. to overhaul the TVET system. Likewise, the annual intake capacity of higher education
has increased strongly to 48,053, bringing the total number of students in universities to over
180,000 in 2006/07 (MoTI, 2009).

The IDS mentions a few general principles, including: the role of private sector as an engine of
growth; the importance of state leadership to challenge and support developmental firms; and the
need to build on both foreign and domestic investors. Furthermore, it specifies priority areas for
selective interventions that favor certain sectors over others.

The Ethiopian government has demonstrated impressive dedication and ability to create the
preconditions for a market-based and socially inclusive industrial transformation. It is strongly
committed to investing in technological learning in order to build new competitive advantages.
This becomes evident in ambitious programs to strengthen the Technical and Vocational
Education System and to set up new universities as well as supporting institutions for specific
sectors, e.g. for textile, leather and horticultural products. The government has also defined
priorities for diversification and industrial development. ADLI and export promotion play a key
role in its strategy.

The underlying objective of IDS is to increase the benefits earned from economic integration
with an ultimate goal of becoming an industrialized country. This involves strengthening of
inter-sectoral linkages on the domestic front and through exploiting the potentials and
opportunities of regional and global economic integration. The rural-centered ADLI within the
framework of a free market economy is the principal driving force of the strategy.

65
The IDS forwards the following measures need to be taken by various key stakeholders
particularly by the government: creating conducive environment for industrial development and
investment, and provide direct support and guidance to strategic sectors such as textile and
garment industries; meat, leather and leather product industries; other agro-processing industries;
construction industry; and micro and small enterprises (MSEs). The IDS was generally designed
with the objectives of enabling all industries to utilize their full capacity, establishing and
expanding industries that are labor intensive and use local raw materials; strengthening the
participation of the private sector in the development process; and increasing the industrial
sector's share of GDP, employment generation and foreign exchange earnings.

Sustainable development for poverty reduction program (SDPRP)

Sustained economic growth and employment generation is necessary for poverty reduction and
require enhanced private sector investment resulting in economic growth, reduction in poverty
and improved quality of life for the majority of the population. Private initiative, unleashed in
competitive markets, is key to promoting growth and poverty reduction in parallel with public
sector efforts. It also mentioned investment climate, investment finance, infrastructure, input and
output markets, and institutions that run and support the system are the most important factors
that need to be developed further for enhancing the domestic private sector to be more
competitive to capture the opportunities in the global arena.

It also suggests the private sectors to involve in the productive sectors (agriculture and
manufacturing), human resource development (education and health) and infrastructure
development (construction, telecommunication and power generation). In an attempt to create
enabling environment for private sector participation, the government will help fostering
establishment of industrial associations; encourage private entrepreneurs establishing industrial
estates; promote public-private partnership; establish permanent exhibition centers; improve the
functioning of urban land lease markets; and remove and amend regulatory impediments to
private sector development.

The manufacturing sector in Ethiopia operates at very low technological level well behind world
technological standards even in the activities in which it specializes. Imports of licensed
technologies are negligible with no sign of increase. This may not be unusual in less

66
industrialized countries. However, increasing exports of manufacturing products cannot be
achieved without rapid introduction of modern technologies at least for those industries of
comparative advantage aiming to produce for exports.

The various policy reform measures taken during the 1990s brought about increases in the
number of manufacturing enterprises and gross value of production. However, the manufacturing
sector is still at its infancy and has a number of problems hindering meaningful growth. During
the period 1991/92 to 1998/99 the contributions of the sector to GDP and export earnings were
on average about 6.2% and 6.5% respectively. In 1998/99, the sector‟s foreign exchange earning
covered only about 18% of its own requirements. The average annual imported input utilization
for medium and large manufacturing enterprises during the above period was about 46% of their
total input requirement.

Most of the enterprises are of the import substitution type and use old technology, low level of
skill and management. The market liberalization in the early 1990‟s resulted in unfavorable
competitive conditions as a result of imports of manufactured goods. Average capacity
utilization fell to 60%. Considering the importance of manufacturing sector to the success of
ADLI and the strategy for poverty reduction, the government has designed short-to-medium term
programs to implement a comprehensive capacity building program to improve competitiveness
by enhancing private sector institutions, human resource inputs, research and development, and
the introduction of different schemes for capacity building.

The government would also look into other areas, which are relevant for the growth of the
manufacturing sector such as the introduction of incentive mechanisms for resource-based
industries engaged in the export sector. This can include the modernization of the technological
base through transfer arrangements, provision of credit, the establishment of industrial estates
and other support schemes.

Plan for Accelerated and Sustained Development to End Poverty (PASDEP)

The development policies and strategies pursued during the three years SDPRP together with the
vision expressed in and the achievements realized by the SDPRP, were the foundation for the
design of the PASDEP. The PASDEP was implemented during the five years period 2005/06-
2009/10. It was prepared based on MDG targets and the government‟s vision for Ethiopia‟s

67
development. Its main objectives were ensuring accelerated, sustained and broad based economic
development as well as preparing the ground for the full achievement of Ethiopia‟s MDG targets
by 2015. In achieving these objectives, the PASDEP was built on with the following eight
strategic pillars, such as: (1) building all-inclusive implementation capacity; (2) a massive push
to accelerate economic growth; (3) creating the balance between economic development and
population growth; (4) unleashing the potentials of Ethiopian‟s women; (5) strengthening the
infrastructural ground of the country; (6) strengthening human development; (7) managing risk
and volatility; and (8) creating employment opportunities.

The target set for the industrial sector during PASDEP period is to register an average annual
growth rate of 11.5% and thereby increase the sector's share in overall GDP from 13.6% in
2004/05 to 16.5% by the end of 2009/10. During this plan period, the country actually registered
a remarkable average annual growth rate of 11% and a rise in the share of the industrial sector to
the overall GDP of the nation to 10.6% at the last year of the plan period.

Growth and Transformation Plan (GTP)

On the basis of the experiences gained from the implementation and achievements of SDPRP
and PASDEP together with the national vision (being a middle income country by 2025), GTP
has been formulated and adopted as the national development planning document of the country
for the period 2010/11-2014/15. It was generally aimed at sustaining broad based, fast and
equitable economic growth so as to eradicate poverty and with the specific objectives of
maintaining at least an average real GDP growth rate of 11% and attaining MDGs; expanding
and ensuring the qualities of education and health services and achieving MDGs in the social
sector; establishing suitable conditions for sustainable nation building; and ensuring the
suitability of growth by realizing all the above objectives within a stable macroeconomic
framework. In achieving these objectives, the GTP was built on with seven strategic pillars,
including: (1) sustaining rapid and equitable economic growth; (2) maintaining agriculture as
major source of economic growth; (3) creating conditions for the industry to play key role in the
economy: (4) enhancing expansion and quality of infrastructure development; (5) enhancing
expansion and quality of social development; (6) building capacity and deepen good governance;
and (7) promote gender and youth empowerment and equity.

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In the GTP, the industrial sector is expected to receive the highest level support for export
oriented and import substituting industries, with a particular emphasis on strengthening small
and micro enterprises (SMEs), as they are the foundation for the establishment and expansion of
medium and large scale industries, and open opportunities for employment generation, expansion
of urban development and provide close support for further agricultural development. The role of
SMEs play in scaling up agricultural sector productivity is irrefutable and for this reason
appropriate support will be provided to strengthen vertical and horizontal linkages between
agriculture and industry.

The growth of SMEs and their interaction with TVET system development will be instrumental
in providing the necessary skills and education for technological transfer. This is an important
part of the effort to support SMEs, as in the provision of capital for SMEs‟ operations through
saving and credit institutions in a more transparent and accountable manner. To solve the
production facility problems of SMEs and those linked to identifying market opportunities,
efforts will be made by regions and city administrations to provide production and marketing
facilities at an affordable cost. Entrepreneurial as well as saving attitudes and behaviors will be
widely promoted among micro and small business operators in particular and among the public
in general.

Major support will also be given to establish and expand medium and large scale industries. It is
believed that these industries will encourage technological transfer, bridge the link between
SMEs and improve the competitiveness of domestic resource based large-scale industries.
Medium and large-scale industries will also serve well the domestic market and produce value-
added products for the export market. Measures to support selected strategic import substituting
industries, both within the public and private domain will be strengthened and this will help the
foreign exchange earnings and lay the basis for more rapid industrial development.

The GTP seeks to transform the economy from a predominantly agrarian to an industrialized
economy and to increase per capita income of its citizens to middle income levels by 2025. It is
the basic policy document that provides the medium-term policy and strategic framework that
guides the country‟s efforts towards accelerating economic growth and employment creation
from 2010/11 to 2014/15. In doing so, the GTP used two alternative economic growth scenarios:
the base case and the high case scenarios. The base case scenario suggests, in the GTP period,

69
the average growth rate of real GDP of the country is 11.2%, that was achieved in the PASDEP
period should at least be maintained. On the other hand, the high case scenario assumes the
growth rate of the real GDP to be 14.9%, and the GDP and the agricultural value added achieved
in 2009/10 would be doubled by 2014/15 (end of GTP period). In the first four years of the plan
period, the country achieved its plan closer to the base case scenario, with an average of 10.1%
real GDP growth, 1.5 folds of agricultural value added and more than 2 and 1.5 folds of
industrial and manufacturing value added respectively.

4. Comparative Advantages and Competitiveness of Ethiopia in AFPI

4.1 Resource Endowments of the Country for AFPI Development

Ethiopia is 110.43 million hectare in terms of total area of which the 100 million hectare
(90.55%) is land area. The agriculture area of the country has increased from 30.5 million
hectares to that of 36.5 million during the course from 2002 up to 2012. The arable land during
2002 was 9.9 million hectare and has grown stepwise to 15.4 million hectares in 2012
(FAOSTAT). The country has an arable land potential of up to 70 million hectares (Awlachew,
2010). The current irrigation scheme is estimated to cover about 640 thousand hectares, which
based on the current arable land area takes only 4-5% share. It is estimated that the country
possesses a potential irrigable land area of 5.3 million hectares given that modern technology and
all potential forms of water resources are used.

Ethiopia is known for its climatic heterogeneity caused by its being near to the equator and with
an extensive altitude range that in turn enables the country possess a wide range of climatic
features suitable for different agricultural production systems. According to FAO (1983), middle
and higher altitude areas (and lowlands in the west) receive greater rainfalls than do lowlands,
exhibited by the 900 mm average annual rainfall for the former and the erratic and 600 mm
average rainfall for the latter areas of altitude category. There is strong inter-annual variability of
rainfall all over the country. Despite variable rainfall which makes agricultural planning difficult,
a substantial proportion of the country gets enough rain for rain fed crop production (FAO,
1984b).

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Across the drought- and famine-prone areas of northern and central Ethiopia there is a bimodal
distribution of rainfall and cropping is usually restricted to the period of the main rains which
occur during June to September. Although the short rains falling between February and May
generally do not provide enough moisture to support a crop, they are important because it is
during this period that much of the land preparation and cultivation takes place. Historically,
severe famine periods have been associated with a sequence of two or more years in which the
short rains failed and the resultant main-season growing periods were either marginal or so short
that crop failure was inevitable. Among all crops grown in the country, grains are the most
important field crops occupying about 90.5 % percent of the area planted during the period.

As can be seen from annex 4, increasing trend of production and productivity of cereal grains is
witnessed. This is due to many reasons including the fact that substantial attention has been
given to pre-harvest aspects such as increase of area of cultivation, improved varieties and input
utilization, farming practices, access to irrigation schemes, training and skill of farmers and
agricultural extension workers. Despite this increase in production and productivity, most
smallholder farmers are still not benefiting from their hard job to better their livelihood at the
targeted level mainly owing to sharp fall in the price during glut production, shortage of
knowledge, skill and resources to prolong product shelf life, and lack of value added processing
facilities.

Production and productivity of cereal grains has consistently increased from 2000 to 2014. In 2014,
cereal crops in general have covered 10.2 million hectares to result in a production volume of 23.6
million tons at an average per hectare yield of 23.3 quintals. The steady increase in production and
productivity of cereal grains is reminiscent of the government‟s strong attention towards ensuring
food security in the country.

The focus of the NARS and NAES of the country was clearly on increasing production of staple
food crops targeting the alleviation of food security problems. The endeavor to reduce food
insecurity through maximizing staple crops production seems to have overshadowed the
importance of others that are already being utilized as industry inputs. Oilseeds are good
examples in this regard, as their production volume, area of cultivation and yield are not only
small but also inconsistent throughout years from 2000-2014 which is indicative of less attention
drawn towards them (Annex 4). In 2014, oil crops have covered a total of 999,521 hectares of

71
land (9.8% of cereals) to obtain 293,781 tons of oilseeds at an average yield of 2.94 quintals per
hectare.

While it is important to keep increasing production of cereals and other staple crops, achieving the
production potential without securing market could not be realized owing mostly to poor storability
characteristics of primary products and associated price reductions during glut times. Ethiopian
resources could be exploited for agricultural production to the level of potential if and only if
production is stimulated by easy and sustainable access to market.

The livestock potential the country possesses is very huge when expressed in terms of population
size which is steadily increasing over the years from 2000 to 2014 (Annex 4). Despite the
demonstrated conducive agro climatic condition existing in the country in support of production
of different species and breed of livestock, the economical benefit being obtained from the
subsector is meager when compared to potential. It is believed that livestock production is
mainly exercised targeting the supply of draught power for crop production in the highlands,
whereas prestige and social security are the predominant factors in the lowland pastoral areas
(Alemayehu, 2011). The fact that beef cattle are sold only during some traditional festivity and
when there is a need to generate income to meet unforeseen expenses, and as a last resort when
cattle are old or barren makes it difficult to source beef cattle at a reasonable price for production
of quality meat.

As can be seen from Annex2, the production of cattle meat did not significantly increase from
2000 to 2014 indicating the lower and stagnating off-take rate of cattle for local meat production
despite cattle population increased from 33 million to 54 million heads over the same period. On
the contrary, goat and sheep meat production increased sharply over the same period along with
its live animal counterpart indicating relatively better off-take rate than that of cattle. Still, the
yield of meat (in carcass weight per animal) remained low and the same from 2000 to 2013 to be
indicative of lack of attention given to the subsector to improve the situation through
multifaceted interventions.

Although the volume of cow‟s milk production has shown a slight increasing trend during the
period from 2000 to 2013, there was a significant decline in milk yield. A sharp increase in milk
yield was registered during the course of period from 2001 to 2005 to be followed by a steady

72
decline until 2013. A sharp and consistent increase in production of goat and sheep milk was
remarkable although the yield remained same over the same period. It is also worth to note that
there is an encouraging potential in camel milk production, which enables the production of milk
at the highest yield per annum compared to other milk producing livestock species (Annex 2).

The contributions of beekeeping in poverty reduction, sustainable development, and conservation

of natural resources have always been well recognized and emphasized. Ethiopia‟s current
number of beehives is more than 5.3 million which could make the country honey production
powerhouse of Africa provided that it is modernized and well managed to increase the quality
and productivity (Annex 3).

Huge natural resource endowments, proximity to Middle East and EU markets, availability of
cheap labor, access to process knowledge and skills, assurance and control of quality and safety,
etc are important factors that need to be exploited in order for the AFPI be competitive in local
and especially in the international market. An important factor of competitiveness of AFPI,
especially nowadays when liberalization of trade is playing a critical role, is proper functioning
of logistics services. Logistic services include activities required for the transportation, storage
and handling of production inputs and finished products from producer to consumer, in
international trade. The ability of countries to deliver goods and services on time and at the
lowest possible cost is a key determinant of integration into the world economy today. Poor trade
logistics can cause long and uncertain delays which are not acceptable to most global buyers
especially in the time-sensitive commodities of AFPI.

Studies indicate that among other factors, Ethiopia‟s export competitiveness and the
development of the manufacturing industry is challenged by lower logistics productivity. An
important factor in the logistics productivity is trade costs which are assessed using the World
Bank Logistics Performance Index (LPI). Ethiopian logistics performance was compared with
countries from Africa, Asia and Latin America in addition to four regions of the world over the
years of 2007 to 2014. Its logistics performance indicates that there is a need to improve its
condition to achieve the set AFPI development output.

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4.2 Targeted Agro-Food Industry Subsectors

For agro-food industrialization efforts in Ethiopia to be successful, concerted efforts will be

directed at primarily promoting those agro-food industry subsectors that are competitive in
domestic and selected international markets and which are strategic to the achievement of
national development objectives. Such industry subsectors will be accorded the status of
„targeted or strategic agro-food industry subsectors‟ to encourage both public and private
investments in the agro-food industry.

In this strategy, targeted agro-food industry subsectors are defined as innovative subsectors to
be promoted based on comparative and competitive advantages of the country and which
contribute to attainment of the following objectives (1) fostering of complementarities or
enhancing collaborative production in the country, (2) large investments (domestic and FDI)
which may require pooling of resources to ensure that economies of scale are achieved, (3)
contributing to realization of backward and forward linkages in the value chains, (4) contributing
to foreign exchange earnings of the country, and (5) contributing to employment generation,.
These targeted subsectors are considered important for agro-food industry (AFI) development in
Ethiopia as they are expected to generate economic benefits which extend across the country
through the value chains.

In selecting AFPI subsectors to promote, market size and efficiency was taken into account
because they are inter-related. For instance, firms are able to grow and to serve larger markets as
they become more efficient in exploiting their factor endowments through better management
and innovation, and as they benefit from low cost of doing business due to an improved business
environment. This agro-food industrialization strategy aims to achieve this goal by identifying
opportunities for upgrading, deepening and diversifying existing industries, and also promoting
new investments.

Through this analysis and consultations with stakeholders in the public and private sector
(AFPFs), a long list of target industry subsectors was prepared. The targeted national AFI
subsectors were subjected to further scrutiny, to establish their attractiveness and strategic
feasibility, using the framework developed by UNID (Figure 5) for identifying AFI development

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priorities. The framework used in this strategy for selecting targeted AFI subsectors is based on
two dimensions, namely attractiveness and feasibility.

Attractiveness of the subsector: The attractiveness score is computed from a weighted

average of the following: Potential impact on GDP growth and MVA (15%); Potential for
employment (10%); Potential for inclusive growth (5%); Potential for profitability and tax
collections (10%); Low environmental impact (15%); Modest investment requirements
(10%); Forward and backward linkages (15%); Strategic fit with country vision of the future
(10%); and Skill development impact (10%).

Feasibility of the subsector: The feasibility score is computed from a weighted average of
the following: Availability of competitive raw materials and inputs (20%); Technology
readiness (5%); Availability of adequate trained workforce (5%); Ease of doing business and
favorable macroeconomic conditions (15%); Infrastructure and energy quality and cost
impact (10%); Adequacy of policies and regulations (15%); Low competitive pressure
(15%); and Access to available markets, regional and export (15%).

Using the UNIDO framework (Figure 5), different AFI subsectors were assigned a score on
attractiveness and strategic feasibility, as illustrated in Table 14. For both parameters, each
industry subsector is assigned a score of between 1 and 10.

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Figure 5: UNIDO's Assessment Framework

Source: UNIDO (2010) as cited in UNICTAD (2011)

Table 14: Industry attractiveness and strategic feasibility

Agro-food industrial subsectors Total Total Average

No attractiveness feasibility
1 Honey processing (bulk, table) & honeywine 5.60 9.33 7.46
2 Coffee products manufacturing 5.70 8.05 6.88
2.1 Washed coffee manufacturing
2.2 Roasted coffee/roasted ground & vacuum packed coffee
manufacturing
3 Fruit & vegetable products manufacturing 6.33 7.16 6.75
3.1 Potato chips and frozen French fries & flour manufacturing
3.2 Pack-house value added fruit and vegetable production
3.3 Fruit & vegetable juice and concentrate manufacturing
4 Wheat flour and pasta manufacturing 7.24 5.43 6.33
5 Edible oil (including cold pressed/virgin) manufacturing 5.01 7.63 6.32
6 Teff based products manufacturing (Injera, Teff flour, Injera
crumb) 5.28 6.60 5.94
7 Meat Processing 5.31 6.55 5.93
8 Maize processing (edible oil, starch/flour, glucose & corn flakes) 5.95 4.63 5.29
9 Dairy products manufacturing 4.48 5.84 5.16
9.1 Pasteurized and UHT milk manufacturing
9.2 Cheese yogurt and butter manufacturing
9.3 Milk powder manufacturing
10 Malt manufacturing 4.83 5.03 4.93

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4.3 Profiles of targeted Agro-Food Industry subsectors

Based on the above analysis and broad consultation with stakeholders, 15 targeted agro-food
industrial sub-sectors/value chains have been selected as the ones with potential comparative
advantage of the country (Table 14).

4.3.1 Honey processing (bulk, table) & honey wine

Ethiopia has a huge natural resource base for honey production and other hive products, and
beekeeping is traditionally a well-established household activity in almost all parts of the
country. Beekeeping is environmentally friendly activity that can be integrated with agricultural
practices like crop production, animal husbandry, horticultural crops and conservation of natural
resources. Thus, it would be one of the most important intervention areas for sustainable
development of Ethiopia. The country is in a position to produce varieties of honey year round
owing to the diverse agro ecology and seasonal variation occurring across its different
geographical locations which in turn means that it is capable of exporting throughout a year. In
addition, most of its honey is characterized by inherent quality criteria of high international
acceptance. Existing honey processors are overwhelmed by a staggering volume of bulk honey
requested by importers which they are not in a position to satisfy due at the moment. The foreign
exchange earnings from this subsector is also planned to significantly increase not only by
increasing the volume but also the unit value of honey exported. Overcoming important
challenges and making use of exploitable potentials of the subsector during the plan period
would enable the country to increase its unit price and export volume to the level of potential.

4.3.2 Coffee products manufacturing

Washed coffee manufacturing

Coffee is the Ethiopia‟s leading foreign export earner commodity for years. The country‟s is
exporting its coffee in the form of unwashed (70%) while the rest is comprised of washed coffee.
Washed coffee is of high quality and acceptance in international market and hence brings better
value. The quality of coffee is scrutinized by three methods, namely physical, roast and cup
qualities. Washed coffee is considered premium by all these quality criteria. Unwashed coffee is

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produced by de-husking dried coffee berry to obtain unwashed green coffee. Natural unwashed
coffee is produced through carful picking of red coffee berry to dry it properly so as to protect it
from foreign odor and flavor. Thus, the quality of green coffee is generally grouped in to three,
namely unwashed, natural and washed when ordered in increasing quality. Washing is an
upstream value addition processing and through which premium quality green coffee is obtained.
Still, it is not practiced in Ethiopia fully as only 30% of the coffee export quantity is washed.
Value of green coffee can be enhanced through increasing the quantity of washed coffee
production through increasing washing facilities during the medium term.

Roasted coffee/roasted ground & vacuum packed coffee manufacturing

The growing benefit obtained from export of the high quality and reputable raw coffee could be
maximized through adding value to the green coffee. There is a deep gap between the profits
obtained by raw coffee producers and value adding international companies. It is reported that a
kilo of roasted Ethiopian coffee retails for as much as $40 in international markets. The currently
existing coffee roaster companies are not only little in number but also are not supported in using
the best quality coffee for their roasting operation. Our ownership of the best quality arabica
coffee is a big competitive advantage which other countries are making use of to blend the
quality into inferior coffees. We shall put in place necessary measures that would in turn enable
our value added coffee products penetrate the international market rather than lingering on green
coffee exporting as only option. Roasted and roasted-ground & vacuum packed coffee
processing are the missing downstream value chains in Ethiopia. This approach would enable the
country take full advantage of its world renowned arabica coffee.

4.3.3 Fruit & vegetable products manufacturing

Potato chips and frozen french fries, and potato flour manufacturing

Ethiopian average annual potato production was reported to be 4.6 million quintals over 2000-
2011, during which production quantity and yield (84 quintals per ha) were stagnating. However,
during the subsequent years (2012-2014), the annual average production was doubled to 8.6
Million quintals. Over the same period, yield has improved to 123.2 quintals per hectare
(FAOSTAT).

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Potato producing smallholder farmers are discouraged by the poor return they obtain from the
market which is at the moment very disorganized and being operated at high transaction cost.
The current only market outlet for the potato produce is the fresh produce market, and no value
addition is being exercised in the country let alone in the region near the farm gate. The price at
the fresh produce market fluctuates highly. These situations are deterring the effort to increase
primary production exerted by different stakeholders that are focusing solely on primary
production aspect. The obtained improvement in production and productivity could further be
maximized and sustained provided that the effort is exerted chain wide and targeting
modernization of market for smallholder inclusion. Perishability of potatoes is another problem
which aggravates the aforementioned marketing, production and productivity problems. Ones
harvested, potatoes start to deteriorate due to the high moisture content and inherent
physiological nature. Thus, in order to prolong its shelf life, appropriate storage and value added
processing is necessary.

Potato chips, frozen french fries and potato flour products that will be manufactured according to
a set quality standard to supply a brand of consistent quality and appealing packaging aesthetics
would stimulate further production and productivity enhancement, create more jobs and
contribute a great deal towards achieving the overall goal set for AFPI development.

Pack-house value added fruit and vegetable production

Pack-house value added fresh fruits and vegetables (washing, grading and packing operations
without change in form and shape), especially those that are of tropical origin and exotic to EU
and other temperate regions, are among the most favored agricultural commodities of those
western consumers. Fruits and vegetables are high value crops while only pack-house value
added owing to the fact that consumers prefer them intact. Careful handling, treatment and
packaging of the fruits and vegetables is required during the pack-house value added processing
of the fruits and vegetables in order to satisfy the needs of the importing countries.

According to CBI (2015), fresh fruit and vegetables are one of the most important categories in
European supermarkets. The Netherlands, the United Kingdom and Belgium are the leading
direct importers of fresh fruit and vegetables from developing countries. The total import volume
of fresh fruit and fresh vegetables from outside the EU remains stable at 11 million tons (almost

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€10 billion) and 2.1 million tons (€2.2 billion), respectively. The import of fresh fruit is largely
complemented by developing countries, while most vegetables are supplied by producers in the
EU or in neighboring countries. Fruit producers from developing countries therefore have better
chances of successful market entry than do suppliers of vegetables. Import growth is most clearly
seen in the increasing popularity of tropical products (e.g. avocados and mangos). Bananas
represent about 45% of the imported fruit from outside of the EU, followed by pineapples (8%),
oranges (7%) and grapes (5%).

Cognizant of the fact that Ethiopia possesses a great potential for diverse, exotic and high value
fruit and vegetable crops, the existence of wide international market for pack-house value added
fresh fruits and vegetables etc, are valid reasons for focusing on these high value crops.

Fruit and vegetables juice & concentrate manufacturing

Despite existence of great potential for production of diverse fruits and vegetables, there exist
few fruit and vegetable juices and concentrates manufacturing firms in the country. Those few
juice and concentrate manufacturers are not using the local raw materials for manufacture of
their products. They import concentrates to further dilute and bottle them into retail size targeting
local market. Local manufacture of the concentrates is a possibility to be exploited in the plan
period so as to ultimately export to regional market.

4.3.4 Wheat flour and pasta manufacturing

The wheat processing industry of Ethiopia is an agro-food industry subsector which is growing at
a very fast rate. There were about 50 wheat processing firms twenty years ago. Currently wheat
flour miller and pasta manufacturing firms are about 300 in number. The rate of mushrooming of
the milling industry together with the growing consumption trend of white flour and derived
products is far greater compared to the rate of growth of agricultural production of marketable
surplus of wheat. Overcoming the pressing challenges and bottlenecks of the wheat processing
industry would enable existing firms to operate at full capacity and upgrade, in addition to being
attractive to new investment so as it starts exporting after satisfying the local market. The
expansion of this industry is contributing its part towards alleviating the country‟s dependency
on staple crop of teff, which could fetch more export earnings as it has already entered into the

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attention of premium market consumers. Wheat milling is also a significant feed ingredient
supplier to concentrate feed producing firms implying its spillover effect to other subsectors.

4.3.5 Edible oil (including cold pressed/virgin) manufacturing

The edible oil sector is among the most disadvantaged subsectors as it is dealing with a raw
material that has been given little attention by the national research and extension system, and is
largely exported while the demand of the domestic oil milling industry remained largely
unsatisfied. On top of that, diverse and differentiated edible oil product manufacturing in the
country is not encouraged as the country‟s mandatory edible oil standard allows only
manufacturing of refined edible oil.

The current edible oil standard of Ethiopia doesn‟t recognize cold pressed and virgin edible oils
for which western market is paying premium price. The fact that refining is a must in Ethiopia at
all circumstances when trading with edible oil is not an international practice. In fact, cold
pressed/virgin oil has its own standard in developed countries and shall not be evaluated by the
standard of refined oil. Even when virgin niger oil was tested by the criteria of refined oil, it was
found to be competent enough indicating its superiority if evaluated by a virgin or cold pressed
edible oil standard. Cold pressed and virgin edible oils of Ethiopia are dubbed incorrectly as
„having negative health consequences‟ and „fail to fulfill Ethiopian standards‟. International
practices do not support such common myth believed naively by many rather than based on
evidences. Promoting such important edible oil process technologies would intern impart great
positive stimulation on the targeted Ethiopian industry transformation as it would encourage
many SMEs engaged in oil milling businesses provided that they have access to knowledge
based technical assistance and capacity building resources. The advantages of the edible oil
industry extends to supporting the livestock production sector through supplying high quality
feed ingredients which is one of the subsector‟s pressing constraints.

4.3.6 Teff based products manufacturing (Injera, Teff flour, Injera crumb)

Teff and teff products are foods for which Ethiopia accumulated indigenous knowledge that
could be exploited commercially at global level, especially in Europe, USA and Middle East. In
addition, the unique nature of total freedom from gluten of tef unlike other cereals, and the

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complex fermentation process of injera dough which is difficult to replicate elsewhere for its
complex microflora occurrence, made it very attractive worldwide. Tef possesses good
storability characteristics and unlike other cereal grains it is extremely less prone to post-harvest
losses. In fact, its value increases upon storage. It is also known for its healthiness owing to its
only whole grain based utilization. All these characteristics give us a good competitive
advantage.

4.3.7 Meat Processing

Ethiopia is known for its high population of livestock (cattle, sheep and goat) ranking 1st in
Africa. This huge resource remains untapped despite steady growth in international demand for
meat and meat products. Still the share of export earnings from formal livestock trade increased
significantly from 2000 (1.3 million USD) to 2013 (279 million USD) (FAOSTAT). The largest
share of export earnings obtained from this formal livestock export was represented by cattle
(81% in 2013). Although the foreign earnings obtained from export of total meat has shown a
steady increase in a similar fashion with that of livestock, it is much less compared to the total
earnings from livestock. The export of cattle meat was not only meager, it was also erratic over
the period from 2000 to 2013. On the other hand, goat and sheep meat has shown a significant
and consistent increase over the same period.

Through tackling the most crippling challenges the sector is facing, the country can increase its
market share from the increasing international demand for meat in such a way that more value is
added before exporting. In doing so, the livelihoods of many citizens would improve through
employing themselves in different engagements supporting the subsector.

4.3.8 Maize processing (edible oil, starch/flour, glucose & corn flakes)

Maize is a crop which the national agricultural research and extension system is boasting of to
have increased production and productivity. Continuous increase in production from 26.8 million
quintals in 2000 to 72.3 million quintals in 2014, and a significant increase in yield from 16.2
quintals per hectare in 2000 to that of 24.2 in 2014 (FAOSTAT) was among the most remarkable
achievements of the national agricultural research and extension system. However, it is reported
that this achievement is not reflected in the income of the producer smallholder due to the grain‟s

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limited storability and post harvest loss vulnerability, which in turn resulted in reduced price at
peak harvest time. On the other hand, the country is importing different processed maize
products such as starch, corn flakes, glucose, glucose solutions etc. The huge production
potential of maize in Ethiopia could make the country be competitive in both local and export
markets. Utilization of maize as industrial input would foster further increase in production and
productivity of the crop as well as effectively control its post harvest loss.

4.3.9 Dairy products manufacturing

Subject to setting up a mechanism to efficiently and sustainably collect appropriate quality milk
produced by smallholders living scattered in a milk shade area, improving access to proper feed,
health and breeding services, and supporting investment in the manufacture of shelf stable dairy
products in potential area, the country could be able to tap the huge potential it possesses and
become African hub of diverse dairy products. Ultra Heat Treated (UHT) milk, cheese and
yoghurt products, and milk powder will be among the selected AFP firms to be established in the
plan period. Ensuring consistent absorption of raw milk by collectors and processors irrespective
of season and milking time (morning/evening) would motivate smallholders, dairy cooperatives,
and new dairy farming entrants to produce more and increase their incomes.

4.3.10 Malt manufacturing

The beer industry is among the few industries that are operating in a competitive environment in
the domestic market. The expansion of beer brewing factories is increasing in response to the
increasing beer consumption trend. The major agricultural product used as input for this
important industry is malt barley. Breweries source only 50% of malt from local maltster and
they are importing annually about 35.1 thousand tones of malt having a value of circa 24 million
USD. The existence of conducive agro ecology for malt barley production would be of
paramount importance to support the development of brewing and malting industries in
capacitating malting industries to operate at full capacity, fully supply local breweries and start
exporting within the plan period.

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5. Benchmarking AFPI to Industrialization in the Global Context

The manufacturing and export performance of a country is influenced by such global factors as
globalization, technological change, regional integration and global competition, making global
comparisons more relevant to define a well suited AFPI development policy and strategy.
Identification of best practices for competitiveness of AFPI was found useful to determine
factors that led role model countries to achieve large share to GDP of manufacturing value added
with AFPI products being the major manufacturing activities.

This section therefore analyzes Ethiopian manufacturing and AFPI performance with other
economies selected based on such criteria as neighborhood in sharing similar geographical
advantage, being immediate competitor given similar factor endowments, being potential
competitor economies that are likely to pose competitive threat to our AFPI‟s comparative
advantage, and to learn best practices from role model economies. Based on such criteria and
using UNIDO‟s indicators (UNIDO, 2013), countries from different developmental stage with
food and beverage manufacturing taking the largest share of MVA were selected. In addition,
some of the MMICs that are listed in the Ethiopian Industrial Development Roadmap with Food
and Beverage manufacturing as their biggest share of the MVA were also identified and selected
as a comparator to our AFPI performance benchmarking. As a result, Thailand, Brazil,
Colombia, Costa Rica, Egypt, Morocco, Paraguay, Sri Lanka, Philippines, Kenya, and Tanzania
are used to benchmark our AFPI performance.

To benchmark our manufacturing and AFPI performance with the selected comparator
economies, UNIDO‟s Competitive Industrial Performance Index (CIP), statistical country briefs
from UNIDO website, and FAOSTAT production and trade statistics were used. Industrial
competitiveness is defined as the capacity of countries to increase their presence in international
and domestic markets whilst simultaneously developing industrial sectors and activities with
higher value added and technological content (UNIDO, 2013). Accordingly, basing on a
country‟s position on CIP index rank, which assesses industrial performance comprising of 8
different indicators of industrial performance, Ethiopia‟s and its comparator countries
manufacturing performances over 1990-2012 are as indicated in Annex 5.

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Ethiopia‟s steady GDP growth during the last two decades is well recognized, its performance
with regard to industrial and manufactured export capacity, industrialization intensity, and export
quality was however unimpressive so that it is positioned 140th out of 142 countries in the
UNIDO‟s CIP rank in 2012. This signifies the fact that there is plenty of room for improvement
and is time to accelerate the slow catch up process which is indicated by a 3 point rank
improvement from 1990 to 2012. Over the same period, Viet Nam‟s leapfrogging of 39 positions
in the CIP ranking was quiet impressive compared among the selected comparator countries.

Ethiopian MVA has grown significantly over the last decade (544 million USD in 2005 to
1350.3 Million USD in 2014). Still, the level of industrialization adjusted for population size
(MVApc) is the least (14 USD) among countries selected to benchmark its performance.
Ethiopia‟s weak performance of manufacturing industry is not only exhibited by its lowest share
to the GDP but also by its poor international market participation and competitiveness as
indicated by the meager share of manufactured export (Annex 6).

Indicators show however that Ethiopia is in a pole position to benefit from its catch up process to
improve competitiveness and international market presence as it can build on the already
functioning AFPI which takes biggest share of the MVA of the country. Addressing bottlenecks
and challenges of the existing AFPI, exploiting geographical advantage for market proximity
coupled with the availability of ample labor at a competitive cost could bring about significant
contribution towards economic structural change and achieving vision 2025. The fact that
Ethiopia has the lowest labor cost and share of wage to Food and Beverage MVA, among others,
can be exploited to attract manufactured export oriented FDI in the AFPI sub sector.

Ethiopian potential to year round availability of honey, for instance, could make the country a
world hub of good quality product and becomes among the major export earning commodities of
the country. Compared to comparator countries, Ethiopian honey export phenomenon is a recent
experience surpassing only Tanzania in terms of export value obtained during 2013 (Table 15).
China, Argentina, and Germany are countries that are performing well in export earnings from
honey and managed to maintain steady growth over the years from 2000 up to 2013.

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 Table 15: Export value of honey in millions USD over 2000-2013

Year Brazil Egypt Thailand Tanzania China Germany Argentina Ethiopia

2000 0.3 0.2 1.5 0.2 84.1 38.6 87.2 0.0
2005 18.9 0.4 3.4 0.4 87.6 77.9 128.5 0.0
2010 55.0 - 11.8 0.9 182.5 110.0 173.4 2.1
2013 54.1 3.3 24.0 0.4 246.5 125.0 212.6 2.3
Source: FAOSTAT, own compilation
As can be seen from Table 16, Ethiopia is rich in beehive colony stock, next to only china among
the comparator countries. Still, this big number of beehives is not reflected in the country‟s
honey production volume which is indicative of poor productivity.

Table 16: Number of beehive stock and annual honey production of Ethiopia and comparator countries over
2000-2013

Brazil Egypt Tanzania China Germany Argentina Ethiopia

Honey Honey Honey Honey Honey Honey Honey
Beehive prodn Beehive prodn Beehive prodn Beehive prodn Beehive prodn Beehive prodn Beehive prodn
stock ('000 stock ('000 stock ('000 stock ('000 stock ('000 stock ('000 stock ('000
(million) tons) (million) tons) (million) tons) (million) tons) (million) tons) (million) tons) (million) tons)
2000 0.8 21.9 1.4 8.3 2.6 26.0 7.4 246.0 0.9 20.4 2.8 93.0 3.2 29.0
2005 0.9 33.8 1.5 8.5 2.8 27.5 8.3 293.2 0.9 21.2 2.9 110.0 4.0 36.0
2010 1.0 38.1 1.1 6.0 2.9 28.5 8.8 401.0 0.7 23.2 3.0 59.0 5.1 53.7
2013 0.9 35.4 1.0 5.1 2.9 30.0 8.9 450.3 0.7 15.7 3.0 80.0 5.3 45.0
Source: FAOSTAT, own compilation

China‟s remarkable increase in production from 246 thousand tons in 2000 to that of 450 in 2013
(increased by 204 thousand tons) is followed by Ethiopia (16 thousand tons), Brazil (13.5
thousand tons) and Tanzania (4 thousand tons) over the same period. Figure 6 depicts that
Ethiopian honey yield is not only lower by about 5 folds compared to that of China in 2013 but
also didn‟t show improvement over the years from 2000 to 2013.

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Figure 6: Yield of honey in KG per beehive stock in Ethiopia and comparator countries over 2000-2013

Existence of Ethiopia and its comparator countries in international markets, especially in Middle
East and Europe, where the country possesses geographical proximity compared to most of the
comparator countries can be witnessed from the share of exported honey to that of produced per
annum (Figure 7). High export orientation of Argentina, Germany and China is evident
throughout the period of observation (2000-13). Despite Egypt‟s lower honey production and
productivity, its export orientation in 2013 was better by far than Ethiopia. Germany‟s honey
export volume outweighs its production signifying its re-exportation after adding value to obtain
a much significant unit value (Figure 7, A-D).

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Figure 7: A: Share of honey export to production of Ethiopia and comparator countries in % over 2000-2013
B: Average unit prices of exported honey in USD per ton (2000-2013)
C: USD per ton of Ethiopia and comparators' honey in Middle East and North African markets (2000-2013)
D: USD per ton of Ethiopian and comparator's honey in European markets (2000-2013)
Source: FAOSTAT, own compilation

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The huge potential Ethiopia possesses on production of diverse fruits of exotic type to most
premium international markets is still an opportunity that remained unexploited. Figure 8 depicts
the export performance of Ethiopia and comparator countries with regard to trading of pack-
house value added fresh fruits and processed fruit and vegetable products. Despite an evident
increasing trend of export earnings of Ethiopia from the fruit and vegetable product as of 2005,
its presence in the international market is far below most of the comparator countries.

Figure 8: Total value in million USD obtained from export of pack-house value added fresh fruits, and processed
fruits & vegetable products (2000-2013)

As can be seen from Figure 8, considering 2013 alone, Brazil is the top performer with regard to
foreign earnings obtained from both fresh fruits and processed fruit & vegetable products ($3.13
billion) followed by Thailand($3.10 billion), Costa Rica ($2.01 billion), Philippines ($1.91
billion), Egypt ($. 1.4 billion), Colombia ($0.87 billion), and Morocco ($0.8 billion). Kenya,
with its $ 223.3 million earning in 2013, is increasing steadily its export of the commodity group
over the years from 2000 to 2013 implying its increasing entrance into the market.

It is also worth to note that the huge export earnings of good performing comparator countries is
not only explained by the increasing export volume of pack-house value added fresh fruits but

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also by their better orientation towards adding more value to fruit and vegetable exports. The
2013 export earnings of Thailand from the subsector were largely obtained from more value
added fruit and vegetable products (82.2%) than the pack-house value added fresh fruit
counterparts. In the same fashion, Brazil and Kenya earned 79.5 and 79.4% of the fruit and
vegetable export foreign earnings from the more value added products of the subsector. While
Philippines (37.7%), Egypt (30.5%) and Morocco (29.9%) obtained a moderate share of fruit and
vegetable related foreign earnings from the more value added component, Colombia‟s share of
the more value added fruit and vegetable export was relatively meager (5.2%). While it is best to
customize and adopt best practices from countries with huge export earnings from the subsector
with highest share obtained from more value added products, it is also wise to learn lesson from
countries like Costa Rica (16.7%) to benefit a great deal from export of pack-house value added
fruits.

Ethiopian fruit export destination is not only limited to few neighboring countries such as
Djibouti and Somalia but also product lacks the pack-house value addition operation to be sold
only at least price and at a substandard product condition compared to the requirements of other
more premium markets like EU and Middle East.

The market destination of comparator countries is also of paramount importance in assessing

comparative advantages; identify bottlenecks to be resolved and opportunities to be exploited in
order to obtain competitive edge over other competitors. In this regard, the huge demand for
tropical and exotic fruits in Europe and the geographical proximity of the Middle East and North
African (MENA) region to Ethiopia makes the region a market arena the country shall participate
in the coming years.

Among the comparator countries, Brazil, Costa Rica, Colombia, Morocco, and Egypt are
dominantly present in the EU market for their pack-house value added fresh fruits. While Brazil
dominates in the exportation to EU of more processed fruit and vegetable products, this product
component of the subsector is also represented by Thailand, Philippines, Kenya and Morocco
(Figure 9). Of the comparator countries, the dominant exporter to MENA market of pack-house
value added fruit and vegetable products in 2013 are Egypt and Philippines, while Thailand‟s
representation with more value added products is worthwhile to mention (Figure 9).

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Figure 9: Value in million USD obtained from export of pack-house value added fresh fruits, and processed fruits and vegetables in Europe markets (A) and
in Middle East and African markets (B) over 2000-2013

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5.1 The globalization process and new rules in trade and industrial policy

Internationalization of firms and integration of markets are the most relevant trends in the
international economy. These trends are driven by the decline in barriers to international trade
and investment flow, increasing freedom to move goods, services and knowledge among
countries and in different locations. Advances in transport and communication technologies have
created new opportunities for the development and growth of multinational firms. Advances in
information processing and telecommunications enhance multinationals abilities to coordinate
complex functions over great distances resulting in lower costs of cross-border coordination. The
accelerated pace of technological change, price and trade liberalization, the growing importance
of super national rules have exposed national economies to much more intense competition than
ever before.

Over the past twenty years, countries around the world have increasingly embraced trade
agreements at both the country-to-country (bilateral level) and amongst (often geographical)
groupings of multiple countries (regional level). A Free Trade Agreement (FTA) is a formal
undertaking between signatory countries to eliminate or reduce trade barriers, including tariffs
and quotas/quantitative restrictions on goods and services traded within the signatory countries
(Obradovic, 2012).

Ethiopia has filed an application to join WTO in 2003 and at the moment has got an observer
status. It has signed with Sudan a Preferential Free Trade Agreement that has entered into force
as of February 2003. Ethiopia is negotiating with Kenya to put in place Special Status Agreement
(SSA) so as to facilitate bilateral trade between the two countries. With regard to regional
agreement, the country is among the non–FTA members of the Common Market for Eastern and
Southern Africa (COMESA), the first FTA in Africa. Currently, there are 19 member states; 14
of them are full FTA members trading on a full duty free and quota free basis, the remaining 5
countries (including Ethiopia) are at a various stages of joining the FTA. The 2nd regional
agreement (IGAD), in which Ethiopia is among the founding members, has 8 member states and
was established in 1995. IGAD members, though agreed to implement a FTA as of 2014, didn‟t
realize it. The three regional economic communities in Eastern and Southern Africa, namely
COMESA, EAC and SADC comprising 26 countries with a combined population of 527 million

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people have agreed to establish FTA in 2016. Ethiopia has signed declaration to the
establishment of such tripartite FTA. There is also a plan to establish continental (African) FTA
by 2017. Ethiopia still continued negotiating to establish Economic Partnership Agreement with
EU to which many countries have already such an agreement signed during 2007. The Sana‟a
Forum, which was intended to link Somalia, Sudan, Djibouti, and Yemen was underway until the
war in Yemen broke out. Ethiopia is also entitled to benefit from preferential trade arrangements
(AGOA and EBA) in getting access to markets of developed and developing countries.

In today‟s increasingly integrated global economy where free trade and a level playing field for
all are gaining growing importance, competiveness is becoming imminent to be the major market
force. That means, only firms that can compete effectively can draw tangible benefits from
access to new markets. To cope up with such inevitable and imminent situation of making
significant concessions, capacities of the country shall be built with regard to achieving
competitiveness especially in sectors where comparative advantages are real.

5.2 Review of AFPI development policies and strategies of successful developing

economies
Da Silva et al. (2009) pointed out the fact that the prospects for continued growth in demand for
value added food and agricultural products constitute an incentive for increased attention to agro-
industries development within the context of economic growth, food security and poverty
fighting strategies. They also indicated that agro processing industries are known to be efficient
engines of growth and development owing to their forward and backward linkages and multiplier
effects in terms of job creation and value addition.

The agro-processing industry is among the sectors identified by policies of many agriculture
based developing nations of the world for its high potential to spur growth and create jobs
because of its strong backward linkage with the primary agricultural sector.

Agro-industry development in Brazil: According to World Bank, agriculture, industry and

service represented in 2014 5.5, 24.0 and 78.8% of Brazil‟s GDP. The 5.5 % share of agriculture
to GDP signifies that Brazil is not a predominant agricultural country. According to united
nation‟s industrial development organization (UNIDO) statistical database, the share of
manufacturing value added to GDP in 2014 was 13%. Manufacturing value added in turn is

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represented by food and beverages manufacturing (21%), chemical and chemical products
manufacturing (11%) and the manufacturing of coke, refined petroleum products & nuclear fuel
(10%), as major manufacturing activities. According to Bacha & Carvalho (2014), Brazil‟s agro-
based product exports increased from USD 9.6 billion in 1991 to USD 87.6 billion in 201, and
agro-processed products have been responsible for almost two thirds of total exports.

The highest share of food and beverage processing industry to the manufacturing value added
signifies that the contribution of agro-industry to the industrial transformation of the country is
substantial. In general, Brazil‟s agribusiness sector is performing so well that other agriculture
based economies of the world are keen to learn lessons and adapt best practices so as to follow
Brazil‟s development tracks.

Since 2000, Brazilian agricultural production and exports have increased enormously. The
production of crops rose by over 150%, while exports multiplied eightfold from 1990 to 2012
(Figure 10). Both agricultural and livestock production have increased enormously in Brazil
since the 1990s, particularly since 2000 (Bacha & Carvalho 2014).

Figure 10: Evolution of crop production in Brazil (including & excluding sugar cane) – from 1990-12

Agricultural production has been increasing owing both to increasing productivity and area of
production (Figure 11). Key drivers for increased agricultural production were good availability
of arable land, especially with the development of new agricultural frontiers in the Centre-West

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and MATOPIBA regions in the 1970s-1990s and post-2000 respectively; modern technology
generated by a network that encompasses Brazilian Enterprise for Agricultural Research
(EMBRAPA), public universities, state funded agricultural research institutes and private-funded
organizations; state-funded agricultural policies; the availability of international markets for
Brazilian production and the role of large multinational agribusiness companies; and the
presence of market-oriented farmers in the categories of both family and non-family farming
(Bacha & Carvalho, 2014).

Figure 11: Evolution of area and productivity for the main 63 crops – from 1990-12

Brazil also has eco-climatic features favorable to the raising of cattle and cultivation of crops. In
some areas, it is possible to plant three crops in the same area during the same farming year
without needing to leave the land fallow.

Meat production also saw a large increase (Figure 12). Total meat production in 1990 was 5.17
million tons, rising to 10.33 million tons by 2000 and 22.35 million tons by 2012. The annual
geometric rate of growth for meat was 7.04% during the 1990s and 6.39% from 2000 through
2012 (Bacha & Carvalho, 2014).

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Figure 12: Brazilian meat production – from 1990-12

From 2000 to 2011, Brazil´s exports of agricultural and agro-processed products to European
Union countries increased almost by 200%, despite the fact that the share of overall Brazilian
agricultural/agro-processed exports represented by these countries actually decreased from 50%
to 27%. African, Asian, and Middle Eastern countries, especially China, have increased their
imports of agricultural and agro-processed products from Brazil. In 2000, countries from these
regions bought 27% of Brazil´s agricultural and agro-processed exports; by 2011 this percentage
was 53%. China alone accounted for 18% of Brazil´s exports of agricultural and agro-processed
goods in 2011.

Figure 13: Brazil’s exports and imports of agricultural and agro-processed products – from 1990-12

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Bacha & Carvalho (2014) pointed out that Brazil doesn‟t have a predetermined „model‟ for
intensifying its agricultural performance. Instead it has adjusted its agricultural policies in
response to the constraints and opportunities arising in both domestic and international markets,
while maximizing the advantages it has in terms of agricultural land availability and a good
climate. Since the second half of the 1960s, in spite of changes in focus and endowments, the
Federal Government has maintained traditional agricultural policies such as rural credit,
minimum prices, insurance, research and extension. On the whole, these policies have stimulated
market-oriented production rather than subsistence agriculture.

Brazil‟s attention to science, technology, and innovation was remarkable in achieving

competitiveness through innovation and differentiated products and services. According to the
world development indicators of the world bank (Figure 14), Brazil‟s knowledge and technology
generation and transfer indicated by sharp increase in payments it made to patents, received
revenue from IP transfers, increasing trend of new patent applications both by residents and non
residents, increasing trend of scientific and technical papers was registered signifying the
country‟s commitment not only in terms of allocation of budget and strengthening research
infrastructure but also in terms of ensuring the transfer of the generated knowledge to industry
and new companies.

Figure 14: Payments and receipts made by Brazil for Intellectual Property (IP)

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Like most Latin American countries in the 1990s, abrupt changes in economic policy such as
privatization and the lowering of trade barriers, thrust Brazilian companies into fierce
international competition without efficient management or technological capabilities.

Appreciating the need to promote innovativeness for competitiveness, Brazilian Government has
taken an initiative to strengthen the technological capability of its industry through passing The
Innovation Law in 2004, which was designed to provide incentives for research and innovation
works. As a result, innovativeness flourished as can be seen from Figure 15. Moreover, the Law
of Goods (2005) provides tax incentives for companies which invest in in-house R&D activities.

Figure 15: Trademark and patent applications made in Brazil over 2011-14

Source: World Bank, compiled and illustrated by the research team

Indian dairy production: During the pre-independence era and after that, milk produced in
India was not able to satisfy the demand of its urban consumers, and rural producers did not have
access to market that brings remunerative prices for their milk. In the absence of a year-round
remunerative price for milk, rural producers did not have any incentive to increase milk
production through better breeding, feeding, and management of animals. Also, the milk pricing
policy followed before 1970 was believed by Gujarat Cooperative Milk Marketing Federation
(GCMMF) to have been both anti-producer and anti-dairy development (GCMMF 2011). The

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growth of the population in urban areas and the associated increase in milk demand made
consumers depend on milk vendors who kept cattle in these areas and sold their milk. As a result,
several cattle sheds came into existence in cities leading to environmental problems. Besides, the
prolonged lactation period practiced commonly by milk vendors renders milch animals sterility
reducing considerably the number of calvings resulting in a systematically draining of
genetically superior breeds of the country.

Almost invariably, dairy processing plants were built in cities rather than in the milk sheds where
milk was produced, leading to establishment of cattle colonies in the cities. It was understood
that organizing rural milk procurement and running milk schemes economically extremely
difficult. No attention was paid to create an organized system for procurement of milk including
from near city milk sheds, which was left to middlemen. Milk's perishable nature and relative
scarcity gave the milk vendors considerable advantage. As a mitigation strategy, the Indian
government-run dairy plants extended buffalo milk by reconstituting large quantities of relatively
cheap, commercially imported milk powder to bring down the milk price which has further
aggravated the lack of stimulation to domestic milk production (Sabikhi & Reddy 2012).

The first organized attempt after independence made by the Government of India to improve the
quality of milch animals and their productivity through key village scheme (KVS) in 1950 during
first five year plan (1951-56), and the intensive cattle development plan (ICDP) launched under
the third five year plan (1961-66), brought about no significant change exhibited by the fact that
only 1% annual milk production growth was registered during 1950-70 while the per capita milk
availability declined by equivalent amount. The absence of remunerative market for milk was the
culprit for stagnating milk production over the two decades exhibited despite government‟s
intervention carried out to improve the situation.

After learning lessons from KVS and ICDP, Operation Flood was launched in 1970 as a project
of the National Dairy Development Board (NDDB), which was the world's biggest dairy
development program. It transformed India from a milk-deficient nation into the world's largest
milk producer; surpassing the USA in 1998, and with about 17 percent of global output in 2010–
11 (see Figure 16). Operation flood (white revolution) was so successful that it has doubled milk
availability per person in 30 years, and has made dairy farming India‟s largest self-sustainable

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rural employment generator. India's milk supply comes from millions of small producers,
dispersed throughout the rural areas. These farmers maintain an average herd of one or two milch
animals, comprising cows and/or buffaloes. Ample labor and a small land base encourage
farmers to practice dairying as an occupation subsidiary to agriculture.

While income from crop production is seasonal, dairying provides a stable, year-round income,
which is an important economic incentive for the small farmer. Reports indicate that milk
production in India is dominated by small and marginal landholding farmers and by landless
laborers who, in aggregate, own about 70 percent of the national milch animal herd. As the
largest share of crop production in the country is predominantly depends on rain, it is prone to
both drought and floods rendering agricultural income uncertain and hence makes it difficult to
support large families on crop income alone especially on a fragmented landholdings and
unfavorable land-to-person ratio dominating in the country (FAO, n.d.).

Figure 16: Production, Import and export of dairy products in India over 1961-2011

Source: FAOSTAT, own illustration

The main objectives of Operation Flood, which were increasing milk production, augmenting
farmer income, and providing fair prices for consumers have been successfully achieved. It was
mainly focused on dairy development through producers' cooperatives and milk production

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based on milk sheds in the rural areas, modeled on the successful experience of dairy
cooperatives in Gujarat (Amul). Operation Flood has been instrumental in helping farmers mould
their own development. They are linked with milk consumers in 700 cities and towns through a
national milk grid. It also helped eradicate the need for middlemen thereby reducing the seasonal
price variations. As a result of the cooperative structure the whole exercise of production and
distribution of milk and milk products has become economically viable for farmers to undertake
on their own. In 2012, India had 133,349 village dairy cooperatives federated into 177 milk
unions and 15 federations that procured on an average 25.1 million liters of milk every day.
These village dairy cooperatives have nearly 13.9 million farmers as members.

India also put in place quality based payment system to encourage quality milk production and
discourage adulteration. The dairy industry in India is generally co-operative .The primary milk
provided to the dairy are farmers who do not process their milk and give it in the raw form to the
co-operative dairy. Since more number of farmers are depositing their milk in the dairy, it is a
daily task of the dairy to assess the quality of milk from each farmer, verify it & meets the
quality norms specified and make payments based on quality and quantity of milk. Introduction
of a quality based milk payment (QBMP) system was found to contribute a great deal of its part
in ensuring the production of good quality milk and resulting in better efficiency in the supply
chain due to the early detection of milk that does not conform to the agreed quality standards,
and therefore reduced costs across the chain. QBMP did not change the price setting of milk,
only the pricing structure. Bonuses for high-grade milk will be financed from penalties for sub-
graded milk. There will be an investment in quality control and extension services, which will be
paid back by the accruing benefits of value addition of the products.

The research team has visited India where, like Ethiopia, agriculture sector is the largest
employer in the economy and source of livelihood for many smallholder farmers. Being aware of
the tremendous opportunities in the demand side for processed food and with strong
determination to tap the potential to be one of the largest food suppliers to the world, the
government of India has long ago identified the sector as priority. As a consequence, Ministry of
Food Processing Industries (MOFPI) was set up in 1988 to formulate and implement policies and
plans for food processing industry.

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Among the key interventions MoFPI has undertaken are the food processing knowledge
institutions that were set up to address technology and skill gaps hindering the development of
the food processing industry. These are National Institute of Food Technology Entrepreneurship
and Management (NIFTEM) and Indian Institute of Crop Processing Technology (IICPT). These
world class and autonomous institutes have as a focal point high quality teaching, research,
consultancy, skill development, business incubation and enterprise development. The pilot scale
food processing plants based in the campuses are not only meant to serve as experiential learning
sites but also as technology parks to assist the transfer and commercialization of research
generated technology and showcase the available technology to industry to facilitate scaled up
production. Add to this, aiming to promote food processing industry among rural entrepreneurs,
NIFTEM and IICPT have self-contained business incubation centers established for providing
technical as well as monetary assistance to entrepreneurs planning to start a processed food unit.
Another innovative approach of the MOFPI is the launching of mobile processing units by IICPT
during the 9th five year plan (1997-2002) so as to reduce the postharvest loss in fruits and
vegetables. The unit is well equipped with modern fruit and vegetable processing equipment. It is
a common phenomenon to see a sudden drop in market price of fruits and vegetables during
harvest season leaving farmers with the option of throwing away their produces. This unit can
reach rural production sites and be rented out to farmers for adding value to fruits and vegetables
which could be further processed by bigger manufacturing companies. This scheme was meant to
fetch farmers better income, reduce postharvest loss and ensure more product available for
consumers.

MoFPI and its institutions recognized the importance of international accreditation and
standardization and hence have given due emphasis on food safety and quality. Accordingly,
they have installed fully functional, accredited and modern laboratory facilities to give testing
services for researchers and other clients seeking the food quality testing services. They have
segregated laboratories meant for teaching and demonstration purposes. In both institutes,
operation of laboratory equipment and machinery and testing is being carried out by persons with
high academic qualification having hands-on experience at the same time.

In Ethiopia, HLIs have very young history of dealing directly with food process training and
research activities. It is just a little more than a decade gone since such discipline has been

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launched in some universities. With the aim to assist the food industry especially in developing
the necessary knowledge and skill sets, these universities are offering BSc & MSc programs in
Food Science and Technology established as departments under the umbrella of certain
institutes/faculties common to many other disciplines. They are neither autonomous nor food
science & technology specialized institutions unlike NIFTEM & IICPT of India. Even though
they share the mission of the university under which they operate, their major undertaking is to
provide trained labor to the industry. Still, the industry is complaining about lack of skill and
hands on experience exhibited by graduates.

Though the GoE also has established two independent institutions (FBPIDI &MDIDI) under the
umbrella of MoI to technically support the development of food industry through skill
development and R&D, they are relatively new and are not currently in the best position to serve
the development of the industry because the necessary state-of-the art research, business
incubation and tech transfer facilities relevant to most of the subsectors of AFPI are not in place.
In addition, they are not adequately staffed with regard to appropriate qualification and
experience in scientific and technical research.

Another important intervention taken by India‟s MOFPI is the mega food park scheme that is
instrumental in developing a strong and vibrant food processing industry through creating
increased employment in rural sector and enable farmers to reap the benefits of modern
technology and to create a surplus for exports. The agricultural sector in India suffers from
bottlenecks leading to an estimated wastage of 25-30% of agricultural produce (Chari and
Raghavan, 2012). India lacks agricultural raw materials of processable quality (Mukherjee et al.,
2013). According to the report of MoFPI (2015), only 7 per cent of the total Indian perishable
produce is processed, which is extremely low compared to countries such as the US (65 %),
Philippines (78 %) and China (23%). In view of tackling of such bottlenecks, MOFPI released in
2005 a vision document (Vision 2015) that set out targets for the food processing sector. It set
targets for enhancing the level of processing of perishable products, value addition and increase
India„s share in global food trade by 2015. To achieve these targets, the Government earmarked
certain investments that were to be disbursed through specific schemes. One of such schemes
enacted by the MOFPI is the Mega Food Park scheme, which is based on the cluster approach for
developing food processing industries (MOFPI, 2005).

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The team has the opportunity to visit Patanjali Herbal & Food Park Pvt. Litd (PHFP), one of the
operational mega food parks, located in Haridwar, Uttarakhand, India. This park was operational
since 2010. PHFP has installed state of the art processing machinery imported from countries
that are global leaders in specific food processing machineries and plants such as multi-fruit and
vegetable processing line from Alfa Laval (Sweden based global leader), and Tetra-pak
(Sweden) and Volpak (Italy). In doing so, the park tried to meet the technological requirement
(machinery and equipment) of Mega Food Park preconditioned by MoFPI. The food park is
doing well with regard to capacity utilization. The major reason mentioned for this was the fact
that it installed multi-fruit and vegetable processing lines that are able to function always despite
seasonality. Apart from different fruit and vegetable products, PHFP units for manufacturing of
products such as flour and different spice which run throughout the year using common facilities
year round. It has also put in place fully functional and modern R&D/Laboratory facility. The
food park has become source of employment for about 20,000 persons as direct, indirect and
contract employees. Of which the park engaged more than 11,000 farmers.

In terms of export, PHFP‟s exports include food supplements, juices, and spices to various
countries/regions such as UAE (United Arab Emirates), Middle East, Canada, the US and the
UK. It was pointed out during the visit that the park‟s export is growing from year to year. The
increasing trend of exports of products manufactured by PHFP is being boosted by the existence
and functioning of world class food testing and quality assurance infrastructure serving as
common facility within the park. For details about benchmarking visit see the report at Annex 0.

6. Vision, Goal and Objectives of AFPI Development Policies and Strategies

Vision
The agro-food industry development policy and strategy (2015-2025) shares the country‟s vision
of becoming a middle income level by the year 2025. In achieving this vision, the agro-food
processing sector envisions ”becoming African agro-food processing hub by building a
competitive export-oriented manufacturing subsector that plays a significant role in the economic
development of the nation by 2025.”

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Goal
The goal of this plan targets increasing the contribution of AFPI to the structural transformation
of the economy.

Objectives
By the end of 2025:
 Increasing the contribution of agro-food processing industry to real GDP of the country
from the current 1.5 to 6.7%;
 Increasing its contribution to the manufacturing value added to 39.4% from the current
status of 36.2%;
 Increasing its contribution to employment from the current 56 to 290 thousands (i.e.,
employment has to grow annually by 17.9%);
 Enhancing its contribution to foreign exchange earnings of the country by: (a) increasing
food exports from the current 97.2 to 333 million USD (i.e., food exports have to grow at
least by 13.1% annually); (b) reducing food imports from the current 678.7 to 167 million
USD (i.e., needs food imports to reduce by 13% annually); and (c) reducing raw material
imports from current 738 to 181 million USD (i.e., needs to reduce raw material imports by
13% annually); and
 Improving remarkably the productivity and efficiency of AFPI through increasing: (a)
capacity utilization of existing medium and large sized AFPFs to at least 95% from the
current 68% and (b) supply of local raw materials to at least 90% from the current 65.8%,
besides others.

7. Situational and Stakeholder Analyses

7.1 Situational analysis

In identifying strategic issues that need to be addressed in the plan period, first it is important to
analyze the existing situations of agro-food industry (AFI) in Ethiopia through stakeholders‟
consultations and the overall assessment results can then be summarized with a SWOT analysis,
which assesses strengths and weaknesses of the value chain organization (internal factor
analysis) and the opportunities and threats of the value chain environment (external factor
analysis) of the industry as of Table 17. This section analyzes the strength, weakness,

105
opportunity, and threat (SWOT) of AFPI. A SWOT analysis was conducted with firm level and
stakeholders‟ consultations to identify the major constraints (weaknesses and threats) that inhibit
industry growth as well as the potentials (strengths and opportunities) that can further be
efficiently exploited to promote investments and inclusiveness. Though there are many
promising dynamics, which support the potential for growth, there are still some significant
constraints which, if not addressed sooner, can impede the growth prospects of the industry in
Ethiopia.

Table 17: Strengths, weaknesses, opportunities and threats of AFPI in Ethiopia

Strengths
 AFPFs began to be led by educated
entrepreneurs
 Strong industrial associations (except edible oil
millers)
 Some AFPFs started vertical integration with
farmers‟ coops and unions
 Availability of raw materials locally
Opportunities
 High government attention for developing AFPI
 Excess supply of unskilled labor at cheap price
 Suitable & diverse agro-climatic conditions for
raw material production
 Vast area of land allocated for commercial
farming
 High livestock population
 Uniqueness of indigenous knowledge for some
products having high international market
potential (like injera, injera crumb, honey wine,
kocho, bula, etc)
 Proximity of the country to middle east &
European markets
 Knowledge & technology of some products
Weaknesses
 Poor innovation in product differentiation to
establish niche market, brands and products
 Poor initiative to use ES and quality marks
 Poor compliance to regulatory requirements
 High mistrust to provide genuine information
pertinent to setting up policies & strategies
 Technical staff lack practical skills
 High skilled and experienced staff turnover
 Low efficiency and productivity of AFPFs
 Weak linkage to R&D resources
 Inappropriate or obsolete processing and
ancillary equipment
 Inadequate quality control & testing facilities
 Low packaging aesthetics
 Import of substandard machines & equipment
 Lack of market linkage & information among
input suppliers, processors & potential markets
Threats
 Inadequate & poor quality of local raw materials
 Limited access to process technology
 Insufficient innovation supporting environment
 Poor quality control & assurance infrastructure
 High global competition in the food markets
 Limited access to diverse packaging materials
 Insufficient skill of university graduates
 Insufficient support for graduating SMEs
during transition into medium enterprises
 Lack of local spare part suppliers
 Shortage of foreign exchange for importing
spare parts & other inputs
 Unforeseen and recurrent electric outage
 Illegal/informal live animals cross border trade

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 already at hand (e.g., honey)  Lack of storage facilities (like cold storage) at
 Non-reciprocal preferential market access any destinations of exports (except airport)
(AGOA, COMESA and EBA)  Limited financial services, lengthy bureaucracy
 Availability of AFP focused training programs to get loan & short repayment period
in local universities  Lack of commercialized livestock & crop
 Functioning of new railroad to Djibouti port production
 High domestic markets  Encouraged export of unprocessed products
 Peace and security in the country (such as oilseeds & coffee)
 Establishment of renaissance dam power project
 Plan to establish 4 integrated agro-industrial
parks in GTP2
 The national research & extension systems plan
to focus on improving production & productivity
of industrial crops & livestock in GTP2
 Establishment of new institutions supporting
AFPI (e.g., , IPDC, PCP, EMDIDI, EFBPIDI,
MoLF)
 Existence of donors & NGOs supporting AFPI

7.2 Stakeholder Analysis

Once the strategic issues identified it cannot be by any means a responsibility of any single
organization/institution (say, MoI) to address them, rather requires the involvement of various
stakeholders. It is thus essential to identify the potential/key stakeholders that need to be
involved and define what responsibilities will have to share in terms of addressing such strategic
issues. It is also equally important to see what the stakeholders need from AFPI (MoI)
perspective so that they could easily deliver their support services effectively and efficiently as
expected. The key stakeholders of AFPI are identified and their roles in addressing bottlenecks
of the industry defined with firm level and stakeholders‟ consultations. This section discusses
what the stakeholders need to be fulfilled from AFPI perspective in order for the stakeholders
properly and timely deliver their support services to the industry (Table 18). MoANR, MoLF,
FCA, EIAR, ATA, MoI, EIC, ERCA, MoT, MoTransport, MoFED, DBE, FeMSEDA,
FMHACA, MoST and Universities are some of the key stakeholders, besides others.

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Table 18: Stakeholder analysis
No Key stakeholders What stakeholder needs from AFPI perspective
1 Input supply industry development
MoANR and MoLF Accurate information about what type of crop and
livestock products AFPI needs from agriculture
sector and with what quantity, quality and price, and
when needed.
MoANR and MoLF therefore need to acquire, by
any methods, all these information regularly from
MoI in advance of the production season.
EIAR Information about agricultural raw material needs of
AFPI in terms of type, quality and quantity
FCA Technical support and reliable information supply
regarding the area of coops/unions intervention in
AFPI;
Guaranteed potential markets for processed
products and agricultural raw materials produced
ATA Information about selected/targeted industrial crops
and livestock
Producers/farmers Supportive service deliveries (such as credit,
training, improved crop varieties or livestock breeds
108
Stakeholder responsibilities in assisting AFPI development
 Devising strong agricultural extension services focusing on improving production and
productivity of selected/targeted industrial crops and livestock products
 Facilitating different stakeholders to play their parts in commercialization of agriculture
through formulating specialized clusters and out-growers schemes that can sufficiently
(in terms of quantity and quality) and consistently supply agricultural raw materials to
AFPFs, and ensure potential markets by building a strong and sustainable linkage
among them
 Developing the livestock sector through promoting livestock ranching as a business
(as it is untapped investment potential in the country) together with EIC, delivering
appropriate veterinary services for preventing and controlling diseases, and creating
easy access to suitable land for ranching
 The institute has to fine tune the national research system to focus its attention
towards improving production, productivity and processing quality of some selected
industrial crops and livestock
 Development/adaptation and dissemination of improved agricultural technologies (like
crop varieties and animal breeds) considering the dynamic needs of agro-food
industry in partnership with other stakeholders
 Develop/introduce modern financial system that will be easily accessible and suitable
for rural areas to support agro-food industrialization in these areas;
 Strengthen and promote farmers’ cooperatives/unions to supply different agricultural
inputs to smallholder farmers at the right quantity, time and place as well as expected
to build a strong & consistent market linkage between agricultural raw material
producers/farmers and processors through facilitating a trustworthy contractual
arrangement made between them;
 Mobilizing and strengthening potential cooperatives/unions to establish value adding
AFPFs through providing various supports
Facilitating establishments of commercialized farmers and out-grower schemes focusing
on selected industrial crops and livestock production as to the stage of creating strong
market linkages among input suppliers and processors through providing coordination,
technical and financial supports.
Producers invest their land, labor, resources and indigenous knowledge effectively and
efficiently for commercialization of agricultural raw materials production through forming
No Key stakeholders What stakeholder needs from AFPI perspective
having high productivity & processing quality w. r. t. clusters and out-grower schemes considering the raw material needs of agro-food
AFPI needs);
Reliable market for their agricultural produces (raw
materials) through adopting honorable contractual
agreements between farmers and processors
2 Infrastructure development, trade and logistic performance improvement
EEPA Clustering AFPFs in developed industrial
zones/parks to easily, cost effectively and regularly
access electric power at least to those firms
clustered.
Reliable information about potentials & willingness
of those private sectors to invest in manufacturing
of electric transformers domestically
MoTC Reliable information about priority problems of AFPI
faced in transport logistic service deliveries and
forward potential solutions/interventions that MoTC
needs to implement to address those bottlenecks.
ERCA Trustworthiness of private traders in conducting all
activities of their agro-food businesses
EIC The various investment incentives and supportive
services provided to investors in AFPI need to be
Stakeholder responsibilities in assisting AFPI development
processors.
Devising appropriate mechanisms to supply AFPFs sufficient electric power regularly and
to deliver associated accessories (especially transforms) timely. In the short run, EEPA at
least attempt to reduce the wastage manufacturing firms encountered due to frequent
outage of electricity by setting up a mechanism to reach precautionary information
regularly to AFPFs about electric outage. It is also suggested to use the following
supplementary strategies such as, isolating electric transmission lines and directly
connecting from sub-stations at least for firms established in the industrial zones; building
firms’ capacity to familiarized with how to cost effectively and properly use automatic
generator during electric outages, and facilitating and supporting private sectors through
giving due emphasis for them to play an important role in manufacturing/supply of electric
transformers and other accessories.
Devising appropriate mechanisms to reduce significantly the high cost of doing agro-food
businesses in Ethiopia. The following are some of the tasks suggested from firm level and
stakeholders consultations that MoTC should take an initiative to effectively and efficiently
perform. These are: improving competence and quality of logistic services (like sea, air
and road transportation), establishing appropriate warehouse (cold storage) with better
technology at all export destinations in collaboration with MoT, improving the ability to
track and trace consignments, and finally improving selectivity of inspections to reduce
cost, transit time and corruption.
In order to improve customs’ service delivery procedures to the existent that significantly
reduce cost of doing agro-food businesses in Ethiopia, ERCA should further strengthen &
develop the following service delivering systems in it. These include: use of simplified
customs’ procedures for authorized economic operators/traders, institutionalizing and
developing a single window (one stop shop) service delivery system, and use of customs
valuation system. There is also a need to protect infant AFPFs (especially import
substituting ones) through establishing a level playing field (improving tax and subsidy
policies) in collaboration with MoT.
On the basis of stakeholder consultations, EIC is suggested to perform the following
tasks, including: developing appropriate promotional and relationship building
109
No Key stakeholders What stakeholder needs from AFPI perspective
properly used for intended purposes and their effect
should also be reflected on prices of agro-food
products.
MoI AFPI subsectors may be through their respective
industrial associations should consistently
inform/aware its key stakeholders via MoI what
supportive services AFPFs need to get from and
when, and willingness of AFPFs to deliver accurate
information/data while MoI requested them for the
purpose of designing appropriate and problem
solving polices and supportive services to AFPI. It
also needs AFPFs to properly use the investment
incentives only for intended purposes.
110
Stakeholder responsibilities in assisting AFPI development
mechanisms for attracting local & foreign investors to develop and diversify agro-food
products & markets; preparing subsector based investment promotion and incentive
schemes considering the regional state dynamics/diversity/uniqueness; promoting
investment initiatives of multinational companies through developing public-private
partnerships (PPP) and/or joint ventures with FDI; strengthening existing & establishing
new institutional setup for promoting domestic & FDI; and finally institutionalizing one stop
shop services for investors.
Ensuring an enabling environment for AFPI businesses through coordinating and
facilitating the proper implementation of the following tasks:
 In collaboration with IPDC, it should facilitate establishment and development of
industrial zones/parks in some selected industrial towns which are located around
agricultural potential areas and most AFPFs are found,
 Institutionalization of one-stop shop service delivery system to investors, and properly
following up its implementation and take corrective measures soon while problems
encountered during implementation to make the service delivery efficient and
effective;
 Ensures that public enterprises are effectively managed and privatized in compliance
with the law,
 Strengthening existing and establishing & encouraging new industrial and professional
associations to have an important role in conflict management, coordination, policy
advocacy and consultation services among AFPFs and government bodies,
 Align local, regional & national legislation and regulation to assist AFPI businesses to
reduce costs of product development, manufacturing and bringing products to market
It should take the initiative to address implementation problems of investment incentives
that would happen from investors and government perspective through facilitating a
proper implementation of the following activities:
 Establishing awareness creation forum of AFPFs at strategic locations where most
AFPFs are found, and facilitating and strengthening AFPFs to regularly conduct the
forum at least annually and trying to improve the performance of AFPFs through
taking immediate and effective measures onto the issues (challenges) of AFPFs
according to the feedback obtained from it.
 Devising a TV promotion program in collaboration with EBC that will regularly show
experiences of best performing firms with a support of documentary films,
 Providing capacity building training to those private investors who are willing to
establish AFPFs before accessing them incentives & setting up appropriate
No Key stakeholders What stakeholder needs from AFPI perspective Stakeholder responsibilities in assisting AFPI development
mechanisms to follow up their implementation while at the same time provide
technical supports,
 Providing regional states/governments capacity building training & experience sharing
visits for improving their implementation capacity,
 Establishing appropriate regulatory systems for enforcing punishment onto those
investors who misused incentives for unintended purposes, and
 Adopting zero corruption among different public/government and private institutions.
MoI should also attempt to develop and diversify agro-food products through
strengthening and promoting existing priority AFP subsectors to expand/upgrade their
capacity, and through establishing new AFP subsectors.
MoT MoT has to exert much effort to improve access to local, regional and global markets for
AFPI products through:
 Establishing market information centers at least at industrial towns that can exchange
reliable information among key value chain actors in AFPI
 Optimally use the international and preferential market access to EU, USA & regional
markets
 Developing appropriate marketing strategies based on membership to regional blocs
(such as COMESA, WTO, etc)
 Developing strategy to engage Ethiopian Diasporas & embassies towards marketing
strategy development and implementation
 Effective segmentation and positioning of markets and products depending on the
country’s comparative and competitive advantages
IPDC Willingness of the private sectors to involve in In collaboration with MoI, enhancing industrial park development through facilitating and
establishment of manufacturing firms and supporting integrated agro-food industrial parks to be established at strategic locations
supportive service deliveries around agriculture potential areas first as pilot projects for studying their feasibility and
then up scaling best practices of proven parks to other potential areas countrywide.
FeMSEDA Information about to which areas of AFPI SMEs Provision of special incentives and continued support for SMEs on the path of graduation
are needed to intervene, and technical and financial into MLEs, and strengthening and promoting SMEs to participate in delivering supportive
supports services to AFPI (e.g., transportation, packaging, storage, maintenance & repair) and
create market linkage with MLEs.
MoFED Accurate information about what supports the AFPI  Monitoring and controlling the macroeconomic instability for attracting both local and
needs from MoFED foreign investors
 Promoting investment initiatives of multinational and bilateral companies through
developing public-private partnerships (PPP) and/or joint ventures in collaboration
with MoT

111
No Key stakeholders What stakeholder needs from AFPI perspective
3 Improving financial resources/sources
DBE A 30% on cash reserve is needed from AFPF so
as to get 70% of the project’s investment, and
AFPFs shall to invest in profitable business and
use the credits for intended purposes and able to
repay their debt timely
NBE The export oriented firms should at least able to
cover their foreign exchange needs by themselves
CBE AFPFs shall to invest in profitable business and
use the credits for intended purposes and able to
repay their debt timely
MFI Information about to which areas of AFPI SMEs
are needed to intervene and technical support to
create linkage with MLEs
4 Technological capacity and human resource development
MoE Providing information about what skill and
knowledge gaps in AFPI need to be filled (training
needs of AFPI) and feedback about the technical
ability of graduates
MoT Regular information about the areas to which AFPI
need immediate interventions
MoI Wise implementation of the various incentives and
supportive services for the intended purposes
112
Stakeholder responsibilities in assisting AFPI development
 Play a leading role in monitoring and evaluation whether the proposed targets
achieved as per AFPI development plan
Delivering a long term credit for AFPFs through revising the on-cash reserve requirement
into 10% and increasing the credit to 90%.
Reinitiating to adopt the former credit delivering system (30% collateral in the form of
physical asset) at least in case of on-going firms
Devising appropriate macroeconomic monetary policies that help address shortage of
foreign exchange (e.g., sharing Fex by giving priory for manufacturing industries),
promote saving of the society and encourage investment of potential private sectors so
as to attract domestic and foreign direct investments in AFPI,
Facilitating and strengthening domestic banks to give priority for AFPI to which GoE has
given due attention as driver of the economy in sharing foreign exchange and in providing
investment and working capital for manufacturing expansion, and
Facilitating the provision of capital loan to domestic investors from international financial
sources.
Providing credit to AFPFs for working capital and manufacturing expansion and
agricultural raw material production
Providing financial supports to strengthen and promote SMEs to enter in supportive
services delivery for AFPI as well as graduated into MEs
Mobilizing and supporting higher education institutions, TVETs and research institutions,
together with EIAR, to develop their innovation strategies for enhancing knowledge and
technology transfer in AFPI
Promoting investment initiatives through developing partnership with multinational firms
and joint ventures with FDI in order to enhance access to foreign exchange, technology
development and transfers for AFPI development.
Facilitating internal innovation of AFPI for technology and product development through
establishing industrial research and extension program/division at regional industry
bureaus. Add to this, much effort is expected from MoI to establish an enabling
No Key stakeholders What stakeholder needs from AFPI perspective
EIC Regular information about the areas to which AFPI
need immediate interventions
Universities/ AFPFs need to be willing to effectively handle and
TVETs coach students’ apparent ship and deliver accurate
information when universities conduct assessment
studies to identify their priority problems/needs and
to collect feedback about the performance of
apparent students and their recruited skilled staff
graduated from universities.
Ethiopian diasporas Conducive business environment and one-stop-
& diplomats/ shop service delivery
ambassadors
5 Food quality assurance & control infrastructure improvement
MoST Willingness of the AFPFs to be certified/accredited
(ENAO, ECAE, and manufacture their products by properly
ESA,EIPO) following the food safety & quality standards
113
Stakeholder responsibilities in assisting AFPI development
environment for existing industrial associations to further strengthen and promote their
roles in the introduction and transfer of modern technologies especially imported from
abroad as the initial technology costs could not be offered by individual investors and
having high spillover effects once imported, besides facilitating coordination of the tasks/
roles of various stakeholders in this regard. It also devised experience sharing visits for
both investors and experts in AFPFs and in industrial associations.
Further mobilizing and supporting Ethiopian diasporas and diplomats/ambassadors, and
foreign investors to play an important role in technology transfer and development for AFPI
through devising special incentive schemes and investment promotion mechanisms, and
one-stop-shop service delivery avoiding the lengthy bureaucratic procedures in public
government service deliveries.
Generating practically well equipped and capable technical personnel by improving
university educations to focus on practical aspects at least including practical attachments
(apparent ship) through establishing a strong and sustainable linkage with AFPFs and
integrating the training and education systems with AFPI development and diversity. They
should also devise short term on-the-job-trainings for experts in AFPFs by developing
tailor-made curricula basing on the needs of AFPI identified through firm level and
stakeholder consultations. Add to this, they have to work much to restructure and develop
the status of their laboratory facilities to be domestically and internationally accredited
labs, and the lab professionals too. If this is so, universities can easily deliver quality
testing lab services for AFPFs domestically so that they would have an important share in
improving competitiveness of AFPI by reducing the costs and delay of lab services which
otherwise delivered by firms from abroad. This would also help the universities to deliver
quality and problem solving research and community services to the AFPI.
Play an important role in technology transfer and development for AFPI and in creating
foreign market opportunities through promoting Ethiopia’s AFPI products to export
markets at least in the countries they lived in.
 Establishing accredited laboratory facilities at the strategic locations where most
AFPFs found as well as in some selected Ethiopian universities
 Developing a career structure highly recognizing a profession of accredited laboratory
analyst
 Improving CAB’s access to certified reference material (CRM) & proficiency test (PT)
through allowing imports duty free and avoiding delay of delivery
 Promoting implementation of food safety & quality standards through enforcement of
No Key stakeholders What stakeholder needs from AFPI perspective
FMHACA Willingness of the AFPFs to be certified/accredited
and manufacture their products by properly
following the food safety & quality standards
6 Institutional and structural development
Cooperatives/ Technical and financial supports
unions
Industrial Immediate response for the bottlenecks raised by
associations the respective AFPI subsectors
State/government Wise utilization of the various investment incentives
for the intended purposes,
Active participation of the private sectors in AFPI
businesses
Feedback on the AFPI policy and strategy plan
during the implementation period
114
Stakeholder responsibilities in assisting AFPI development
mandatory food standards while at the same time providing strong technical supports
 Ensure the safety, quality and efficacy of medicines
 Ensure through regulation of food safety and quality
 The authority gives food safety and quality competence certificate before obtaining
manufacturing work permit and inspects the consistent meeting of the licensing
requirement post manufacturing operation.
 Inspecting all institutions engaged in food manufacturing, food import and export
trading activities
 It also involves in the regulation of professional/skilled labor requirement necessary for
safe food production.
 Inspect and take measures on non-conforming firms which goes up to revoking the
competence license
 Inspect compliance to safety of both domestically produced and imported food items.
But also inspect food items that are produced in Ethiopia and meant for export (a ‘fit
for human consumption’ certificate is given before crossing out borders)
Coordinate agricultural inputs supply to smallholder farmers and marketing of their
products (agricultural raw materials) to AFPI
Involvement of potential coops/unions in AFPF establishments
Delivering effective and efficient services of mediation and conflict resolution of legal
matters among processors and government bodies
 Facilitating easy access to land (w. r. t. adequacy and timeliness) for manufacturing
expansion and agricultural raw material production
Promoting agro-food industrialization in rural areas
 Organizing groups of potential farmers to share land, capital & indigenous knowledge
in AFP establishments through providing special incentives & technical supports
 Strengthening & promoting existing cooperatives/unions to establish AFPFs through
special incentives & technical supports
 Organizing women & youths in SMEs to participate in AFPI supportive services (such
as transportation, storage, packaging materials, maintenance & repair) in collaboration
with ReMSEDA
 Mobilizing & strengthening rural youths as a driver in commercialization of agricultural
raw material production
 Organizing women and youths associations to participate in vegetable, fruit and
No Key stakeholders What stakeholder needs from AFPI perspective
MoI Commitment and dedication of the stakeholders to
provide their supportive services properly for
AFPFs,
Committed and strong industrial associations that
can play mediation role in conflict resolution,
technology transfer and information exchange;
Capable and committed technical staff both at
115
Stakeholder responsibilities in assisting AFPI development
livestock production
Improving management of domestic and export markets for AFPI
 Establishing an independent institution responsible for managing export (external)
markets of manufacturing industries directly accountable for PMC
 Establishing an independent institution responsible for managing domestic (internal)
markets of manufacturing industries directly accountable for PMC
Improve access to foreign exchange
 Encouraging banks to give priority for AFPI to which GoE has given due attention as
driver of the economy in sharing foreign exchange
 Strengthening existing & establishing new import substituting firms to save the foreign
exchange spent for food imports
 Mobilizing and supporting Ethiopian diasporas to investment in AFPI through special
incentive schemes
 Diversifying food exports through establishing new export oriented AFPFs exploiting
agricultural potentials of the country
 Strengthening & promoting competitiveness of existing export oriented AFPFs able to
cover foreign exchange needs by their own
Improve access to finance/credit
 Facilitating and strengthening domestic banks to provide investment and working
capital for manufacturing expansion
 Facilitating the provision of capital loan to domestic investors from international
financial sources
 Improving the current on-cash reserve requirement (from 30 to 10%) for increasing
amount of loan from 70 to 90% project’s investment at least for graduated SMEs
 Reinitiating to adopt the former credit delivering system (30% collateral in the form of
physical asset) at least in case of on-going firms
 Protecting infant agro-food manufacturers (especially import substitutes) by
establishing a level playing field (improving tax and subsidy policies)
Improving efficiency of service delivery by MoI & regional industry bureaus
 Reorganizing structure of the regional industry bureaus in line with structure of MoI
while at the same time establish a strong and sustainable integration among them
 Strengthening the institutional capacity to create industrial linkages both domestically
and internationally
Improving coordination among stakeholders
No Key stakeholders What stakeholder needs from AFPI perspective
federal and regional industry bureaus
Private investors Conducive business environment, investment
incentives and technical supports;
Effective and efficient service deliveries (with
no/little bureaucracy) from concerned government
organizations (like one stop shop service delivery
system)
Local government Accurate information about what supports the AFPI
needs from the civic society
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Stakeholder responsibilities in assisting AFPI development
 Organizing a platform for stakeholders in AFPI at industrial towns, where most AFPFs
found
 Strengthening SMEs participation in AFPI development through creating sustainable
linkage with MLEs & establishing a dependable & modern information exchange
systems
 Strengthening and promoting the role of industrial associations for effective mediation
and conflict resolution of legal matters
 Invest in agricultural production at different scales: small, medium and large.
 Invest in processing and value addition to agricultural commodities.
 Participate actively in technology multiplication and dissemination.
 Participate in marketing of both inputs and outputs domestically, regionally and
internationally.
 Provide agricultural finance services to support investment in production, processing
and marketing of agricultural produce.
 Build capacity in-house of private sector entities in developing viable market outlets,
accessing key services and dialoguing with government and other stakeholders.
 Advocate for improved policy, regulatory and institutional framework that effectively
supports private sector activities.
 Invest in rural infrastructure
 Implement all the decentralized and devolved agricultural services, including the
advisory and regulatory services
 Develop and implement appropriate bylaws to regulate food security, animal
movement, local taxation and any other areas that support the effective
implementation of agricultural programs
 Monitor implementation of agricultural plans and policies at the district and within the
lower local governments.
 Mobilize and empower farmers and farmer groups to produce, process and market
their commodities
 Sensitize and guide communities and implementers on addressing traditional and
cultural issues affecting selection, promotion and utilization of strategic agricultural
enterprises.
No Key stakeholders What stakeholder needs from AFPI perspective Stakeholder responsibilities in assisting AFPI development
Civil society Accurate information about what supports the AFPI  Mobilize farmers to access credit, farm inputs, markets and other relevant agricultural
needs from the civic society goods and services;
 Advocate for improvement in agricultural services and the prevailing policy and
regulatory environment;
 Monitor implementation of government programs
 Develop and implement agricultural programs in line with government policy and plans
 Contribute to policy formulation and reviews at all levels

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8. Strategic Issues

Ethiopia has designed different development policies, strategies, and programs with the ambition
to become middle income status by the year 2025. Despite all these efforts and initiatives of the
GoE to provide enabling environment to the industry sector in general and to that of
manufacturing in particular, the agro-food processing subsector in Ethiopia is still at infancy
stage and could not make full advantage of its huge potential. Thus, in devising policies and
strategies supporting AFPI development, it is important to consider the unique features of the
subsector. The AFPI subsector is characterized by biological raw materials that are usually time
sensitive, variable in quality, and not regularly available throughout the year. Owing mostly to
such biological nature, AFPI businesses in general are inherently risky. The biological process of
agriculture and the seasonality of production impose strict schedules for all activities along
agricultural value chains, implying the need for effective coordination among all actors. It is also
crucial to acknowledge that we are in a time when the global demand for convenient, safe and
nutritious food is huge and showing continually increasing trend. The processed food market
nowadays, especially exports, is facing stringent requirements due to the fact that the consumers
around the world are highly aware of safety, nutrition and wholesomeness of the food they
consume.

Compared with agriculture and service sectors, industrializing the economy means moving
towards higher productivity, higher earnings, integrated industrial products, product
sophistication and output diversification, relatively low risk (volatility and vulnerability), widen
employment creation and so on. In achieving these objectives, the manufacturing sector in
general and the agro-food industry in particular plays an important role. Through recognizing
this, the GoE nowadays has given due attention for manufacturing sector as driver of economic
growth, assuming that the sector can effectively utilize agricultural potentials of the country. In
other words, the country has competitive advantage for industrial products in domestic and
international markets provided that it strengthens and promotes the AFP subsector to which the
country has comparative advantages. To do so, there is a need to assess development potentials
of the country and effectively address the major constraints that prevent their realization.

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Ethiopia‟s AFPI faces several challenges. With firm level and stakeholders‟ consultations, the
following major challenges are identified. These are: limited access to raw materials, packaging
materials and spare parts, limited access to credit services, shortage of foreign exchange, lack of
market linkage and information, limited access to reliable electricity and electronic equipment
(like transformers, etc), expensive transport logistics, poor food safety and quality assurance and
control infrastructure, poor implementation of food quality standards, lack of knowledge and
technology transfers, lack of practically well equipped human resources, poor implementation of
investment incentives, lack of initiatives taken by private investors to involve in value adding
activities, uncoordinated linkage among stakeholders, lack of implementation capacity and
commitment, and lack of level playing field (policies and institutions) among AFPI subsectors.
In this policy and strategy document, the broad range of constraints highlighted by AFPI is
categorized into six main strategic issues as follows:

1. Input supply industry: Insufficient amount together with poor quality of local raw material
supply is mentioned as the first bottleneck of AFPI in the country. This problem is the major
culprit found out to take the lion share in reducing the industry‟s performance to on average
68% of its potential or design capacity. The other important factors in the input industry that
are detrimental for AFPI‟s growth and development are lack of packaging materials and
spare parts, and timeliness of their supply. Thus, here the term input supply industry refers to
raw agricultural produce, packaging materials and spare parts supplying sectors.
2. Infrastructure and facilities: The other important strategic issue is shortage of well
developed infrastructure and facilities specifically related to addressing the unique features of
AFPI, including limited access to electricity and electronic equipment (like transformers),
expensiveness of transport logistics, poor food quality assurance and control infrastructure,
and poor implementation of food quality standards.
3. Market and product diversification and development for AFPI: The following are the
primary issues to which strategic interventions and supports need to be devised to address
bottlenecks that the AFPI encountered on the path of product and market diversification.
These are lack of market linkage and information among value chain actors; poor access to
local, regional and global markets; and weak diversification and improvement of agro-food
products as indicated by more than 64% are only grain mill and bakery products and less than
5% of agro-food products are exported.

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4. Attractiveness of AFPI to investors: Although efforts have been made to improve the
business environment and incentive schemes for attracting domestic and foreign investors,
poor implementation of investment incentives (from government and investors perspective)
still remains the major challenge that needs to be addressed for the AFPI to become
competitive in local and international markets. Lack of private investors‟ initiative to
participate in value adding activities, lengthy bureaucracy and delay in service delivery by
supportive public institutions (like MoI, ERCA, EIC, MoT) and lack of well developed
industrial zones established around agricultural potential areas are the other challenges that
should be considered in addressing this strategic issue.
5. Technology transfer and competent human resources: Here we consider the importance
of technology transfer and human resource development in AFPI. For developing Ethiopia‟s
AFPI to be competitive with foreign competitors in local and global markets (as import
substitutions and exporters), it is mandatory for the industry to use advanced technologies
and employ practically capable technical human resources that can properly handle and
operate technologies. However, low level of technology transfer from internal innovations
and abroad, and inability to get practically capable skilled human resources in the local
markets are the other bottlenecks of AFPI in technology and human infrastructure
development.
6. Policy and institutional support for AFPI development: These include low focus of the
national agricultural research and extension systems for industrial crop and livestock
production and productivity, uncoordinated linkage among stakeholders, limited access to
financial resources (credit services and foreign exchange), lack of implementation capacity
and commitment of the state, lack of level playing field among AFPI subsectors, weak
management of domestic and export markets for AFPI, poor support for graduating &
promoting participation of SMEs for AFPI development, limited capacity of industrial
associations for coordinating technology transfer operations and addressing industry‟s
bottlenecks through discussing with policy makers and member firms, lack of support to
promote agro-food industrialization in rural areas (indicated by limited participation of
potential cooperatives/unions, and the emerging rich and resourceful farmers for AFPI
development) and inadequacy and delay in land acquisition for manufacturing expansion and
production of agricultural raw materials.
7. Cross cutting issues: Participation of women and youths, and environmental aspects (like
pollution of the surrounding water, vegetation, livestock, humans, etc) are the other important
factors that need to be considered in the industry.

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Table 19: Identification of strategic issues

Rating* (put X)
No Strategic issues 1 2 3
1 Inadequately developed input supply industry x x x
Insufficient quantity and quality of local raw material supply x x x
Shortage of packaging materials x x x
Limited access to spare parts x x
2 Lack of well established infrastructure and facilities x x x
Recurrent and unforeseen electric outage and insufficient power x x x
Expensiveness of transport logistics x x x
Poor food quality assurance and control infrastructure x x x
Poor implementation of food quality standards x
3 Insufficient market and product diversification x x x
Poor market linkage and information among value chain actors in AFPI x x x
Limited access to local, regional and international markets x x x
Lack of agro-food product diversification x x x
4 Lack of attractiveness of AFPI to investors x x x
Lack of conducive business environment to further attract local & foreign investors x x x
Poor implementation of investment incentives x x x
Lack of private investors’ initiative to involve in value adding activities x x
Lack of developed industrial zones established around agricultural potential areas x x
5 Limited access to technology transfer and competent human resources x x x
Low level of knowledge and technology transfer to AFPI x x x
Lack of practically capable technical human resources x x x
6 Lack of policy and institutional support for AFPI development x x x
Limited access to financial resources (credit and foreign exchange) x x x
Poor support for graduating & promoting participation of SMEs for AFPI development x x x
Uncoordinated linkage among stakeholders x x x
Lack of support to promote agro-food industrialization in rural areas x x
Lack of level playing field among agro-food processing subsectors x
Lack of implementation capacity and commitment of the state x
Limited capacity of industrial associations to effectively mediate information and x
technology transfers and conflict resolutions
Weak management of domestic and export markets for AFPI x x
Inadequacy and delay in land acquisition for manufacturing expansion & agricultural x
raw materials production

*Rating: 1=Biggest impact, 2=Most central, 3=Most immediate

Note that these terms in this study are described as follows: a strategic issue is said to have
biggest impact if addressed well it would take significant share in achieving the respective
objective of agro-food industry; a strategic issue is described as most central if addressed well
most of the specified bottlenecks within it could also be addressed; and a strategic issue is
described as most immediate if needs urgent action to be made in addressing it well.

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Once the strategic issues are identified (Table 19), they will be further described by analyzing
what make them strategic and what will be their consequences if they are not addressed (Table
20).

Table 20: Analysis of strategic issues

No Strategic issues What makes it strategic Consequences if not addressed

1 Inadequately developed input supply industry
Insufficient quantity and quality of  Low capacity utilization of firms  Firms become incompetent
raw material supply  Low productivity of firms  Huge amount of foreign exchange
 High cost of production spend for importing
Limited access to appropriate  High cost of packaging  Firms become incompetent
packaging materials  Low price for the product  Huge amount of foreign exchange
 High product wastage spend for importing
 Lack market access  Financial loss of firms
2 Lack of well established infrastructure and facilities
Recurrent and unforeseen electric  High damage on products  Firms become incompetent
interruption and insufficient power  High cost of production due to wages paid  Financial loss of firms
for idle periods
 Some sensitive machines broken down
Expensive transport & cold  Firms’ products are costly  Firms become incompetent
storage logistics  Wastage of perishable raw produce  Producers lack market access
Failure to implement safety and  Lack of consumers’ trust on quality of food  Firms become less competitive
quality standards products  Poor export performance
 Retarded development of
competitiveness
 Sub-standard products dominate
the local uncompetitive market
 Discouraged & poor investment in
quality testing facilities
Poor food quality assurance and  Increased cost and delivery time of test  Firms become less competitive
control infrastructure results for a pre-shipment sample analysis  Part of foreign exchange spend for
 Market diversification remains poor quality testing lab services
 Shortage of accredited facilities in the
country
3 Limited access to technology transfer and competent human resources
Little/no transfer of knowledge  Poor product diversity and failure to meet  Firms become less competitive
and technology international standard and other market  Lack of diversified food exports
requirements
 Failure to catch up mature international
process technologies
 Poor innovativeness in exploiting
indigenous technology for international
market
 High cost of production
Lack of practically capable  Inefficiency & low productivity of firms  High cost of production
technical skilled human resources  Frequent breakage of machines and parts  Firms become less competitive

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No Strategic issues What makes it strategic Consequences if not addressed
thereof
 Poor knowledge transfer
4 Insufficient market and product diversification
Poor market linkage and  Inadequate amount and quality of raw  Low productivity of firms
information among value chain material supply  High wastage of products
actors in AFPI  High transaction costs  Low returns from sale of products
 Insufficient market for food products  Firms collapsed
 Lingering on export commodities
that are prone to volatility and
vulnerability
Limited access to local, regional  Limited expansion & establishment of new  Firms remain less competitive
and global markets firms  Lack of diversified food exports
5 Lack of attractiveness of AFPI to investors
Implementation problem of  Prices of food products remain high  Firms remain less competitive
investment incentives  Low investments in establishing firms  Lack of diversified food exports
Unwillingness of private investors  Low investment in establishing firms  Increase exports of agricultural
to involve in value adding activities  Lack of diversified food products raw materials with lower returns
 Firms become less competitive
Lack of conducive business  Low investment in establishing firms  Firms become less competitive
environment to further attract local  High cost of doing agro-food business  Lack of diversified food exports
& foreign investors
Lack of developed industrial  Weak access to dedicated utility lines  High cost of doing agro-food
zones/parks established around (electricity, road, water, etc) business
agricultural potential areas
6 Lack of policy and institutional support for AFPI development
Limited access to credit  Inefficient and low productivity of firms  Firms become less competitive
 No expansion/upgrading of firms
 Some firms collapsed
Shortage of foreign exchange  Lack of inputs, ingredients, spare parts &  Low productivity of firms
equipment  Financial loss of firms
Poor support to graduating SMEs  Firms couldn’t sustain after graduated  Lack of diversified food exports
into MEs  Only limited number of AFP MEs exist  Foreign exchange earnings
 Deliberate tendency of SMEs to stay small remain low
and micro  SMEs as foundation for industrial
transformation becomes
unrealized
 Local food processing innovation
becomes neglected
Uncoordinated linkage among  Firms become inefficient  Firms become less competitive
stakeholders  Unreliable supply of raw materials

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8.1 Input supply industry
Insufficient supply and poor quality of raw materials
The supplies of raw materials for most firms/subsectors in AFPI are not satisfactory in terms of
quantity, quality, and sustainability. These challenges are mainly important in case of the
following agricultural raw materials.

Wheat: Twenty years ago, there were about 50 wheat processing firms. Currently wheat flour
milling firms alone are about 275. Despite the fact that the country‟s annual average production
of wheat over 2008/09 to 2014/15 is 3.2 million tons, the lion share of this production is
consumed at households and little is left as marketable surplus. The annual wheat production
volume shall not be considered as if it were readily available for wheat milling industry. In fact,
only about 19% of the annual production is marketed. The rate of mushrooming of the milling
industry together with the growing consumption trend of white flour and derived products
(universities and defense army consumption in addition to the general population) is far greater
compared to the rate of growth of agricultural production of marketable surplus of wheat. In
addition, the quality of wheat supplied is not always up to the requirements of the industry.
Among the reasons for failing to meet the quality requirements are lack of focus on market and
limited awareness of farmers about growing the right type of wheat, focusing on yield rather than
quality, small landholding resulting in small amount of wheat sold per smallholder leading to
mixing during aggregation. The complicated value chain dominating currently is also among the
culprits facilitating deliberate and deceptive mixing and adulteration.

Tef: The average annual tef production over 2008/09 to 2014/15 is 3.6 million tons. The average
annual marketable surplus of tef over the same period was about 28% even that is mostly sold in
spot market to urban consumers. Unlike other cereal grains, tef possesses good storability
characteristics and hence extremely less prone to post-harvest storage losses. In fact, its value
increases upon storage. The few tef injera exporters are not short of tef supply. However, export
of tef is allowed only in the form of injera owing to its high domestic demand and thus its local
price would inflate if exported in the form of grain. To exploit the comparative advantage we
have on the grain exhibited by the fact that it is gaining high international nutritional acceptance
for its healthiness, it is good to devise a mechanism to increase and diversify export of tef
product without adversely affecting its local supply.

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Malt barley: Ethiopia‟s annual average barley production over 2008/09 to 2014/15 was 1.7
million tons although the proportion of malt barley was not differentiated by CSA reports. The
gap of not reporting varieties of crops may be associated with the focus of attention was attaining
food security, but not end use. Asela and the newly established Gondar malt factories are the
only malt producing factories currently operating to supply malt to all breweries in the country.
They are not operating at full capacity and hence supply only 50% of the malt demand of
breweries because of many reasons. Shortage of appropriate malt barley varieties, use of
rudimentary farming technology by smallholders, and food utilization of malt barley are
important reasons that need to be addressed to solve the problems of malt barley supply. Solving
such malt supply problems would substitute the annual average malt and malt barley import of
36.7 thousand tons having a value of 26.3 million USD in addition to being capable of exporting
in the long run.

Oilseeds: The amount of oilseeds (such as, noug, linseed, rapeseed, sesame, groundnut,
sunflower, cottonseed, etc) supplied in the domestic markets is far below the demand of the
edible oil processing subsector. The productivity and production of oilseeds is very low
compared to other conventional/staple crops, suggesting that the national agricultural research
and extension systems have given less attention for improving the productivity and production of
oil crops. This lack of focus on oilseed research and extension can be evidenced by the fact that
yield and area coverage of noug and linseed (among the dominant oilseeds in Ethiopia) didn‟t
show increasing trend. In fact, linseed‟s yield and area of harvest were decreasing from 2008 to
2013. This has forced oil expellers to operate at less than 20% of their design capacity. Some are
leaving the business, and still others are on verge of closing their manufacturing operations
because of lack of raw materials, besides other reasons.

Honey: Ethiopia is in a position to produce varieties of honey year round owing to the diverse
agro-ecology and seasonal variation occurring across its different geographical locations which
in turn means that it is capable of exporting throughout a year. Still, the few honey processors are
not in a position to satisfy the overwhelming purchase order they receive from abroad. In fact,
only 1.3% of what is produced is exported annually. However due to low productivity of the
honey sector, the local price is often too high that poses difficulty for the honey exporting
companies to obtain honey at reasonable price that would enable them compete internationally

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pricewise. Here is also a need to put in place mechanism to increase production and productivity
to be able to produce surplus to what is being consumed locally as tej and table honey which
leads to setting reasonable price based on cost breakdown. The producer would not tend to store
honey with the expectation of increase in price when they are made to realize that storing honey
for longer period under poor conditions would deteriorate its quality. Honey may seem to have
good keeping quality when considered from microbial spoilage point of view. However, like
overheating during honey clarification, storing over longer period under uncontrolled conditions
is more likely to deteriorate honey in terms of some international quality criteria such as,
increased Hydroxy Methyl Furfural (HMF) and inactivated diastase activity upon storage
towards non conformity. Honey adulteration is also a big challenge of the sector especially when
it is sourced from middlemen.

It is also worthwhile to mention that not only the higher local price is hindering honey processors
from obtaining enough honey supply but also the poor quality usually occurring at post-harvest.
Bees normally produce and store clean and perfect honey despite differences in terms of aroma,
flavor, color and consistency, all of which depend upon the species of plants being used by the
bees to synthesize honey. It is only the subsequent handling by humans that leads to reduction in
quality if the honey is harvested when the water content is still too high (unripe honey), if it is
contaminated, overheated, over-filtered or spoiled in any other way. Increasing production and
productivity while maintaining the inherent quality during post-harvest handling and processing
would be among the solutions to boost export earnings from the sector.

Milk: The few dairy industries, which are located in Addis Ababa and its surroundings, are
working at far below their operating capacities because of insufficient raw milk supply, among
other reasons. Milk supply also shows seasonality nature. During winter and non-fasting times,
the supply dramatically reduces while it becomes good during rainy and fasting periods. The
milk production potential of the country shall be exploited through developing and implementing
mechanisms that stimulate much more milk production.

Meat: Given that the country is endowed with large population of cattle and shoats, the export
meat processing sector is operating below its capacity owing mostly to insufficient supply of
livestock. The fact that beef cattle are sold only during some traditional Ethiopian festivity,
when there is a need to generate income to meet unforeseen expenses, and as last resort when

126
cattle are old or barren, and no strategic production of beef cattle for market, makes it difficult
for exporting abattoirs to obtain cattle of appropriate quality to meet the needs of the buyer. In
the highlands, large numbers of cattle are kept to supply draught power for crop production,
whereas prestige and social security are the predominant factors in the lowland pastoral areas.
Export abattoirs are also complaining about the high local price of cattle that renders them
uncompetitive in export meat prices.

The increase in local price of livestock in the absence of supply shortage is caused due mainly to
inefficiency of marketing systems. According to Alemayehu (2012), excess supply in remote
markets together with lack of price information suppresses effectively producer prices since the
more mobile trader is better informed about market prices. Better information combined with
excess supply place the trader in a better position during price negotiation. Therefore, the
producer becomes normally price taker as s/he is selling the livestock due to urging reasons
forcing him/her to only sell. Depending upon distance from terminal market, remoteness, and
other interim activities for which livestock are primarily purchased (for value adding, ploughing,
or breeding purposes) livestock may change hands a minimum of three times with incremental
costs at each level of transaction. The other challenge in this case is that the annual outflow of
beef cattle from Ethiopia through informal market is huge (320,000 cattle).

Lack of packaging materials

Difficulty to access affordable and diverse types of appropriate packaging materials is limiting the
ability of the food processing industry to enhance product quality to meet standards of increasingly
discriminating consumers in international and also local market. The fact that food and beverage
account for 69% of the global consumer packaging industry as of 2009 (at a value of US$ 380 billion
for food alone) is a worldwide phenomenon. The fact that there is no a single appropriate packaging
material in the country for shelf stable fluid food (milk, juices, jams, jellies, honey, peanut butter etc)
has become a major stumbling block to the development of such food manufacturing industry. Glass,
tetra pack (paper layers with PE lining), metal and rigid plastic materials are not produced in the
country leaving import of such packaging material the only option, which increases cost. In fact, this
is found to be the biggest of all problems for SMEs engaged in food processing operation not to
flourish as intended. SMEs are suffering from lack of market despite they produce competent
product. Because of this packaging challenge they suffer from price reduction, perishability and lack

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of market access. SMEs are unable to compete pricewise since the unit cost of an imported
packaging material is higher owing to their meager order size. Very few packaging materials exist in
the country that produce only flexible packaging materials suitable for dry solid products and only
pasteurized milk.

The severity of lack of access to appropriate and diverse food packaging materials is the major
stumbling blocks to the development of AFPI in the country. It is believed that solving the
packaging problem would bring about big change that forwards the subsector towards development
in short time.

Limited access to spare parts

There are no domestic firms, which can adequately supply spare parts by properly identifying the
needs of AFPFs. When AFPFs face unanticipated machine defect (due to mostly unexpected
electricity on and offs), there are limited ways that enable them to find it locally and replace it
immediately. Thus, there is a need to carry out further detail investigation/study specifically aiming
to identify major problems of firms associated with spare parts and to find plausible solution that
serve timely access to spare parts.

8.2 Product diversification and improvement

There is lack of market linkage and information flow among agro-food processing firms with
input suppliers (backward linkage) and potential buyers (forward linkage) of industrial products
especially with export markets. For e.g., the AFPI at the regional states did not have information
delivery system so far regarding which countries need what industrial products at what price and
quality parameters to import.

The other important problem is that why does the GoE import those processed foods (e.g., edible
oil) from abroad while they can be manufactured domestically and at the same time export
significant portion of raw oilseeds to abroad while shortage of oilseeds is detrimental for
domestic oil millers? This would not only lead existing millers to collapse, but also discourage
new ones to enter in this market. While the domestic demand for processed foods of some
domestic industries is high, instead of strengthening them to sustainably produce these foods at
competitive price and quality through protecting from foreign competitors, the GoE discouraged
them not only by importing these foods from abroad but also exporting their raw materials to

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abroad. This is evidenced by high proportion of imported processed foods and exported raw
materials of AFPI. On the other hand, when one sees the extent of exports out of total
manufactured foods by our export-oriented agro-food industries, it is very minimal, implying that
there is a very limited diversity of export markets too. It is thus suggested that the GoE should
not focus its attention only for strengthening and promoting private sectors to invest on export
oriented industries, it is also equally important to worry about import substituting industries.

8.3 Infrastructure and facilities

Interruption and insufficient power of electricity
The most common challenge of all AFPFs is lack of access to consistent power supply.
Unforeseen and recurrent power outage is the most crippling feature of the problem related with
power and affecting all AFPFs. The second feature of the problem is associated with the time to
wait until an AFP establishment obtains transformer and related electricity installation service
delivery. The third feature was lack of ownership of the problem exhibited by most reluctant
technical staff of EEPCO to render rapid fixing and maintenance services for a fixable problem.
The problem associated with lack of consistent and foreseeable electricity supply has created far
reaching negative consequences hampering the development of AFPFs. Increase of overhead
cost of production due to paid salary and other expenses made despite downtime, loss of product
that is on production line at times of interruption, breakage of some sensitive parts of the
processing machines which further aggravate the situation because of lack of immediate local
access to spare parts. AFPFs are more hampered by electricity problem than their non-agro based
counterparts because of the fact that they are mostly dealing with time-sensitive raw materials
that are prone to be wasted until they pass the last unit operation.

Expensiveness of transport logistics

Logistics services which include activities required for transportation, storage and handling of
production inputs and finished products from producer to consumer, play a critical role in
international trade. The more timely, reliable and efficient the logistics supply chain, the more
efficiently and reliably goods can be delivered from the point of production to the point of
consumption (Kassahun, 2014). Studies show that supply chain bottlenecks are the primary cause
of friction in trade (trade costs). Reducing them by half would raise trade by 15% and production

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by 5% globally.(World Bank LPI, Transport Business Summit 2014, Brussels).The ability of
countries to deliver goods and services on time and at the lowest possible cost is a key
determinant of integration into the world economy today. Hence good trade logistics connect
countries to global output and input markets. Most developed countries and East-Asian Tigers
such as China and Vietnam have built their export sectors on the back of very good trade
logistics. Poor trade logistics can cause long and uncertain delays, which are not acceptable to
most global buyers, especially in the time-sensitive commodities such as fresh fruits and
vegetables (World Bank, 2012).

In Ethiopia, logistics is one of the most dynamic sectors of the economy but its performance is
still at lower level compared with other economies set apart by challenges that must be
overcome. Studies indicated that among other factors Ethiopia‟s export competitiveness and the
development of the manufacturing industry is challenged by lower logistics productivity as
evidenced by a series of Figures 17-20 below. As the comparative analysis of logistic and trade
performance indicators of Ethiopia with that of other 14 selected countries from Africa, Asia and
Latin America and four regional blocs indicated that except level of theft prevalence Ethiopia has
shown weakest performance in all parameters. This implies that the cost of doing business in
Ethiopia is relatively high, which in turns hinders the competitiveness of AFPI in the global
arena.

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Figure 17: Logistic performance index of 15 selected countries from Africa, Asia and Latin America

Figure 18: Logistic performance index for Ethiopia and 4 regional groups

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Panel (a): Quality of port infrastructure, burden of customs procedures & losses due to theft …

Panel (b): Cost to export and import goods per container

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 Panel (c): Cost of business start-up procedures

Figure 19: Trade performance indicators for Ethiopia and 4 regional groups (2007-2014)

Panel (a): Quality of port infrastructure and burden of customs procedures

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Panel (b): Cost to export & import goods per container

Panel (c): Cost of business start-up procedures

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 Panel (d): Time taken to export & import goods

Figure 20: Trade performance indicators for Ethiopia and 4 regional groups (2007-2014)

Poor food quality assurance and control infrastructure

Export commodities encounter stringent hurdles that need to be overcome before reaching the
international market and ultimately the consumer. Such hurdles are even more stringent when
referring to food commodities since consumers are now aware, like never before, of food safety
and quality issues. The requirements are even tougher in parts of the world where affluent
nations are living who can pay highest unit prices for added value products. Each and every
competitor country is trying to install quality assurance and control systems to win the
international market, stay in business and, exploit its competitive advantages.

Ethiopia has laid NQI foundation and started to set up quality assurance and control system with
the objective of improving the quality of its products leading to more sales and increased
industrial production. Commodities need to comply with food quality and safety requirements
and have to be shipped along with quality certificates when crossing border. Obtaining a quality
certificate that is acceptable everywhere requires the services of conformity assessment bodies
(CABs) which shall be accredited by a third party accreditation body. The accreditation body in
turn shall be internationally recognized and comply with international standards used to inspect
its competences. Ethiopian national accreditation office (ENAO) is currently doing well for its

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young age as it has already upgraded itself from an affiliate to associate membership of IAF and
now on verge of promoting itself to a status of full membership. It is a great opportunity to have
an accreditation body that becomes soon a full IAF member and hence is of high international
acceptance. We shall make full advantage of the success achieved by ENAO in becoming an
internationally accepted institution by ensuring the functioning of other segments of NQI since
ENAO alone can‟t serve as silver bullet to solve food quality assurance and control problem.

The challenge to transform Conformity Assessment Bodies (CABs) into accredited ones is not as
such easy. In order for a CAB to be accredited it has to furnish calibration certificate, it has to
have a competency certificate for the lab analyst from a recognized body, it has to comply with
the requirements of laboratory environmental condition that may influence the test results, and it
also needs to put in place Proficiency Test (PT) mechanism for inter laboratory comparison of its
results to take corrective action in case of result disagreements. These requirements, though
difficult to set up at the required intensity during initial stage, are vital and a must to have in
order to facilitate cross border trade.

The difficulty in setting up of enough and regionally well distributed CABs at the initial jump-
start stage arises mostly from lack of awareness rather than financial resources. Allocation of
annual research budget to RIs and HLEIs, that involve laboratory testing as a crucial step of
experimentation, would have brought about significant change towards plausibility of test results
had they been geared towards doing research in accredited facilities. In fact, the results of most
current research activities requiring a laboratory testing facilities are taken for granted without
being carried out in accredited facilities. Therefore, upgrading current research facilities into
accredited ones would bring about a twofold benefit. It would enhance credibility of research
results on one hand and serve as accredited CABs on the other.

Poor implementation of food quality standards

It is a human nature not to be willing to be inspected as long as the market is there for his/her
sub-standard products. Due to this reason, customers seeking testing & certification services of
ECAE, the major conformity assessment organization in the country, are very few. Only drinking
bottled water, beer, and soft drinks are certified by the enterprise so far, and even that happened
due to the fierce intercompany competition. About 51 edible oil processors, 3 winery and salt
manufacturers are certified by ECAE. Compared to the large number of food processing

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companies operating in the country, these certified ones are still few to represent the sector.
Owing to the poor inspection work, one can suggest that food products manufactured in Ethiopia
are generally not yet well known from quality perspective. Since most processed food products
do not have mandatory standards, nobody is requesting the respective manufacturer a compliance
certificate and hence they do not intend to come to ECAE. This lack of customer is further
aggravated by the fact that the cost of food testing is very expensive (because of expensive
instrument & consumables) and mostly unaffordable to manufacturers. Lack of private for profit
CABs in the country could be partly explained by such financially demanding nature of the
investment. For example, during the time when ECAE was not able to test for pesticide residues
here in its facility and thus sent samples abroad, it was requested to pay 1,220 Euros per sample.
This is impracticable not only from high cost point of view but also from longer delivery times
and limited access to foreign currency. To test for pesticide residue and adulteration of honey,
samples are usually sent to Uganda. Now ECAE is capable of testing adulteration in honey and is
on verge of accreditation process. But after all these investment, no regulatory body and other
willing customer come to ECAE requesting for the services. Notwithstanding the fact that ECAE
currently has accredited facility for microbial quality testing of foods, it is only getting daily 2
samples on average. The enterprise envisions expanding its existing microbial quality accredited
test service but at the current poor demand it is questionable to do so. Currently ECAE lives on
inspection services but laboratory testing is not as profitable as it is perceived by many. The
situation indicates that it is time to improve implementation of standards while at the same time
capacitate AFPFs to comply with them, and to facilitate access to CABs.

It is also important to make full economic advantage of our indigenous food products through
implementing quality standards of them. Although the time required for a standard to be
approved starting from its conception depends on the nature of the item for which a standard is to
be set, indigenous products may take more than a year as they have to be studied from scratch
before deciding on requirements. While it is easier and takes shorter time to prepare standard for
internationally known items because ESA can directly adopt ISO standards, it is difficult to do
the same for an indigenous product due to research gap to characterize them. Therefore, it is not
possible to come up with detailed specification of a product unless it is supported with research
activity which is missing at ESA.

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The current edible oil standard of Ethiopia, unfortunately, doesn‟t recognize cold pressed and
virgin edible oils for which western market consumer is paying premium prices. Adding more
value to edible oil seeds would have tremendous spillover effects to other sectors like that of
livestock, create more jobs, and would enhance foreign export earning significantly than is
obtained from raw seeds. The fact that refining is a must in Ethiopia at all circumstances when
trading with edible oil is not an international practice. In fact, virgin oil has its own standard in
developed countries and shall not be evaluated by the standard of refined oil. Still, it was
evidenced that virgin niger oil was tested to have conformed to the standard of refined edible oil
let alone to that of virgin edible oil indicating its superiority. Cold pressed and virgin edible oils
of Ethiopia are dubbed incorrectly as „having negative health consequences‟ and „fail to fulfill
Ethiopian standards‟. International practices disprove such common myth believed naively by
many rather than based on evidences. Promoting such important edible oil process technologies
would contribute highly to achieve the targeted Ethiopian industry transformation as it would
encourage many SMEs engaged in oil milling businesses provided that they have access to
knowledge based technical assistance and capacity building resources.

8.4 Technology transfer and competent human resources

Lack of knowledge and technology transfer supporting AFPI development
Nowadays it is tougher to compete in the international market especially in the front of quality.
The competition is even tougher when it comes to food commodities because of the fact that it is
a commodity which is edible and thus has to fulfill more stringent food safety and quality
requirements. Manufacturing of food product of acceptable quality and safety requires process
knowledge and skill. In the food industry, just as any other industry, product and process
development is considered a vital part – indeed the lifeblood – of smart business strategy (FAO,
2006). The source of such product and process development is mostly a research output carried
out by HLIs, RIs or in an in-house R&D unit of a company..Currently, development of a research
output into marketable product which originates from HLIs/RIs or within a company is
uncommon. The processing of some of raw materials into products is not difficult from process
engineering point of view. For example, honeycomb processing into honey, milk into
pasteurized/UHT could be a lot easier to transfer technology and skill compared to processing of
milk into numerous downstream products such as varieties of cheeses. There are more than 1000

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types of cheese products whose process is more complicated as optimization of interactions of
physico-chemical parameters is needed for optimum quality. In general, while the process
engineering aspect of some food products is easier to adopt, others are more difficult to imitate
by just looking at the product. Unlike a hardware product, a food product is difficult to imitate
through reverse engineering because the components (ingredients) have undergone chemical &
physical changes through the course of processing. It is also difficult to successfully replicate a
food process from a documented procedure or a patent. This suggests the need for research to
come up with acceptable product.

The case of potato chips manufacturing can be taken to exemplify the aforementioned critical
situation. Good quality potato chips can be exhibited by its golden yellow color, minimum oil
uptake and crispness, among other quality attributes. Thus, a feasible investment on potato chips
manufacturing operation requires not only availability of potato in quantitative and qualitative
terms, appropriate machinery and equipment etc but also the knowledge and skill to produce a
product of high market acceptability, chips of golden yellow color, minimum oil absorption,
highly crisp, etc. At the moment, lack of such similar knowledge and skill is a bottleneck
hindering the entry of many primary agricultural products into agro-processing.

It is this lack of knowledge and skill that hampers, among other reasons, the growth and
development of new and diverse agro-food processing enterprises, especially SMEs. In fact only
8.8 % of the 5043 graduated SMEs are engaged in AFP related activities. Even those are not all
strictly manufacturing food items. They mostly are engaged on food catering services.

The lack of knowledge and skill is especially hindering Ethiopia from obtaining the highest
economic benefit that could be reaped through exploiting its indigenous technologies of high
comparative and competitive advantages. Such indigenous knowledge and skills are not normally
studied in industrialized foreign countries and after all, no such technology is expected to be
transferred to us. The age old knowledge in production of injera of tef grain which could be
further diversified into injera crumb, and honey wine are best examples that are already attracted
the attention of international market actors and need to be extensively studied to be produced
with utmost safety, quality and consistency.

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Even though our universities have been under extensive reform process to expand their missions
from teaching into research and community services, little transfer of the created knowledge and
technology (especially those related to manufacturing activities) is manifested. In order for
universities to support the development of the manufacturing industry and hence meaningfully
execute its missions, they need to be transformed into becoming centers of entrepreneurship,
technological development and effective transfer.

Lack of practically well equipped human resources

There is lack of technically well qualified human resources in the agro-food processing sector,
which is indicated by very low productivity/efficiency of skilled human resources currently
recruited in this sector. Experiences of firms indicated that most university graduates are short of
the hands on part of their education. HLEIs have very young history of dealing directly with food
process training and research activities. It is just only a decade gone since such discipline has
been launched in three universities. Despite fierce internal and external challenges that were
encountered by these training programs, it has stubbornly persisted to expand nowadays in other
additional 1st and 2nd generation universities. Still, it is not as such generating the knowledge and
skill that would be readily utilized by industry so as to enhance competitiveness of the existing or
new AFPI investments. It was also found out that the agro-food processing sector itself is divided
further into diverse and specialized subsectors that couldn‟t be addressed at the required extent
by the current general food technology qualification program of universities. There is not only a
need to devise mechanism to enhance the hands on skill of fresh graduates but also to avail skill
based short term training facilities.

8.5 Attractiveness of AFPI to investors

Lack of conducive business environment and incentive schemes to further attract local and
foreign investors
There are no any readymade investment promotion and incentive schemes designed specifically
for AFPI at regional and national level. Still the regional states and the country have used the
general industrial sector investment promotion and incentive schemes developed by Ethiopian
Investment Commission to all industrial subsectors with blanket recommendations. There is no
subsector specific investment promotion and incentive scheme prepared/revised by the region,
considering the dynamics and unique potentials of the region. The regional industry bureaus in

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Ethiopia suggested that there should be subsector based investment promotion and incentive
schemes considering the regional dynamics and should also be revised regularly according to the
conditions prevailed in the region.

Foreign investors commonly asked the regional bureaus and MoI to respond the following
questions: how long an investor will take to acquire industrial land in Ethiopia, to get investment
license/document, and to see the company start to deliver first production. Accordingly, the
regional bureaus reported that it takes up to 2 months to get industrial land and up to 3 months to
acquire credit from Development Bank. This would lead to high costs of transaction and
becomes very annoying for foreign investors, which in turn discourages FDI besides reducing
competitiveness of the industry.

Poor implementation of investment incentives

The following question needs to be addressed “Are the incentive packages for investments in
AFPI properly implemented by private investors as well as government officials (implementing
agency) for the intended purpose specifically at regional level?” This suggests that instead of
worrying about what investment incentive packages are needed, we should give due attention
about how the investors have been using the incentives and how well the government officials
administered such incentives. It is also important to assess even the industrial zones/parks
whether they actually implemented the incentive packages for the intended purposes. The focus
group discussants however argued that the answer for the above question is “no” especially from
the view point of those individuals who invested in the periphery outside of Addis Ababa, capital
city of Ethiopia. Most of the regional investors had not used the incentive packages for the
intended purposes. For example, a significant number of private investors did not use the amount
of loan permitted and land acquired for establishing AFPFs, rather shifted the use of these
services and incentives to non-value adding activities as rent seeking. The land is delivered to
investors when they fulfilled at least the minimum requirements (for e.g., the investor should use
the land acquired for the intended purpose). But, the problem in this case is that both people, who
do and do not have potential for investment, applied for getting land. Once the investors got land
at lowest/no cost as incentive for promoting investments in AFPFs, they simply sold the land
acquired at expensive prices to others to earn rent or used it for other unintended purposes (for
e.g., establishing service delivering businesses like hotels).

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For delivering loan services to firms, the Development Bank of Ethiopia (DBE) requested firms
to provide collateral. For the purpose, the DBE assigned loan officer to estimate the value of
fixed-physical asset(s) that a firm provided as collateral. However, through the agreement
(corruption) made between the firm and loan officer, the later assigned higher estimated value
for the firm‟s fixed-physical asset(s) even by including the non-functional one(s) in order to
enable the firm gets larger amount of loan. Once such firms got loans, they totally disappeared
from the project areas and sometimes went out of the country by leaving only those old fixed
assets there at the project sites. Moreover, in order to promote the export-oriented AFPFs to
effectively produce and export their products abroad, the government of Ethiopia (GoE) allowed
them to import capital goods and inputs duty free. But, once got such export promotion
incentives, most of AFPFs sold their products in domestic markets (for unintended purpose)
instead of participating in export markets. All these situations imply that most AFPFs abused the
incentive packages; that is why the effect of these incentives is not reflected on the prices of
industrial products.

The regional governments are thus expected to create enabling environments by themselves for
the private sectors to effectively attract both domestic and foreign direct investments in AFPI
development. It means that they should play a vital role in improving the capacities of private
investors to actually involve in this industry. It is, however, reported that the regional officials
lack knowhow about how transformation/industrialization will be taken place.

Agro-food industry in Ethiopia has not yet reached as the status expected. The empirical
literatures on agro-food industry argued that the economies of least developing countries
including Ethiopia have to give due attention for agro-food industry development if they need to
achieve sustainable transformation in their economies, because the raw materials of this industry
are agricultural products to which a developing country (say Ethiopia) is expected to have
comparative and competitive advantages in the global arena and also includes the smallholder
farmers as empowered value chain actors. The challenge here is however coordination with
regional government offices and their sectoral institutions with regard to land access, utility
infrastructure, facilitation and after-care services. These challenges have to be resolved since
there is no other alternative to the set policy direction that has to be implemented. Problems
associated with transportation costs are being solved by government which is exhibited by the

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reduced transportation costs of manufacturing firms due to the improvement of Ethiopian
Maritime and Logistics Services. Whether or not the firms are using this benefit to perform the
intended activity has not yet well assured (this is part of the challenge by itself). Those firms that
have got tremendous incentives to carry out import substituting manufacturing have not yet able
to supply their products in domestic markets at the intended reduced price in comparison to its
imported counterparts (the case of locally assembled television was mentioned). It is undesirable
to see the fact that the domestic firms, after all these incentives, sell their products at the prices of
imported products (this was mentioned as a challenge to consumers). Such opportunistic
behavior of firms is a big challenge that has to be minimized. In contrast, manufacturing firms of
the developed world leave aside cheating by their own, do not agree to increase unjust price
although it is the wish of consumers, since they consider it as an evil (a criminal) act. It is also
mentioned that increasing unfairly prices of consumption goods whenever a holiday approaches
is the usual practice of our trading community. The attitude of the society has to change towards
responsible enjoyment of government facilitated incentive packages so as to achieve a win-win
situation for all citizens.

Lack of initiative taken by private investors to involve in value adding activities

The private sectors lack initiative for investing their capital on value adding manufacturing firms,
rather they preferred to invest in service delivering activities (such as, hotels). One of the main
reasons for this is that the private investors believed they could not derive immediate returns
from manufacturing activities, which are more risky and uncertain compared to the non-value
adding businesses. Add to this, the agro-food processing business requires relatively
sophisticated technologies and technically well equipped skilled human resources to properly
handle and operate the processing activities. This is a common problem in case of regional states.

The domestic investors in the regional states are more willingly enter in the traditional
merchandise businesses (which are candidates for rent seeking activities) than in value adding
manufacturing firms. The investors usually argued that they could get immediate returns if
instead invested their money on merchandise business, as it does not require value addition,
sophisticated technologies and technically well qualified human resources unlike the value
adding manufacturing business. For e.g., so far there is lack of private investors entering into
medium and large scale, milk processing industries.

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Evidences from stakeholders‟ consultations also indicated that most of the regional investors
have used the various incentives, which the government provided with aiming to promote
investments in AFPI, for unintended purposes. For instance, a significant number of private
investors did not use the amount of loan obtained and land acquired at subsidized cost for
establishing AFPFs, rather shifted the loan service and incentive to non-value adding activities as
rent seeking. Once they got land at lowest/no cost as incentive for promoting investments in
AFPI, they simply sold the land at expensive price to other persons to earn rent or used it for
establishing service delivering hotels or other businesses. The Development Bank of Ethiopia
formerly requested collateral to deliver loan to firms. Through informal/illegal agreement
(corruption) made between firms and bank loan officer, the officer assigned higher estimated
values altogether for functional and non-functional fixed-physical assets as collateral for firms to
get larger amount of loan. Once got loans, firms (owners) may disappear totally from the project
areas and even from the country by simply leaving those old and non-functional assets there in
the project areas. Add to this, in order to strengthen and promote export-oriented AFPFs to
effectively produce and export their products to abroad, the GoE allows them to import inputs
duty free from abroad. Once obtained such incentives for enhancing exports of their products,
most of them sold their products in domestic markets (for unintended purpose). All these
situations directly or indirectly imply that most investors are not actively involved in value
adding manufacturing industries.

Lack of developed industrial zones established around agricultural potential areas

One of the important factors that help attract local and foreign investors to play a significant role
for rapid and sustainable growth of the industrial sector in general and AFPI in particular is the
existence of well developed industrial parks in the country. A well developed industrial park will
help achieve goal of the industrial sector particularly through addressing some of the problems
encountered in AFPI while different firms were functioning in a separate manner. For e.g.,
accessing different infrastructure facilities (such as, electricity, roads, water, other technologies,
etc) and supportive services to manufacturing firms established separately are more difficult and
costly than those firms established in cluster forms like industrial zones/parks. However,
selection of areas appropriate for industrial park establishment needs a very careful attention and
analysis, for the initial investment cost of establishment is very high. So before establishing
industrial parks, we should know clearly what industrial parks will be established where. In

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doing so, we should also answer “Are the selected corner stone towns feasible for the
establishment of effective industrial parks?”

In order to establish an effective industrial park, it would be better to follow a corridor approach
mainly basing on resource potentials and availability of various infrastructure facilities in the
locations, where parks are expected to be established. Otherwise, establishing them based on a
political variable of equity, may lead to wastage of huge public resources as they are capital,
technology and knowledge intensive. Thus, before industrial parks established, at least the
resource potentials and availability of infrastructure facilities should be clearly identified in
actual terms across different locations. Once the resource potentials and infrastructure
availabilities determined, it is also important to conduct a feasibility study by introducing pilot
industrial parks during GTP2 period in certain prosperous areas/locations chosen based on the
above two basic parameters. If these pilot parks found feasibly functional, their best practices
would further be scaled up to wider locations nationwide having similar circumstances, even
might be feasible to establish more than the expected 17 number of industrial parks by 2025.
This view is in line with the Ethiopia Economic Update (WB, 2015) which suggested that there
is a need to adopt a strategic and phased approach for implementing the industrial parks program
in line with international experience. This would ensure whether there exists sufficient demand
for existing industrial parks. It is therefore vital to phase implementation based on the business
case for each industrial park to ensure that there is sustained demand. Experiences from Asia and
Latin America suggest that it shall better make one or two industrial parks succeed before
starting other initiatives.

The feasibility study should basically answer what amount of raw materials a given AFPF
requires in order to fully utilize its capacity. This will help determine the minimum amount of
resources a given location needs to be endowed with so as to be chosen as industrial park that
can fully operate the planned number of AFPFs. The feasibility study is also expected to address
what type of stakeholders‟ integration/coordination is needed to make industrial parks more
effective and efficient through assessing stakeholders‟ relationships in case of existing industrial
parks and benchmarking successful countries having similar development history with our
country. Overall, it would be good if selection of locations for establishment of effective

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industrial parks consider the following criteria: agricultural resource endowments, infrastructure
availability, inter-industry linkage, and value chain integration, besides others.

The development of industrial parks is an achievement of a developmental stage of

industrialization. When one mentions an industry zone, it refers to an area and shades that are
demarcated for manufacturing industries establishment only. When one talks about industry
parks, it is much bigger and complex than industry zone. Parks contain industry zone, residence
area, commercial centers, entertainment areas, one-window services of all sectoral agencies like
banks, telecom, utility, etc and other services within it. It has its own administration unit with its
own director general. We reached at this level of industry developmental stage starting from a
unit in the MoI named „Industry Zone Development and Environmental Safeguard Directorate‟
that has now developed into Industrial Parks Development Corporation, which is being
transformed further into industrial parks. It is now evident that the industrialization process of
the country is led by a knowledge based intervention exhibited by the fact that seven sector based
institutions are operating under the MoI. These institutions support the industrialization process
through training, research and development activities.

In general, the concept of industrial park is much broader than the concept of industrial zone,
which consists of the following components: rural transformation centers (RTCs) that are
collection centers for food parks and provide different services to farmers (such as, farm
credit/finance, agri-clinic, monitoring and training, food and entertainment, collection centers
closer to farmers/producers, commercial rural market, office space and primary health), primary
processing centers, industry closer to big urban centers, common infrastructure facilities and
distribution centers. RTCs may comprise different villages.

The debate still continues between Industrial Parks Development Cooperation (IPDC) and MoI
in determining the number of IAIPs that need to be established nationwide during GTP2. IPDC
and MoI planned to establish 17 IAIPs and 4 pilot IAIPs, respectively. The latter organization
argued that as IAIP establishment is a very expensive investment it shall be better to introduce
only fewer parks as pilot projects around some agricultural potential areas of the country. Before
deciding the number of parks that will be established in the country, it is also better to see and
draw lessons from experiences of other countries. For e.g., the IAIPs of Thailand are private
sector driven and followed a focused approach; the IAIPs of Vietnam are public sector driven

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and not followed a focused approach rather struggle too much to cover wider IAIPs; and since
Malaysia is over ambitious in the establishment of IAIPs, it fails to achieve (in bankruptcy) in
this regard. Thus, our country has to be very careful and should not be over ambitious in
establishing IAIPs. It is not an easy task for Ethiopia to establish even 4 IAIPs, each comprises
about 30-40 manufacturing firms.

The feasibility study on existing IAIPs has shown the need to invest onto change in the mind set
(attitude) of farmers towards producing quality products (this is done by ATA) and alignments of
IAIPs establishment with regulatory bodies (e.g., FMHACA). Unless ATA has done its works in
line with MoI, there would be retrogressive. Thus, there is a need that ATA and other key
stakeholders of AFPI should align its works with MoI. Some of the benefits of IAIPs are value
chain orientation, quality improvement and properly regulate their works, etc.

Challenges of industrial park development (Cluster Formation): We cannot yet talk about
achievement as it is just the beginning. Each park has its special economic zone, IT zone, agro-
processing zone, pharmaceutical zone, etc. Clustering will depend on the location and input
supply. The challenge is that we are still learning and stakeholders are not well coordinated
starting from strategic alignment (GTP2 derived strategic plan). The institute is new and we are
learning and that is the challenge for all stakeholders. During construction, different sectoral
agencies working in the industrial park were not performing in a concerted approach. But when
the park fully operates, it is planned that all these sectoral agencies will give a one-stop-shop
service in the park. Specialization of industries is not yet put in place in park development
though the seven institutions established at MoI to support the industrialization process are
working in a specialized manner.

8.6 Policy and institutional supports for AFPI development

Limited access to credit services
Although both governmental and non-governmental banks in Ethiopia start to deliver credit
services to manufacturing firms, the bureaucratic procedure is long enough, besides firms visit
banks several times and go through multiple ups and downs to acquire the loan. The bureaucracy
is severe in case of Development Bank of Ethiopia. For instance, the regional DBE refers the
investor to the Federal bank if s/he needs to take credit beyond a certain limit (55 million birr).

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Getting such credit would take a long period, not less than a year. Moreover, currently the DB
requests a 30% on-cash reserve in order to release a credit of 70% of the total investment fund of
the project. Such credit system does not consider a firm‟s physical assets as collateral unlike
commercial banks and its previous loan delivery system used. This problem is very serious
especially for those small and micro enterprises (SMEs) graduated to medium manufacturing
firms. A given SME is needed to register at least an estimated capital of 1.5 million birr (which is
a sum of physical assets and cash) in order to graduate into medium manufacturing firms.
Because these firms usually spent most of their capital to build physical assets, they could not
provide 30% on-cash reserve to get loan. This would not create enabling environment for
graduated firms to upgrade their capacities to the extent they could stand firmly by their own.
Otherwise, these firms would go back to their previous positions or collapse. The main challenge
in this case is that some investors could not offer the required amount of cash (30%) to get a
credit of 70% of the total project finance from Development Bank of Ethiopia (DBE). The
regional industry bureaus suggested that there is a need to restructure the current credit delivery
system of DBE from 30-70% to 10-90%, just like the credit delivery system of micro finance
institutions (MFIs) for SMEs.

The focus group discussants confirmed that on-cash reserve request significantly reduced the rate
of investment in the manufacturing industry as compared to the former credit system requesting
collateral in the form of physical assets (like buildings). The former credit system simply
requested the investor to provide 30% of the total project investment fund in the form of fixed
assets. The private investors also argued that participation in value adding activities is
knowledge, technology and capital intensive, most of their capital is invested onto physical
assets so that it is very difficult for them to provide a 30% on-cash reserve to get loan from bank.
Thus, there is a need to rethinking of the DBE arrangements to revise the current reserve
requirement, considering its negative implication on both the level and rate of investment in
AFPI in particular and industrial sector in general.

Shortage of foreign exchange

An export oriented-firm could get both import and export license at a time. Some raw materials
produced in Ethiopia are not competent with world markets, for they are relatively expensive.
The export-oriented firms purchased these domestically produced raw materials at expensive

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price relatively higher than world price and then exported them to abroad at a lower price (by
10% discount/loss) for the purpose of getting foreign exchange. Once got hard currency from
raw material exports, they used it to import other commodities from abroad duty free that can
bring them 200-300% return without undertaking any value adding activities. This suggests that
the private investors are wrongly used the public incentives for unintended purpose, implying
they are serving as rent seekers instead of being actors of economic development. Although
firms earned foreign exchange from exports, most of them could not satisfy their foreign
exchange needs by themselves, instead they applied their request to banks for it, which in turn
aggravates shortage of foreign exchange in the country in general and for other non-exporting
firms in particular. Thus, once the export oriented firms licensed for both import and export of
commodities, an effective monitoring and controlling mechanism needs to be devised to check
whether the foreign exchange earned from exports are used for the intended purpose. It is also
important to conduct further investigation that can clearly address why the export-oriented firms
could not at least cover their foreign exchange needs by themselves.

The financial market in Ethiopia is at emerging stage and lacking a strong legal and institutional
framework. The Treasury bills market is the only actively functioning primary market, there
being no secondary market. Long term securities, solely government bonds, are not widely used
or traded, although government bonds have occasionally been used to finance government
expenditure and/or to mop up excess liquidity. The financial market still follows a closed
economic system, where the entry of foreign firms into the financial sector remains forbidden.
According to focus group discussants, this will remain so until the time the domestic banks have
attained greater competitiveness, and the supervisory and regulatory capacity of NBE is
strengthened

Uncoordinated linkage among stakeholders

The current economic policy of Ethiopia considers manufacturing sector, particularly the agro-
processing subsector, as a key role player in the achievement of the country‟s vision to become
one of the middle income earners by 2025. However, agricultural sector has given little emphasis
for production and productivity of primary agricultural commodities of high importance of being
used as input for agro-food processing industry. The emphasis was given to food security
attainment through focusing on staple crops. Focusing on production and productivity

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enhancement of staple crops alone, without parallel endeavor to ensure the absorption of the
produce by market, was found to have resulted in halting further growth in production and
productivity. This phenomenon of retarding growth of production and productivity was exhibited
mostly on perishable crops. A member of a dairy cooperative, who was able to increase his daily
milk contribution to 270 litters, was not motivated to increase further due to lack of market. In
fact, it was so discouraging that dairy farmers are forced to reduce production. The similar case
of maize production and productivity is also a good example. Despite evident increase in
production and productivity, it needs to be sold or processed as early as possible so as to avoid
loss owing to its poor storability and proneness to insect attack. The situation is different for tef
as it is storable without being infested by insects and thus can be stored longer without the need
to sell it hastily. AFPFs, MoI and BoUIDs are not making use of the production information
delivery format made by MoA & CSA. MoA and CSA are using a general reporting format
without considering the needs of AFPFs. On the other hand, MoI and its regional counterparts
are not supporting MoA and BoAs in providing information with regard to what type, variety or
breed is needed by AFPFs.

Poor coordination among AFPFs, FMHACA and technical supporting institutions was also
shown to affect AFPFs negatively in such a way that implementation of competence
requirements and food quality standards are not carried out to the level intended. If FMHACA
inspects correctly, most firms will be closed for non conformity. As this is not a desired overall
effect, institutions working on technical capacity building and awareness creation shall work
hand–in-hand with FMHACA. Through inspection alone it is not possible to achieve the desired
effect of assuring food safety and quality. The capacitating work of firms to comply with
mandatory operating and product criteria is the missing/weak link and is very crucial to hit
quality and safety target.

The service delivery of Ethiopian Revenue and Customs Authority (ERCA) is very much
complex and bureaucratic. There is lack of smooth and rapid service delivery system in this
institution. The time sensitivity of food items (especially raw materials) and delay in delivery
times impose additional challenge with regard to competitiveness of Ethiopian AFPFs.

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Poor support to graduating and promoting participation of SMEs for AFPI development
The Micro and Small Enterprises Development Agency at country and regional level has carried
out its activities related with AFPI development linking mainly with its urban agriculture and
agro-processing directorate. SMEs participated in AFPI have brought about significant change
with regard to employment generation. For example, the number of enterprises that entered in
milk processing, fattening, poultry production, etc is now being run by university graduates. In
general, promising start is evident in developing SMEs that utilize agricultural resources of the
country. This promising start is not going forward without a challenge and hence still there is a
lot to do so to come up with the intended result. As stated in FeMSEDA‟s strategic plan of
GTP2, there are 5404 small enterprises that have been graduated to medium industries (not only
with agro-food processors). In order to make use of SMEs as entry points for agro-food
industrialization especially in the rural areas and graduating some of them into MLEs to better
improve their contribution to the country‟s economy, there is a need to address the following
bottlenecks of SMEs.

Lack of access to technology: This is one of the major challenges of SMEs. Most fruit and
vegetable products that could be turned into processed, packed and shelf stable products and thus
create employment opportunity and benefit for producers/farmers through boosting income and
livelihood has remained untapped due mainly to lack of knowledge and technology. Most
imported foods that are shelved in retailers for sale could be produced locally and we have the
potential for it. In most cases, imported processed foods are made from the raw materials that
we shipped abroad raw. This problem can be addressed by universities and research institutes of
the country as they are institutions engaged with knowledge and technology generation and
duplication.

Lack of packaging materials: Packaging is the other major problem that hinders the
development of the agro-food processing sector. Because of limited access to packaging, SMEs
are suffering from lack of market despite they produce competent products. This packaging
problem led SMEs to suffer from price reduction, perish ability and lack of market access. An
American entrepreneur, who was engaged in potato chips processing business here in Ethiopia,
was most successful just because he used a simple, but appropriate and labeled, packaging
material brought from America. The actual potato chips making operation was carried out using

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simple technology. The success factor of his business was the appropriateness of the packaging
material he brought from abroad. He is now exporting this product. SMEs are capable of
manufacturing of highly acceptable chips. The only thing they lack is, however, the packaging
material and its associated packaging machine. The case of packaging material problem could
also be exemplified with a similar situation governing in our country with regard to jams and
jellies manufacturing. Lots of similar conditions can show the severity of lack of access to
packaging materials hampering the AFPI development. It is wise to work focusing on addressing
this problem.

Limited access to financial resources: The food sector requires financial capacity to properly
execute. In addition, unlike the simple trading and service delivery industries, the food
processing sector doesn‟t bring about a relatively rapid return. Financial institutions are more
confident to give loans to the traditional type of business as the rate of return for loans is their
major focus to be itself (micro finance) more sustainable. In solving these problems and availing
enough access to finance for SMEs, little is done so far. Service industries require comparatively
less finance and again could have access to short term loans hence favored by SMEs. Research
and development support from universities, especially in selecting appropriate shelf life
prolonging items, is vital but lacking.

It is not wise to consider lack of raw materials for food processing, because the demand for raw
materials has to be created first in order to stimulate the farmer to produce more. It has been
found out that the overall support system to graduating small enterprises didn‟t continue as now
they are considered as medium industries and it is expected that they are supported by MoI.
SMEs are given shades for their manufacturing activity while they are in our custody. When they
graduate however (they graduate when their capital reaches 1.5 million birr) they are supposed to
build their own shade and are said to be entitled to get loan from Development Bank of Ethiopia
which is not yet practical. Microfinance institutions (MFIs) give loans only to SMEs and not for
graduated firms. Owing to lack of continued support for graduated enterprises, some firms are
trying not to graduate to the next level through keeping their capital and number of employees
concealed. The capital cut off point (1.5 million birr) is also found out to be too small to be
considered as equity in the 70:30 loan scheme required by Development Bank of Ethiopia. This
problem needs special intervention through establishing an institution responsible to support

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these enterprises until they will stand in a position to be considered by the supporting operations
of MoI. The fact that FeMSEDA able to create 5404 graduated enterprises signifies that our
policy of considering SMEs as a foundation to industrial transformation is correct. But they shall
obtain continued support to achieve the targeted structural transformation.

Lack of infrastructure: It is also a big challenge to furnish infrastructure including working

area, access to the increased demand of electric power, access to productivity enhancing
technologies to the graduating enterprises. Since the required capital to continue operating as a
developing medium industry is bigger, the 30% equity and the associated 70% loan is far too
small compared to the total project cost. In fact, the construction of shade alone, which was
covered by government before graduation, would consume much of the project capital.
Government shall furnish either a special credit service or shall facilitate a working shade
prepared for these graduating enterprises.

The poor attitude of the general population and government purchasing system/rule to procure
and use products made by SMEs are among the overall challenges of SMEs development.
Another challenge is poor coordination of stakeholders to develop SMEs as needed. It requires
the special attention of Research Institutes/Universities. Universities shall equip graduates with
skill and attitude to enter into SME establishments and contribute their part in the employment
generation and industrial transformation process. There is also lack of processing skill even
among university instructors and hence graduates.

Lack of support to promote agro-food industrialization in rural areas

One of the important factors for enhancing competitiveness of the AFPI is promotion of agro-
food industrialization in the rural areas, where agricultural raw materials are potentially
produced, potentially capable cooperatives/unions and resourceful and rich farmers are available.
However, the participation of cooperatives/unions and resourceful farmers in AFPI development
is very minimum.

Limited participation of cooperatives/unions for AFPI development: Cooperatives start to play

a crucial role for sustainable development of an economy since 1844. The first cooperative (so
called consumers cooperative) was established in 1844 in England, Rochdel town. Based on the
experience of this pioneer cooperative, similar and other kinds of cooperatives were then

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expanded to Europe and America. In Ethiopia, cooperatives were organized in modern way since
early 1950s. Nowadays in Ethiopia there are 60,126 Primary Cooperatives with 9,393,201
members, 326 cooperative unions comprising 8,932 Primary Cooperatives and four Federal
Cooperative Unions (FCA, 2014). They have a capital of about 11.3 billion birr and saved more
than 5.2 billion birr. These cooperatives are mainly involved in agricultural sectors and financial
sectors (saving and credit cooperatives). Through mobilizing and providing various supportive
services for addressing the challenges that would encounter, it is possible to effectively utilize
the following untapped potentials and roles of cooperatives/unions for AFPI development.

Serve as rural financial institutions: One of the major problems encountered during
implementation of the industrial policy is there is little/no financial markets in the rural areas of
Ethiopia, where more than 85% of the population lives and whose livelihoods heavily depend on
agriculture. This causes high population pressure, leading to expansion of farm land to marginal
areas besides subsistence and rain-fed nature of agriculture production. The production growth in
the long term mainly resulted from soil nutrient mining and extensification of farm land, where
the chance of such happening becomes little overtime following high rate of population growth
in the country. On the other hand, the number of agro-processing firms, to which agriculture
sector is the source of their raw materials, increases significantly overtime. Thus, intensification
of agriculture (through use of improved seeds, fertilizers, agro-chemicals, improved animal
breeds, improved water control, improved feeds, etc) is the only, most important means of
increasing the production and productivity of agriculture that can provide marketable surplus on
continuous basis. This implies that agricultural growth through commercialization of smallholder
farmers is a process of sustainable intensification. Sustainable intensification in turn requires
purchasing of these improved technologies. Since majority of the rural population in Ethiopia are
smallholders resource poor farmers they could not offer money for input purchases. Thus, there
is a need to have financial markets in the rural areas that can deliver credit services to
smallholder farmers for the purchase of agricultural inputs. However, it is little/missed market in
the rural areas. The cooperatives in this case can play an important role in creating modern
financial system that is easily accessible and suitable for the development of rural areas.

Serve as agricultural input suppliers: The cooperatives play a significant role in improving
agricultural production and productivity of smallholders not only through providing financial

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services, but also delivering agricultural inputs to farmers at the right quantity, time and place.
Participation of cooperatives in input supply reduced the length and complexity of the supply
chain, signifying that prices of agricultural inputs supplied by coops are lower than the one
supplied by individual private traders. Thus, by reducing the transaction costs of agricultural
inputs, the coops could also help facilitate the supply of agricultural products to AFPI at
relatively cheaper prices. Consequently they would enhance AFPI to become competitive if
appropriate linkage were created between them.

Create market linkage between farmers and potential buyers: The cooperatives also contribute
more in developing market opportunities (stabilizing markets) for agricultural products. Almost
all farmers in Ethiopia usually sell their products in local markets during harvesting periods. Add
to this, the farmers who live in the same area produce similar products and supply huge amount
of same products to particular local market. This leads to excess supply of the product over
demand in the market. During harvesting seasons farmers would therefore sell their products not
only at lowest prices, the local markets could not also absorb their supply. Thus, there is a need
to linking with potential markets that can sufficiently absorb products. In contrast, these products
become very expensive during off-seasons. This implies that fluctuation of prices and amount
supply of agricultural products is one of the critical problems for smallholder farmers as well as
agro-food processing industry, where sustainable supply of raw materials is the prerequisite for
the existence and growth of the industry. A cooperative is one of the actors in addressing such
problems. The cooperative can serve as a buffer to stabilize agricultural product markets through
creating linkages between farmers and potential buyers. Agro-food processing firms are the
sustainably potential buyers of agricultural products if these buffering services of cooperatives
are further strengthened especially towards creating effective linkage between smallholders and
firms. Experiences revealed that cooperatives stabilize markets of agricultural products by
participating in the demand and supply side of output markets during harvesting and off-seasons,
respectively. They sold farmers‟ products by looking for potential (domestic and export) markets
in the form of raw materials and/or adding values. Thus, supporting coops to create market link
with AFPFs helps smallholders to get potential markets that can significantly and sustainably
absorb their products, besides improving the growth and competitiveness of AFPI. Some
cooperatives supply products to agro-food processing firms through contractual arrangements
made with these partners while others used products as inputs for their own processing firms.

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This suggests that cooperatives can play an important role for the growth of an economy not only
serving smallholders as a source and bridge of their product markets, but also participated in
value adding agro-food processing activities.

Participate in value adding activities: The cooperatives can also involve in value adding
activities. There are some cooperatives in Ethiopia established their own agro-food processing
firms, besides serving as market intermediaries between farmers and other potential markets.
This implies that besides coops enable farmers to get better markets for their products, the
farmers would share the benefits obtained from the value adding activities as they are results of
their own processors. Moreover, the coops can serve as medium of technology transfer and the
first entry point in the process of transformation from labor-intensive to capital-intensive based
production system development, for it is relatively simple to cluster lands of coop members and
create capital accumulation for the purpose of adopting mechanized farming in the country. They
can also serve as the appropriate media for introduction of best practices derived from other
successful countries, like the experience of Japan in specialization of production through a
principle of a single village for one product (AVAP).

The other opportunity for initiating coops to participate in AFPI is that the Federal Cooperative
Agency (FCA) of Ethiopia planned to increase participation of cooperatives to be 60-70% at
least in the domestic markets during the GTP2 period. In order to efficiently use this opportunity
and the above mentioned potentials of coops/unions for AFPI development, it is important to
strengthen and promote them through addressing the following challenges.

Lack of finance: There is little/no modern financial system in the rural areas that can deliver
sufficient credit services for farmers, except cooperatives. It is however at infant stage. In order
to address this problem, FCA needs to establish modern cooperative banks. However, it faced a
strong debate at the beginning from the side of National Bank of Ethiopia (NBE) regarding the
importance of this bank. As reported by FCA, there are three types of banks (namely cooperative
banks, commercial banks and policy banks) found in the different countries of the world. Among
which, policy banks mainly supplied credit services to cooperatives and individual smallholder
farmers at lowest interest rate.

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Infrastructure problem: It is obvious the GoE (through IPDC) planned to establish 17 large
industrial parks all over the country by the end of GTP2. Cooperative is one of the main actors
that will be circumscribed in the value chain of these parks, aiming to be collection centers of
agricultural products closer to farmers. To do so, there is a need to access cooperatives to
appropriate warehouse and transportation facilities especially to agro-food processing focused
industrial parks, for agricultural products are very perishable by their nature. In line with this,
FCA planned that most cooperatives should have their own trucks to transport their products
directly from farm gates to potential markets. Moreover, they should have appropriate warehouse
(cold chain). Generally, the FCA planned to do more in the GTP2 period in solving the
transportation and warehouse problems of cooperatives. However, establishment of such
infrastructure facilities require huge investments, there is need that the GoE and donor
organizations to play an important role in sharing part of the initial investment costs. For e.g., if
the government/donor supports 50% of the investment costs needed for establishing warehouse,
the coops are willing to cover the remaining 50%.

Most cooperatives are managed by unskilled executive members: Nowadays cooperatives are
expected to play a significant role in Ethiopian economy mainly through addressing
smallholders‟ problems related to agricultural input supply and output marketing, and through
participating in value adding agro-food processing activities. In order to make the engagement of
cooperatives effective in all of these activities, at least they should be managed by skilled
managerial and technical staff. However, in case of Ethiopia, most cooperatives are still managed
by unskilled executive committee members, who do not actually perform their duties
competitively by considering the dynamic situations of both domestic and global markets. Unlike
other sectors, the government has not yet assigned the required number of skilled human
resources and amount of budget for the cooperative sector. This verifies that the government has
given less attention for human resource development in the cooperative sector. In this regard, the
FCA should take the responsibility to carry out cooperative literacy forum with the relevant
stakeholders that help address such problem in campaign. In addition, there is a need that
representative of the government administrative bodies (FCA/MoA) should work strongly
together with other key stakeholders to further strengthen and promote competitiveness and rapid
growth of cooperatives.

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Absence of market information delivery system: Almost all cooperatives in Ethiopia have not
yet used modern market information system. This is also resulted from the cooperatives being
managed by unskilled managerial end technical staff. Little/no cooperatives have their own
websites that used to communicate information at least with their input suppliers and potential
buyers of outputs. Thus, much effort needs to be exerted by the government and cooperative
managerial staff in order to easily access reliable information among supply chain actors of the
cooperatives.

Limited capacity of industrial associations to effectively mediate information, technology

transfers and conflict resolutions of legal matters
The role of industrial/business associations as representatives of the private sector is central to
the corporatist nature of public-private sector relations, in which a relatively small number of
major economic interest groups are represented. In many instances in the past, such associations
have pursued goals related directly to vested interests, but there is also evidence that in other
cases, they have collaborated with governments in ways which clearly match the strategic
industrial policy (IP) agenda, for example, imposing export standards on members, allocating
export quotas between producers, sharing information on markets and technologies, setting up
training or technology institutes and occasionally organizing a phasing out of production
capacity between members. In most countries, they have been strong advocates of business
environment reform (BER). They also provide information on government regulations, undertake
lobbying activities and offer support for conflict resolution of legal matters, although in many
countries, it is their interface with government which is critical.

Various industrial associations were established in the respective subsectors of AFPI in Ethiopia
aiming to address the vested interests of manufacturing firms especially related with public-
private relations that could not be addressed only with the concerted efforts of company owners.
Some of the associations in Ethiopia include Ethiopian Horticulture Producers and Exporters
Association; Ethiopian Pulses, Oilseeds and Spices Processors and Exporters Association;
Ethiopian Coffee Exporters Association; Ethiopian Coffee Roasters Association; Ethiopian
Wheat Millers Association; Ethiopian Oil Millers Association; Ethiopian Honey and Bee Wax
Producers and Exporters Association; Ethiopian Meat Producers and Exporters Association; and

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Animal and Meat Exporters Association. Some of these associations are still actively working
their functions while some others are docile and even they are the process being phasing out.

For example, let‟s see experiences of Ethiopian Edible Oil Millers‟ Association. It was
established mid 1990s. Currently there are 216 edible oil manufacturing firms in Ethiopia,
among which 106 firms are members of the association. The current status of this association is
very weak, which seems at the stage of phasing out. As the discussants of this association
reported that the major reason for its establishment is a problem of electric power supply.
Electric outage is the most common phenomenon in Ethiopia. Add to this, the released power is
not sufficient to operate the whole machines. The companies individually applied their request
several times for the concerned government authority (EEPA) to address this problem. They
could not however get immediate response/solution from EEPA for the separately applied
inquiries. The inability to address such problem through individual inquiry is therefore the
foundation for establishment of the association. The prevalence of other problems overtime that
significantly affects competitiveness of this subsector would further strengthen the importance of
the association. For e.g., there were about 10 donor organizations once up on a time that donated
part of Ethiopian society in kind (edible oil) and also supplied their oil products in domestic
market at cheaper price than that of the price supplied by domestic oil producing firms. This
made our infant edible oil manufacturers unable to compete even in domestic markets, and if this
situation continues unaddressed the survival of this subsector will be under question. The other
association that is observed in this study is Ethiopian Flour Millers‟ Association. It was
established in 2003 with the initiative of 15 founding millers. Federal Cooperative Agency is the
government body that was facilitating the establishment of the association. Now, as a
manufacturing sectoral association, the facilitation and support services rendered to it is handed
over to MoI. Among the 300 only 126 millers are members of the association (including pasta
manufacturers), most of which comes from Oromiya followed by SNNP, Addis Ababa and
Amhara region. It is one of strong industrial associations in Ethiopia, which has also branch
offices in Oromiya and SNNP and planned to open a branch office in Amhara region. The
association is overseen by a board, comprising 8 members such as president, vice president,
secretary, finance, and 4 executive members. The association has 4 recruited employees to
conduct its day-to-day activities. The manager of the association is an educated person (MSc in
agricultural economics), who has a good business and managerial skill, and accountable to the

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board. The general assembly is carried out once per annum on which performance and plan of
the past and the upcoming year will be evaluated. The board members are also well educated and
have foreign experiences in the purpose. The terms of office of the board members is 2 years and
a member can be reelected by the general assembly. The association being led by skilled human
resources may be one of the main reasons for its effectiveness.

The later association plays key role in establishing a common forum to share (among members)
knowledge about government policies, strategies, technology updates etc for attainment of the
ultimate objective of solving common problems in a concerted approach. An example of the
achievement of the association is the overturning of VAT levied on wheat flour. It also brings
about enhancement of technology transfer among members and from abroad. The association
facilitates experience sharing visits within member companies through which one learns from
others about modern technology availability, access to them, pros and cons of using a certain
technology. It has facilitated, for example, an experience sharing visit and expo participation in
Milano [Italy] for 30 of its members. These members have participated in conferences, visited
modern technology, and established business-to-business relationships. This visit can be
considered as a good opportunity for the members as they are now equipped with knowledge
with regard to selecting the right type of technology and the way how to deal directly to
businesses possessing the technology. The visiting members of the association have practically
seen means of manufacturing of best quality pasta products through semolina extraction
technology. As they have grasped the technology gap which imparts quality differences on
products, they became keen and started to process investment in such modern technology aiming
on competitiveness through manufacture of quality goods. The association also played key role
in showing Ethiopian potential to Italy‟s private sector in order for them to be based on Ethiopian
interest when developing technology. Italian business communities that are engaged in milling
and pasta extrusion technology development are made to be aware of Ethiopian wheat potential
and the mushrooming of milling and pasta extrusion industry. This condition has made them be
interested and draw their attention to Ethiopia.

Currently there is no lack of market for wheat flour and its derived products. The association
intervenes in market information gathering and delivery activities for their products when the
need arises. However now, the association gathers and delivers to member millers any available

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wheat market by type, price and quantity. In doing so, the association negotiates with primary
cooperatives and cooperative unions prices of available wheat and delivers the information to its
members through email and SMS messages so that member firms contact these suppliers for
purchase. Cooperatives and cooperative unions do not have contact with millers. Though
association is not entitled to purchase and distribute wheat, it bridges this gap and links coops
and coop unions with millers. The association is very much successful with regard to achieving
the aforementioned goals exhibited by the fact that the number of members of the association is
increasing from time to time. The major factor for the successful state of the association is the
commitment, experience, extensive foreign exposure, and tremendous knowhow of the board
members.

Best experiences/practices of strong industrial associations (for e.g., Ethiopian Flour Millers‟
Association and Horticulture Producer Exporters Association) need to be scaled up to other
passive associations (like Ethiopian Edible Oil Millers‟ Association) which are now on the
process of phasing out. To do so, first there is a need to strengthen the association capacity to
address the challenges that faced from manufacturing firms and government perspectives by
providing policy supports and other supportive services.

Challenges of the associations: As reported by representatives of the association and some of its
member firms, Ethiopian Edible Oil Millers‟ Association is the weakest among all the
associations exist in Ethiopia. This is mainly due to the following challenges, besides others:

Firms‟ interest to continue as members of the association becomes highly weakened. This is
mainly due to the fact that firms are very much disappointed for not getting immediate solutions
for the questions (problems) they frequently requested from the government side. When the
association clearly elaborates what problems firms actually faced in detail item-by-item, the
representatives of government (for e.g., MoI) usually promised to address such problems, but
they have not seen practically implemented their promises. The other challenge is from the firm
perspective; sometimes firms are not willing to accept the association‟s advice/decision. Firms
hesitate the association as if it has done things for itself (or in favor of the government) instead of
serving firms. For e.g., firms did not accept the association when attempted to advise it is
mandatory for the crude-oil manufacturing firms to be transferred into semi-refineries or

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refineries, as it is impossible to compromise human health. Quality control in the edible oil
subsector is mandatory, not voluntary basis.

What government supports are needed for industrial associations: The following are some of
the government policy supports suggested to enhance the performance of industrial associations:
 Ethiopian Edible Oil Millers‟ Association needs to be strengthened and promoted by the
government through actively implementing the remedial solutions for the encountered
problems (such as, tax issues, raw material exports, importation of palm oil, etc) in the edible
oil subsector. Accordingly, there is a need to restructure the incentive schemes regarding
edible oil manufacturing subsector.
 There is also a need to deliver training for association staff, owners and employees of
manufacturing firms, as most of these people are non-professional they have done their
works conventionally. Family-based management is the characteristic of almost all edible oil
manufacturing firms in the country. The same holds in other manufacturing firms, too.

Lack of level playing field among agro-food processing subsectors

Based on the Federal level investment incentive packages, the food industry is allowed to get the
following fiscal incentives, such as tax holidays- the food industry is exempted from income tax
up to six years, depending on the type and location of the food industries; customs duty free- the
food industry is allowed to import investment capital goods (such as plants, machineries) duty
free. One of the means to strengthen and promote the growth and development of food industry
in Ethiopia is protecting infant industries through reducing the tax imposed on imported inputs of
the industry and imposing high tax on agro-food products imported from foreign competitors in
order to protect the domestic industry from external competition.

However, this may not be equally applied to all agro-food industries. For instance, considering
the case of edible oil manufacturing, it is obvious that the demand for domestically produced
edible oil is much higher than the demand for imported palm oil. Still the domestic firms could
not satisfy the local demand. This is due to the fact that the oil manufacturing industry in
Ethiopia is at infancy stage. Unless the GoE protects the industry from external competitions, its
survival is under question late alone satisfaction of the local demand and its competition with the
export markets. However, it seems the GoE prefers to promote imports of palm oil as it allows

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duty free imports and this product is also supplied to domestic markets at subsidized prices while
imposing 15% VAT on domestically produced oils, instead of protecting the domestic industry
by imposing high tariff on imported palm oil, imposing taxes or applying selective bans on raw
oilseed exports, and/or exempting the industry from any taxes. This can be considered as infant
industry protection paradox.

Why the GoE imposed VAT on domestically produced edible oil products while leaving the
flour millers to sell their products free of VAT. Why the government needs to treat these two
subsectors differently is the question of both Ethiopian Edible Oil Millers Association and this
study team. The association argued this may be due to the fact that the GoE nowadays has faced
shortage of foreign exchange. In order to get an immediate solution for such foreign exchange
shortage, the government may prefer to export oilseeds in the form of raw materials, instead of
attempting to promote firms to produce and export edible oil by adding values, as the latter
option needs long period of time for Ethiopia to be competitive in export markets. This created
high pressure on local millers. Thus, if selective bans applied, for e.g., on noug export, it would
assure improvement of 37 millers‟ capacity utilization from 46 to 86.5%. Not only increasing
efficiency, adding value could also have far reaching consequences on livestock production
annually yields two million quintals of concentrated protein feed ingredients.

The respondents also perceived that if the GoE made the oil subsector free of VAT and selective
ban on exports of raw oilseeds are applied, the subsector would have the following advantages.
The potential edible oil manufacturing firms (such as, Addis Modjo, Amaressa, Gondar and
Dire) will become competitive in export markets overtime at least with the neighboring courtiers
and on the process other companies may also be competitive in the following two aspects. First,
they may play a significant role in satisfying the domestic demand for edible oil. This will help
save the foreign exchange that would be incurred for importing palm oil from abroad. Thus, it
would serve as import substitution. The other is the ability/efficiency of companies to use its
potential capacity would be improved.

To this end, there is a need that the government should give due attention for addressing the
differential tax treatments created between flour millers and oil producers, between domestic oil
producers and foreign palm oil importers, and between wheat millers owned by sole proprietors
and PLC.

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It is important to furnish the promised commercial farming land which shall be appropriate in
terms of area, suitability for wheat cultivation and with access to irrigation (in order to produce
twice a year). It also needs support in getting wheat extension package at the jump start stage and
then to be self supported later on. The success of such commercial farming aspect will be a
stimulating factor for other sectors like the edible oil and brewing industries. Its failure on the
other hand will also be demotivating first impression blocking other sectors from taking risk in
the commercial farming investment. Therefore, it is a must to coordinate and support this
initiative. Such coordinated stakeholder support to the wheat commercial farming shall be led by
MoI because the share company itself may face bureaucratic hassles deterring the effective
execution of planned activities.

Weak management of domestic and export markets for AFPI

In order for the AFPI play an important role for rapid and sustainable growth of an economy, an
effective system need to be devised for improving access to local, regional and international
markets for agro-food products. To do so, the following two new institutions are proposed to be
established at national level. There is a need to establish an independent institution that is mainly
responsible for managing the export (external) markets of manufacturing industries, which is
directly accountable for the Prime Minister Council. It is also important to establish an
independent institution responsible for managing the domestic (internal) markets of
manufacturing industries, which is directly accountable for the Prime Minister Council.

Lack of implementation capacity and commitment of the state

Ethiopian policy is favorable for investment and is comparable to the policies of developed
countries. For example, an investor who invests on establishment of an industrial park enjoys a
15 years income tax holiday. For those manufacturing firms that enter into parks for
manufacturing engagement, a 10 year income tax holiday has been put in place. They are also
allowed to import all their capital goods and spare parts duty free (15% of their values). Logistics
transport cost is discounted and bank loan accessibility becomes high. All these incentives
however are not yet reflected in product pricing. This lack of responsibility is a phenomenon of a
transition period and is believed to be resolved overtime through creating awareness among
investors and administering appropriate regulatory system that can really enforce punishment
onto those investors who have been misused these public properties (incentives) for unintended

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purposes. There is a clear direction and roadmap. If one conducts a comparative analysis, our
policy is among the best in the world. But the mutual understanding between government
(decision makers) and investors (receivers) is still poor.

9. Strategic Interventions and Policies

The discussion on the structure of Ethiopia‟s agro-food industry and the different potential
growth paths by type of subsectors suggests that the needs of agro-food industry vary according
to their size, intentions and ability to grow. It is however possible to generalize the needs of all
agro-food subsectors and still account for their differences by tailoring the delivery of
government support services to meet the needs of firms according to their category. This policy
and strategy document attempts to address these needs for segmented service delivery, aiming to
understand client needs and segment the client base to provide tailored support services that
build capacity of AFPI.

This is the approach to be taken in implementing the plan. Based on the general needs of agro-
food industry, as outlined below, the GoE will create packages of products and services to
respond to those industry needs and deliver them according to the business type, thus avoiding a
“one size fits all” solution. The following are generalized agro-food industry needs that have
been identified through situation and stakeholder analyses, and consultation with and observation
of AFPFs. These needs are briefly presented in Table 21 and discussed below as a summary of
their priority background for forming actions, initiatives and rationale for government
responding to each of them.

This section therefore discusses the strategic interventions, policies and other support services
that need to be implemented to address the strategic issues (discussed under Section 8) and
effectively use the vast potentials of a country so as to make AFPI a competitive and profitable
commercial business in the coming ten years (2015-2025). To do so, the plan was built with six
strategic pillars within which strategic interventions are identified and analyzed as of Table 21.

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 Table 21: Analysis of strategic interventions and policy issues

N Strategic pillars Strategic interventions TF EF SA PF Total Rank

o score
1 Input supply industry development
Access to reliable supply of local  Developing a reliable information exchange system between industry and agriculture sectors 3 2 3 3 11 2
raw materials (manufacturers, MoI & MoA)
 Establishing commercialized farmers and contractual arrangements with AFPFs 3 3 3 3 12 1
 Mobilizing & strengthening rural youths as a driver in commercialization of agricultural raw material 3 3 3 3 12 1
production
Access to reliable supply of  Establishing domestic firms manufacturing appropriate packaging materials 2 3 3 2 10 1
packaging materials  Importing appropriate packaging materials from abroad at reasonable price through pooling of 2 2 1 3 8 2
packaging material demand (especially for SMEs)
Access to reliable supply of spare  Establishing domestic firms manufacturing spare parts 2 3 3 3 11 2
parts  Strengthening & promoting domestic firms’ capacity to deliver maintenance & repair services 3 3 3 3 12 1
2 Infrastructure development
Strengthening food quality Establishing accredited laboratory facilities at strategic locations where most AFPFs are found as 3 2 3 3 11 2
assurance & control infrastructure well as in research labs of universities and RIs
Developing a career structure recognizing a profession of laboratory analyst comparable with other 3 3 3 3 12 1
similar academic professions
Improving CAB’s access to certified reference material (CRM) & proficiency test (PT) through 3 3 3 3 12 1
allowing imports duty free and avoiding delay of delivery
Promoting implementation of food safety & quality standards through enforcement of mandatory 3 3 3 2 11 2
food standards while at the same time providing strong technical supports
Access to reliable electric power  Installing dedicated electric transmission lines connecting AFPFs directly from sub-stations at least 3 2 4 2 11 2
for firms established in the industrial zones
 Setting up mechanism to provide precautionary information regularly to AFPFs about electric outage 3 3 3 3 12 1
 Facilitating and supporting private sectors to involve in manufacturing/supply of electric 2 3 3 2 10 3
transformers and other accessories
Access to competitively priced  Improving selectivity of inspections to reduce cost, transit time and corruption 3 3 3 3 12 1
transport logistics  Establishing appropriate cold storage with better technology at every export destination 3 2 3 2 10 3
 Establish milk collection centers at strategic locations of milk shades 3 2 3 3 11 2
 Improving competence and quality of logistic services (like sea, air and road transportation) 2 2 3 3 10 3
 Improving the ability to track and trace consignments 2 2 3 3 10 3
Improve customs service delivery  Introducing use of simplified customs’ procedures for authorized economic operators/traders 3 3 3 3 12 1
 Developing a single window service delivery system 3 3 3 3 12 1

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 systems  Introducing use of customs valuation system 3 3 3 3 12 1
3 Market & product diversification and development for AFPI
Improve access to local, regional  Establishing market information centers at least at industrial towns that can exchange reliable 3 2 3 2 10 3
and global markets information among key value chain actors in AFPI
 Optimally use the international and preferential market access to EU, USA & regional markets 2 2 3 3 10 3
 Developing appropriate marketing strategies based on membership to regional blocs (such as 3 3 3 2 11 2
COMESA, WTO, etc)
 Developing strategy to engage Ethiopian diasporas & embassies towards marketing strategy 3 3 3 3 12 1
development and implementation
 Effective segmentation and positioning of markets and products depending on the country’s 3 2 3 3 11 2
comparative and competitive advantages
Diversify agro-processed food  Strengthening and promoting existing priority AFI subsectors to expand/upgrade their capacity for 3 3 3 3 12 1
products developing and diversifying food products
 Establishing new AFI subsectors for diversification & development of food products 3 2 3 3 11 2
4 Promoting attractiveness of AFPI to local and foreign investors
Ensure conducive business  Developing appropriate promotional and relationship building mechanisms to attract local & foreign 2 2 3 3 10 3
environment and incentives for investors in AFPI and diversify products & output markets
investors  Preparing subsector based investment promotion and incentive schemes considering the regional 3 2 3 2 10 3
state dynamics of the country
 Strengthening and promoting domestic firms involve in AFPI support services (such as packaging, 3 3 3 3 12 1
spare parts and equipment suppliers)
 Protecting infant AF manufacturers (especially import substitutes) by establishing a level playing 3 3 3 2 11 2
field (improving tax and subsidy policies)
 Provision of special incentives & continued support for SMEs on the path of graduation into MLEs 3 2 3 2 10 3
 Promoting investment initiatives of multinational companies through developing public-private 2 3 3 3 11 2
partnerships (PPP) or joint ventures
 Align local, regional & national legislation and regulation to assist AFI businesses to reduce costs 3 2 3 3 11 2
of product development, manufacturing & bringing products to market
 Strengthening and/or establishing appropriate institutional setup for promoting domestic & FDI 3 3 3 3 12 1
 Institutionalizing one stop shop services for investors 3 3 3 3 12 1
Improve implementation of  Establishing awareness creation forum among AFPFs at strategic locations, where most AFPFs 3 3 3 3 12 1
investment incentives found
 Establishing TV promotion program regularly conducted with support of documentary films showing 3 3 3 3 12 1
the best performing firms
 Providing capacity building training for investors in AFPI before accessing incentives & setting up 3 3 2 3 11 2
mechanism to follow up their implementation while at the same time providing technical supports

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  Establishing appropriate regulatory systems for enforcing punishment onto investors who misused 3 2 2 3 10 3
incentives for unintended purposes
 Adopting zero tolerance for corruption in government and private institutions 3 3 3 3 12 1
 Improve implementation capacity of the state (state capacity building) 2 3 3 3 11 2
Industrial park development  Establishing integrated agro-food industrial parks at strategic locations of agriculture potential 3 2 3 3 11 1
areas as pilot projects
 Scaling up best practices of proven AFIPs to other potential areas countrywide 3 2 3 2 10 2
5 Capacity building
Improving knowledge and  Cultivation of innovation within HLIs & RIs through developing institutional technology transfer policy 5 5 5 5 20 1
technology transfer  Mobilizing & supporting diasporas to involve in technology transfer and development in AFPI 2 3 3 3 11 2
through special incentive schemes
 Facilitating internal innovation in AFPI through establishing industrial research and extension 3 3 3 3 12 1
department/division at regional and federal industry bureaus
 Developing partnership with multinational and global firms to get access for technology 2 3 3 2 10 3
development and transfer
 Developing joint ventures with FDI to get access for foreign exchange, technology development 2 3 3 2 10 3
and transfer in AFPI
 Promote research to standardize indigenous products and processes
Human resource development  Established HLI/RI affiliated skill focused and specialized training centers 5 3 5 5 18 1
 Improve career structure of laboratory professionals so as to curb the high turnover and 4 4 5 4 16 2
promote vertical development of the profession
 Integrating the training and education systems of higher education institutions with AFPI 2 2 3 3 10 3
development and diversity
6 Developing policy and institutional supports for AFPI development
Improve access to finance/credit  Facilitating and strengthening domestic banks to provide investment and working capital for 2 3 3 3 11 2
manufacturing expansion
 Facilitating the provision of capital loan to domestic investors from international financial sources 2 2 3 2 9 4
 Improving the current on-cash reserve requirement (from 30 to 10%) for increasing amount of loan 3 3 3 2 11 2
from 70 to 90% project’s investment at least for graduated SMEs
 Reinitiating to adopt the former credit delivering system (30% collateral in the form of physical 3 2 3 2 10 3
asset) at least in case of on-going firms
 Revision of capital required for graduating SMEs into MLEs 3 3 3 3 12 1
 Encouraging banks to give priority for AFPI to which GoE has given due attention as driver of the 3 2 3 3 11 2
economy in sharing foreign exchange
Improve access to foreign  Strengthening existing & establishing new import substituting firms to save the foreign exchange 3 2 3 3 11 2

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 exchange spent for food imports
 Mobilizing & supporting Ethiopian diasporas to invest in AFPI through special incentive schemes 3 3 3 3 12 1
 Diversifying food exports through establishing new export oriented AFPFs exploiting agricultural 3 2 3 3 11 2
potentials of the country
 Strengthening & promoting competitiveness of existing export oriented AFPFs able to cover foreign 3 3 3 3 12 1
exchange need by their own
 Facilitating easy access to land (w. r. t. adequacy and timeliness) for manufacturing expansion and 3 3 3 2 11 1
agricultural raw material production
Improve land acquisition for  Organizing groups of potential farmers to share land, capital & indigenous knowledge in AFP 3 3 2 3 11 2
expansion establishments through providing special incentives & technical supports
Promoting agro-food  Strengthening & promoting existing cooperatives/unions to establish AFPFs through special 3 3 3 3 12 1
industrialization in rural areas incentives & technical supports
 Organizing a platform for stakeholders in AFPI at industrial towns, where most AFPFs found 3 3 3 3 12 1
Improve coordination among  Strengthening SMEs participation in AFPI development through creating sustainable linkage with 2 3 3 3 11 2
stakeholders MLEs & establishing a dependable & modern information exchange systems
 Strengthening and promoting the role of industrial associations for effective mediation and conflict 3 3 3 3 12 1
resolution of legal matters
 Reorganizing structure of the regional industry bureaus in line with structure of MoI while at the 3 3 3 3 12 1
same time establish a strong and sustainable integration among them
Improving efficiency of service  Strengthening the institutional capacity to create industrial linkages both domestically and 2 3 3 3 11 2
delivery by MoI & regional industry internationally
bureaus  Establishing an independent institution responsible for managing export (external) markets of 3 3 3 2 12 1
manufacturing industries directly accountable for PMC
Improve management of domestic  Establishing an independent institution responsible for managing domestic (internal) markets of 3 3 3 2 12 1
& export markets for AFPI manufacturing industries directly accountable for PMC
 Establishing an independent institution responsible for managing domestic (internal) markets of 3 3 3 2 12 1
manufacturing industries directly accountable for PMC
7 Cross cutting issues
Women and youths participation  Organizing women & youths in SMEs to participate in AFPI supportive services (such as 3 2 3 3 11 2
transportation, storage, packaging materials, maintenance & repair)
 Organizing urban women and youths associations to participate in urban agriculture especially in 3 3 3 3 12 1
vegetable & fruit, and livestock production
Environmental & social aspects  Sustainable development with environmental and social consideration 2 2 3 3 10 1
Score for feasibility level: 1= Low 2= Medium 3= High; Where, TF=technically feasible, EF=economically feasible, SA=socially
acceptable, and PF=politically feasible

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9.1 Input Supply Industry Development
The reliable supply of good-quality raw materials is a major contributor to the success of agro-
food manufacturing industry. Manufacturers need to assure their customers that they can supply
the required quantity and quality of product within the delivery timeframes agreed. Developing
strong manufacturer-supplier relationships is essential to achieving this outcome and this can
only be achieved if both parties have confidence that demand will support investments and
commitments given. The major constraints to reliable supplier relationships in Ethiopia‟s agro-
food industry include:

 No incentive for raw material suppliers to gear up and invest in infrastructure to establish a
consistent supply of quality raw materials tailored to the needs of the manufacturer
 No incentive to explore the production of new raw material options (new product
development in agriculture) suited to manufacturing/value adding
 Local market attitude whereby infrastructure and systems are designed to support the spot
market norm rather than longer term contracts with manufacturers
 Lack of contractual and organizational structures to collectivize growers

The followings are some of the suggested means that help establish a consistent supply of locally
produced raw materials to AFPI.

Developing reliable information exchange system between agriculture and industry sectors
(MoA, MoI and manufacturers): As a short term strategy, MoA (and CSA) shall restructure its
reporting format in the way to provide accurate information/data to agro-food processing
industry (AFPI) about the type, quantity, quality, time and source of supply of agricultural raw
materials. In order to make AFPI competitive and hence improve its contribution to growth of an
economy, MoA and MoI should take a responsibility to establish a reliable information exchange
system among themselves, manufacturers and input suppliers that actually focusing on
addressing such industry‟s needs. The manufacturers and/or MoI in turn are required to provide
reliable information to MoA about firm s‟ effective demand in terms of amount, product quality
and delivery periods in advance of the production season (before production starts), instead of
raising such demand issues after agricultural products are harvested. If such information is
accessed in advance to MoA, it will help identify the crop and livestock enterprises the national

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extension system needs to give due attention to improve their production, productivity, quality
and delivery time by adopting modern agricultural production and information exchange
systems. Addressing of this problem requires rethinking of MoA arrangements for information
delivery and production systems, including the actual amount of yield obtained instead of
reporting on-farm yield estimation, marketable surplus, quality of agricultural produces (crop
varieties and livestock breeds) and sustainability/reliability of the supply (delivery period) with
respect to the needs of manufacturers.

Establishing commercialized farmers and contractual arrangements with AFPFs: The

productivity and quality of agricultural products (for e.g., oilseeds) that used as raw materials for
edible oil processing firms are very low. The Agricultural Research Institute should therefore
take initiatives for improving productivity and quality of agricultural products as to the needs of
firms by conducting adaptation trials on those improved crop varieties and livestock breeds
imported from abroad. In doing so, first the research institute is required to identify the needs of
AFPFs in respect of type, quality and productivity of agricultural products by conducting a need
assessment, firm survey. Once firms‟ needs identified, the research institute shall also take the
initiative to import those improved varieties/breeds satisfying their needs by looking for the
appropriate sources and thereby introduce into our country by conducting adaptation trials.
Finally, there is a need to commercialize agricultural production by clustering smallholder
farmers so as to produce sufficient amount of quality raw materials at large scale. In line with
this, both the country and the regional governments planned to establish rural transformation
centers (RTCs) in main towns of the regions and capital city of Ethiopia (for e.g., seven RTCs
along southwestern growth corridors in Amhara region). Thus, it would be advised if
commercialization of agriculture and contractual farming between AFPFs and commercialized
farmers are enacted along these RTCs. This initiative needs to be taken by BoA/MoA in
collaboration with Cooperative Promotion Agency to facilitate coordination of key stakeholders‟
involvement.

Strengthening and promoting rural youths to participate in commercialization of agriculture:

The other crucial strategy nowadays for addressing a problem of raw materials shortage is
strengthening and promoting rural youths to participate in commercialization of agricultural raw

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material production through enhancing efficient use of their farming experiences, innovativeness
and productive work force.

To this end, in order to address a problem of raw materials supply in terms of quantity, quality,
timeliness and consistency, there should be an integration of various stakeholders. Thus,
ultimately MoI should play a significant role in facilitating the creation of strong and appropriate
linkage among Agricultural Extension, Research Institute and AFPI. Finally, it is suggested that
the AFPFs should have research divisions that can conduct their own research.

Minimizing post-harvest loss of crops through improving access to low cost handling &
storage technologies, and infrastructure (such as roads and cold chain/stores:
Post-harvest loss here refers to any change in quantity or quality of a product after harvest that
prevents or alters its intended use or decreases its value. The agricultural extension and research
systems of our country is mainly focusing on increasing agricultural production and productivity
without giving due attention towards preserving what has been harvested. Post-harvest loss is a
huge economic failure in which all the costs of production such as cultivation, all material inputs,
tending operations and harvesting of the lost food are incorporated. Basing on the 25% average
post harvest loss estimation (FAO 2012), our assessment of average post-harvest food loss
during 2014/15 production year indicated that about 84 million quintals of harvested crops are
estimated to have been lost. Loss of food crops occur mainly during harvesting, handling,
storage, processing, packaging, distribution and marketing. Major underlying causes of such
losses are spillage, insect pests, rodents, molds, disease and rotting that occur mainly near the
farm. Area wasted to produce such lost volume of food crops is estimated to be about 3.3 million
hectares. Improving access to low cost handling and storage technologies, awareness creation,
improve packaging to keep produce longer, and improve infrastructure (such as roads) could
minimize meaningfully post-harvest losses (PHL) (Lipinski et al. 2013) .

Access to reliable supply of packaging materials

Establishing domestic firms manufacturing packaging materials: Most AFPFs used packaging
materials imported from abroad. The GoE is required to encourage potential investors (local or
foreigners) by providing special incentives to involve in the establishment of packaging materials
manufacturing firms, around the vicinity of AFPFs in the region/country. This will improve the

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competitiveness of industrial products by reducing the cost of packaging. It will also save the
foreign exchange earnings by substituting imports of packaging materials from abroad.

Importing packaging materials at reasonable price: The high local demand to diverse types of
packaging materials is calling for a feasible investment in the sector and hence the government
shall promote it whatever it takes because it is vital to the overall development of agro-food
processing industry. For a short term however, it is good to support SMEs that are engaged in
agro-food processing operation to facilitate access to packaging material at cheaper unit cost
through pooled import mechanism.

9.2 Infrastructure Development

Availability and access to supportive infrastructure and facilities, and appropriate policy
environment and incentives are the important enabling environments for investors including FDI
to participate in AFPI development so as to make it competitive with respect to agro-food
processing in comparison to other countries and especially to the neighboring countries of
Ethiopia.

Access to reliable electric power supply

This problem could partly and during a short term be mitigated through setting up mechanism to
provide precautionary information to AFPFs well ahead of time. Isolating the electric
transmission lines leading to industry zones and urban resident centers, and installing direct line
to industry zone would contribute to alleviate the problem in the medium term. The long term
solution would be to develop industry parks where new but also some existing willingly
relocating AFPFs could operate. Industry parks allow industries operating in it enjoy sustainable
and continuous power supply as they are connected directly with electricity distribution stations
and thus enable power authorities to make discriminatory supply in favor of the parks whenever
power shortage is encountered. The following are the alternative interventions that need to be
made in addressing a problem of electricity outage and shortage of associated accessories.

Promoting potential private investors to involve in the supply of electric transformers and
associated accessories: When new firms enter in AFPI, they often face a problem of delay in
delivery of electricity accessories (mainly transformers). This problem plays a significant role in
reducing efficiency of the new entrants at early stage of their establishment. It is suggested that

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since there are potential private investors willing to enter in the market of electric transformers,
the government shall create an enabling environment for them to participate in this business.

Access to competitively priced transport logistics and customs procedures

The results of firm level and stakeholders‟ consultations and the recommendation made by the
last two Ethiopia Economic Updates (World Bank, 2014 and 2015), improving selectivity of
inspections to reduce cost, transit time and corruption, and providing warehouses with better
technology are possible ways to improve trade/transport logistics. The recently launched
National Trade Logistics Strategy provides a strong foundation on which government of Ethiopia
could mobilize resources and coordinate interventions to remove binding bottlenecks in trade
facilitation.

The other means of reducing the cost of trade logistics is the implementation of the new Customs
Proclamation (December 2014) which puts emphasis on facilitating rather than controlling trade
will usher in much needed reforms such as the introduction of use of simplified customs
procedures for authorized traders; pre-arrival clearance of goods, and use of risk assessment and
post-clearance audit. This will lead the country to use improved customs‟ service delivery
systems. The followings are some of the systems that ERCA needs to adopt to simplify its
service deliveries to customers especially for manufacturing firms.

Authorized economic operators: It is known that the existing service delivery system of ERCA
followed a bureaucratic approach in which the customers could not get such services easily and
in short period of time. This would cause the manufacturing industries not to be competitive. In
order to address this problem particularly in case of manufacturing industry, ERCA needs to
adopt some new service delivery systems. One of such systems is a system that creates
authorized economic operators. ERCA began to use this new service delivery system two years
ago, where other countries have been using it for several years. Through trusting the investors
engaged in imports and exports of products, the system allowed them to freely import and export
products without any checking up made by ERCA. However, before an investor is eligible to the
system while applying for being a beneficiary, a team of experts from ERCA will be sent to his
firm to evaluate history of his business whether he has been implementing the existing system
properly and trustfully as per expected. Once the evaluators approved his business applied the

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existing system properly and trustfully, he would be allowed for the new system- i.e., he
becomes one of the authorized economic operators in this regard.

Single window system: Nowadays the service deliveries of ERCA improved from time to time so
long as a customer coming to ERCA fulfills the preconditions required from him/her. However,
ERCA has still attempted more to improve its service deliveries focusing on the prioritized
sectors of an economy, like manufacturing sectors especially for export oriented ones. The old
service delivery system of ECRA urged the customer/investor to visit various offices if
requested, for e.g., to fill the forms completely. A lengthy procedure of service delivering
exposed the customers for much more suffering, besides causing to incur extra costs and time. In
order to address this problem, ECRA has nowadays attempted to install a single window service
delivery system. The single window system delivers one-stop shop services through the use of
electronic system, where once the customer filled the form at ERCA, ECRA will distribute this
filled form electronically to all concerned offices to accomplish online the rest parts of it so that
the customer gets his work completed easily.

Ethiopian customs valuation system: Currently this system began to work in Ethiopia. Like
ECX, in this system information is delivered to all concerned bodies about how the investors
engaged in imports and exports have done their works so far. This will therefore reduce/avoid
conflicts/claims created among buyers and sellers of products. In this system if sellers (for e.g.,
exporters) genuinely provide the selling price information, buyers (importers) will purchase
export products basing on the price delivered by the sellers. This system will be improved on the
process. The main bottleneck the participants faced on the path of applying such system is that
the importers could not provide exporters the exact specification of goods that they need to
import.

Strengthening food quality assurance and control infrastructure

Export commodities encounter stringent hurdles that need to be overcome before reaching the
international market and ultimately the consumer. Such hurdles are even more stringent when
referring to food commodities since consumers are now aware, like never before, of food safety
and quality issues. The requirements are even tougher in parts of the world where affluent
nations are living who can pay premium prices. Each and every competitor country is trying to

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install quality assurance and control systems to win the international market, stay in business and
exploit its competitive and comparative advantages.

Ethiopia has laid NQI foundation and started to set up quality assurance and control system with
the objective of improving the quality of its products leading to more sales and increased
industrial production. Commodities need to comply with food quality and safety requirements
and have to be shipped along with quality certificates when crossing border. Obtaining a quality
certificate that is acceptable everywhere requires the services of conformity assessment bodies
(CABs) which shall be accredited by a third party accreditation body. The accreditation body in
turn shall be internationally recognized and comply with international code of practice used to
inspect its competence. ENAO is doing well for its young age as it has already upgraded from an
affiliated to associate membership of IAF and now on verge of promoting itself to a status of full
membership. It is a great opportunity to have an accreditation body that becomes soon a full IAF
member and hence is of high international acceptance. The success achieved by ENAO shall be
complementary to the overall achievement of NQI and thus would bring about a more
pronounced quality control and assurance achievement to the export market when other segments
of NQI become successful as well.

The challenge of CABs to be accredited is not as such easy. In order for a CAB to be accredited
it has to furnish with calibration certificate assuring its actions to regularly calibrate its
measuring instruments with primary standards, it has to have a competency certificate for the lab
analyst from a recognized body that must itself be accredited, it has to comply with the
requirements of laboratory environmental condition that may influence the test results, and it also
needs to put in place PT mechanism for inter laboratory comparison of its results to take
corrective action in case of disagreement of results. These requirements, though difficult to set
up at the required intensity during initial stage, are vital and a must to have in order to facilitate
especially cross border trade. The difficulty in setting up enough and geographically well
distributed CABs at the initial jump-start stage could be achieved through making use of existing
laboratories. Allocation of annual research budget to research centers and HLIs, that involve
laboratory testing as a crucial step of experimentation, would have brought about significant
change towards plausibility of test results had they been geared towards doing testing only in
accredited facilities. In fact, the results of most current research activities requiring a laboratory

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testing facilities are taken for granted without being carried out in accredited facilities.
Therefore, upgrading current research facilities into accredited ones would bring about a twofold
benefit. It would enhance credibility of research results in addition to serving as credible testing
facilities when used in coordination with ECAE. Overall, the following measures would
contribute a great deal towards enhancing the safety and quality assurance infrastructure of the
country.

Increasing the number of accredited laboratory facilities in number and geographical

distribution: This can be successfully accomplished through upgrading existing laboratories of
RIs and HLIs. Laboratories of universities are established with the purpose of executing two
missions namely, teaching-learning and research. It is wise to segregate laboratories based on
those missions since both couldn‟t be performed in the same facility. Using a laboratory facility
for a teaching learning purpose is meant to demonstrate or provide hands-on skill mainly about
principle of working of the facility irrespective of taking maximum care to the result of the
testing. On the other hand, testing for a research purpose requires maximum care for the result
obtained as conclusions would be drawn on its basis. Therefore RIs and HLI that have launched
an agro-food processing related program shall dedicate at least one laboratory for a research and
testing purpose. This laboratory shall have as much accredited facilities as possible and required
to support the national endeavor of food safety and quality assurance. HLIs that are located in
regions where agro-food processing industry development potential is pronounced shall have
such dedicated laboratory facilities to answer the question of geographical distribution of
accredited facilites. The appropriate utilization of research budget (allotted by MoFED to RIs
and to the research wing of HLIs) in procuring laboratory instruments, reagents etc for
measuring purposes would be justified by a third party accreditation body (ENAO) instead of the
current self declaration to MoFED when such facility accreditation is practiced by RIs and HLIs.
This would facilitate the promotion of accreditation system within the country.

Giving high recognition to a profession of a laboratory analyst: In Ethiopia, the profession of a

laboratory technician (laboratory analyst) is not given enough attention that matches its
importance. It is not customary to see in Ethiopia an MSc or PhD holder serving as laboratory
operator and hence leaving the profession to a diploma or certificate as highest qualification. The
highest level on a career structure of a laboratory technician is limited to a certain level of

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promotional stage that is achievable in few years of experience after which the professional
prospect is closed. Such phenomenon and thinking which is currently dominating in HLIs and
RIs is discouraging those engaged in the profession and force them to shift profession hence
causing high staff turnover. Conversely, other non TA academic professions do have
encouraging professional career structure sought by many intellectuals to be achieved. However
these academic professionals while succeeding up the career ladder through excelling in
theoretical aspects lose more and more practical skills to ultimately become foreign to
laboratories. In fact, this situation is believed to partly cause the lack of practical skills exhibited
by university graduates. Since accreditation system encompasses competent laboratory analyst in
it, the profession of laboratory analyst shall be given as much attention as its importance dictates
and thus need to have its own career structure that encourages the employee stay longer in the
profession, and develop his/her knowledge & skills.

Improve access to CRM and PT by CABs: Most analytical instrumentation is comparative; it

requires a sample of known composition (reference material) for accurate calibration. These
reference materials are produced under stringent manufacturing procedures and differ from
laboratory reagents in their certification and the traceability of the data provided. Obtaining
these CRMs in Ethiopia is very difficult as they are levied in ERCA and also not delivered
immediately. CRM importing shall not be considered as a trade activity and thus shall be
obtained duty free and as swiftly as possible in order to facilitate the accreditation process and
promote accreditation system in the country. In addition, conducting Proficiency Test (PT) for
inter-laboratory comparison of test results is a requirement for accreditation to succeed. PT is
taxed in Ethiopia and the delivery of which is also tremendously delayed owing to customs
handling. As this are not part of a trading activity, both CRM and PT shall be free of tax and
shall be delivered without delay.

Promoting the implementation of food quality and safety standards through enforcement of
mandatory food standards while at the same time putting in place strong technical assistance:
It is a human nature not to be willing to be inspected as long as the market is there for his/her
sub-standard products. Due to this reason, customers seeking testing & certification services of
ECAE, the major conformity assessment organization in the country, are very few. Only drinking
bottled water, beer, and soft drinks are certified by the enterprise so far that even happened due

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to the fierce intercompany competition. About 51 edible oil processors, 3 winery and salt
manufacturers are certified by ECAE. Compared to the large number of food processing
companies operating in the country, these certified ones are still few to represent the sector.
Owing to the poor inspection work, one can suggest that food products manufactured in Ethiopia
are not yet well known from quality perspective. Since most processed food products do not have
mandatory standards, nobody is requesting the manufacturer a compliance certificate. This
situation of lack of customer to ECAE is aggravated by the fact that the cost of food testing is
very expensive (because of expensive instrument & consumables) and mostly unaffordable to
manufacturers. Lack of private for profit CABs in the country could be explained by such
financially demanding nature of the investment. For example, at times when ECAE was not able
to test for pesticide residues here in its facility and thus sent samples abroad to be requested 1220
Euros per sample. This is impossible not only from high cost point of view but also from longer
delivery times and limited access to foreign currency. To test for pesticide residue on honey,
sample is usually sent to Uganda. Honey adulteration test was also conducted in Uganda. Now
ECAE is capable of testing adulteration in honey and is on verge of accreditation process. But
after all these investment no regulatory body and other willing customer come to ECAE
requesting for the testing services. Notwithstanding the fact that ECAE currently has accredited
facility for microbial quality of foods, it is only getting daily 2 samples on average. The
enterprise envisions expanding its existing microbial quality accredited test service but at the
current poor demand it is questionable to do so. Currently ECAE lives on inspection services but
laboratory testing is not as profitable as it is perceived by many.

Therefore, it is time not only to assign mandatory standards to foods and build the capacity of
regulatory wing to enforce them, but also to enhance the capacity of those technical support
service delivery institutions which are meant to capacitate manufacturing firms in complying
with standards, especially the mandatory ones. In doing so and through consumer awareness
creation mechanism, the customer inflow to CABs seeking testing and certification services
would in turn be enhanced.

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9.3 Market and Product Diversification and Development for AFPI
Improve access to local, regional, and global markets
Still most of the firms in AFPI of Ethiopia supplied their products to domestic markets. Even the
domestic demand for industrial products is not much encouraging or attractive in case of some
firms. Absence of modern market infrastructure, which can link and access market information
to key stakeholders/actors along value chain of the industry, is one of the critical challenges in
AFPI that is responsible for this problem. Generally, there is poor market linkage and
information flows between AFPFs with input supply industry (raw material, packaging material
& spare part suppliers) and with potential domestic and global markets of industrial food
products.

Establishing market information center at least at industrial towns, where most AFPFs are
found: Establishing market information center at industrial town regarding major industrial
crops and livestock products (like sesame, coffee, faba bean and maize established by ECX) that
can deliver information about what type of industrial products are demanded by which countries
of the world in the global market with what amount, quality and price as well as establishing
information delivery system for input suppliers about what type of raw materials are needed by
AFPFs with what amount, quality and price.

9.4 Promoting Attractiveness of AFPI to Local and Foreign Investors

The international market for agro-food industry investment and products is highly competitive.
Countries in the world compete for the attention of buyers and investors by using various
promotional and relationship building mechanisms, including investor and buyer visits, explicit
financial incentive schemes and dedicated relationship service providers. These jurisdictions
have created enough interest in potential investors and buyers for them to further investigate
opportunities. Observation and analysis has determined the following constraints on promoting
the attractiveness of Ethiopia‟s agro-food processing industry:

 No incentive schemes dedicated to establish agro-food business in Ethiopia

 Lack of industry support services in the country, such as packaging, spare parts and
equipment suppliers

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  Lack of dedicated government support to market the regional state as a unique place to
source unique product
 Manufacturers of multi-ingredient products may need to import ingredients from abroad,
adding increased transport costs and potential limitations due to quarantine restrictions
 Lack of consumer and investor knowledge of Ethiopia generally

Ensure conducive business environment and incentives schemes for investors

There are no any readymade investment promotion and incentive schemes designed specifically
for AFPI at regional and national level. Still the regional states and the country have used the
general industrial sector investment promotion and incentive packages developed by Ethiopian
Investment Commission (EIC) to all industrial subsectors with blanket recommendations. There
is no subsector specific investment promotion and incentive package prepared/revised by the
regional states, considering their dynamic situations and unique potentials. According to the
discussions with regional industry bureaus of the country, it is suggested that there should be
subsector based investment promotion and incentive schemes considering the regional conditions
and should also be revised regularly according to the conditions prevailed in the region.

Foreign investors commonly asked the regional bureaus and MoI to respond the following
questions: how long an investor will take to acquire industrial land in Ethiopia, to get investment
license/document, and to see the company start to deliver first production. Accordingly, the
regional bureaus reported that it takes up to 2 months to get industrial land and up to 3 months to
acquire credit from Development Bank. This would lead to high costs of transaction and
becomes very annoying for foreign investors, which in turn discourages FDI besides reducing
competitiveness of the industry. Thus, the following policy variables need to be reviewed
through considering the regional state dynamics and the bottlenecks the private and foreign
investors encountered during their implementations.

Infant industry protection: In order to protect the infant AFPFs of the country from external
competition, GoE is expected to reduce/exempt the tax imposed on imported inputs of the food
industry and to impose high tax on imported food products. However, this protection may not be
equally applied to all agro-food industries. For instance, if we consider the edible oil
manufacturing sub-sector in Ethiopia, the demand for domestically produced edible oil is much

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higher than that of imported palm oil. However, the domestic firms could not satisfy the local
demand. One of the main reasons for this is that the oil manufacturing industry in Ethiopia is at
infancy stage. This implies that unless the GoE protects the industry from external competitions,
its survival is under question late alone satisfaction of the local demand and its competition with
export markets. To the contrary, the GoE prefers to promote imports of palm oil by allowing
duty free imports, supplying the imported palm oil in the domestic markets at subsidized prices
and imposing 15% VAT on domestic oil, instead of protecting the domestic industry by
imposing high duty on imported palm oil, imposing duties on raw oilseed exports, and/or
exempting the industry from any other taxes. This can be considered as infant industry protection
paradox. When the discussants are asked why the GoE prefers to promote palm oil imports to
domestic oil production, they revealed that the domestic industry alone could not satisfy the huge
demand of the society for edible oil in the short run whatever protections the government
provided for it at this infancy stage. The government thus needs to apply this subsidy policy
(duty free palm oil imports) as a short term intervention for protecting the poorest section of
consumers from scarcity of edible oil supplies. However, the following questions need to be
addressed if the GoE actually believed to implement such decision for the purpose specified. Is it
a real situation that the richest section of the society does not prefer to consume palm oil to
locally produced oil? Why not the domestic firms produce palm oil?

The MoI should take the initiative to identify which agro-processing firms in the food industry
needs what government protections so that they could satisfy the domestic demand and also
become competitive in the external markets.

Financial incentives: The domestic credit finance history is too limited. The government
attempted to improve the domestic resource mobilization by designing and applying appropriate
tax policies. Currently the financial institutions are over stretched to cover all the industrial
subsectors in general. Thus, there is a need to identify which agro-food industrial subsectors need
to get more focus on credit service deliveries. The discussants also suggested that since the
financial services in Ethiopia are very limited, the government supports in this regard need to be
put on those industrial subsectors to which the country would have a comparative advantage and
high potential to earn returns/profits from the business. Investors that are engaged in the

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production of export products will be allowed to import machinery and equipment necessary for
their investment projects through suppliers‟ credit.

Land supply at low cost: The GoE allocates land at low cost for investors in the manufacturing
industry. But, GoE has not any mechanism to check whether the investors used this subsidized
land resource for the intended purpose. Providing an investment incentive is not by itself an end
unless its effect is reflected on achievement of manufacturing industries.

Exemption from customs duties: In order to promote private investment and the inflow of
foreign capital and technology into Ethiopia, the GoE provided the following customs duty
exemptions to those investors (both domestic and foreign) involved in agro-food industry, one of
its priority areas.
 100% exemption from customs duties and other taxes imposed on imports is granted to all
capital goods (such as plant, machinery and construction materials);
 Spare parts worth up to 15% of the total value of the imported investment capital goods are
exempted from customs duties;
 An investor granted with a customs duty exemption will be allowed to import capital goods
duty free indefinitely if the investment is in manufacturing and agriculture, and otherwise
for five years if the investment is in other eligible areas;
 An investor entitled to a duty free privilege buys capital goods or construction materials
from local manufacturing industries shall be refunded the customs duty paid for raw
materials or components used as inputs for the production of such goods; and
 Investment capital goods imported free of customs duties and other taxes imposed on
imports may be transferred to another investor enjoying similar privileges.

Exemption from income tax: Depending on the distance of the investment areas from Addis
Ababa, the investors engaged in agro-food processing industry are exempted up to six years from
income tax. If an investor made his investment outside of Addis Ababa and special zone of
Oromia surrounding Addis Ababa, the investor shall get a longer-years tax holiday. For an
investor exporting 60% of his products or services, or supplies the same to an exporter as
production or service input will be exempted from income tax for additional two years.

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Loss carry forward: An investor that suffers losses during the income tax exemption period can
carry forward such losses for half of the tax exemption period, following the expiry of exemption
period.

No tax on export products: No export tax is levied on export products of Ethiopia, with the
exception of few products (for e.g., 150% on semi-processed hides & skins).

Duty drawback scheme: Investors are exempted from customs duties and other taxes imposed on
imported and locally purchased raw materials that are used in the production of export goods.
Duties and other taxes paid during purchasing of raw materials are drawn back 100% at the time
of exporting the finished products. This can also serve as a controlling mechanism whether an
investor used such incentive for the intended purpose. Such type of incentive has been delivered
to the manufacturing industry within 7 days, but for other industries the process of checking
whether such incentive is used for intended purpose took more than one month.

Voucher scheme: A voucher is a printed document having monetary value that is used in lieu of
duties and taxes payable on imported raw materials. Exporters are also the beneficiaries of the
voucher scheme.

Bonded factory and manufacturing warehouse schemes: Producers of export products not
eligible for voucher scheme but licensed for bonded scheme are entitled to operate such factory
or warehouse in importing of raw materials duty free.

Provision of financial services to exporters: Exporters are allowed to retain and deposit up to
20% of their foreign exchange earnings in a bank account for future use in the operation of their
firms and no export price control is imposed by the National Bank of Ethiopia.

Export credit guarantee scheme: This scheme is presently in place in order to ensure an
exporter receives payment for goods shipped overseas in case the customer defaults, reducing the
risk of exporters‟ business and allowing it to keep its price competitive.

Generally, ERCA has been implementing such incentive packages by giving special emphasis
for investors engaged in manufacturing industries, and more importantly for the export-oriented
ones. However, their effect has not yet reflected on the competitiveness of manufacturing

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industries. It is thus mandatory to devise mechanisms to improve implementation of investment
incentives.

Improving implementation of investment incentives

Economic policy of Ethiopia is favorable for investment and is comparable to the policies of
developed countries. For example, an investor who invests on establishment of industrial park
enjoys a 15-years income tax holiday. For those manufacturing firms that enter into parks for
manufacturing engagement, a 10-years income tax holiday has been put in place. They are also
allowed to import all their capital goods and spare parts duty free (15% of their values). Logistics
transport cost is discounted and bank loan accessibility becomes high. All these incentives
however are not reflected on product pricing.

Although GoE has provided all these investment and export incentives to the private investors
involve in the manufacturing sector, including AFPI, most of them have not actually
implemented these incentives for the intended purposes. That is why the effect of all these
incentives is not reflected on the price and quality of products to the extent that could improve
competitiveness of our AFPI in export markets. This lack of responsibility is a phenomenon of a
transition period and is believed to be resolved over time through creating awareness among
investors and administering appropriate regulatory system that can really enforce punishment
onto those investors who have been misused these public properties (incentives) for unintended
purposes. It is argued that there should be a follow up, monitoring and enforcement
mechanism/system that could address whether the different government incentives are actually
used for the intended purposes. Thus, all the Ethiopian Investment Commission, Ethiopian
Revenue and Customs Authority, and Ministry of Industry are responsible to design and
implement such mechanism and gradually take remedial actions on the defaulters.

Moreover, the attitudinal problem of private investors, who are less willing to participate in value
adding AFPFs, needs to be addressed through establishing awareness creation forum, a regular
TV promotion program and capacity building training. Thus, it would be good to create strong
forums of AFPFs at the strategic locations, where most AFPFs are found. The other alternative
strategy is to conduct a TV promotion program regularly supported with documentary films. This
will help avoid the attitudinal problems of investors associating risks and uncertainties with
AFPFs by clearly displaying experiences of successful domestic firms as well as through having

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experience sharing visits with successful countries in this regard. For e.g., some private investors
in Addis Ababa had visited successful firms aboard. The other reason, more importantly, for
attitudinal problem is that most AFPFs in Ethiopia are usually managed by family members. This
problem will be solved if GoE has developed a system that enables firms to recruit skilled human
resources from the labor markets in the one hand, and/or upgrading the managerial and technical
skills of family labors through conducting a capacity building training on the other hand.

Industrial parks development

One of the important factors for rapid and sustainable growth of the industrial sector in general
and AFPI in particular is the establishment of industrial parks (IPs). This will help achieve this
objective particularly through addressing some of the problems that were encountered in AFPI
while the different firms were functioning in a separate manner. For e.g., accessing different
infrastructure facilities (such as electricity, roads, water, other technologies, etc) and supportive
services to separately established manufacturing firms are more difficult and costly than those
firms established in cluster forms like industrial zones/parks. However, selection of the
appropriate areas for IPs establishment needs a very careful attention and analysis, for the initial
investment cost of IPs establishment is very high. So before establishing IPs, we should know
clearly what IPs will be established where. In doing so, we should also answer “Are the selected
corner stone towns feasible for the establishment of effective IPs?”

Thus, it is suggested that in order to establish effective IPs, there is a need to follow a collider
approach mainly basing on the resource potentials and availability of various infrastructure
facilities in the locations, where these parks are expected to be established. Otherwise,
establishing them based on a political variable of equity, there would be wastage of huge public
resources as these establishments are capital, technology and knowledge intensive. Before the
IPs are established, at least the resource potentials and availability of infrastructure facilities
should be clearly identified in actual terms across different locations. Once the resource
potentials and infrastructure availabilities are determined, there is also a need to conduct a
feasibility study by introducing pilot industrial parks during GTP2 period in certain prosperous
areas/locations (say, about four parks especially focusing on agro-processing industries) chosen
based on the above two basic parameters. If these pilot parks were found feasibly functional,
their best practices would further be scaled up to wider locations nationwide having similar

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circumstances, even it might be feasible to establish more than the expected 17 number of IPs in
GTP3 period by 2025. This is in line with the Ethiopia Economic Update (WB, 2015) which
argued that there is a need to adopt a strategic and phased approach for implementing the IPs
program in line with international experience. This would ensure that there is sufficient demand
for existing IPs. There is need to phase implementation based on the business case for each IP to
ensure that there is sustained demand. Experience from Asia and Latin America suggest that it is
better to make one or two industrial parks succeed before starting other initiatives.

The feasibility study should basically answer what amount of raw materials a given AFPF
requires in order to fully utilize its capacity. This will help determine the minimum amount of
resources a given location needs to be endowed with so as to be chosen as industrial park that
can fully operate the planned number of AFPFs. The feasibility study is also expected to address
what type of stakeholders‟ integration/coordination is needed to make the IPs more effective and
efficient through assessing the existing stakeholders‟ relationships under the existing industrial
parks. Overall, it would be better if the locations to be selected for establishment of effective
industrial parks consider the following criteria: agricultural resource endowments, infrastructure
availability, inter-industry linkage, and value chain integration besides others.

What business model is needed to establish industrial parks?

In establishing the industrial parks, we should identify what business model needs to be adopted
in case of Ethiopia. It is suggested that we should follow smallholder inclusive business model in
designing/planning industrial parks in Ethiopia. The appropriate business model is the need to
establish/develop Integrated Agro-Industrial Parks (IAIPs) following Agro-Industrial Growth
Corridors (AIGCs). Thus, before IAIPs developed there is a need to identify the potential AIGCs
in the country. AIGCs consider a catchment of about 100 km radius. Reducing the non-value
adding activities in selecting the AIGCs is one of the important factors for developing effective
IAIPs. However, this does not mean transportation /logistics service delivering is not important.
How to manage the industrial parks
There is also a need to answer “Who is responsible to follow up and manage the existing
industrial zones/parks? Nowadays the respective municipalities are responsible to follow up and
manage the industrial zones/parks. However, it is reported that most of them abused their

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responsibilities. Thus, there should be an effective management system that is responsible to
administer/manage only the industrial parks by considering each park as a state.

The development of industrial parks is an achievement of a developmental stage of

industrialization. When one mentions an industry zone, one is referring to an area and shades that
are demarcated for manufacturing industries establishment only. When one talks about Industry
Park however, it is much bigger and complex than industry zone. Parks contain industry zone,
residence area, commercial centers, entertainment areas, one-window services of all sectoral
agencies like banks, telecom, utility etc and other services within it. It has its own administration
unit with its own director general. We reached at this level of industry developmental stage
starting from a unit in the MoI named „Industry Zone Development and Environmental
Safeguard Directorate‟ that has now developed into this corporation, which is being transformed
further into industrial parks. It is now evident that the industrialization process of the country is
led by a knowledge based intervention exhibited by the fact that seven sector based institutions
are operating under the MoI. These institutions support the industrialization process through
training, research and development activities.

In general, the concept of industrial park is much broader than the concept of industrial zone,
which consists of the following items: rural transformation centers (RTCs) that are collection
centers for food parks and provide different services to farmers (such as, farm credit/finance,
agri-clinic, monitoring & training, food & entertainment, collection centers closer to
farmers/producers, commercial rural market, office space and primary health), primary
processing centers, industry closer to big urban centers, common infrastructure facilities and
distribution centers. RTCs may comprise different villages.

The debate still continues between Industrial Parks Development Cooperation (IPDC) and MoI
in determining the number of IAIPs that need to be established nationwide during GTP2 period.
IPDC and MoI planned to establish 17 IAIPs and 4 pilot IAIPs, respectively. The latter
organization argued that since IAIP establishment is a very expensive investment there is a need
to introduce only a few pilot IAIPs in some agricultural potential areas of the country. Thus,
before deciding the extent of IAIPs that need to be established in Ethiopia, it is better to see the
experiences of other countries. For e.g., the IAIPs of Thailand are private sector driven and
followed a focused approach; the IAIPs of Vietnam are public sector driven and not followed a

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focused approach rather struggle too much to cover wider IAIPs; and since Malaysia is over
ambitious in the establishment of IAIPs, it fails to achieve (in bankruptcy) in this regard. Thus,
our country has to be very careful and should not be over ambitious in establishing IAIPs. It is
not an easy task for Ethiopia to establish even 4 IAIPs, each consisting of about 30-40
manufacturing firms.

The feasibility study of IAIPs has shown the need to invest onto change in the mind set (attitude)
of farmers towards producing quality products (this is done by ATA) and alignments of IAIPs
establishment with regulatory bodies (e.g., FMHACA). Unless ATA has done its works in line
with MoI, there would be retrogressive. Thus, there is a need that ATA should align its works
with MoI. Some of the benefits of IAIPs are value chain orientation, quality improvement and
properly regulate their works, etc.

Challenges of industrial park development (Cluster Formation): We cannot yet talk about
achievement as it is just the beginning. In a single park there is a special economic zone. There is
an IT zone, agro-processing zone, pharmaceutical zone etc. Clustering will depend upon the
location and the input supply. The challenge is that we are still learning and stakeholders are not
well coordinated starting from strategic alignment (GTP2 derived strategic plan). The institute is
new and we are learning and that is the challenge for all of us. During construction, different
sectoral agencies working in the industrial park were not performing in a concerted approach.
But when the park fully operates, all these sectoral agencies will give a one-stop-shop service in
the park. Specialization of industries is not yet put in place in park development though the seven
institutions established at MoI to support the industrialization process are working in a
specialized manner.

9.5 Knowledge and Technology Transfer and Capacity Building

Knowledge and technology transfer
Cultivation of innovation within HLIs and RIs through developing institutional technology
transfer policy
Food process technology is usually categorized under mature technology; however it is not as
such easy for an entrepreneur to reproduce most of internationally marketed diverse products at
the required quality and safety. While the process engineering aspect of some food products is

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easier to adopt, others are more difficult to imitate by just looking at the product. Unlike a
hardware product, a food product is difficult to imitate through reverse engineering because the
components (ingredients) have undergone chemical & physical changes through the course of
processing. It is also difficult to successfully replicate a food process from a documented
procedure or a patent.

Among the means to overcome this problem, HLIs/RIs need to carry out research, develop the
result further using pilot plants (proof of concept), and further transfer the technology for
production (commercialization of research output). Through developing technology transfer
policies, HLI/RIs would have agreed upon definition of technology transfer, establish food
technology business incubation centers and pilot plants, and means of transfer of technology
through different channels including start ups, spin outs and on-campus businesses, and with
clearly known incentive mechanisms. This would ensure avoid the chronic problem of shelving
research outputs, improve planning and ethics of research. Add to this, they would be
transformed into centers of entrepreneurship, technological development and effective transfer.

Strengthening internal innovation (In-house R&D) in AFPI

In order to increase the product and process development R&D base, it is necessary to make
R&D an attractive proposition initiated by the company. The R&D centers are exclusively
engaged in research and development will be located in a separate earmarked area/building and
will have exclusive R&D manpower of its own.
The R&D facility will be used mainly to product and process development and should not relate
purely to market research, sales promotion, quality control, testing, commercial production or
activities of a like nature.

Revitalize FBPIDI and MDIDI to make them capable of supporting the development of the
industry
The GoE has established institutions (FBPIDI &MDIDI) to technically support the development
of food industry through skill development and R&D, they are relatively new and are not
currently in the best position to serve the development of the industry because the necessary
state-of-the art research, business incubation and tech transfer facilities relevant to most of the
subsectors of AFPI are not in place. In addition, they are not adequately staffed with regard to

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appropriate qualification and experience in scientific and technical research. It is found necessary
to revitalize these institutions to put them in a position where they can execute their missions
best.
Introducing Village Adoption Program (VAP) by HLI especially in RTCs of IAIP
As an important component of the endeavor being made by HLIs to execute their outreach and
community services, adopting of a village by the university (specifically by students) could be
implemented. In doing so, creation of enabling environment for the student to better understand
the complete food chain and socio-technical aspects in rural Ethiopia. It would also be of great
importance for rural entrepreneurs and farmers to be linked with the mainstream economy
through accessing knowledge & skills of especially post-harvest management and primary
processing.. This would be especially important now than ever because IAIPs count HLIs as an
important stakeholders of them.

Established HLI/RI affiliated skill focused and specialized training centers

The food science and technology related training programs in Ethiopia have very young history
in the Ethiopian higher education system compared to other common training programs of basic
and applied sciences and classical engineering disciplines. It deals with the preservation,
processing, safety and quality assurance and control aspects of agro-food commodities of diverse
nature. Given this high diversity, it is difficult to address knowledge and skill at the depth and
breadth required by industry. This situation contributes to the knowledge and skill gap exhibited
of fresh graduates joining the industry. Thus, it is necessary to establish university affiliated skill
focused and centers of specializations to serve as further training centers dealing with
commodities of interest and in support of development of AFPI. This would be in line with
universities‟ knowledge/technology transfer and community service missions which could be
executed more meaningfully than currently practiced. Skill focused center of specializations to
be established with various short term curricula are apiary, dairy processing, meat cutting centers
and milling school, each to be established at one university.

The agro-food processing industry generally lacks the professional marketing and business
development skills available to larger agro-food corporations. The ability to attract and retain
skilled technical expertise is also a problem, especially since several „icons‟ of the Ethiopian
manufacturing sector have downsized or left the state, with skilled staff relocating or taking up

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occupations in other industries. Manufacturers are also pressed to compete on wages for
technical skills, with more attractive packages on offer in other industries. The agro-food
manufacturing sector is not seen as an „attractive industry‟ and potential line operators are opting
for higher paying, better perceived alternative work. The following constraints on agro-food
manufacturers have been determined by analysis of Ethiopian firms: lack of a practically capable
skilled workforce, high staff turnover rates increase the cost of maintaining a skilled workforce,
and tertiary courses do not provide all technical aspects of food production and manufacturing
operations.

9.6 Policy and Institutional Interventions for AFPI Development

9.6.1 Policy Interventions and Recommendations

The industrial policy of Ethiopia particularly related with the AFPI focus on export-promotion,
import-substitution, strategic commodities that have repercussion effect on the growth of various
sectors, labor-intensive light manufacturing firms to augment comparative advantage of Ethiopia,
smallholder participation (smallholder inclusive business model) in the production of industrial
inputs, small and micro enterprises (MSEs) participation in value chain service deliveries, and
land policy/constitution regarding supply of developed land to the investors involved in the
manufacturing sector, besides others.

The analyses and discussions of this section will focus on how to make effective the designed
policies and strategies in achieving their objectives, instead of focusing on proposing a set of
policy interventions and strategies. This suggests that first it is important to evaluate impacts of
existing policies and strategies in AFPI development and thereby design the appropriate policy
implementation plan and strategies that help improve the role of policies in promoting and
strengthening the competitiveness and rapid growth of AFPI. This does not mean that no need to
propose new policy interventions and strategies, rather it shall come after examining the
feedbacks about the challenges and achievements obtained in the process of implementing
existing policies and strategies. This strategy document therefore designed the implementation
plan of policies and strategies that help improve the role of AFPI in the growth and
transformation of our economy by clearly identifying what bottlenecks were encountered in the
process of implementing the planned activities of the GTP and what were effectively achieved so

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that the best practices can be picked up as models for up-scaling and suggest what remedial
policy measures need to be taken for addressing the bottlenecks during the planning period of the
coming ten years. The discussants revealed that lack of quality raw materials supply, lengthiness
of the market chains, low productivity, and little marketable surplus products of smallholders are
some of the major problems encountered during GTP period. They also suggested that such types
of problems may be addressed through policies, institutional and structural changes.

There are several studies conducted by different organizations (such as, UNIDO, MoA, MoI, etc)
regarding identifying strategic commodities (UNIDO) that need strategic interventions, the
processing subsectors that need special emphasis (such as, meat, honey, spices, fruits and
vegetables, dairy, etc) and human resource development need of the manufacturing sector in the
coming ten years. Through reviewing various relevant policy documents and research reports
including these studies and the results of firm survey, key informant interview and focus group
discussion, the policy interventions and institutional arrangements needed for developing AFPI
are recommended and discussed as follows.

1. Demand driven value chain development in AFPI

2. Accessing smallholder farmers to AFPI
3. Agro-food industrialization in rural areas
4. Small and medium enterprises (SMEs) development
5. Enhancing the role of AFPI in transformation of Ethiopian economy
6. Focus on export promotion and import substitution
7. Improving fiscal and monetary policies

These policy and institutional measures are briefly discussed as follows:

1. Demand driven value chain development in AFPI

It is important to think in an integrated (value chain) approach to identify the best entry points
that benefit both smallholder farmers and AFPI in Ethiopia. A value chain in this case refers to
the full range of activities required to transform a product or service from inception to markets
and consumers. Here we consider that enhancing the inclusion of smallholders in local, national
and global value chains‟ perspective is a good strategy to increase production, income and
employment opportunities for these smallholders. Many NGOs and public support organizations

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are increasingly involved in value chain development, although mainly in strengthening
individual farmers and their organizations to increase productivity and quality and address an
immediate local market demand (the „push‟ in value chain development). These markets are to a
large extent informal and of a spot nature, making them less reliable with buyers being able to
purchase one day, but not the next day. This creates high transaction risks for any investment of
these small farmers. It is therefore recognized that market opportunities can be best explored by
strong private sector actors closer to these markets. Strengthening of these downstream private
sector actors is therefore seen as a strategy to maximize market opportunities by aligning more
upstream actors towards these market requirements (the „pull‟ in value chain development). This
alignment is not only imperative for the individual businesses, but also for the necessary
institutional support and service requirements of all actors in this specific business to business
(B2B) value chain. These services include the services provided by public sector and other
development partners. Like strengthening upstream actors (individual farmers and their
organizations to increase productivity and quality of agricultural products), it is equally
important to strengthen the downstream value chain actors and creating a “pull” for value chain
development. BOAM (the program under SNV-Ethiopia) has good experience that the value
chain practitioners increasingly recognizing for its competencies in strengthening the
downstream actors to impact their pull effect on value chain development. This experience shall
further be up-scaled countrywide through identifying and implementing the right mix of public
and private sector efforts to increase market performance, provide long-term capacity building
and adequate quality certification control systems that ensure the sustainability of small farmers‟
inclusive business model.

Basing on stakeholders‟ consultations and lessons from the value chain literatures, the following
key success factors are identified for future programs in value chain development:

 Opportunities for markets have to be assured for any support to productivity and quality
improvement to be effective in increasing income of smallholder farmers and at the same
time in enhancing access to adequate volume and quality of agricultural raw materials for
agro-food industries. Otherwise, lack of reliable market outlets will cause increased price
fluctuations and related risks for small farmers as productivity increases.

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  A balanced sector and business support will make sure that sector development provides
opportunities for businesses development to turn the opportunities into result, thus having
private sector as engine for growth with the public sector focused on sector identified
priorities.
 Involvement of a critical mass of value chain actors as prominent downstream private sector
leaders and other stakeholders is important to create ownership of defined intervention
priorities.
 The combination of capacity strengthening and funds for grants and investment capital
assures that both critical sector interventions can be supported effectively and that business
to business value chain innovation can be tested and replicated.
 Quick wins with short term interventions preferably by private sector combined with longer
term interventions guarantees an active involvement of stakeholders in the value chain(s).

An effective value chain development enhancing the growth and competitiveness of AFPI in
general requires rethinking of a comprehensive approach comprised out of four key elements:
sector development, business development, knowledge development and learning, and service
delivering capacity development. While sector development provides opportunities for value
chain actors, business development transforms the opportunities into concrete results.
Knowledge development and service capacity development assure the sustainable up-scaling of
the value chain development approach.

Here we consider that enhancing industrial zone/park establishments in some selected

agricultural potential areas is a good intervention strategy that encourages to involve a critical
mass of value chain actors as prominent downstream private sector leaders and other
stakeholders of AFPI (such as input suppliers, processors, supportive service deliveries and
exporters). The GoE should therefore encourage private sectors to involve in the production of
agricultural raw materials for AFPFs within the framework of industrial parks. Shifting focus of
attention towards strengthening downstream private sector actors should not only be considered
agro-food processors as potential markets for input suppliers, it is also essential to look at with
the perspective of expanding domestic and export market opportunities for agro-food industry
products. As a short term intervention, it is mandatory to develop marketing at least through

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avoiding the non-value adding activities and illegal traders that involved in the value chain of
AFPI.

In the long terms, all manufacturing firms had been established arbitrarily anywhere so long as
the location was found suitable for plant installation, regardless of whether the value chain actors
and other service providing stakeholders are available at closer distance. Since there was lack of
well clustered industrial zone/park in Ethiopia, almost all manufacturing firms were located
sparsely leading the manufacturing sector to several challenges (such as, limited infrastructure,
lack of raw materials, and high cost of production and doing business, etc). This in turn made the
sector specifically the AFPI uncompetitive in the export market. There was little improvement
shown in the GTP period during which several industrial zones have been established
countrywide, although the inclusion of all value chain actors is still in question. This might help
only to easily access infrastructure facilities and utilities to firms clustered under industrial zones
as compared to those firms sparsely located out of the zones. In this plan period, GoE has to
exert much efforts and commitment to establish industrial parks, encompassing almost all value
chain actors and support service delivering institutions within a radius of about 100 km, aiming
to improve competitiveness of AFPI through addressing the aforementioned challenges. Thus,
the competitiveness of Ethiopia‟s AFPI needs to be visualized as an integrated approach
following especially a demand driven value chain oriented system analysis, instead of the
traditional approach analyzing competitiveness of the industry independently, without
considering the role of chain actors and environments.

The importing countries of our industrial products reported that high cost of transportation
(expensiveness of transportation) and the very complexity of port handling are some of the major
problems in Ethiopia‟s industry sector particularly in AFPI. The other problem is that the export
markets of products are led by traders and brokers. The discussants also argued that nowadays
the external (export) market conditions of all Ethiopia‟s industrial firms are really very shocking
as compared to other successful countries, having similar development history with our country.
One of the main reasons for this problem is although there are some rules and regulations
prepared, they have not yet implemented. For e.g., regarding live animals trading, raw materials
trading, etc. This also impacts lack of coordination among value chain actors/stakeholders and
support services.

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2. Accessing smallholder farmers to AFPI

Purchasing industrial raw materials from large numbers of fragmented small-scale farmers will
lead to high transaction costs and increased risks and smallholder farmers are less reliable in
honoring trading agreements, as they do not have technical skills and technologies to produce the
right products at the right time (quality, timeliness and consistency). With low and inconsistent
production volumes, dispersed production, weak negotiation positions, limited capacity to
upgrade and meet formal market requirements and poor access to information, technology and
finance, the transaction costs for farmers to link with modern AFPI are daunting (FAO and
UNIDO, 2009). In addition, the type of partner network and choice of smallholders inclusive
business model will depend on the nature of the product (perishable, differentiated or branded
product or bulk commodity) and the nature of the end buyer (branded retailer, wholesaler, etc.),
which determine the nature of economic dependency between chain actors. A collaborative
partner network is much more important with perishable commodities such as fresh vegetables,
dairy and meat, which require traceability and have higher food safety risk profiles (Sporleder et
al., 2005). There are potential efficiency gains in developing locally adapted business models
that build on the comparative advantage of smallholders, in terms of land, price, farm
management, quality and innovation. Any adjustments in pursuit of greater inclusiveness must
not undermine the most sensitive elements of a model (the cost structure, the value proposition
and the integrity and safety of the product) especially when managing supply from large numbers
of small producers.

To better understand the Ethiopian case and propose the most promising agro-food industrial
policies and strategies, benchmarking experiences of other successful developing countries (say,
from East Asia and Latin America) what effective industrial policies and strategies they have
followed in order to successfully access smallholders to agribusiness and changing markets. It
will be insufficient to trigger widespread adoption of inclusive business models unless the risks
and costs associated with dispersion of producers, diseconomies of scale, poor access to
information, technology and finance, inconsistent volume and quality, lack of traceability and
management of risk are addressed.

Smallholders relate better to small and medium enterprises (SMEs) than they do to large
enterprises. Generally, it is important to understand how to create incentives to allow SMEs to

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enter the industry and compete; in that respect the investment climate is a relevant consideration.
Enabling conditions are needed such as, functioning markets, access to financial services and
institutions for contracting and risk-sharing. The role of public private partnership (PPP) to
promote investment may be important. The government can be proactive in initiating PPP, in
particular with SMEs in the agro-food industry sector, in order to facilitate entry and achieve
competitiveness. With regard to the role of labor practices, the Chilean model is considered a
successful approach to poverty reduction that is based on employment conditions in the agro-
food industry sector, such as year-round employment achieved through product diversification.
Regulations need to be enacted that do not discourage employment, protect workers and allow
work conditions that are conducive to poverty reduction.

Smallholder inclusive business models: from subsistence to commercial farming

If agricultural growth is to reap benefits in terms of food security and human development, it has
to happen in a labor-intensive way on small farms. In order to thrive, smallholders need access to
the basics: (1) Land and inputs (water, fertilizer, and quality seeds), (2) Knowledge, (3)
Functioning markets (requiring adequate infrastructure and market information), (4) Affordable
credit and (5) Risk management mechanisms. All are important since inability to get one often
translates into sub-optimal outcome or failure. Accessing these basics presents a challenge to
most of SSA‟s smallholders.

There is a full range of business models supporting smallholder farmers and linking them to
buyers and consumers, such as contract farming or out-grower schemes. Small farmers possibly
organized as a cooperative and large investors can form mutually advantageous partnerships and
large-scale investment does not necessarily have to result in the conversion from small-scale
agriculture to large-scale agriculture. Such models can also present risks if the interests of both
parties are not aligned. Governments and donors sometimes reduce start-up risks to investors by
co-financing initial investment costs for smallholders. Strong producer organizations or
governments can also mitigate the risk that farmers‟ interests are not adequately taken into
account by making sure that adequate information is available (e.g. market prices), providing an
informal dispute mechanism, etc. (World Bank, 2013)

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Making agricultural growth inclusive through partnerships between smallholders and
agribusiness firms
These models exploit the complementary character of each party‟s assets: land, labor and local
knowledge for smallholders vs. capital, technology and markets for investors. Contract farming
is an agreement between a processor or buyer and farmers (individually or in groups) that
guarantees a market and/or price for a product of specified quality. The contractor usually
provides inputs and advisory services. These contracts are used widely in sugarcane, palm oil,
dairy, poultry and export horticulture- recently for grains. Most evaluations indicate positive
benefits for smallholders. Out-grower schemes are agreements where investors finance crop
establishment up front and agree to process the product, but these arrangements may or may not
involve contracts for input supply and technical assistance.

In line with this, to enable the smallholder farmers to use any opportunities (e.g., access to
market for their products, increase their productivity, etc) effectiveness for the growth of
smallholder agriculture in Africa, Comprehensive African Agriculture Development Program
(CAADP) is now established on the African agricultural policy scene, at continental, regional
and (unevenly) at national level (fortunately established in Ethiopia). It is uniquely placed as an
African Union program, which has planned to increase commercial investment in enhancing
efficient use of opportunities of smallholder agriculture to become more productive not only to
achieve food security, but able to supply high marketable surplus to the agro-processing
industries (www.future-agricultures.org, Poulton et al, 2014). Ethiopia has recently established
an Agricultural Transformation Agency (ATA) and Agricultural Growth Program (AGP) to
“address systemic bottlenecks in the agriculture sector” through problem solving, supporting
implementation of solutions to critical problems and enhancing coordination among agricultural
stakeholders (www.ata.gov.et/about/our-mandate, Berhanu 2013). Strengthening and promoting
such kinds of government efforts, for example through ATA, leading to certain achievements,
like accessing smallholders to potential buyers through creating market linkage with agro-food
processing firms (like Gondar Malt Factory). Such experiences need to be up-scaled to other
manufacturing firms although it is important to devise a mechanism that can easily address the
challenges while encountered during implementations.

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3. Agro-food industrialization in rural areas

One of the important policy interventions for enhancing growth and competitiveness of the AFPI
is promotion of agro-food industrialization in the rural areas, where agricultural raw materials are
potentially produced, potentially capable cooperatives/unions and resourceful and rich farmers
are available. As an entry point, it shall be better to strengthen and promote rural youths to
participate in commercialization of agriculture especially in Teff and milk production and milk
processing industry development through enhancing efficient use of their farming experiences,
innovativeness and productive work force. Nowadays high global demand is created for teff
related processed foods understanding the importance of its nutritional and health values. It is
suggested that the GoE has to mobilize and strengthen rural youths and private investors to
involve in commercialization of Teff production and development of teff related products
manufacturing industry dedicated to export markets as high export potential markets for teff
products are currently emerging and at the same time it is important to worry about the local
demand (food security issue) of our society. Until the food security issue is addressed well, it is
thus important to involve in only rural youths and private investors (but not smallholder farmers)
in commercialized production and processing of teff. The other enterprise that would be effective
if it were established in rural areas is milk processing industry. Here we consider that enhancing
group of potential farmers and youths, and farmers‟ cooperatives and unions to participate in the
milk industry development is the other important entry point for agro-food industrialization in
rural areas. To promote agro-food industrialization in rural areas, the GoE is generally
responsible to perform the following tasks.

 Organizing groups of potential farmers to share land, capital & indigenous knowledge in
AFP establishments through providing special incentives & technical supports
 Strengthening and promoting existing cooperatives/unions to establish AFPFs through
special incentives and technical supports
 Organizing women and youths in SMEs to participate in providing AFPI support services
(such as, transportation, storage, packaging materials, maintenance and repair) in
collaboration with FeMSEDA
 Mobilizing and strengthening rural youths as a driver in commercialization of agricultural
raw material production

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  Organizing women and youths associations to participate in vegetable, fruit and livestock
production

4. Small and medium enterprises (SMEs) development

The Micro and Small Enterprises Development Agency at country and regional level has carried
out its activities related with AFPI development linking mainly with its urban agriculture and
agro-processing directorate. SMEs participated in AFPI have brought about significant change
with regard to employment generation. For example, the number of enterprises that entered in
milk processing, fattening, poultry production etc is now being run by university graduates. In
general, promising start is evident in developing MSEs that utilize agricultural resources of the
country. This promising start is not going forward without a challenge and hence still there is a
lot to do so to come up with the intended result. As stated in FeMSEDA‟s strategic plan of
GTP2, there are 5,404 small enterprises that have been graduated to medium industries (not only
with agro-food processors). Thus, there is a need to strengthen their roles for AFPI development
through supporting them to address the following challenges: lack of access to technology, lack
of packaging materials, limited access to financial resources, and lack of processing skill.

5. Enhancing the role of AFPI in transformation of Ethiopian economy

Ethiopia has been implementing a long-term strategy of Agriculture Development-Led

Industrialization (ADLI) since 1990s. On the basis of this strategy, the country has exerted
several efforts to bring broad based, rapid and sustainable economic growth through designing
and implementing a series of three development plans (SDPRP, PASDEP and GTP). The
strategies of all these plans focused on the supply side of agricultural products. During these
planning periods, the country has attempted to transform the economy by giving due attention
first to growth and transformation of the agriculture sector, assuming that it would have spillover
effect on the growth of other economic sectors, especially on manufacturing industries through
forward and backward linkages. The production and productivity of some crops and livestock
have been improved through agricultural intensification program and commercial farming. A
certain form of transformation has been shown specifically on cereal crops (e.g., maize, wheat)
and vegetables (like potato). However, lack of potential markets for agricultural products is one
of the bottlenecks the agriculture sector faced on the path of transformation. In many parts of the
developing countries including Ethiopia, agriculture continues to play a central role in economic

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development and to be a key contributor to poverty reduction. However, agriculture alone will
not be sufficient to address the poverty and inequality that are so pervasive in today‟s world of
developing countries. It is therefore argued that unless the AFPI developed well, there would not
be sustainable potential markets for agricultural products. This implies that transforming
agriculture alone by any methods, without thinking the growth status of AFPI in advance, would
not have a significant role on the growth of an economy, instead may lead to loss.

One of the best strategies for transforming an economy is that the country has to make strong
efforts for developing the AFPI to play a strong pull effect on the agriculture sector to be
sustainably transformed. It is becoming increasingly crucial for policy makers to focus
immediate attention on agro-food industries established along efficient value chains, which can
increase significantly the rate and scope of industrial growth. Agro-food industrial products offer
much better prospects of growth than primary commodities. This strategy document therefore
gives due attention for the demand side of agricultural products. To do so, there is a need that the
GoE has to establish industrial parks around high agricultural potential areas of the country.
However, establishment of industrial parks requires a huge amount of investment as it is
knowledge, capital and technology intensive. As a start up strategy, the GoE shall take the
initiative to establish some pilot integrated agro-industrial parks (IAIPs) around the potential
areas in the first five years of the strategic plan period (GTP II) and the best practices will then
be scaled up to other potential areas countrywide during the last five years.

Why Ethiopia needs to establish IAIPs in GTP II while putting aside a principle of industrial
zone adopted in GTP? Industrial zone simply refers to delineation of areas for establishing the
zone, without worrying about the agricultural potentials and value chain orientation, whereas
establishment of industrial parks considers availability of these potentials and value chain
orientation that help transform agriculture. Thus, establishment of IAIPs needs to be one of the
mega and prominent projects for the government to be implemented during this plan period.

The first step for developing IAIPs is selection of the appropriate locations for establishment
based on the criteria developed. The discussants reported that the following four potential areas
are identified as the strategic locations for establishing four IAIPs and they are at the stage of
feasibility study. These are: (1) around Bure in Amhara region- high potential for cereal
production (maize), (2) around Bea‟kel-Humera in Tigray region- sesame corridors (this is led by

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ATA), (2) around Bulbula in Oromia region- vegetable clusters along the rift valley and also
serve as sustainable market outlets for livestock and dairy potentials, and (4) around Yirgalem in
SNNP region- high potential for coffee production- coffee corridors.

6. Focus on export promotion and import substitution

Why does the government import those food products (e.g., edible oil) from abroad while they
can be manufactured domestically? And at the same time exports significant portion of raw
oilseeds to abroad. This will discourage the domestic firms to enter in this market. It is thus
suggested that the GoE should not focus its attention only for strengthening and promoting
private sectors to invest on export oriented industries, it is also equally important to worry about
import substituting industries.

Over 2006-2013 (including PASDEP and the first three years of GTP) period, the country has
registered a positive trade balance of processed foods only for tea and honey and a negative
balance for other processed foods (such as, meat, animal oils and fats, coffee roast and extract,
dairy products, animal feeds, bakery products, sugar and sugar confectionery, macaroni and
wines). The foreign exchange earnings from tea and honey together however accounted only less
than 5% of more than 70 million US dollar earned from the total exported processed foods over
2006-2013 while the trade deficit increased from 236 to 581.5 million US dollar from PASDEP
to GTP period. This implies that the foreign exchange earnings from exports of processed food is
totally exhausted and even extra foreign exchange from other sources is used for importing of the
same processed foods from abroad. Overall, about seven folds of the foreign exchange earnings
from processed food exports is spent annually for processed food imports over 2006-2013
(FAOSTAT data base).

On the other hand, the country has registered a negative trade balance of raw materials only for
cereals and apple over the same period while a positive balance for other raw foods (such as,
oilseeds, coffee, avocado, banana, orange, papaya, pineapples, potato, tomato and onion). This
implies that Ethiopia exports a larger portion of raw materials abroad while at the same time
shortage of raw materials remains a major problem for the domestic agro-food industries. The
volume of annually exported raw oilseeds and coffee accounted more than 46 and 27% of 450
and 707 thousand tons of total exported raw materials while the foreign exchange earnings from

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exports of these two raw materials accounted for less than 35 and greater than 61% of 761.7 and
1,385.5 million US dollar earned from total exported raw materials over PASDEP and GTP
period respectively. This implies that although a larger volume of oilseeds is exported as
compared to coffee, the country has got a significantly lower amount of foreign exchange from
oilseed exports than coffee. While cereals took the lion share (more than 98 and 89%) of the total
volume and values of raw material imports, oilseeds and coffee together took the lion share
(more than 74 and 95%) of the total volume and values of raw material exports over 2006-2013
respectively. On the other hand, meat, animal oils and fats together with sugar and sugar
confectionery took the largest share more than 84 and 90% of the total processed food exports
and imports respectively. This also implies that there is lack of diversified and well developed
export oriented and import substituting agro-food industries in the country. It is thus suggested
that it would be better to strengthen and promote edible oil mills, milk product manufacturers,
flour mills and bakeries, macaroni and pasta manufacturers, and malt manufacturers mainly as
import substituting industries, while honey processors, meat processors, coffee processors, fruit
and vegetable product processors, and teff based product processors mainly as export oriented
industries. It is also recommended to update the investment incentive packages on regular basis
to further strengthen and promote the export oriented and import substituting industries. In doing
so, it is important to conduct incentive evaluation study regularly at every specified time period
(for e.g., every 5 years). Based on the information obtained from this evaluation study, it would
be possible to update the incentives considering the regional state dynamics and diversity of
AFPFs in the country.

7. Improving fiscal and monetary policies

Modifying the current credit delivery system used by the Development Bank of Ethiopia.
Nowadays the DBE claimed that a borrower (e.g., a manufacturer) has to provide a 30% on-cash
reserve so as to get a loan amount of 70% project‟s total investment fund. Most of the agro-food
processing firms reported that this on-cash reserve request ultimately created shortage of
working capital especially on those already established (on-going) firms so that they could not
enter the production phase timely. The firm level and stakeholder consultations forwarded a
solution of at least the on-going firms should be able to continue with the former credit delivery
system of the NBE (i.e., 30% collateral in the form of physical asset) so that they may not face

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shortage of working capital as they could use this 30% on-cash for the purpose, instead. The 30%
on-cash reserve might be well adopted in case of newly established firms. Even for the new firms
it is also important to revise (reduce) the 30% on-cash reserve into 10% at least for those MEs
graduated from SMEs.

Revision of capital required for graduating SMEs into MLEs: The amount of capital required
by SMEs in order to transfer to MEs is 1.5 million birr (including both physical assets and cash
income), which was determined about five years ago. In reality, when one checks whether they
are transformed into MLEs, they are not actually transformed. Because the indicator for their
transformation is simply the amount of capital they possessed including physical assets and most
SMEs already invested most of their capital for establishments, they stopped their operation as
soon as they transformed into MEs unless they got credit on the basis of 10-90% similar to their
SMEs stage. Thus, to realize whether a given SME actually transformed into ME, it is necessary
to raise the threshold amount of capital required up to 3-5 million birr. This also needs further
investigation to determine the minimum amount the SME should meet to graduate into ME.

Foreign exchange management and control: One of the main challenges for AFPFs is shortage
of foreign exchange to import the necessary additives, spare parts, machineries, equipment and
the like. With respect to foreign currency reserve, the country‟s gross official reserve when the
socialist government was toppled in 1991/92 was almost nil, equivalent to 1.3 weeks of imports.
It recovers up to 6 months of import coverage in the first phase of liberalization, due to the
balance of payment support by donors augmented by the increase in export earnings. However, it
exhibited a declining trend and dwindled to cover only 3.6, 2.3 and 2.2 months of imports as of
June 2005, 2006, and 2007, respectively. The reserve position was 5 weeks of import coverage in
December 2008 and created a deadlock situation especially for investment activities (Kagnew
and Zerayehu, 2009). The recent macroeconomic instability that was mainly caused by
historically unprecedented inflation and acute shortage of foreign currency reserve continues to
hamper the ongoing investment and growth. The monetary authority attempted to curb this
macroeconomic instability. However, the monetary policy‟s speed of adjustment towards the
long run equilibrium is about 2% per quarter and about 8% annually when there is a
macroeconomic shock to the system. In order to have full adjustment, it could take many years.
This exacerbated a daunting challenge for the sustained economic growth. Although it is difficult

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to address this problem in the short term, the GoE should devise mechanisms to reduce the
shortage of foreign exchange at least for the priority manufacturing subsectors. For e.g., the
NBE as a short term strategy could devise a system for encouraging the domestic banks to give
priority for agro-food processing firms (export oriented & import substituting ones) that the GoE
has given due attention as driver of the economy while rationing foreign exchanges to their
clientele. If this problem is well addressed besides other challenges, these firms could in turn be
the potential source of foreign exchange for the country. In the long term, there is a need to
facilitate the international financial sources to provide capital loan to domestic investors.

9.6.2 Institutional Setup and Regulatory Framework

Establishing New Institutions

Establish an innovative advisory board and organizing a platform for stakeholders of AFPI:
The AFPI by its nature comprises different stakeholders such as, growers, traders, processors,
development partners and donor organizations, research institutes, universities and various
governmental organizations. Each of them is working on various activities that may contribute to
the development of agro-food industry. But their developmental activities are not organized in an
innovative manner under one platform. Donor organizations for example supply production
inputs (such as, improved seeds, farm implements, and irrigation equipment) and gives training
and extension services directly to smallholder farmers without participating or consulting the
respective agricultural offices. Such kind of supports would not be sustainable because of the
limited lifespan of such donor organizations. For the sake of its sustainability and even for
improvement of the proposal and results of donor organizations had it been better to work with
the respective principally mandated government offices for the specified activities (say,
MoANR, MoLF, MoI) in the implementation of such kinds of projects.

The national research institutes are also engaged in research activities which may help improve
the agriculture sector of the country, although the quantity and quality of researches in industrial
crops and livestock production, productivity and processing quality improvement is limited. Add
to this, the national research system is expected to produce and distribute basic seeds and breeds
of various industrial crops and livestock in consultation with the need of the main stakeholders
(MoANR, MoLF, MoI). Similarly the domestic universities are producing agriculture and agro-
food processing related professionals that contribute to the development of the sector, even if

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their curricula focused more on theoretical aspects than practical skills, which shall be prepared
based on the needs of main stakeholders of the sector (MoANR, MoLF, MoI). The MoANR and
MoLF, main stakeholders of AFPI as suppliers of input, should also inform their need for basic
seeds and breeds and forward the problems that should be solved through research and extension
services of the respective stakeholders such as, development partners, research institutes and
universities.

Establish industrial research and extension program/division at regional level: There is a need
at regional level that Industry Bureau to be established as an independent/separate structure.
Furthermore, it is important to establish the research and extension group at the regional industry
bureaus that can specifically participate in research and extension activities and scaling up of the
research results (best technologies and practices) related to AFPI development to the different
agro-food processing firms and other stakeholders via its extension wing. Although there is a
good start at MoI level to include the research component in the structure of the two newly
established institutes (EMDIDI and EFBPIDI), still it lacks a structure considering the extension
component which is very important to effectively and sustainably reach and adopt the research
results and any development interventions at grass root level to agro-food processors and other
stakeholders. Here it is important to draw lessons from MoA and MoH regarding extension
experiences and from EIAR regarding experiences of research, and even extension as well.

Establish regional advisory council for each of AFPI subsectors: The regional industry bureaus
have MoU with all key stakeholder institutions to have a joint plan of action that can support the
manufacturing industry. Since there is no a regulatory body mainly responsible for controlling
and following up whether the stakeholders actively perform their developmental activities or
support services for AFPI timely and enforcing them while they didn‟t perform, most
stakeholders play little/no share in AFPI development. It is thus important to establish a structure
at Regional Advisory Council that is mainly responsible for monitoring, controlling and
enforcing stakeholders‟ activities. Although the regional government planned to establish this
structure during the GTP period, it is not yet practiced. This would be more promising if the
regional advisory council were established by legislation for each of the manufacturing industry
subsectors (for e.g., Milk Products Development Agency, Honey Products Development Agency,

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etc). It is also suggested that all these subsectors‟ regional advisory councils should be directly
accountable for president office of the regional advisory council.

Regional agro-food industrial clusters and parks advisory council: It is also important to
establish a structure of Agro-Food Industrial Clusters and Parks Advisory Council at regional
level that is mainly responsible to create enabling environments and establish conducive support
service delivering systems for developing agro-food industrial clusters and parks at regional
level. This would attract both FDI and private sectors not only to invest in agro-food processing
industry establishments, in the long run may also even participate in the establishment of
industrial parks. In this regard, the regional bureaus planned to establish this structure within the
coming GTP2 period. Thus, this is a good start that needs to be further strengthened and
promoted by MoI and regional industry bureaus. Under this advisory council, it is suggested to
establish the following committees: financial institutions development committee, land and
infrastructure development committee, logistics and regulatory committee, and study and
research committee (representing Universities and Research institutes).

Establish an institution managing external (export) markets of manufacturing products: It is

necessary to establish an independent institution that is responsible for managing the export
(external) markets of manufacturing industries, which is directly accountable for the Prime
Minister Council. This institution is expected to focus its activities on diversification and
development of export markets.

Establish an institution managing internal (local) markets of manufacturing products:

Similarly there is a need to establish an independent institution that is responsible for managing
the internal (local) markets of manufacturing industries, which is directly accountable for the
Prime Minister Council. This institution is proposed aiming to focus its activities towards
diversifying and developing the domestic markets for manufacturing products. This suggests that
the institution has to devise mechanisms for strengthening and promoting those import
substituting manufacturing firms having high domestic demand for their products to become
more competitive with imported products.

Need to clearly define or revise roles/duties of some stakeholders with respect to their
contributions in achieving the GTP goals: The roles/duties of some stakeholders need to be

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clearly defined or revised with respect to their contributions in the achievement of our GTP
goals. For e.g., the results of stakeholder consultation with MoI indicated that one can see the
works of some stakeholders whether it is donor driven or in line with our GTP. Does it work for
the achievement of our GTP or donor driven? Even it is reported that their organizational
structure is ambiguous for the MoI. Thus, the working activities of every concerned stakeholders
of AFPI need to be fine-tuned in support of agro-food industrial growth corridors that can
enhance agro-food industrial parks development both at regional and country level.

Improvements in Existing Institutions

Reorganizing structure of the regional industry bureaus in line with structure of MoI while at
the same time establish a strong and sustainable integration among them: There is a need to
establish compatible structure and an integrated and sustainable system over the country that can
enhance free flow of information, technologies and any activities done among regional and
federal industry bureaus, like the strongly integrated and compatible structure installed in the
agricultural sector from federal to kebele level offices (MoA BoA, WoA and KoA). Such type of
integration in the industrial sector needs to be extended even to AFPF level. Hence, it is
important to establish a computerized network system as well as strong structural link among
regional industry bureaus, MoI and AFPFs in order to facilitate easy and regular exchange of
information, technologies and best practices among each other. If this is so, it will be simple and
less costly for a nation in general to make its AFP industrial policy is more dynamic to the extent
that can address the problems of specific industrial subsectors at regional and industrial level.

The industrial bureau at regional level (BoUID in case of Amhara and Oromia regions, BoTIUD
in Tigray region, and BoTI in SNNP region) needs to have similar/compatible structure with
MoI. Even having such a different structure of the regional industry bureaus created a difficulty
upon the MoI not to have a common data base at country level by compiling the data coming
from these regions. For e.g., MoI has an intention that medium and large scale industrial firms
are only supported by MoI and let the regional industry bureaus to support only small scale
firms. Recognizing the importance and the unique features of the various subsectors in the
manufacturing industry, the MoI reorganized its structure to open new, subsector-based
structures at federal level (for e.g., Ethiopia Meat and Dairy Industry Development Institute;
Food, Beverage and Pharmaceutical Industry Development Institute and others). Within these

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two new institutes, several subsector based directorates/structures are also opened, to the extent
that some of them may need to be merged together. Since there is no any compatible structures
opened at regional levels, the MoI through these newly established structures directly contacts
the manufacturers located at any region of the country, without consulting/noticing the regional
bureaus as the bureaus lack professionals having knowledge and skill about the different
subsectors of the manufacturing industries. This indicated that the regional bureaus do not have
technically capable staff that can properly support the different streams of AFPFs. Unless such
new structures established at MoI extended to regional bureaus, it is very difficult to provide
immediate follow up and any other supportive services to AFPFs regularly, rather such services
will be delivered by MoI staff coming far distance from Addis Ababa after the problems affected
the firms. Add to this, the structure of industry sector at regional level has been merged with
urban sector, as one work processing unit. The discussants argued that with this work process
unit it is very difficult to properly work all industry related activities. It seems paradox because
in the one hand the GoE has given due attention for developing the industrial sector and expects
much concerted efforts to be made from this sector to play a major role towards achieving the
national development goal, and the GoE on the other hand delimited structure of the regional
bureaus at the level of work processing unit. This caused the industrial sector unable to do every
activity timely and sufficiently by the decision of this processing unit unless BoUID head office
decided to do so. Consequently, it is suggested that it is important to reorganize an independent
structure of BoI separated from urban sector at regional level like MoI at federal level.

The other problem of regional bureaus is that sometimes it is difficult to perform certain
activities by themselves, as there is lack of working manuals. For e.g., it is difficult to import
machineries from abroad, as there is no specifications prepared for the required machineries. The
MoI in this case should take the initiative to prepare the different working manuals especially
indicating the quality parameters and sources of the items to be imported from abroad.

Strengthen passively performing industrial/business associations: The association plays key

role in establishing a common forum to share knowledge among members about government
policies, strategies, technology updates etc for attainment of the ultimate objective of solving
common problems in a concerted approach. An example of the achievement of the association is
the overturning of VAT levied on wheat flour. The association brings about enhancement of

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technology transfer among members and from abroad. The association facilitates experience
sharing visits within member companies through which one learns from others about modern
technology availability, access to them, pros and cons of using a certain technology. It has
facilitated, for example, an experience sharing visit and expo participation in Milano [Italy] for
30 of its members. These members have participated in conferences, visited modern technology,
and established business-to-business relationships. This visit can be considered as a good
opportunity for the members as they are now equipped with knowledge with regard to selecting
the right type of technology and the way how to deal directly to businesses possessing the
technology. The visiting members of the association have practically seen means of
manufacturing of best quality pasta products through semolina extraction technology. As they
have grasped the technology gap which imparts quality differences on products, they became
keen and started to process investment in such modern technology aiming on competitiveness
through manufacture of quality goods. The association also played key role in showing Ethiopian
potential to Italy‟s private sector in order for them to be based on Ethiopian interest when
developing technology. Italian business communities that are engaged in milling and pasta
extrusion technology development are made to be aware of Ethiopian wheat potential and the
mushrooming of milling and pasta extrusion industry. This condition has made them be
interested and draw their attention to Ethiopia. Thus, best experiences/practices of strong
industrial associations (e.g., Ethiopian Flour Millers‟ Association and Horticulture Producer
Exporters Association) need to be scaled up to other passive associations (like Ethiopian Edible
Oil Millers‟ Association) which are now on the process of phasing out. To do so, first there is a
need to strengthen the association capacity to address the challenges that faced from
manufacturing firms and government perspectives by providing policy supports and supportive
services.

Strengthening and promoting existing cooperatives/unions to establish AFPFs through special

incentives and technical supports: The cooperatives/unions can involve in value adding
activities. There are some cooperatives in Ethiopia established their own agro-food processing
firms, besides serving as market intermediaries between farmers and other potential markets.
This implies that besides the cooperatives enable farmers to get better markets for their products,
the farmers would share the benefits/returns obtained from the value adding activities as they are
results of their own processors. Moreover, the cooperatives can serve as medium of technology

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transfer and entry points in the process of transformation from labor-intensive to capital-
intensive based production system development, for it is relatively simple to cluster lands of
coop members and create capital accumulation for the purpose of adopting mechanized farming
in the country. They can also serve as the appropriate media for introduction of best practices
derived from other successful countries, like the experience of Japan in specialization of
production through a principle of a single village for one product (AVAP). In order to effectively
and efficiently utilize these and other potentials of cooperatives in this regard, the GoE is
supposed to strengthen and promote them through devising special incentives and supports.

Structural and Regulatory Framework

The interface of the value chain actors should be smooth and efficient. This will be achieved if
the following conditions are fulfilled. A strong linkage should be created among the industrial
and agricultural sectors, as the current economic policy of Ethiopia has followed the industry-led
development approach specifically focusing on manufacturing industry. There should be a single
window (one-stop-shop) service delivery system in the industrial parks. It is argued that the
livestock resources can bring transformation of an economy if they are properly used as inputs of
manufacturing sector. For e.g., there is a need to have a packaged based one-stop-shop service
delivery system in the livestock sector.

There should be rules and regulations that can regulate and enforce (in case one of the contract
partners defaults) the contract farming created between out-growers and AFPFs. It is also a
important to develop a model contract arrangement format. The results of firm and stakeholders
consultations revealed that lack of market linkages and information flow between producers
(smallholder farmers) and potential buyers (agribusiness firms such as, traders, agro-food
processing industries and exporters) is the principal challenge of the input supply industry
development in Ethiopia. They also indicated the possible means of addressing such marketing
problems in that the government institutions like MoANR, MoLF and MoT should consider in
their short-term interventions. Thus, in order to create a sustainable market linkage among
producers and agribusiness firms, it is recommended that MoANR, MoLF, MoT and Federal
Cooperative Agency should work together on the following two core strategies in collaboration
with farmers, donor organizations, agribusiness firms and other key stakeholders. These are:
contract farming (out-grower) schemes, and market diversification and improvement.

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Contract farming (out-grower) schemes
Contract farming has been widely used in many developing countries across Africa, Asia and
Latin America due to the ongoing agro-industrialization and globalization process. It has evolved
as an institutional arrangement to serve the interest of both the producers and potential buyers-
i.e., agribusiness firms (traders, processors and exporters). Smallholder farmers with contractual
arrangements generally have two potential advantages which otherwise would not be achieved.
First, they have access to emerging and growing high-value global markets despite potential
barriers arising from the rapid expansion of global retailers (supermarkets), the use of private
grades and standards, and the application of strict quality and safety regulations that need vertical
coordination of different stages along agricultural value chains. Secondly, smallholder farmers
have the opportunity to manage constraints such as lack of market information, finance and risks
that limit their participation in the commercialization process. Contract farming therefore
enhances the productivity of smallholder farmers by introducing improved farming practices
through the provision of inputs, credits, extension services and other support services. It also
brings investments and technical expertise to the smallholder sector. In the process, the
agribusiness firms are able to ensure sustainable output supply according to agreed quality,
quantity and price.

Nowadays, contract farming is widely recognized as an institutional arrangement that promotes

the commercialization of smallholder agriculture and poverty alleviation in developing countries.
Especially given the poor performance of agriculture in Africa, it is hoped that contract farming
and its variants will bring about improved incentives, increased income for farmers and positive
multiplier effects for impoverished rural economies (Glover, 1994; Kirsten and Sartorius, 2002).
It facilitates crop diversification through a shift from traditional low-value crops to high-value
crops (like vegetables and fruits) for niche local and export markets. Those schemes that involve
labor-intensive and high-value crops for niche markets have especially significant impact on
poverty. As a coordination strategy, contract farming enhances growth of agro-processing
industries to add value to primary products and improves the capacity to meet stringent trade
requirements of export markets. In addition, it provides a strategic option to attract foreign direct
investment (FDI), specifically transitional corporation in agriculture that can have significant
impact on the economy in terms of income, employment, poverty alleviation and technology
transfer.

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While contract farming plays a vital role in facilitating commercialization of smallholder
agriculture in developing countries like Ethiopia, it is not a panacea for all smallholder
agricultural production and marketing problems nor is it appropriate for all types of
commodities. Thus, it should not be imposed or promoted across all sectors. It does make
economic sense in certain commodity markets. Contract farming is appropriate in cases where
the contractor is a large processor, exporter, or retail chain; the commodity is high-value,
perishable, and/or not widely grown; and there is a destination market that is willing to pay a
premium for quality attributes that cannot be obtained in spot markets.

In general, contract farming as a business model is appropriate for high-value fruits and
vegetables for quality sensitive markets and other major cash crops such as tea, cotton, sugar,
tobacco and oil palm (USAID-CIAFS, 2012). In the literature, it is identified that there are five
contract farming models (nucleus estate, centralized, multipartite, informal and intermediary),
where the decision of contractors to adopt a particular model depends on market demand,
production, and processing capacity and the socioeconomic viability of plantation versus
smallholder farmers (Eaton and Shephered, 2001). Among which centralized model is commonly
used for fruit and vegetable production. This structure is often managed by private sector. In this
case, a large number of smallholder farmers are involved and the agribusiness firm provides
quality control, brand names and marketing channels. In Ethiopia particularly in Amhara region,
this model is recommended for production of high-value crops, where land is relatively scarce
but labor is abundant. Given the limited experience of Ethiopia in contract farming, the
multipartite model is recommended because it is often established as joint venture between the
public and private sectors the former sector has its own sake. Such arrangements also build
confidence needed for foreign companies to invest in contract farming with smallholder farmers.
Koga Vege, a Private Company from Belgium, in Mecha woreda is an example in this case
having started producing sugar snow, snap peas and baby corn for export piloting using 50 ha
nucleus farm secured from the regional government.

In contract farming, an agreement is made between farmers and agribusiness firms in advance
for a specific quantity, quality and date of delivery of an agricultural commodity (say,
horticultural product) at a predetermined price or fixed price formula (Binswanger et al., 1995;
Eaton and Shepherd, 2001). The agribusiness firm provides the farmer with technical assistance,

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farm inputs and credits and offers a guaranteed price while the firm receives a guaranteed steady
supply of farm products in accordance with the contract terms.

All agricultural markets involve some form of vertical coordination, i.e., matching of supply and
demand between different participants along the marketing chain, such as farmers, processors,
wholesalers and retailers (Minot, 2007). While the problem of vertical coordination exists along
all stages of the marketing chain, the focus in this case is limited into the relationship between
farmers and the buyers of agricultural outputs. The theoretical literatures identify three types of
vertical coordination strategies in the agricultural sector: spot markets, contracts and vertical
integration (Minot, 1986; Da Silva, 2005; Bijman, 2008). Contract farming is a form of vertical
coordination that lies between spot markets and vertical coordination.

Spot or open markets are the simplest form of vertical coordination, where transactions are
coordinated by prices alone and there are no regular commitments between sellers and buyers.
They function well for commodities that have little quality variation, are less perishable, have a
short production cycle, do not require precise timing of supply, and have stable and known
markets. In addition, spot markets are adequate for commodities for which credit, input supply
and technical assistance are less critical because of minimal input requirements and well known
production techniques (Minot, 1986). However, they do not always deliver the necessary degree
of vertical coordination in terms of price, quantity, timing and product attributes. Thus a formal
or an informal agreement is required among transaction partners. In this case, contract farming
allows a higher level of coordination between farmers and agribusiness firms with regard to
production management, time and location of product delivery and product characteristics such
as variety, color and size (Minot, 2007). Contracting involves a legally enforceable and binding
agreement with specifications regarding production technology, price discovery, risk sharing and
other product and transaction attributes (Eaton and Shepherd, 2001; Da Silva, 2005).

Since vertical integration is the tightest form of vertical coordination, instead of procuring farm
products on the spot markets or making a contractual arrangement with a group of farmers, the
company engages in production by establishing a plantation using purchased or leased farmland
and hired labor. This coordination strategy enables the company to have full control over the
production process.

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In reality, there are many forms of vertical coordination that do not clearly fit into the above
three coordination strategies (Minot, 2011). Cooperatives and producer organizations may play a
major coordination role either as part of a contract farming scheme or in the context of spot
markets. Government and non-government organizations or donor-funded projects sometimes
serve as intermediaries to link farmers with agribusiness firms by providing technical assistance,
establishing standards and/or providing credit to farmers. Assuming a firm is not limited to a
single vertical coordination, what determines the choice of a particular governance structure
leads to the theoretical explanation for the importance of contract farming.

Literatures show that the most widely applied theoretical framework for the rationale of contract
farming is based on Transaction Cost Economics (TCE), a branch of New Institutional
Economics (Da Silva, 2005; Minot, 2007; Bijman, 2008; Catelo and Costales, 2008). TCE deals
with the relations between buyers and sellers in terms of the costs of carrying our transactions,
including finding a buyer, negotiating a price, delivering the commodity, and obtaining payments
as well as the risks associated with the transaction, including the risk of being cheated
(Williamson, 2000). In TCE, transactions or economic exchanges are organized through
governance structures that range from spot markets and contracts to hierarchies in the vertical
coordination continuum. Thus, TCE matches transactions with the optimal governance structure
that minimizes transaction costs (Williamson, 1985).

Based on the results of key informant interview and focus group discussion as well as the
empirical literature review on contract farming, the following are recommended to be
implemented in the short-term so as to promote competitive and sustainable contract farming
schemes in the agriculture sector that are beneficial to smallholder farmers:

Promote collective action and develop innovative private enforcement mechanisms: Contract
farming (CF) schemes that are working with farmers‟ groups or cooperatives are more efficient
than those contracting with individual farmers. Because cooperatives and farmers‟ groups can
play the following important roles in the success of CF:
 Reduces the transaction costs associated with dealing with a large number of smallholders.
A cooperative serves as a channel for the provision of important support services such as,
inputs, technical support and other services;

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  Enables close follow up and monitoring of CF activities, especially the application of
inputs and recommended management practices by the contracting company
 Helps avoid side selling or farmer default through collective liability
 Enhances bargaining power of smallholders in contractual arrangements

The public sectors (such as, cooperative agencies and agricultural offices at national, regional
and district level) play an important role in the development of existing and newly established
farmers‟ groups and cooperatives to involve in CF. Thus, CF should involve voluntary
cooperative membership as well as voluntary relationships with agribusiness firms (potential
buyers) to ensure that they are sustainable.

Studies reported that enforcement mechanisms should be based on contextual factors, instead of
pursuing legal action through courts. For e.g., using court as enforcement mechanism in Ethiopia
is inefficient because court procedures are costly and time consuming (Eaton and Shepherd,
2001; Kirsten and Sartorius, 2002). The possible enforcement mechanisms include contracting
through the group approach and cooperatives, establishing an arbitration committee consisting of
representatives of farmers, agribusiness firms, exporters, government and other stakeholders as a
means to mitigate the opportunistic behaviors of contracting parties, and open communication
and close monitoring. In other cases, a government agency (like agricultural offices at different
levels) might be the most appropriate forum. The arbitration committee can act as an arbiter for
possible defaults or other deviations from the contract. However, it is recommended that the CF
industry has a self-enforcing mechanism in order to offer a measure of protection for all
participants.

Promote public-private partnership (PPP) in extension, research, and large investment: In

contrast to subsistence agriculture, farmers in CF will engage in the production of high-value
crops (like fruits and vegetables) that require technical support quite different from the normal
extension program on food grains. With some flexibility and collaboration, the public extension
program could support agribusiness firms in providing tailor-made and high quality extension
services to contract farmers. Moreover, the agribusiness firms could have access to technologies
that have been generated by public research institutes. The public research could also help
private companies in testing and verifying new agricultural technologies introduced from abroad.
CF also provides the opportunity to have PPP in the joint investment ventures. These

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partnerships are common in many developing countries in Africa and Asia. The multipartite CF
models are good examples of a private foreign company investing in CF with smallholder
farmers in joint venture with the government of the host country. Studies revealed that these are
often found to be successful.

Empower small scale out-growers: There are some successful companies where contracted
smallholder farmers are participating in decision making through their involvement as
shareholders. Empowerment enhances the sense of ownership on the part of smallholders and
promotes a long-term trust in business relationship.

Develop effective quality standards for agricultural products: The agricultural marketing
system in Ethiopia is characterized by lack of quality standards. The establishment of grades and
standards that are easy to implement and reflect market preferred traits will enhance
communication and negotiation in contractual arrangements between smallholders and
agribusiness firms. It will minimize contract default from both parties. In the one hand,
agribusiness firms will not reject products that meet the established grades and standards
especially if they participate in developing such a system, contract farmers will strictly follow
the recommended procedures to achieve the established quality standards on the other hand. The
government may also have a role in certifying compliance with private grades and standards,
such as, Good Agricultural Practices (GAP), fair trade and organic for high-value markets.

Promote competition among agribusiness firms: One of the common criticisms in CF is the fact
that firms have much greater market power and leverage than the smallholders who bargain with
them. There are also incidents of monopsony situations in the market. One of the most effective
approaches to limit the unbalanced power is to enhance competition among firms engaged in
similar agricultural products. However, this scenario may also increase the incidence of farmers
default. The competition makes easier for farmers to obtain inputs and credit from one firm and
then sell the harvest to another firm, thus avoiding repayment of the loan. In this case, effective
enforcement mechanisms should be developed and used.

Provide arbitration services: One of the major challenges in CF arrangements is contract breach
due to opportunistic behavior of both parties (farmers and firms). If market prices rise, farmers
tend to breach the contract by side selling while if the market price falls, the firm is tempted to

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buy its supply on the spot markets. If such breaches are widespread, they can lead to loss of
confidence and possibly collapse of the scheme. In this case, the government (particularly
MoANR and MoLF) and the private sector could have a major role in developing arbitration
alternatives for mediating conflicts between farmers and firms.

In order to enhance the commercialization of smallholder farmers leading to income growth and
poverty alleviation, the GoE (MoANR and MoLF) has to play a vital role in creating an effective
enabling environment for successful contract farming in particular and development of AFPI
industry in general. As a short-term intervention, the GoE with the support of development
partners (like Agro-BIG, ATA and others) develop the following key elements of an enabling
environment for sustainable development of contract farming industry in the country.

Develop legislation, a code of conduct and regulations for contract farming arrangements:
Contract farming schemes are normally investment projects organized by large-scale processors,
exporters or retail chains (supermarkets). Thus, an enabling environment that facilitates private
investment in commercialization of agricultural production is a necessary precondition for the
development of private CF schemes. The enabling environment includes investment and trade
policies, contract legislation, provision of public goods such as roads and other infrastructures,
research and other support services.

One of the major challenges in CF arrangements is contract breach due to opportunistic behavior
of both partners. CF arrangements should be backed up with appropriate laws and an efficient
regulatory system. Studies indicated that the experience of CF as a business model in Ethiopia in
general is very limited and relatively a recent phenomenon. There is no legally binding contract
legislation that specifically regulates CF arrangements between smallholders and agribusiness
firms. Hence, there is a need to develop contract legislation using legal experts by reviewing the
current legal framework related to CF.

Developing contract legislation is not enough for the promotion of viable and sustainable CF;
legal contractual arrangements are often breached due to lack of enforcement mechanisms. Thus,
there should be effective legal enforcement mechanisms that can serve as a code of conduct for
contractual arrangements between smallholders and agribusiness firms. Although over regulation
is not desirable to business environment. However, introduction of regulations in some critical

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aspects, such as use of pesticide application, food standards and safety, provision of improved
seed certification and the like create an effective enabling environment for CF. Regulations could
also be applied to prevent monopsony situations and protect contracting agribusiness firms that
have invested in CF from opportunistic firms and traders that offer contracted smallholder
farmers higher prices for breaking of the contract.

Strengthen the role of coops in contract farming and marketing of raw materials
The risk of commercialization of agriculture production and marketing of agricultural products
or raw materials could be addressed through arranging contract farming schemes between
producers and agro-food processors. The contract farming should be legal as it can be enforced
and controlled by the law in case default happens from both partners. In this system of
marketing, producers and buyers sign the contractual agreement before the production of crops,
livestock and livestock products, which governs both partners in terms of quantity, quality, price
and mode of delivery. This will avoid the involvement of illegal brokers who wrongly maximize
their benefits at the expense of farmers‟ benefits. Add to this, the agricultural raw materials
production will become demand driven and market oriented as the buyers provide market
information from the demand side.

Strengthening existing and establishing new farmers‟ cooperatives/unions is the other possible
intervention that can play the roles of brokers in creating market linkage among producers and
processors. To improve the economies of scale and make the business profitable, the potential
coops/unions should also be encouraged to participate in agro-food processing industries and
other value adding activities. The storage capacity of coops/unions need to be improved in order
to serve as appropriate collection centers closer to smallholders for their agricultural products
(raw materials of processors) and then consistently supply these products by facilitating the
smooth conduct and arbitration services of contractual arrangements made between producers
and agro-food processors. To do so, the coops shall prepare a plan for smallholders ahead of time
what, how and when to produce through consulting the respective potential buyers and
smallholder farmers. Coops are generally preferred to individuals in creating market linkage
between smallholders and agribusiness firms, because they will have the following advantages:
better bargaining power, better access to different supports (inputs, credits, extension and

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training), secured markets for their products through enhancing competitiveness in both input
and output market chains as well as in various government auctions, better access to tax evasion
in selling their produces, and high power to control traders‟ supply of lower quality seeds with
expensive prices to smallholders. However, there is a need that the GoE (Federal Cooperative
Agency) should take the initiative for registering the coops/unions to get TIN number so that
they could participate in any legal government auctions to purchase inputs for agriculture
production and sell their products. Besides, the agency should work on developing belongingness
of each member to the cooperative.

The other strategic intervention in this regard is to adopt cluster farming together with
staggering. Clustering refers to arranging a production system in which many farmers will
produce similar crops based on agro-ecology, watershed or access to irrigation scheme so that
wholesalers, traders and agro-processing industries could get sufficient volume of produces from
one area. Clustering also improves water use efficiency, as similar crops do have similar water
requirements. For e.g., forming a cluster of farmers producing tomato and onion that require
more water and another cluster of farmers producing maize and coffee that require less water
will reduce wastage of water. One of the major challenges of agro-food processing companies,
even the small-scales, is that there is no sustainable supply of agricultural raw materials. Hence,
staggering of plantation/seedling with certain time interval following the irrigation cropping
season will lead to sustainable supply of agricultural produces in the market. This intervention
has two implications: (1) there will be a sustainable supply of agricultural products in the market
throughout a year and (2) farmers/producers will reap high benefits as their produces will be sold
at better prices because farmers can produce the same crop at different times over a year. In
general, clustering together with staggering will lead to a large scale and sustainable supply of
different crops with better prices, which is more important for agro-food processors. Moreover, it
will significantly reduce the transaction costs for collecting and marketing of agricultural
produces and shorten the market chain at least by avoiding broker‟s impact. However, until this
production system is widely adopted by smallholders, the GoE should support this system by
facilitating establishment of contract farming between producers and processors. To avoid a
problem of late entrance of smallholders to irrigation season cropping calendar, it is vital to give
awareness creation training both to framers and experts that enable to start irrigation season as
early as possible. Thus, farmers should start irrigation season soon rainy season ceases so that

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they do have enough seasons for growing some industrial crops two or three times annually
using irrigation.

Structural framework needed to address marketing problems

Given the marketing problem in perishable crop and livestock products, contract farming is
among the best interventions to solve the problem. Although the country has little experience in
contract farming for agricultural raw materials production, it has no legal framework that used to
resolve a problem of default. It is important to devise a legal platform for both producers and
buyers like in any other business deals that can enforce during default. It is thus essential to
establish an institution through which trust and accountability will be developed between the two
actors. The legal institutions of government shall take the initiative to develop and implement
laws and regulations of enforcement. To do so, shall be better to take lessons from the
contractual arrangements made between national/regional seed enterprises and seed grower
farmers in case of improved maize and wheat seed production.

Trade and transport offices in collaboration with development partners and NGOs should also
work on establishing market linkage between producers and agribusiness firms. In this regard
there is a good experience by Agricultural Transformation Agency (ATA) in two pilot areas,
Awi and West Gojjam zones. ATA supports farmers through identifying high value crops,
preparing cropping calendar and demonstrations on FTC‟s, distributing technologies (like pedal
and rope pump), transforming conventional brokers into legal brokers and creating market
linkage between Et-fruit and farmers. There is also a good start by Agro-BIG, which attempted
to create market linkage between producers and Et-fruit through having contractual agreement
between them in advance of crop production. Crops are then collected through cooperative/union
and supplied to Et-fruit. This improves the benefits of farmers by reducing the transaction cost
and selling with better prices. Thus, this start should be further strengthened and expanded to
other parts of the country towards creating linkage with agro-food processors.

9.7 Cross Cutting Issues

Industrialization has to be harmonized with preserving the environment: cleaner production,
waste treatment, land allocation planning for industry and recycling, considering whether the
industry produce environmentally friendly products (such as, bio-diesel, bio-plastics), and

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considering safety regulations and labor welfare. Thus, the plan has to devise a win-win strategy
for sustainable development of AFPI through giving due attention for environmental and social
considerations.

It is also important to consider participation of women and youths in AFPI development

activities. One of the strategic interventions in this regard is organizing women and youths in
SMEs to participate in AFPI support services (such as, transportation, storage, packaging
materials, maintenance and repair). The other strategy is organizing urban women and youths
associations to participate in urban agriculture especially in vegetable and fruit, and livestock
production.

10. Agro-Food Industry Development Directions and Programs

In order for AFPI to be competitive and hence plays a significant role to bring sustained and
broad based growth and transformation of the economy, all the concerned stakeholders of the
industry have to be dedicated and accountable to provide their supportive services timely. In this
regard, the plan suggests the following important interventions that need to be made by the
various key stakeholders particularly by the government, including: ensuring conducive business
environment for the agro-food industry development and investment; improving efficiency of
service delivery by the federal and regional industry bureaus and other concerned government
organizations; and providing direct support and guidance to existing export oriented and import
substituting agro-food industries to enhance their production capacity and lowering high cost of
doing business, and to attract both local and foreign investors to establish new industries for
diversification and industrial product development. Moreover, it is essential to strengthen the
role and participation of SMEs, cooperatives/unions, and industrial associations for AFPI
development. Mobilizing and supporting rural youths and potential farmers to involve in AFPI in
the form of groups and/or associations to collectively use their land, capital, and indigenous
knowledge for the commercialization of agricultural raw materials production and promotion of
agro-food industrialization in the rural areas.

For achieving this goal and the vision of AFPI in general, the following six major programs and
14 projects are suggested to be devised in the plan period from firm level and stakeholder
consultations, document review and benchmarking.

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 1. Raw material supply industry development program
2. Packaging materials and spare parts manufacturing industry expansion and development
program
3. Infrastructure development and investment promotion program- including agro-food
industrial park development, service delivering capacity development (like repair and
maintenance, storages, transportation/distribution, marketing, and logistics), AFPI related
infrastructure establishments (such as, cooling tanks and transports, testing equipment,
milk collection centers, cold storages, and skill focused training centers)
4. Skill, knowledge and technology development and transfer program
5. Agro-food industry expansion and development program- focusing on export oriented
and import substituting industries, and market diversification and development
6. Agro-food industrial research and extension program- enhancing internal innovation of
the industry sector and for better adaptation and promotion of knowledge and technology
transfer from external innovations- abroad (FDI and donors) and domestic universities
and other research institutes

These programs are briefly discussed as follows:

1. Raw materials supply industry development program

• Establish a legal framework for contract farming to support efficient linkage between
input suppliers/producers and processors
• Build smallholders inclusive agro-food business- devise a mechanism for accessing
smallholders to AFPI and supporting them to produce market oriented raw materials

2. Packaging materials and spare parts manufacturing expansion and development program
To overcome the cost of packaging and spare parts, GoE has to encourage private sectors to
domestically manufacture packaging materials and spare parts through assessing and
assisting the supply and procurement of materials and other relevant support services.
• Provide enabling environment to support local manufacture of food grade packaging
materials (emphasizing on glass, cardboard/tetra pak, metal cans and rigid plastics) and
spare parts

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 • In the short term, until potential private investors enter to manufacturing of packaging and
spare parts, the government/public sector shall take over the manufacturing of these
products

3. Infrastructure development and investment promotion program

• Encourage investment in agro-food industry through providing appropriate infrastructure.
This might mean creating easier and consistent access to electric power, investment and
working capital, for attracting both domestic and foreign direct investment
• Establish milk collection centers at distant (to processing plant) locations from which
evening milk could not be collected for processing purpose
• Market intelligence- the market opportunity for agro-food manufacturers could be scoped
including evaluation of the opportunity and explaining how to deliver to it
• Innovation funding and automation- the high cost of doing business in Ethiopia increases
the need for encouragement of innovation in the agro-food industry and investment in
automation of service and product deliveries (reducing the costs for businesses) should be
considered
• Regional agro-food organizations- to develop regional branding and promote regional
differentiation could be supported
• Improving service delivery systems such as, repair and maintenance, storages,
transportation/distribution, marketing and logistics through strengthening SMEs and
cooperatives to provide such support services for AFPI, creating opportunities for closer
links between agro-food industry and transport/distribution industry to enhance the
logistic performance, and collective marketing for smaller firms to share in joint sales,
marketing and merchandising

For enhancing cost effective development of infrastructure, investment promotion and

service deliveries, it is imperative to rethink in an integrated approach how to put these three
important resources in place. To do so, it is important to develop agro-food industrial parks at
strategic locations in the selected industrial towns, where most AFPFs are found and closer to
agricultural potential areas. Thus,
• Integrated agro-food industrial parks (IAFIP) need to have their own policy, independent
structure, institutions and government that only manage the park

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 • Devise special incentive packages for developing industrial parks. In case of other
countries (e.g., Vietnam) houses and other entertainments are built within industrial parks
for their employees. Park‟s employees in Ethiopia however live sparsely outside parks in
their own homes, not in camp within the park. This condition has to be seen under the
labor policy of the country.
• Establish a judicial system encouraging the private investors to have good relationship
with their employees. The Ethiopian judicial system is not encouraging the private sectors
to involve in AFPI investments. It mostly favors the industrial employees in case a conflict
happens among employers and employees. Discussants from MoI, for e.g., stated that if
owner of the company has got an employee steals company‟s property (say, spare part,
raw material, or any products) and claims the guilty worker to the judiciary, the judiciary
usually prefers to leave the guilty person free of any penalty. This unfair judicial system
does not only have a discouraging effect on the owners perspective, it will also make the
relationship/working environment between management staff and employees unfavorable
as well as the employees to develop unethical working behaviors, which in turn negatively
affects competitiveness of the company (as cost of production becomes very high) and
ultimately the company may vanish.
• Ensure a one-stop shop service park. If this service park is established, both the input
supply chain and output market chain will be shortened so that there may be high chance
for direct transaction or exchange of raw materials between input suppliers and processors,
and of industrial outputs between processors and potential buyers. This implies that
unnecessary non-value adding activities (e.g., the role of traders/brokers) will be avoided
or reduced. It will also help reduce the possibility of theft prevalence as the chains
shortened. Thus, the GoE should mobilize and support private investors to involve in one-
stop shop (single window) service park establishments through providing special
incentives (say, training, experience sharing visits, etc).

4. Skill, knowledge and technology development and transfer program

• Cultivation of innovation within higher education institutes (HEIs) to foster generation
and transfer of knowledge and technology
• Generating practical capable graduates- the GoE could also look to decrease the cost made
by manufacturing firms for re-skilling labor

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 • Industry champions- developing a pool of industry champions that can advise SMEs and
other younger businesses
• Board support- developing a pool of experienced professionals who can hold board
positions for developing agro-food firms
• Networking- delivering networking programs that are used by agro-food industry
• Capacity development- playing a role to increase the capacity of the agro-food processing
industry through automation and human development
• Strategic market intelligence- leading programs that foster government-to-government
agreements on intelligence gathering and distribution
• Introduce cold pressed and virgin edible oil through implementing oilseed specialized and
mandatory cold pressed/virgin edible oil standards for value added exports

5. Agro-food industry expansion and development program

Currently the contribution of agro-food industry to GDP and foreign exchange earnings of
the country is very minimal. More than 65% of agro-food processing firms are only grain
millers and bakery and only 4.3% of their products are sold to export markets as well as the
country imports processed foods more than six folds of its over the GTP period, indicating
that lack of product and market diversification and development is one of the main
challenges in AFPI. GoE has to take the initiative, via establishing this program, for
expanding existing and developing new agro-food industries so as to enhance product and
market diversification and improvement. To do so, the following policy and institutional
supports are important:
• Improving investment support services
• Supporting dairy processing investment in milk shade areas
• Rendering continued assistance to graduated SMEs during transition period
• Supporting artisan agro-food markets in local, regional and national levels as entry
points for new agro-food manufacturing
• Ensure implementation of food and feed quality control and assurance
• Enforcing accreditation of research labs in universities and research institutes of the
country that will also be in a position to serve as conformity assessment bodies
• Ensure duty free access to CRM and PT by conformity assessment bodies
• Implement mandatory standards for food and feed commodities

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 • Improve lab professional career structure into a sought after status
• Reduction of taxes: initiatives to examine improved options for taxes for agro-food
manufacturers to make the agro-food industry more competitive and encourage investment
• Support livestock production through exempting VAT on feed products
• Selective ban of some oilseeds export to improve capacity utilization of local oil
millers
• Establish level playing field among millers owned by PLC and sole proprietorships
• Put in place a level playing field among foreign and local edible oil industries through
exempting VAT on locally produced edible oil
• Reduction of bureaucracy: Initiatives to reduce lengthy bureaucracy of the different
concerned government organizations (e.g., ERCA, EIC, MoI, etc) affecting AFPI
development.
• Institutionalize a one-stop shop service delivery (automation) through networking the
government organizations concerned for AFPI development

6. Agro-food Industrial research and extension program

To strengthen the internal innovation and easy adoption and dissemination of research results
(information and technologies), an independent agro-food industrial research and extension
program needs to be established at regional level industry bureaus. This program will also be
responsible for conducting the feasibility study before the new ideas and technologies
disseminated to the wider communities and up-scaling best practices/technologies of the
proven activities when they found feasible.

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 Table 22: Estimated budget required for establishing the new agro-food processing and related firms by 2025

Projects # new firms Estimated budget

established (million birr)
Large Medium Total Large Medium Total
1. Honey products manufacturing (bulk & table 15 44 59 600 1,100 1,700
honey and honey-wine)
2. Roasted-ground and vacuum packed coffee 2 - 2 100 - 100
manufacturing
3. Fruit and vegetable products manufacturing 23 73 96 690 1,460 2,150
(potato chips and frozen French fries & flour,
minimally processed fruits and vegetables, and
fruit & vegetable juice and concentrate)
4. Cereal food complex manufacturing (wheat 68 222 290 3,400 6,660 10,060
flour, macaroni, and pasta; Injera, Teff flour,
Injera crumb; maize starch/flour, germ oil &
corn flakes):
5. Edible oil production complex manufacturing 10 30 40 200 300 500
(including cold pressed & virgin oil)
6. Meat processing 3 8 11 240 480 720
7. Dairy products manufacturers: pasteurized milk 28 36 64 1,960 1,440 3,400
& UHT milk; cheese, yogurt & butter; milk powder
8. Malt manufacturing 4 - 4 1,200 - 1,200
9. Spice extraction industry 3 120
10. Manufacturers of packaging materials for 4 4,000
processed foods: glass package for honey, jams &
jellies, tomato juice & ketchup; tetra pack for UHT
milk & fruit juices; metal cans for tomato paste, fruit
& vegetable products; flexible & rigid plastic
package for dry & other fluid foods
11. Manufacturers of spare parts, machineries and 1 1,000
equipment for agro-food processors
12. Manufacturers of electric transformers and 1 2,000
electronic equipment for agro-food processors
13. Mega food parks development 9 900
14. Smallholders inclusive commercialized farms
development on selected agricultural produces*:
 Commercialized farms for crop products 432 79,162
 Commercialized farms for livestock products 134 110,794
Total 217,806
* A total of 432 and 134 cooperative based commercialized farms with an annual production
capacity of about 1.163 million and 557 thousand tons of crop and livestock products
respectively need to be established and developed, assuming that a well developed
cooperative based commercialized farm could sufficiently supply the volume of raw materials
required by a single processor over a year - i.e., a single farm for a single processor (AFAP).

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Once these projects are established with an estimated budget of 217,806 million birr, additional
investments (see Table 23) may also be required to establish AFPI related infrastructure
considering its unique features out of the projects‟ locations helping improve quality and cost of
food production, which in turn enhances AFPI to grow and become competitive. The later
establishments will play such role especially through enhancing collective actions and
introduction of collection centers (with various facilities) at closer distance to provide training,
quality testing and other technical supports, and hence closely following up and advising
smallholder farmers to undertake their production, collection and transportation activities in line
with the need of good agricultural practices (GAP) and other quality certification parameters. .

Table 23: Estimated budget required for establishing AFPI related infrastructure and facilities

AFPI related infrastructure establishments Quantity Budget

(#) (million birr)
Cooling tanks for milk at stations 565 56.5
Cooling transport for milk 113 22.6
Milk testing equipment at stations 565 56.5
Milk collection centers building (encompassing artificial 565 141.3
insemination, feed storage, veterinary service and milk reception)
Cold storage at strategic locations of fruit growing areas 5 75.0
Reefer for fruits for local and international transportation 297 118.7
Skill focused training centers of specialization at selected 4 200.0
universities
Total 670.6

Without human resource development, attempting to make AFPI competitive only through
strengthening and promoting product and market diversification and development, and AFPI
related infrastructure development may not lead to achieve the expected results. Thus, it is
important to think about human resource development from agro-food processors (private
sectors) and regional and federal industry bureaus (public sectors) perspective. Here is suggested
that it would be better to focus on skill based short-term trainings for the staff of agro-food
processors, and both short- and long-term trainings for the regional and federal industry bureaus
to which an estimated budget of about 3.8 billion birr (Table 24) for agro-food processors. are
needed. Upgrading the skill sets of the regional and federal industry bureaus to the Master and
PhD levels are also important, besides specialized processing based short-term trainings. As
shown in Table 24, the larger share of short-term trainings needs to be allocated for medium than

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large sized processors as the former are the most affected ones by shortage of technically skilled
human resources.

Table 24: Estimated budget for short term trainings to existing and new agro-food processors by staff categories
and size of firms

Estimated budget
Staff category Number of trainees
(million birr)
Large Medium Total Large Medium Total
Technical staff 6,674 10,227 16,901 6.3 3,118.5 3,124.8
ICT staff 758 826 1,584 0.5 119.5 120.0
Managerial staff 2,048 3,760 5,808 1.3 568.6 569.9
Total 9,480 14,813 24,293 8.1 3,806.6 3,814.7
Note that the number of existing and new agro-processing firms by 2025: Total (1319): Large (379)
and Medium (940)

In sum, a total amount of 222.3 billion birr is required in the plan period for developing the agro-
food processing industry in the country. The private sectors, FDI, public sectors, and donors are
the major sources of finance that are expected to cover 72.6, 23.6, 3.7, and 0.1% respectively. It
is suggested that the private sectors and FDI have to play the first and the second largest role in
making such investments (see Table 25) in agro-food industry.

Table 25: Total estimated budget by source of finance and budget items

Budget items Total budget Sources of finance (billion birr)

(billion birr) Public sectors Private sectors FDI Donors
Firms establishments 217.81 7.90 157.41 52.5 -
AFPI related infrastructure 0.67 0.27 3.4 0.14
establishments
Training for agro-food processors 3.81 0.006 0.494 0.17
Training for industry bureaus
Total* 222.29 8.176 161.304 52.5 0.31
* Excluding budget for training of Federal and Regional industry bureaus‟ staff

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11. Implementation Plan

The manufacturing industry in general and AFPI in particular is expected to be a leading

productive sector for economic growth in the planning period. For the development of the sector,
removing barriers to invest and lowering the cost of doing business are pointed out as important
factors, besides others.

The serious need for industrialization as a means for poverty alleviation, sustainable potential
market for agricultural products and the current global competition requires strengthening
competitiveness of the AFPI for its sustainable growth. Although the current poor state of the
fundamental conditions calls for urgent improvements, the country has a comparative advantage
in the manufacturing of some commodities which can enable it to pursue the path to
industrialization. However, little progress has been made on its implementation. This AFPI
policy and strategy plan intends to devise the strategic interventions needed for agro-food
industrial transformation proceeding to the intention of the GTP. In formulating the
implementation plan leading towards vision 2025, horizontal and vertical approaches are
concurrently hunted. The horizontal approach focuses on the four types of linkage creations,
which are aimed to become the agro-food industrial transformation triggers. The vertical
approach, on the other hand, shows the implementation framework categorized into five main
subjects.

The nature of agro-food industry in Ethiopia is generally at infancy and fragmented business
operations. This situation contributes more for the industry to become less competitive both in
export and domestic markets. To alter this situation towards triggering industrial transformation,
the AFPI development plan is prepared with six strategic pillars and described based on their
importance to enhance the following four types of linkage creations, namely:
 Spatial linkage creation (creating value chain oriented agro-food industrial corridors)
 Foreign linkage creation (promotion of FDI)
 Strengthening industrial linkages (forward and backward linkages)
 Economic linkage creation (integrating informal economy into formal economy).

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1. Creating value chain oriented agro-food industrial corridors
Attaining rapid growth and minimizing the income gap simultaneously is a big challenge. To
minimize the regional income gap, a strategy for promoting investment outside Addis Abeba has
to be developed. According to CSA 2013/14 medium and large manufacturing industry survey,
most of the industrial activities are currently concentrated in and around Addis Abeba. This is
because the industrial supporting system is very weak outside Addis Abeba. It is thus important
to roadmap the agro-food industrial corridors of the country, considering the resource potentials
and opportunities (or comparative advantages) and reviewing the growth corridor of the country
compared to the rest countries of the world especially benchmarking successful emerging
economies, having similar development history.

2. Promoting FDI
Attaining at least 6.7% contribution of AFPI to GDP of the country inevitably requires an
enlarged volume of investment. Since domestic investment is limited mainly due to scarcity of
capital like other least developing countries, it is necessary to promote FDI more proactively. We
should see the importance of FDI not only with respect to source of capital, but also
acknowledge the knowledge and technology transfer aspects of it. This will help the country to
improve its technological capability towards global standards. The incentive mechanisms of the
country should also be seen towards promoting multinational companies as compared to the
locally owned enterprises, Ethiopian-African companies and other foreign countries-Ethiopian
companies. We should also see whether the ownership of companies is taken as the criteria for
receiving public supports; whether the demand conditions, factor conditions, firm conditions, and
related and supporting industries are favorable to attract FDI. Overall, we should see the
government efforts to localize the multinational companies that can intervene into higher value
added activities. Localization of the multinational companies is the best way to encourage them
to set their foundation in the country as an agro-food manufacturing center targeting at least the
neighboring countries (like Sudan, Djibouti, Somali and Kenya). Some of the best practices
utilizing FDI have demonstrated promotion of investment initiatives through public-private
partnerships (PPP), resulting in the creation of dynamic clusters which have made significant
spin-off effects on the local industry.

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3. Strengthening industrial linkages
For the AFPI to increase its value addition and to bring about multiplier effects on other
economic sections, a strategy to strengthen the domestic linkages with other growing economic
sectors shall be taken up through both forward and backward linkages. The multiplier effect is
also expected to make a larger impact on job creation with wider sections of the labor markets.
Except the linkage creation between agricultural sector and manufacturing sector, policy makers
have hardly taken note of interconnected effects across the sectors. Vertically, the segmented
nature of the administrative system has often caused them to make decisions without
consideration of possible impacts on the manufacturing sector. For example, public grant
schemes relying on imported goods without placing priorities to the local products often deny
market opportunities to the manufacturers (this is a serious problem, for e.g., in case of edible oil
manufacturers). In another case, setting high quality standards without assistance to the
manufacturers has resulted in increasing reliance on foreign outsourcing production.
Considerations for strengthening cross-sectoral linkages and possible impacts on the
manufacturing sector have to be always kept in mind.

4. Integration of informal economy into formal economy

Informal sector is the main source of employment in the country and in the regions as well.
Being informal makes it difficult to extend public support effectively and also undesirable in
terms of income generation to the country. For a country, like Ethiopia graduating through the
early stages of economic development, growth in the industry sector is essential for sustained
long-term growth and poverty reduction (WB, 2000 and 2004). The structural transformation of
an economy that entails reallocation of workers from the poorly productive informal and
agriculture sectors to more productive economic activities in manufacturing industry and related
services is an important step towards creating better-paying jobs in low-income countries
(McMillan and Rodrik 2011). Job creation through industrialization can positively impact equity
and poverty indices in low-income countries. During the early stages of industrial development,
due to the potential for higher productivity in the manufacturing sector and the manufacturing
sector‟s utilization of predominantly unskilled and semi-skilled labor, the movement from
informal and agriculture sectors to manufacturing tends to benefit the poor (WB, 2014b). Under
increasing global competition, it is necessary to place stronger emphasis on creation of
competitiveness otherwise it would be very difficult for the informal manufacturers, which are

234
uncompetitive, to sustain their business. It is therefore recommended that the GoE has to take
stronger efforts and commitment in supporting transformation of the informal manufacturers
(SMEs) to the formal ones (MLEs) through creating a strong and sustained integration among
them.

It is obvious that linkage creations are considered the key implementation strategies for bringing
industrial transformation, although translating them directly into the implementation framework
would not be practical as their implementation overlaps each other. Consequently, the
implementation framework for agro-food industry development is designed with five main
categories of development objectives. The implementation framework is to provide the
government with a set of tangible and concrete action plans to improve the supporting system of
the industrial development.
 Improving efficiency of service delivery by stakeholders of AFPI ( more importantly the
federal and regional industry bureaus),
 Ensuring conducive business environment (improving infrastructure development and
institutional framework relating to public administration),
 Facilitating internal innovation of the industry over the regional and national industrial
development platform,
 Improving productivity and efficiency of agro-food industry,
 Enhancing sustainable development with environmental and social considerations.

Objectives of the implementation framework

1. Improving efficiency of service delivery by federal and regional industry bureaus
 The role and implementation structure of the federal and regional industry bureaus should
be clearly defined and their structural alignments need to be revised.
 The job descriptions of the federal and regional industry officers needs to be defined
based on specialization strategy of each officer while putting stronger commitment on
actual implementation.
 Institutional capacity in the field offices and foreign missions are needed to be reinforced
to increase industrial linkages both domestically and internationally.

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2. Ensuring conducive business environment
Establishing conductive business environment is a prerequisite for growth and development of
AFPI by enhancing attractiveness of the industry for both local and foreign investors. The study
has identified the legal and taxation frameworks, infrastructural conditions, and information
delivery are the three key items of which the government has primary responsibilities for
implementation.

3. Facilitating internal innovation of the industry

The AFPI development plan study identifies the following key subjects of supporting systems for
facilitating internal innovation of the manufacturers: technological development, management
and marketing capacity, export promotion, human capacity development, financial conditions,
investment promotion, and industrial networking. There are already many existing initiatives in
each subject; yet, public and private agencies are not effectively connected with each other; thus
each initiative has not really been effective. Moreover, the supporting system is generally weak
outside Addis Abeba, capital city of the country.

4. Improving efficiency and productivity of AFPI

The concept of structural change represents a dynamic process of change in sectoral relative
contributions to GDP in which the share of manufacturing in GDP rapidly increases. Such
increase in the share of industry causes the agricultural share in GDP to decline concomitantly in
a non-linear pattern and the contribution of services in GDP begins to grow. This dynamic
process continues until the share of manufacturing takes the leading position and contributes to
GDP (Kuznets, 1966; Chenery and Taylor., 1968; Kongsamut et al., 1997; and ECA 2011).
Comparing with agriculture and service, industrializing the economy means moving towards
higher productivity, higher earnings and profit, integrated industrial products, product
sophistication and output diversification, relatively low risk (volatility and vulnerability), widen
employment creation and so on. Enhancing total factor productivity (TFP) in this regard is the
central process of structural change and perpetual growth. Both theories and empirics indicate
that factor accumulation of saving and investment should be considered as a necessary but not
sufficient condition for sustaining economic growth and transformation (Todaro and Smith,
2011). TFP in the sense of change in technology, knowledge, human capital and spillover effect
drives the long-run growth while accumulation of factors does not explain long run growth.

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Some believed that technology-led productivity growth is the source of sustaining growth and
transformation (Kuznets 1973; Schumpeter 1947 and Schultz 1964). Studies conducted by
Hirschman (1958) and Johnston and Mellor (1961) give more emphasis on the role of linkages of
the economy. Many also pay attention to the roles of the market, and institutions (Matthews,
1986 and Rodrik, 2003), and low resource cost and enabling environment in economic
transformation (Thaddee et al, 2009). However, as reported by several studies and the results of
this study, the capacity utilization and productivity of Ethiopia‟s AFPI is low and significantly
reduces its competitiveness in the global arena. The plan needs to suggest the government
policies and strategies towards promoting the productivity of AFPI via capacity utilization, and
technology transfer and innovations.

5. Sustainable development with environmental and social consideration

Industrialization has to be harmonized with preserving the environment: cleaner production,
waste treatment, land allocation planning for industry and recycling, considering whether the
industry produce environmentally friendly products (such as bio-diesel, bio-plastics), and
considering safety regulations and labor welfare.

The relationship between the industrial development implementation framework (with five
categories of development objectives vertically) and linkage creations (with four horizontal
objectives) can be used for reference. In the process of preparing the above framework and
objectives, firm level and stakeholders‟ consultations through KII, FGD, forums and workshops
are duly considered. Thus, the implementation plan prepared based on the aforementioned
implementation framework and development objectives are summarized in Table 26.

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 Table 26: Implementation plan

Respon.
No Strategic pillars Implementation strategies body
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
1 Input supply industry development
Access to reliable  Developing a reliable information exchange system between MoANR, x x
supply of local raw industry & agriculture sectors MoLF, MoI
materials  Establishing commercialized farmers and contractual MoANR, x x x x x x x x x x
arrangements with AFPFs MoLF, ATA
 Mobilizing & strengthening rural youths as a driver in MoANR, x x x x x x x x x x
commercialization of agricultural production MoLF
Access to reliable  Establishing domestic firms manufacturing packaging MoI, x x x
supply of packaging materials investors
materials  Importing appropriate packaging materials from abroad in MoI, Ind. x x x
bulk by coordinating/pooling demands of AFPFs Association,
Investors
Access to reliable  Establishing domestic firms manufacturing spare parts MoI, x x x
supply of spare parts Investors
 Importing spare parts from abroad in bulk by MoI, Ind. x x x
coordinating/pooling demands of AFPFs Association,
Investors
 Strengthening & promoting existing domestic firms’ capacity MoI x x x x x x x x x x
to deliver maintenance & repair services
2 Infrastructure development
Access to reliable  Setting up mechanism to provide precautionary information EEPA x
electric power regularly to AFPFs about electric outage
 Isolating electric transmission lines and connect directly from EEPA x x
sub-stations at least for firms in industrial zones
 Building firm’s capacity to use automatic generator MoI, EEPA x x
 Facilitating & supporting private sectors to involve in MoI, EEPA, x x x
manufacturing electric transformers & other accessories EIC
Access to  Improving selectivity of inspections to reduce cost, transit time MoTC, x x x x x x x x x x
competitively priced and corruption ERCA
transport logistics  Establishing appropriate warehouse (cold storage) with better MoI, MoT, x x x x x
technology at every export destination MoTC,
NGOs

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 Respon.
No Strategic pillars Implementation strategies body
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
 Improving competence and quality of logistic services (like sea, MoTC x x x x x
air and road transportation)
 Improving the ability to track and trace consignments MoTC, MoI x x x
Improve customs  Introducing use of simplified customs’ procedures for ERCA x x
service delivery authorized economic operators/traders
systems  Developing a single window service delivery system ERCA x x
 Introducing use of customs valuation system ERCA x x
Strengthening food  Establishing accredited lab facilities at the strategic locations MoST, x x x x x
quality assurance & where most AFPFs found & in the universities NGOs
control infrastructure  Developing a career structure highly recognizing a profession MoST, x x
of accredited laboratory analyst MoI
 Improving CAB’s access to certified reference material (CRM) MoST, x x x x x x x x x x
& proficiency test (PT) through allowing imports duty free and MoT
avoiding delay of delivery
 Promoting implementation of food safety & quality standards MoST, x x x x x x x x x x
through enforcement of mandatory food standards while at MoT,
the same time providing strong technical supports MoI
3 Market & product diversification and development for AFPI
Improve access to  Establishing market information centers at industrial towns to MoI, x x
local, regional and share information among value chain actors in AFPI MoT
global markets  Optimally use the international and preferential market access MoT x x x x x x x x x x
to EU, USA and regional markets
 Developing appropriate marketing strategies based on MoT x x
membership to regional blocs (like COMESA, WTO, etc)
 Developing strategy to engage Ethiopian diasporas & MoT, x x
embassies & foreign diplomats/councilors towards marketing GoE
strategy development and implementation
 Effective segmentation and positioning of markets and MoI, x x
products depending on the country’s comparative & MoT
competitive advantages
Diversifying agro-food Strengthening & promoting existing priority AFPI subsectors
 MoI x x x x x x x x x x
products to expand/upgrade their capacity for developing & diversifying
food products
 Establishing new AFPI subsectors for diversification & Investors x x x x x

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 Respon.
No Strategic pillars Implementation strategies body
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
development of food products
4 Promoting attractiveness of AFPI to local and foreign investors
Ensure conducive  Developing appropriate promotional and relationship building EIC, x x
business environment mechanisms to attract local & foreign investors in AFPI MoT
and incentives for  Preparing subsector based investment promotion and EIC x x
investors incentive schemes considering the regional state dynamics
 Strengthening & promoting domestic firms involve in AFPI MoI x x x
support services (such as packaging, spare parts and
equipment suppliers)
 Establishing a level playing field (improving tax & subsidy ERCA, x x x
policies) among AFPFs to protect the infants (especially MoT,
import substitutes) and to build fair competitions MoI
 Provision of special incentives and continued support for FeMSEDA, x x x x x x x x x x
SMEs on the path of graduation into MEs FIs, MoI
 Promoting investment initiatives of multinational companies MoT, x x x x x x x x x x
through developing public-private partnerships (PPP) and EIC,
joint ventures MoI
 Align local, regional & national legislation & regulation to Legal x x
assist AFPI to reduce costs of product development, institutions,
manufacturing & bringing products to market MoI
 Strengthening and establishing appropriate institutional setup EIC, x x
for promoting domestic & FDI in AFPI MoI
 Institutionalizing one stop shop services for investors GoE x x
Improve  Establishing awareness creation forum of AFPFs at strategic MoI x x x x x x x x x x
implementation of locations, where most AFPFs found
investment incentives  Establishing a TV promotion program conducted regularly EBC, x x
with support of documentary films showing the best MoI
performing firms
 Providing capacity building training for investors in AFPI EIC, x x x x x x x x x x
before accessing incentives & setting up mechanism to follow MoI
up their implementation while at the same time providing
technical supports
 Establishing appropriate regulatory systems for enforcing Legal x x
punishment onto investors who misused incentives for institutions,

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 Respon.
No Strategic pillars Implementation strategies body
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
unintended purposes EIC, MoI
 Adopting zero tolerance for corruption in government and GoE x x x x x x x x x x
private institutions
 Improving implementation capacity of the state (state capacity GoE x x
building)
Agro-food Industrial  Establishing integrated AFIPs at strategic locations around IPDC, x x x x x
park (AFIP) agriculture potential areas as pilot projects MoI
development  Scaling up best practices of proven AFIPs to other potential MoI, x x x x x
areas countrywide IPDC
5 Capacity building
Improving knowledge  Mobilizing & supporting diasporas to involve in technology GoE x x x
& technology transfer & development through special incentive schemes
transfers  Facilitate internal innovation in AFPI through establishing MoI x x
industrial research & extension division at MoI & regional
industry bureaus
 Mobilizing & supporting higher education, TVET and research MoE, x x
institutions to develop their innovation strategy for enhancing EIAR
knowledge & technology transfers in AFPI
 Developing joint ventures with FDI / partnership with MoT, x x x
multinational & global firms to get better access for MoI
technology transfer & development and foreign exchange
Human resource  Improving university education to focus on practical aspects MoE, x x x x x x x x x x
development at least by including practical attachments (apparent ship) MoI
through creating strong linkage with targeted AFPFs
 Experience sharing visits for both investors & professionals in MoI, x x
the AFPI NGOs
 Integrating the training & education systems of HEIs with MoE, x x x x x x x x x x
AFPI development and diversity MoI
6 Developing policy & institutional supports for AFPI development
Improve access to  Facilitating and strengthening domestic banks to provide GoE x x x x x x x x x x
credit investment & working capital for manufacturing expansion
 Facilitating the provision of capital loan to domestic investors GoE x x x x x
from international financial sources
 Improving the current on-cash reserve requirement (from 30 DBE x x

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 Respon.
No Strategic pillars Implementation strategies body
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
to 10%) to increase the amount of loan to 90% of the
investment required at least for graduating SMEs
 Readopting the former credit delivering system (30% DBE x x
collateral in physical asset) at least for on-going firms
 Revision of capital required for graduating SMEs into MEs GoE, MoI x x
Improve access to  Encouraging banks to give priority for targeted AFPFs in GoE x x x x x x x x x x
foreign exchange foreign exchange rationing, to which GoE has given due
attention as driver of the economy
 Strengthening existing & establishing new import substituting MoI x x x x x x x x x x
firms to save the foreign exchange spent for food imports
 Mobilizing and supporting Ethiopian diasporas to invest in MoI, x x x
AFPI through special incentive schemes EIC
 Strengthening & promoting competitiveness of existing export MoI, NBE x x x x x
oriented AFPFs able to cover foreign exchange need by their
own
 Diversifying food exports through facilitating establishment of MoI, x x x x x
new export oriented AFPFs exploiting agricultural potentials of Investors
the country
Improve land  Facilitating easy access to land (adequacy & timeliness) for MoI x x x x x x x x x x
acquisition for manufacturing expansion & agricultural raw material
expansion production
Promoting agro-food  Organizing groups of potential farmers to share land, capital & FCA, x x x
industrialization in indigenous knowledge in AFP establishments through MoI
rural areas providing special incentives & technical supports
 Strengthening & promoting existing coops/unions to establish FCA, x x x
AFPFs through special incentives & technical supports MoI
Improve  Organizing a platform for stakeholders in AFPI at industrial MoI x x x x x x x x x x
coordination/linkage towns, where most AFPFs found
among stakeholders  Strengthening & promoting SMEs participation in AFPI FeMSEDA, x x x x x x x x x x
through creating sustainable linkage with MLEs and MoI
establishing a dependable and modern information exchange
systems
 Strengthening and promoting the role of industrial MoI x x x x x x x x x x
associations for effective mediation and conflict resolution of

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 Respon.
No Strategic pillars Implementation strategies body
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
legal matters
Improving efficiency  Reorganizing structure of the regional industry bureaus in line MoI x x
of service delivery by with structure of MoI while at the same time establish a strong
MoI and regional and sustainable integration among them
industry bureaus  Strengthening the institutional capacity to create industrial MoI x x x
linkages both domestically and internationally
Improve management Establish an independent institution responsible for managing
 GoE, x x
of domestic & export export (external) markets of manufacturing industries directly MoI,
markets for AFPI accountable for PMC MoT
 Establish an independent institution responsible for managing GoE, x x
domestic (internal) markets of manufacturing industries MoI,
directly accountable for PMC MoT
7 Cross cutting issues
Women & youths  Organizing women & youths in SMEs to participate in AFPI FeMSEDA x x x
participation supportive services (such as transportation, storage,
packaging materials, maintenance & repair)
 Organizing women and youths associations to participate in FCA, x x x
vegetable, fruit and livestock production MoANR,
MoLF
Environmental & social  Sustainable development with environmental & social EPLUA, x x x x x x x x x x
aspects consideration MoI

12. Logical Framework Analysis

This section analyzes the intervention measures required to pursue the strategy as a comprehensive AFPI growth and development
initiative. It reflects a log frame based intervention-logic whereby the different sets of outputs and activities contribute to overcome
the key binding constraints, translated as immediate and intermediate objectives to be achieved. The outputs and activities cover
institutional, policy and infrastructure interventions (Table 27). For the details see Annex 8.

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 Table 27: Logical framework analysis

Goal 1000. Contribution of AFPI to structural transformation of the economy increased remarkably

Intermediate 1100. Share of AFPI to GDP of the country increased from current 1.5 to 6.7%,
outcomes Contribution to foreign exchange improved by increasing food exports from current 97.2 to 333 million USD and by
reducing food imports from current 678.7 to 167 million USD, and Level of employment in AFPI increased from current 56
to 290 thousands

Intermediate 1110. Share of AFPI increased from current 1120. Supporting services for AFPI 1130. Diversified & 1140. Productivity of
outcomes 36.2 to 39.4% of MVA appropriately delivered by domestically developed output markets AFPI improved
established firms for AFPI remarkably

Outputs 1111. Volume of food products (in tons) 1121. Best practices of proven IAFIPs 1131. Sustainable market 1141. Capacity
manufactured by export oriented AFPFs & scaled up countrywide at industrial linkage created among utilization of existing
foreign exchange earned from food exports towns, around agricultural potential AFPFs & potential local & AFPFs improved from
increased at least by 13.1% annually 1112. areas export markets current 68 to 95% &
Volume of food products (in tons) manufactured 1122. Volume of domestically 1132. Proven market new ones achieved at
by import substituting firms & foreign exchange manufactured packaging for diverse information dissemination least 95%
saved from food imports increased annually by processed foods centers (MIDCs) scaled up 1142. Raw materials
13% 1123. Domestically delivered quality countrywide at industrial locally supplied for
1113. Volume (in tons) and sales of food testing lab services for AFPFs towns AFPI increased to at
products manufactured by SMEs & MEs 1124.Volume of domestically least 90 from current
graduated from SMEs in AFPI manufactured electric transformers for 65% & volume of
1114. Volume of food products (in tons) AFPI supply (in tons)
manufactured by AFPFs owned by groups of 1125.Storage capacity & quality of cold 1143. Volume of
potential farmers & coops/unions storages established at export vegetable, fruit &
destinations livestock production
1126.Supporting services for AFPI (in tons) by women &
(transportation, storage, packaging, youths associations
maintenance & repair) delivered by SMEs 1144. Volume of
1127. Production & sales volume (in domestically
tons) of fruit climber trees support manufactured spare
manufactured by trellising factory parts for AFPFs
1128. Joint plan of actions regularly
prepared by platforms of stakeholders for
AFPI development

Activities 1111.1 # expanded existing & newly 1121.1 # pilot IAFIPs established at 1131.1 A separate 1141.1 # existing &
established honey (bulk/table) & honey wine industrial towns around agriculture institution established for new AFPFs achieved

244
processors potential areas managing export markets of optimum capacity
1111.2 # expanded existing & newly 1122.1 # glass package (for honey, jams manufacturers utilization
established washed, roasted, ground & vacuum & jellies, tomato juice & ketchup) 1131.2 A separate 1142.1 Reliable
packed coffee manufacturers manufacturing firms established institution established for supply of raw
1111.3 # pack-house value added fresh fruit & 1122.2 # tetra pack (for UHT milk & fruit managing local markets of materials for AFPI
vegetable products manufacturers established juices) manufacturing firms established manufacturers established by scaling
1111.3 # expanded/ upgraded existing & 1122.3 # metal cans (for tomato paste, 1132.1 # pilot MIDCs up best practices of
newly established fruit juice manufacturers fruit & vegetable products) established at industrial proven commercialized
1111.4 # expanded/upgraded existing & newly manufacturing firms established towns, where most AFPFs farms (CFs) & out-
established tomato paste & juice manufacturers 1122.4 # flexible & rigid plastic package found grower schemes
1111.5 # potato chips & frozen French fries (for dry & other fluid foods) countrywide
manufacturing firms established manufacturing firms established 1142.2 # pilot CFs &
1111.6 # tef based products (injera, flour & 1123.1 # accredited lab facilities out-growers
injera crumb) manufacturing firms established established domestically for quality established by
1111.7 # expanded existing & newly testing lab services for AFPI clustering input
established meat processors 1124.1 # electric transformer producers
1111.8 # fish processing firms established manufacturing firms established 1143.1 # women &
1112.1 # expanded existing & newly domestically youths associations
established edible oil processors 1125.1 # cold storages established at established for fruit &
1112.2 # cold pressed/virgin edible oil export destinations vegetable production
processing firms established 1126.1 # SMEs involved in transport 1143.2 # women &
1112.3 # expanded existing & newly services for AFPI youths associations
established flour & pasta manufacturers 1126.2 # SMEs involved in packaging established for dairy
1112.4 # starch, corn flakes & glucose services for AFPI production
manufacturing firms established 1126.3 # SMEs involved in storage 1143.3 # women &
1112.5 # pulse canning firms established services for AFPI youths associations
1112.6 # expanded existing & newly established 1127.1 # fruit climber trees support established for honey
pasteurized milk manufacturers trellising factories established production
1112.7 # UHT milk manufacturing firms 1128.1 # platforms of stakeholders 1144.1 # existing &
established organized by subsectors of AFPI new local firms
1112.8 # cheese, yogurt & butter strengthened to
manufacturing firms established manufacture spare
1112.9 # milk powder manufacturing firms parts
established
1112.10 # expanded existing & newly
established malt manufacturers
1113.1 # existing & new SMEs and MEs
graduated from SMEs in AFPI
1114.1 # AFPFs established by existing coops/
unions & organized groups of potential farmers

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13. Monitoring and Evaluation Plan

The Ministry of Industry (MoI) will undertake periodic and participatory monitoring and
evaluation with a view to promote learning. It will help stakeholders examine the progress,
challenges and achievements of AFPI in the plan period. It also recognizes the values of various
actors in the sector and empowers them to build sense of ownership.

Monitoring will focus on the physical performances, budgetary utilization, quality and quantity
of the work done. Quantity of activity accomplished, timeliness, budget utilization, proper
targeting and quality of work are some of monitoring indicators. Activity accomplishment
against plan in the specified timeframe, budget utilization against planned budget, cost against
benefit and progress of the activities towards the overall goal will be monitored. Regular and
periodic activity performance and financial reports, field visit and regular meeting with
stakeholders are sources of pertinent data for monitoring purpose. Monitoring will be performed
throughout the implementation process of the strategic interventions at different levels. On the
other hand, evaluation will focus on the impacts brought about as a result of policies and
strategic interventions. The terminal evaluation will be held by independent consultants
immediately after completion of the plan period facilitated by MoI and Ethiopian Policy Study
and Research Center (EPSRC). The methods of evaluation will be participatory and primary data
from firm surveys and secondary data will also be used. These data will be analyzed and
interpreted to trace results against set indicators (Table 28). During the terminal evaluation, MoI
and government line offices will actively participate and evaluation report will be generated for
learning and to be sent to MoI and EPSRC. Recommendations of the evaluation will be used for
further planning of development initiatives by MoI in collaboration with AFPFs of the country.

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Table 28: Monitoring and evaluation plan
Narrative summaries
Outputs:
1. Production & export capacity achieved by
expanded/upgraded existing export oriented
firms
2. Production & export capacity achieved by newly
established export oriented firms
3. Production & import substitution (IS) capacity
achieved by expanded/upgraded existing import
substituting firms
4. Production & import substitution (IS) capacity
achieved by newly established import
substituting firms
5. Production capacity & sales’ earning achieved
by existing & new SMEs in AFPI
6. Production capacity & sales’ earning achieved
by MLEs graduated from SMEs in AFPI
7. Proven agro-food industry parks (AFIPs) scaled
up countrywide at industrial towns, around
agricultural potential areas
8. Domestically manufactured packaging
materials for AFPI products
9. Domestically manufactured spare parts for
AFPFs
10. Domestically delivered quality testing lab
services for AFPFs
11. Production capacity & sales achieved by newly
established fruit climber trees support trellising
factory
M &E objectives
To check production & export
capacity achieved by existing
export oriented firms
To check production & export
capacity of new export oriented
firms
To check prod. & IS capacity
achieved by existing import
substituting firms
To check prod. & IS capacity
achieved by new import
substituting firms
To check volume of prod. & sales
achieved by SMEs
To check volume of prod. & sales
achieved by graduated MLEs
To verify AFIPs scaled up well
To assess packaging materials
manufactured domestically
To assess spare parts
manufactured domestically
To assess the quality testing lab
services delivered domestically
To check prod. & sales capacity
achieved by trellising factory
247
Methods/tools
Indicators Information to be collected for collecting
information
Annual volume of prod. & export # successfully operating firms, annual CSA, MoI & MoT
earnings by type of products & # volume of prod. & export earnings reports
existing export firms Survey
Annual volume of prod. & export # successfully operating firms, annual CSA, MoI & MoT
earnings by type of products & # volume of prod. & export earnings reports
new export firms Survey
Annual volume of prod. & domestic # successfully operating firms, annual CSA, MoI & MoT
sale by type of products & no. of volume of prod. & domestic sale reports
existing IS firms Survey
Annual volume of prod. & domestic # successfully operating firms, CSA, MoI & MoT
sale by type of products & no. of annual volume of prod. & domestic reports
new IS firms sale Survey
Annual volume of prod. & sales by # successfully operating firms, FeMSEDA report
products & no. of SMEs annual volume of prod. & sales Survey
Annual volume of prod. & sales by # successfully operating graduated FeMSEDA report
type of products & no. of MLEs, annual volume of prod. & MoI report
graduated MLEs sales Survey
# effective & efficient firms # effective & efficient parks & IPDC report
encompassed in AFIPs scaled up AFPFs, what benefits firms got from MoI report
countrywide parks Survey
Annual volume of packaging by Annual volume of successfully MoI report
type of packaging & products being manufactured packaging by type, Survey
packed No. of AFPFs benefited & level of
satisfaction onto packaging
Annual volume of spare parts Annual volume of successfully MoI report
produced by AFP subsectors produced spare parts by type Survey
Type of quality testing lab services National & global acceptance of MoST report
domestically delivered, No. of domestic labs by type of quality MoI report
AFPFs benefited from lab services testing services Survey
by subsectors
Annual volume of trellising Annual volume of successfully MoI report
production manufactured trellising Survey

Narrative summaries
12. Proven market information dissemination
centers (MIDCs) scaled up at industrial towns
countrywide
13. Market linkage created among agro-food
processors & potential export markets
14. Proven commercialized farms (CFs) & out-
grower schemes scaled up countrywide
15. Market linkage created among commercialized
farms & AFPFs scaled up countrywide
16. A regular platform organized among
stakeholders for AFPI development
17. Domestically manufactured electric
transformers (privately owned) manufacturers
of established
18. Appropriate warehouse (cold storage)
established at export destinations
19. AFPFs established by groups of potential
farmers
20. Strengthened & promoted coop/union owned
existing AFPFs
21. New AFPFs established by existing
coops/unions
22. AFPI supportive services (transportation,
storage, packaging) delivered by SMEs
23. Vegetables, fruits & livestock products
produced by urban agriculture (especially by
urban women & youths associations)
M &E objectives
To assess MIDCs scaled up well
To check market linkage created
among AFPFs & export markets
To assess CFs & out-grower
schemes scaled up well
To assess market linkage created
among CFs & AFPFs
To check a platform of stakeholders # platforms of stakeholders
organized & regularly functioned
To check electric transformers
manufactured domestically
To check the cold chains
established
To check AFPFs established by
groups of farmers
To assess coop/union owned firms
strengthened
To check AFPFs established by
coops/unions
To assess AFPI supportive services Type of supportive services
delivered by SMEs
To check livestock & livestock
products, fruits & vegetables
cultivated by urban agriculture
248
Methods/tools
Indicators Information to be collected for collecting
information
# MIDCs adopted # sustainably successful MIDCs MoT report
MoI report
Survey
# firms accessed to secured export # firms benefited from such linkage MoT & MoI report
markets for their products & annual export earnings Survey
# CFs & out-growers adopted, & # sustainably successful CFs & out- MoA report
annual volume of prod. by type of growers, and annual volume of MoI report
raw materials production Survey
# CFs & AFPFs having strong # CFs & AFPFs benefited from MoA report
market linkage among them market linkage MoI report
Survey
Joint plans prepared & implemented Interview
organized & regularly functioned by by stakeholders, Report review
AFI subsectors Regularly functioning platforms
Quality of electric transformer # successfully operating firms MoI report
manufactured by domestic firms, Quality & annual capacity of Observation
Annual production capacity production
# established cold chains, & their # successfully operating cold chains MoT report
quality & capacity to store at export destinations MoI report
Survey
# AFPFs established by groups of # successfully operating AFPFs & FCA report
farmers & subsectors, & annual annual volume of prod. by MoI report
production capacity subsectors Survey
Annual production capacity of firms # successfully operating AFPFs & FCA report
owned by coops/unions annual volume of prod. by MoI report
subsectors Survey
# AFPFs established by # successfully operating AFPFs FCA report
coops/unions & subsectors, and established by coops/ unions & MoI report
their annual production capacity subsectors Survey
# AFPFs efficiently served & FeMSEDA report
delivered by SMEs, & no. of AFPFs transaction costs reduced by SME Survey
served by their services services, No of SMEs benefited from
their supportive services
Type & annual volume of Annual volume of vegetables, fruits Municipal report
vegetables, fruits & livestock & livestock products consistently Survey
products commonly produced by produced by urban associations
 Methods/tools
Narrative summaries M &E objectives Indicators Information to be collected for collecting
information
urban associations
24. Properly managed domestic and export To check domestic & export Domestic & export markets for Effective & efficient domestic & MoT report
markets for AFPI products markets for AFPI products AFPI properly managed by the new export markets for AFPI products NIs report
managed properly institutions (NIs) Interview
Activities:
1. Existing edible oil millers/refineries To assess edible oil millers # expanded edible oil # firms adequately & timely MoI report
expanded/upgraded expanded millers/refineries expanded Survey
2. Newly established edible oil millers/ refineries To check new edible oil # established edible oil # firms well established at proper MoI report
millers/refineries established millers/refineries by size locations & sites Survey
3. Cold pressed/virgin edible oil processing firms To check cold pressed/virgin edible # established cold pressed/ virgin No. of firms well established at MoI report
established oil established edible oil millers by size proper locations & sites Survey
4. Existing flour, macaroni & pasta manufacturing To assess flour & pasta # expanded flour & pasta # firms adequately & timely MoI report
firms expanded/upgraded manufacturers expanded manufacturers expanded Survey
5. Newly established flour, macaroni & pasta To check new flour & pasta # established flour & pasta # firms well established at proper MoI report
manufacturing firms manufacturers established manufacturers by size locations & sites Survey
6. pack-house value added fruits & vegetables To check F&V pack-houses # established F&V pack-houses by # firms well established at proper MoI report
(F&V) manufacturing firms established established size locations & sites Survey
7. Tef based products (injera, flour & injera crumb) To check Tef based product # established Tef based product # firms well established at proper MoI report
manufacturing firms established manufacturers established manufacturers by size locations & sites Survey
8. Existing washed, roasted, ground & vacuum To assess coffee based product # expanded coffee based product # firms adequately & timely MoI report
packed coffee processing firms manufacturers expanded manufacturers expanded Survey
expanded/upgraded
9. Newly established washed, roasted, ground & To check new coffee products # established coffee based product # firms well established at proper MoI report
vacuum packed coffee processing firms manufacturers established manufacturers by size locations & sites Survey
10. Pulse canning firms established To check pulse canning firms # established pulse canning firms # firms well established at proper MoI report
established by size locations & sites Survey
11. Existing fruit juice processing firms expanded/ To assess fruit juice processors # expanded fruit juice processors # firms adequately & timely MoI report
upgraded expanded expanded Survey
12. Newly established fruit juice processing firms To check new fruit juice processors # established fruit juice processors # firms well established at proper MoI report
established locations & sites Survey
13. Potato chips & frozen French fries To check potato chips & frozen # established potato chips & frozen # firms well established at proper MoI report
manufacturing firms established French fries manufacturers French fries manufacturers locations & sites Survey
established
14. Starch, corn flake & glucose manufacturing To check starch, corn flake & # established starch, corn flake & # firms well established at proper MoI report
firms established glucose manufacturers established glucose manufacturers locations & sites Survey
15. Existing tomato paste & juice processing firms To assess tomato paste & juice # expanded tomato paste & juice # firms adequately & timely MoI report

249
 Methods/tools
Narrative summaries M &E objectives Indicators Information to be collected for collecting
information
expanded/upgraded processors expanded processors expanded Survey
16. Newly established tomato paste and juice To check tomato paste & juice No. of established tomato paste & # firms well established at proper MoI report
processing firms processors established juice processors locations & sites Survey
17. Existing malt manufacturing firms expanded/ To assess malt manufacturers # expanded malt manufacturers No. of firms adequately & timely MoI report
upgraded expanded expanded Survey
18. Newly established malt manufacturing firms To check malt manufacturers # established malt manufacturers # firms well established at proper MoI report
established locations & sites Survey
19. Existing pasteurized milk processors To assess pasteurized milk # expanded pasteurized milk # firms adequately & timely MoI report
expanded/upgraded processors expanded processors expanded Survey
20. Newly established pasteurized milk processing To check new pasteurized milk # established pasteurized milk # firms well established at proper MoI report
firms processors established processors locations & sites Survey
21. UHT milk processing firms established To check UHT milk processors # established UHT milk processors # firms well established at proper MoI report
established locations & sites Survey
22. Cheese, yogurt and butter manufacturing To check cheese, yogurt & butter # established cheese, yogurt & # firms well established at proper MoI report
firms established manufacturers established butter manufacturers locations & sites Survey
23. Existing honey processing (bulk, table) firms To assess existing honey # expanded honey processors # firms adequately & timely MoI report
expanded/upgraded processors expanded expanded Survey
24. Newly established honey (bulk, table) & honey To check new honey & honey wine # established honey & honey wine # firms well established at proper MoI report
wine manufacturers established manufacturers established manufacturers locations & sites Survey
25. Existing meat processing firms To assess existing meat processors # expanded meat processors # firms adequately & timely MoI report
expanded/upgraded expanded expanded Survey
26. Newly established meat processing firms To check new meat processors # newly established meat # firms well established at proper MoI report
established processors locations & sites Survey
27. Milk powder manufacturing firms established To check milk powder manufacturers # established milk powder # firms well established at proper MoI report
established manufacturers locations & sites Survey
28. Fish processing firms established To check fish processors # established fish processors # firms well established at proper MoI report
established locations & sites Survey
29. SMEs graduated into MLEs in AFPI To assess MLEs graduated from # MLEs graduated from SMEs # successfully operating MLEs FeMSEDA report
SMEs graduated from SMEs Survey
30. Agro-food industry parks (AFIPs) established To assess feasibility of pilot AFIPs A feasibility study conducted on Feasibility of pilot parks determined IPDC report
as pilot projects at industrial towns around pilot AFIPs & their future directions suggested MOI report
agricultural potential areas Observation
31. Glass package (for honey, jams & jellies, To check glass package # established glass package # firms well established at proper MoI report
tomato juice & ketchup) manufacturing firms manufacturers established manufacturers for honey, jams & locations & sites Survey
established jellies, tomato juice & ketchup
32. Tetra pack (for UHT milk & fruit juices) To check tetra pack manufacturers # domestic tetra pack manufacturers # firms well established at proper MoI report

250
 Methods/tools
Narrative summaries M &E objectives Indicators Information to be collected for collecting
information
manufacturing firms established established for UHT milk & fruit juices locations & sites Survey
33. Metal cans (for tomato paste, fruit and To check metal can package # domestic metal can manufacturers # firms well established at proper MoI report
vegetable products) manufacturing firms manufacturers established for tomato paste, fruit & vegetable locations & sites Survey
established products
To check flexible & rigid plastic # domestic flexible & rigid plastic # firms well established at proper MoI report
34. Flexible & rigid plastic package (for dry & other package manufacturers established package manufacturers for dry & locations & sites Survey
fluid foods) manufacturing firms established other fluid foods
35. Fruit climber trees support trellising factory To check a trellising factory # established trellising factory A trellising factory established at MoI report
established established proper location & site Survey
36. Existing domestic firms strengthened to To assess existing firms # existing domestic firms # existing firms successfully MoI report
manufacture spare parts for AFPFs manufacture spare parts manufactured spare parts manufacturing spare parts Survey
37. New domestic firms established to To check domestic spare part No. of domestically established No. of spare part manufacturers MoI report
manufacture spare parts for AFPFs manufacturers established spare part manufacturers established at proper locations Survey
38. Quality testing lab service delivering firms To check accredited lab facilities # domestically established lab # accredited lab facilities well MoST report
established domestically at strategic locations domestically established facilities established at strategic locations & Survey
where most AFPFs found sites
39. MIDCs established as pilot projects at selected To assess feasibility of pilot MIDCs A feasibility study conducted on Feasibility of pilot MIDCs MoT report
industrial towns, where most AFPFs found established at selected industrial pilot MIDCs determined & their future directions Survey
towns suggested
40. CFs & out-grower schemes established as To assess feasibility of pilot CFs & A feasibility study conducted on Feasibility of pilot CFs & out- MoA report
pilot projects out-grower schemes established pilot CFs & out-growers growers determined & their future ATA report
directions suggested Survey
41. Market linkage created as pilot projects among To assess feasibility of pilot market A feasibility study conducted on Feasibility of pilot market linkages MoA report
selected CFs and AFPFs linkage created among selected pilot market linkage established determined & their future directions ATA report
CFs & AFPFs among CFs & AFPFs suggested Survey
42. Regular platforms established as pilot projects To assess feasibility of pilot A feasibility study conducted on Feasibility of pilot platforms
among stakeholders of selected AFP platforms established pilot platforms determined & their future directions
subsectors suggested
43. Domestically established electric transformer To check electric transformer # domestic electric transformer # firms well established at proper ELPA report
manufacturing firms manufacturing firms established manufacturing firms locations & sites Observation
44. Warehouse (cold storage) established at To check warehouses (cold # cold storages established by # cold storages with proper MoI report
export destinations storages) established export destinations technologies established Survey
45. Groups/associations of potential farmers To assess groups/associations of # groups/associations of potential # effectively established AFPFs by FCA report
organized for establishing AFPFs potential farmers organized for farmers organized & AFPFS groups/associations of potential Survey
establishing AFPFs established by them farmers
46. Existing coops/unions strengthened & To assess AFPFs established by # firms established by existing coops # effectively operating firms FCA report

251

Narrative summaries
promoted for establishing AFPFs
47. New coops/unions organized for establishing
AFPFs
48. Urban (women & youths) associations
organized for fruit & vegetable production
49. Urban (women & youths) associations
organized for dairy production
50. SMEs strengthened & promoted for delivering
transport services to AFPI
51. SMEs strengthened & promoted for delivering
packaging services to AFPI
52. SMEs strengthened & promoted for delivering
storage services to AFPI
53. A separate institution established for
managing export markets for manufacturing
industries (MIs)
54. A separate institution established for
managing domestic markets of manufacturing
industries
Inputs: personnel, finance & facilities
1. Practically capable technical personnel
studying agro-food processing related fields
availed in AFPFs
2. Managerially capable personnel studying
marketing & business management related
fields availed in AFPFs
3. ICT skilled personnel practically capable to
develop network and properly manage
information availed in AFPFs
4. Practically capable technical personnel
studying agro-food processing related fields
availed at MoI & regional industry bureaus
(RIBs)
5. Managerially capable personnel studying
Methods/tools
M &E objectives Indicators Information to be collected for collecting
information
existing coops/unions & subsectors established by existing coops Survey
To check AFPFs established by # AFPFs established by new # effectively operating firms FCA report
new coops/unions organized coops/unions & subsectors established by new coops/unions Survey
To check fruits & vegetables # organized associations & their # associations effectively producing Municipal report
cultivated by urban associations members, & annual production F&V & annual production capacity Survey
capacity
To check dairy & dairy products # organized associations & their # associations effectively producing Municipal report
cultivated by urban associations members, & annual production dairy & dairy products & annual Survey
capacity production capacity
To assess SMEs delivered # SMEs delivered transport # SMEs effectively delivering MoTC report
transport services to AFPI services to AFPI transport services to AFPI FeMSEDA report
To assess SMEs delivered # SMEs delivered packaging # SMEs effectively delivering MoI report
packaging services to AFPI services to AFPI packaging services to AFPI FeMSEDA report
To assess SMEs delivered storage # SMEs delivered storage services # SMEs effectively delivering storage FeMSEDA report
services to AFPI to AFPI services to AFPI Survey
To check a separate institution A new institution established for A well organized & capacitated MoT report
established for managing export managing export markets of MIs institution installed for managing Interview
markets of MIs export markets of MIs observation
To check a separate institution A new institution established for A well organized & capacitated MoT report
established for managing domestic managing domestic markets of MIs institution installed for managing Interview
markets of MIs domestic markets of MIs observation
To check the required human 16,901 Effectiveness & efficiency of the Reporting
power availed personnel involved in the activities Survey
To check the required human 5,808 Effectiveness & efficiency of the Reporting
power availed personnel involved in the activities Survey
To check the required human 1,584 Effectiveness & efficiency of the Reporting
power availed personnel involved in the activities Survey
To check the required human BSc: Effectiveness & efficiency of the Reporting
power availed MSc: personnel involved in the activities Survey
PhD:
To check the required human BSc: Effectiveness & efficiency of the Reporting
252
 Methods/tools
Narrative summaries M &E objectives Indicators Information to be collected for collecting
information
marketing & business management related power availed MSc: personnel involved in the activities Survey
fields availed at MoI & RIBs PhD:
6. ICT skilled personnel practically capable to To check the required human BSc: Effectiveness & efficiency of the Reporting
develop network and properly manage power availed MSc: personnel involved in the activities Survey
information availed at MoI & RIBs PhD:
7. Domestic public investment made for To check the budget timely 8.2 billion birr Regular & timeliness of approved Auditing & action
developing AFPFs released & appropriately utilized fund disbursed plan
8. Domestic private investment made for To check the required budget 161.3 billion birr Regular & timeliness of the required Auditing & action
developing AFPFs timely & appropriately utilized budget invested in AFPI plan
9. Foreign direct investment and donors To check budget allotted by FDI 52.8 billion birr Regular & timeliness of the budget Auditing & action
contribution for developing AFPFs timely & appropriately utilized allotted by FDI invested in AFPI plan
10. Offices and office facilities To check the facilities availed Offices and office furniture Availability of required facilities Inventory report

253
Reporting and accountability of the plan
The plan contains a series of „Measures of Success‟ against each of its major needs identified for
the agro-food industry. The measures will provide feedback on the success of the implementation
of the plan‟s actions and initiatives and indicate where improvements or adjustments could be
made. As a global industry it will also assist Ethiopia to benchmark its performance against
national and the world‟s leading practices for agro-food industry development.

The measures will aim to capture the overall benefit at the end of the ten-year plan as well as
provide feedback annually to track progress and so provide information for decision making and
resource allocation processes within the department. They will also provide information for the
minister and industry on the achievement of outcomes. Measurement of achievements will
include:
 Key performance indicators across industry
 Industry-wide and specific sector (by product) and business type targets
 Analysis of levels of profitability through the development of food business baselines
 Industry turnover figures, sourced from more comprehensive and timely Ethiopian
Central Statistical Agency data
 Monitoring and reporting on initiatives launch through the plan.

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 Annexes
Annex 0: A Report on Experience Sharing Visit to India made by AFPI
Research Team

1. Introduction

With the aim to enhance the competitiveness and contribution of the manufacturing industry to
the national economy, the Government of Ethiopia (GoE) has set a plan to prepare a separate
policy and strategy document that could address the unique needs and features for each of the
following four manufacturing subsectors: (1) iron ore and metallurgy, (2) metal manufacturing,
(3) agro-nonfood processing and (4) agro-food processing industries. This is mainly due to the
fact that the Industrial Development Policy and Strategy that Ethiopia has currently been
implementing since 2002 is so generic, its effectiveness was very limited towards addressing the
subsector based issues especially for agro-food processing industries whose products are very
perishable and need special infrastructure development and supports considering its unique
features. The main document in general and this report on experience sharing visit in particular
focused on the latter subsector (agro-food processing industries).

Thus, one of the important means of achieving rapid and sustained growth and improving
competitiveness of agro-food processing industry (AFPI) is adaptation of the important lessons
drawn from successful developing economies having similar development history with Ethiopian
context. Such lessons could be drawn by reviewing empirical literatures (secondary sources) and
by direct visits and observations of processing companies and discussions with stakeholders of
AFPI in benchmarking countries (primary sources). In consultations with local food processing
companies and other stakeholders of Ethiopia‟s AFPI, we first identified the specific areas onto
which Ethiopia has to draw lessons from successful developing economies. Considering these
identified areas of lessons as the criteria of selection, the study team has shortlisted three
countries for benchmarking, besides fine-tuning the review of literatures towards addressing
these issues. The team also has ranked those selected countries according to the extent of lessons
to be drawn. A country is ranked first for benchmarking if all or most of the expected lessons can
be drawn from it and ranked last if it leads to draw only few lessons. After Brazil, Argentina and

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India were chosen as benchmarking in order of importance, the visit was decided to be made in
India mainly to draw lessons onto the following points:

1. How to ensure reliable supply of agricultural raw materials to AFPI, including: inclusion
of smallholder farmers in the business, commercialization of agriculture (cluster
formation and contract farming), and quality assurance and control
2. How to ensure reliable supply of (diverse) packaging materials and quality testing
laboratory services
3. Product and market development and diversification: effective and efficient utilization of
local and global market opportunities, import substitution and export product
development, institutional capacity to manage local and export markets of manufacturing
industries
4. How to promote agro-food industrialization in rural areas: role of farmers‟ coops/unions,
potential farmers (groups or associations) and rural youths in AFPI business
5. Logistic performance of the country related to AFPI development (considering its unique
features): tackling problems related to handling, storage & transportation of perishable
fresh commodities (e.g., transporting milk is sensitive to creaming, fruit and vegetables to
bruising, vacuum packed juice concentrates are sensitive to loss of vacuum during
transportation on poor road conditions)
6. How to achieve effective coordination of stakeholders along the value chain of AFPI:
agro-food industrial parks development, the role of universities and research institutions
(university-research-industry linkage) for AFPI development specifically in knowledge &
technology development and transfer, and the role of SMEs in AFPI business and
government supports to graduate and link to medium and large enterprises (MLEs)
7. Government supports, policy and regulatory interventions to strengthen and promote
national agro-food industries

This report is a detailed summary of the experience sharing visit of Ethiopian delegate to India
composed of senior researchers from Ethiopian Policy Study and Research Center (Industrial
Engineer) and Bahir Dar University (Agricultural Economist and Food Technologist).

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2. Preparatory works and visit program

The study team in collaboration with visit coordinator from EPSRC carried out the following
preparatory works for the experience sharing visit.

 Selecting the food processing industries, food parks and institutions relevant for the visit
 Finalizing the visit schedules and facilitating local coordinators to schedule meetings and
arrange logistic matters during the stay (including booking local travels to all places of
the visit) in consultation with Ethiopian Embassy at India
 Developing a detail plan for the visit covering:
 various meetings to identify whom to meet and areas of discussions for the visit
 preparation of power point presentations for highlighting the hosts (places) of visit
about potentials and opportunities of Ethiopia for AFPI business as well as key
discussion points
 Visit coordinator from EPSRC facilitated the visiting delegation to acquire important
travel tips.

The study tour to India was conducted with the visit program scheduled as follows.

Date Time (hrs) Performed activities

25 September 2016 9:00 AM Arrival of the delegation in New Delhi
(Sunday)
26 September 2016 11:00 AM – 3:00 PM Visit to National Institute of Food Technology Entrepreneurship
(Monday) and Management (NIFTEM) and meeting with officials of
NIFTEM
4:00 PM - 5:00 PM Meeting with officials of Ministry of Food Processing Industries
27 September 2016 11:00 AM - Onwards Travel to Uttar hand and visit to Patanjali Food and Herbal
(Tuesday) Park and meeting with officials of the park
28 September 2016 11:00 AM - Onwards Travel to Uttar Pradesh and visit to Mega Food Park, Andhra
(Wednesday) Pradesh
29 September 2016 9:00 AM - Onwards Travel to Tamil Nadu
(Thursday)
30 September 2016 11:00 AM - Onwards Visit to Indian Institute of Crop Processing Technology (IICPT)
(Friday) & meeting with its officials
03 October 2016 00:00 AM Travel to Gujarat
(Monday)
04 October 2016 11:00 AM - Onwards Visit to Gujarat Cooperative Milk Marketing Federation Ltd.
(Tuesday) (Amul Diary), Gujarat
00:00 AM Travel to Mumbai
05 October 2016 10:40 AM Back to Addis Ababa

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3. Visits and observations of food processing industries and related institutions

During the stay in India, the delegate has made visits and observations as well as meetings with
officials of the following organizations representing food processing industries, food parks and
institutions, namely Ministry of Food Processing Industries, National Institute of Food
Technology Entrepreneurship and Management (NIFTEM), Indian Institute of Crop Processing
Technology (IICPT), Gujarat Cooperative Milk Marketing Federation Limited (Amul Diary) and
Patanjali Food and Herbal Park.

3.1.1 Ministry of Food Processing Industries (MoFPI)

Ministry of Food Processing Industries was the first institute that was visited on September 25,
2016. Through giving high attention for the food subsector, the government of India (GoI) has
set up an independent institution at ministry level (MoFPI) to act as a nodal agency for the
development of food processing industries. The MoFPI has put much effort to develop the food
processing industries to become more competitive and major source of export earnings of the
country, through devising the following incentive schemes and policy supports specifically
designed to this subsector, besides others.

 Sector specific infrastructure development, considering the unique features/peculiarities

of this sub-sector (perishables)
 Sector specific fiscal incentives
 State specific incentives, being offered by different states of the country

Delegation at the MoFPI

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The delegation briefed on what sectors specific infrastructure development, fiscal incentives and
policy supports the MoFPI has been implementing through devising the following three major
schemes in it.
 Mega Food Park scheme: GoI through MoFPI is putting mega food parks (35 approved).
The parks have around 1200 developed plots (about 1 acre each) with basic infrastructure
enabled, that entrepreneurs can lease for setting up food processing and ancillary units.
 Scheme for Cold Chain, Value Addition and Preservation Infrastructure
 Scheme for setting up/modernization of abattoirs (for government abattoirs)

Sector specific infrastructure development

India produces more than 400 million MT of perishables every year (horticultural produce, dairy,
meat, poultry and fish). The wastage levels in perishables in India are significantly high, 4.6-
15.9% in fruits, 5.2% in inland fish, 10.5% in marine fish, 2.7% in meat and 6.7% in poultry.
Understanding adequate and efficient cold chain infrastructure development from farm-gate to
consumers is required to arrest the high losses in supply chain of perishables, India has been
expanding its total cold storage operational capacity to 31.8 million MT. The overall average
capacity utilization in cold storage is also 75%, indicating sustainability of the cold chain
business in India. The private sectors play an important role in cold storage establishments,
where 92% of the cold storages in India are owned by them. Currently, about 60% of the total
cold storage capacity is concentrated in the states of Uttar Pradesh and West Bengal, and 75% of
the total cold storages in India are single commodity (mainly potatoes) while the rest 25% are
multi commodity cold storages. The country identified still there exists gaps in the sector that
need for further investments in cold chain (such as cold storages, CA storage, reefers, ripening
chambers- IQF, milk chilling and processing, etc), besides scaling up of these cold chain
infrastructure across all potential states of agricultural commodities in the country is important
(Table 1) .

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 Table 1: Commodity based cold chain interventions needed across potential states of agricultural commodities in India

Commodities Indicative cold chain interventions

Apples CA store, reefers, pre-cooling solutions at farm level
Mangos Ripening chambers, cold storage/controlled atmosphere storage for mango, and
cold chain for mango pulp
Onion Technology for long-term storage of onion
Banana Modern pack houses and ripening chambers
Potato New technologies for storage of processing grade potato, and upgrading
existing cold chain
Fish Cold storage and transportation (reefer vans), pre-cooling infrastructure,
freezing units- IQF, plate freezers, blast freezer and freezer cold storages
Meat Modern abattoirs and cold chain for meat and meat products
Dairy Processing plants for high value dairy products, low cost technology for
chilling milk at farm level and insulated vehicles

The MoFPI has also suggested the following are the emerging trends in cold chain investments
in India: shift of focus to end-to-end cold chain and not just storage; modernization of existing
stores with better and advanced technologies and equipment (modern pack houses, ripening
facilities, energy efficient technology & new packaging technology); setting up of multipurpose
cold storages rather than conventional single commodity storage; logistics to supplement cold
chain; and integrated cargo complexes at major airports in India will be equipped to handle all
kinds of goods, including perishables. The MoFPI has promoted the other opportunities or
interventions to which technology and equipment suppliers and processing players are expected
to play a pivotal role specifically in the following four main sectors, besides packaging industry.

Dairy sector
With a production of around 146 million MT, India is the largest producer of milk globally. Per
capita availability of milk in India has reached 322 grams per day, higher than the world average
of 293.7 grams per day. India has managed to attain top position in milk production globally
owing to huge bovine population. The Indian dairy market is amongst the largest and fast
growing markets in the world. Changing lifestyle patterns, increasing disposable incomes and
increasing health consciousness are the key growth drivers for milk and high value milk products
in India. To tap the surging demand, most dairy players in India have entered the processed dairy
segment with the introduction of value added products like ghee, flavored yogurt, butter (with

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variants), flavored milk, cheese, custard, etc. India exported dairy products around 0.2 billion
USD in 2014/15. These include products like skimmed milk powder, custard, cream, etc. The
major destinations include Bangladesh, UAE and other South East Asian countries. The MoFPI
has identified what interventions are needed from technology and equipment suppliers‟ and
processing players‟ perspective in the dairy sector (see Box 1).

Box 1: Areas of interventions (opportunities) in the dairy sector

Technology and equipment suppliers
 New technology in value added dairy products‟ processing
 Cold chain
 Innovations in packaging for increased shelf life and product differentiation
 New product development for cattle feed
 New veterinary care technology and cattle diagnostic services
Dairy processing players
 New product development in value added dairy products via cheese, smoothies, flavored
milk, custard, yogurt

Meat and poultry sector

India has the world‟s largest population of livestock. It produces around 5.3 million MT of meat
and 75 billion eggs annually. India is the largest producer of buffalo meat and the second largest
producer of goat meat in the world. The current processing levels in poultry are 6% while meat
stands for 21%. Poultry is a highly vertically integrated industry in India and matches the
efficiency levels of many western countries. The GoI has taken steps for modernization of
municipal abattoirs to provide safe and hygienic meat to consumers. Exported meat and poultry
products of India worth around 5 billion USD in 2014/15, of which buffalo meat accounted for
96%. Other export items include egg powder, sheep/goat meat, etc. The major export
destinations include Vietnam, Malaysia, Egypt, Thailand and Saudi Arabia. Box 2 depicts the
intervention areas needed in this sector.

Box 2: Areas of interventions in meat and poultry sector

Technology and equipment suppliers Poultry industry players
 New technology in meat & poultry processing  New value added products like
 Modern abattoirs frozen/chilled products, RTE/RTC
 Cold chain  Egg powder plants
 New veterinary technology/services  New feed formulations & manufacturing
 Food testing labs  Hatcheries

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Fishery sector
The country is also endowed with abundant geographical resources suited for both marine and
inland fisheries, such as long coastline (8118 km), abundant rivers and canals, reservoirs, ponds
and tanks, and brackish water. With a production of 9.6 million MT, India is the second largest
producer of fish in the world. The processing levels of marine food are currently at 23%. The
traditional independent fish retailers still dominate the distribution channel of fish and sea food
in India. However, retail volume sales via modern grocery retail channels like supermarkets and
hypermarkets from smaller base have grown rapidly in recent year, particularly in major cities.
Processing of fish into canned and frozen form is carried out mostly for exports. Besides, there is
an increased demand for processed and ready-to-eat (RTE)/ready-to-cook (RTC) marine
products in the domestic and overseas market. India exported marine products worth 5.5 billion
USD in 2014/15. The major destinations of its exports are USA (26%), South East Asia (20%)
and Japan (9%). Frozen shrimp contributes 34% in quantity and 67% in value terms to exports.
Other major exports include frozen fish (29%), frozen cutlet fish (8%) and frozen squid (7%).
Export of value added products increased by 18% in 2014/15 in value terms from 2013/14. The
share of value added products to the total exports is only 9% and there is immense potential to
increase exports of value added products. Marine products were exported through 30 different
sea/air/land ports across country. Areas of intervention in the fishery sector are shown in Box 3.

Box 3: Areas of interventions in the fishery sector

Technology and equipment suppliers
 Upgrading and capacity expansion for cold chain
 Innovations in packaging for increased shelf life and product differentiation
 Infrastructure development for fishing harbors/landing centers/wholesale markets as per
international standards
Fishery processing players
 Value addition & product development especially RTE/RTC products for domestic and
export markets

Fruit and vegetable sector

India is the second largest producer of fruits and vegetables in the world with a production of
256 million MT. It is the world‟s largest producer of bananas, papaya, mangoes, and guavas,
second largest producer of potatoes, green peas, tomatoes, cabbage and cauliflower. India
witnesses nearly 4.6-15.9% wastage in F&V annually, due to lack of modern harvesting practices

262
and inadequate cold chain infrastructure. The processing levels in F&V currently stand at close
to 2%. Opportunities to invest in initiatives that help reduce wastage levels, including: adequate
infrastructure (cold chain & processing infrastructure), R&D for processed food and packaging,
innovative on farm preservation systems and skill development. Its location gives it the unique
advantage of connectivity to Europe, the Middle East, Japan, Singapore, Thailand, Malaysia and
Korea. India exported fresh F&V worth 1.2 billion USD in 2014/15. Mangoes, walnuts, grapes,
bananas and pomegranates accounted for bulk of the fruits exported from the country while
onions, okra, bitter gourd, green chilies, mushrooms and potatoes contributed largely to the
vegetable export basket. The major destinations are UAE, Bangladesh, Malaysia, UK,
Netherland, Pakistan, Saudi Arabia, Sri Lanka and Nepal. India‟s exports of processed F&V
valued around 0.5 billion USD in 2014/15, which majorly included dried and preserved
vegetables and mango pulp. See the intervention areas depicted under Box 4.

Box 4: Areas of interventions in fruit and vegetable sector

Technology and equipment suppliers
 New technology in F&V processing
 Cold chain and pack houses- farm level, logistics, end product storage & at point of retail
 Packaging technology
 Food testing labs with latest equipment & technology
F&V processors
 New product development- health food, traditional food, nutraceuticals
 Convenience foods- frozen (IQF), canning, pulp, puree, paste, sauces, dressings, flakes,
dices, dehydration, pickles, juices, slices, chips, jams, jelly, RTS drinks
 Processed ingredients for ice creams, yogurt, beverages, etc.

Packaging industry
Food packaging plays a vital role in preserving food throughout the distribution chain. The
increase in consumption of convenience foods both in the domestic and global markets is driving
the food packaging market. Visual appeal and convenience are the two main growth drivers of
the food packaging market. Currently, the Indian packaging industry is ranked 11 th in the world.
Within the packaging industry in India, packed processed food holds the maximum share of
48%, followed by personal care packaging (27%) and pharma packaging (6%). This industry has
also been serving as a catalyst for the development and diversity of processed foods.

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Sector specific fiscal incentives

 100% FDI permitted through automatic route in food processing sector

 Concessional rate of Customs Duty at 5% applicable on imported equipment under the
project import benefits
 Income Tax deductions on capital expenditure allowed at the rate of 150% for setting up and
operating cold chain or warehouse for storage of agricultural produces
 100% Income Tax exemption available to new food processing, preservation and packaging
units for the first 5 years of operation, and at the rate of 25 – 30% thereafter
 Cold chain projects eligible for External Commercial Borrowings
 Refrigeration machineries and parts used for installation of cold storage, cold room or
refrigerated vehicle, exempted from Excise Duty
 Cold chain services of pre-conditioning, pre-cooling, ripening, waxing, retail packing,
labeling of fruits and vegetables exempted from Service Tax
 Loans to food and agro-based processing units and cold chain have been classified under
Priority Sector Lending (PSL) by banks
 A fund of rupee 20 billion created with National Bank for Agriculture and Rural
Development for extending affordable credit to designated Food Parks and units therein

State specific incentives

India also devised state specific incentive schemes that being offered by different states unlike
Ethiopia which has been implementing the generic investment incentive schemes prepared at
country level without considering unique needs and dynamic conditions of every state. In India,
there are well established state level promoters along with leasable area of mega food park
projects and well established cold chain projects which are assisted under the scheme for Cold
Chain, Value Addition and Preservation Infrastructure by MoFPI.

The following subsections will discuss how important NIFTEM and IICPT, the autonomous
institutions which were set up under MoFPI, to support Indian food processing industry to
develop and become more competitive, particularly in the areas of skill and technology transfer
and development.

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3.1.2 National Institute of Food Technology Entrepreneurship and Management (NIFTEM)

NIFTEM was the second institution that was visited on 26 September 2016. Since the
representative of NIFTEM director had already organized some officials in his office to have a
short meeting with the visiting team, the team directly joined such a meeting. The NIFTEM
representative first let participants to introduce each other including the position they belong to,
and add to this the Ethiopian delegates were invited to brief what experiences they expected to
share from NIFTEM. After such introduction and briefing, the Indian delegate presented about
NIFTEM with video show focusing on what has been done by the institution so far in support of
the Indian food processing industries, and in turn the Ethiopian delegate presented some
macroeconomic indicators and opportunities of Ethiopia in the food processing industry as well
as the important points of discussion and experience sharing visit to NIFTEM officials.
Understanding the interest of visitors (after these two presentations), the NIFTEM officials
briefed the visiting team how their institute has been supporting the Indian food processing
sector summarized with the following main points: developing the necessary skill sets that the
food sector actually demands, technology development and transfer, food quality testing
laboratory services and short-term training for entrepreneurs in the food business, besides others.

Delegates at NIFTEM

Village adoption program (VAP)

With the aim to assist the Indian food processing sector especially in the areas of developing the
necessary skill sets that could address what the food sector actually demands, NIFTEM has
offered an undergraduate program (four years regular B.Tech degree) in Food Technology and
Management and five postgraduate programs (two years regular M.Tech degree) in Food

265
Technology and Management, Food Supply Chain Management, Food Quality and Safety
Management, Food Process Engineering and Management, and Food Plant Operations
Management. The graduates from these filed of studies could be serving the food sector through
being product development scientist, sensory scientist, food microbiologist, food analyst, quality
control supervisor, food process engineer, food ingredient manager, food regulatory affairs
specialist, health and nutrition specialist, and food fermentation specialist. For these specialists to
be more technically capable and competent enough in addressing the skill sets that the food
processing sector actually demands, it is essential to create an enabling environment for them to
better understand the complete food chain and the socio-technical aspects in the rural India. In
doing so, NIFTEM has initiated a unique nation building initiative called Village adoption
program (VAP) which has been conceptualized for linking rural entrepreneurs and farmers to
the mainstream economy. The institute has therefore implemented this program since 2012, as a
compulsory part of B.Tech and M.Tech course curricula with four credits in one year.

The framework of VAP

 Under this program, B.Tech and M.Tech students are divided into groups of 10-12 students
at the time of joining NIFTEM.
 Each group is led by a faculty member (mentor) and adopts a village anywhere in India and
nurses it during the entire program of study.
 The groups go and stay in the villages twice a year for 10-12 days in a semester. It is a
symbolic process leading to exchange of know-how and do-how.
 While villagers gain scientific and technical knowledge through students who promote future
possibilities of food processing among them, students obtain first-hand experience of Indian
rural scenario and understand traditional processing technologies adopted by the villagers.

Steps in the VAP process

 The students shall have to identify a village and establish a work plan at the beginning of the
first semester and work during the semester for 10-12 days at the village site.
 The students will work in a group under the guidance of a mentor faculty and will develop
realistic village development plan for 4 years including identification of local resources and
avenues for promoting entrepreneurship in food processing sector.

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 Sensitize and train the farmers and local youth about food processing and its advantages,
encourage farmers and local youth to become entrepreneurs, establish micro & small food
processing enterprises, farm producers‟ company and establish food processing units.
 Conduct an extensive survey of the village and record demographics and prepare a database
and prepare catalogues of traditional production practices/food preservation/traditional
recipes of food, etc.
 Imparting trainings on basic processing and value addition techniques for enhancement of
shelf life, etc.
 Promote Good Agricultural Practices (GAP).
 Professors and Senior Officers of NIFTEM visit the groups when they are in the village to
guide them and closely evaluate their progress.

During the visits, the VAP groups have successfully documented and executed following
interventions at farmer/villager level:

 Based upon the surplus of crops/agricultural commodities produced in the village, extent of
food processing interventions introduced in these areas:
1. Post harvest management
2. Primary processing, storages and value addition to undertake small and medium scale
projects
 Entrepreneurial interest of the farming community and willingness to start a venture through
individual investment, producer company, cooperative society, or self help group, etc
1. Arranged trainings on entrepreneurship in food processing sector [food grains, fruits,
vegetables, Ready to Eat (RTE) Food Items]
2. Encouraged farmers to form self help groups
3. Arranged interactive session with Producer Company/Cooperative Society/banks, etc.
4. Creating market linkages
5. Vocational trainings for uplifting livelihood resources
 Trainings on post-harvest management of fruits and vegetables, primary and secondary
processing of agricultural produce, scope and avenues in food processing sector, rain water
harvesting, organic farming, etc
 Cataloguing traditional production practices/food preservation/traditional recipes of food

267
 Utilization and promotion of renewable energy (solar energy projects, etc)
 Awareness and educational programs for village people, hygiene and sanitation camps,
health camps, interaction sessions, video shows, etc.

Future interventions
 The selected potential entrepreneurs are provided with one week training on food processing
and allied activities.
 Few selected among the whole lot are chosen for six weeks hands on training in the related
industry. A six months handholding support is also being planned for those who want to
establish microenterprises.
 They also aim to establishing Primary Processing-cum-Pre-Cooling center in the village,
powered by Hybrid Energy System (Solar, Biomass and Grid Electricity)
 The idea of tagging one good NGO to each village is also being examined as they could take
forward the work done by the VAP group after the VAP group has left the village and revisit
only after six months.
 Developing the booklets on traditional food recipes and traditional methods of food
preservation.

Skill and entrepreneurship development

Enterprise incubation: NIFTEM functions as the apex institution in India processing state-of-
the-art facilities for technology validation and enterprise incubation. The ultra modern facility
houses advanced pilot plants for dairy, meat, grains, fruits & vegetables processing. Customized
incubation space for start-ups and established enterprises thereby contribute significantly to
enterprise development and technology transfer efforts. The economic gains from such enterprise
development will be significant at national and international levels.

SME division: It provides a network/platform/one stop shop to facilitate the SMEs of food
processing industry sector with the help of banks, NGO‟s industry associations, Ministry of
MSME and other state governments as well as facilitates up-graduation of SMEs in FPI sector in
coordination with MoFPI.

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Skill development division: Integrates different sectors of food processing to fill gap between
available skill and needed skill, as well as imparts training from farm to customer level to
enhance the deliverable quality of food and prevent wastages.

Technology development and transfer

Industry support initiatives: Pilot Plants-cum-Incubation Center; International Bakery Research

and Training Center; International Grain Processing Research and Training Center; Food Testing
Laboratory; and International Center of Excellence in Food Quality and Safety.

Research: NIFTEM focuses on specific upstream and downstream research in food science,
technology and nutrition.

Extension and outreach: NIFTEM will initiate significant outreach support to communities in
the areas of product development, food safety, food standards, quality systems, and food
regulations and food policy.

Consultancy division: It serves a centralized nodal body, which will work synergistically with
the industry and similar institutions in India and abroad to resolve the problem through a holistic
approach to the entire food processing sector to meet the needs of the booming food processing
sector and various stakeholders such as entrepreneurs, industry, exporters, policy makers,
government and research institutions.

Experiential learning through industry internship: Experiential learning at five pilot scale food
processing plants and incubation centers in the campus and through strong institute-industry
linkages.

3.1.3 Indian Institute of Crop Processing Technology (IICPT)

IICPT was visited on 30 September 2016. Like NIFTEM, director of IICPT had arranged a
meeting for Ethiopian delegates to discuss with NIFTEM‟s officials. Once all participants
introduced each other, the director invited the IICPT representatives to briefly present what the
institute has been doing so far in support of the Indian food sector. The Ethiopian delegate in turn
presented briefly the macroeconomic indicators and opportunities of the food processing
industries in Ethiopia as well as points of our discussions and experience sharing visit. After such

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presentation and discussion, the team has visited thoroughly the available food processing
technologies (including mobile food processing unit generated by the institute), quality testing
laboratory facilities (including mobile food testing laboratory generated by the institute), and
other technologies available in the institute.

IICPT presentation Ethiopian delegate’s presentation

Delegate’s presentation at IICPT
IICPT is a pioneer R&D and educational institution under the MoFPI. The mandates of the
institute are conducting research for identifying technologies for processing; preservation,
storage and value addition of food crops; human resource development for the food processing
sector by offering formal degree programs in Food Technologies at undergraduate (B.Tech) and
postgraduate (M.Tech and Doctoral) levels and by offering non-formal short and long term
training and certificate programs; and extension of food processing technologies to the people of
India. Consultancy services for starting new industries or expanding existing ones, establishment
of food quality testing laboratories, incubation services, food quality testing services and PPP
mode research towards developing novel food products are the other services rendered by IICPT
to the stakeholders.

Food processing trainees from private sectors at IICPT

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Hi-tech Food Testing Laboratory accredited with NABL as per ISO 17025:2005 for testing the
quality of the food products, and Food Process Business Incubation cum combined with Training
Center certified with ISO 9000, 14001 and 22000 offers training and incubation services to
stakeholders. Food Product Development Laboratory, Storage and Packaging Laboratory,
Computer & Knowledge Center and Fabrication for Design and development of New Food
Processing Gadgets are the other world class facilities of the institute.

Over long years of research experiences, the institute generated valuable technologies and novel
food products for Indian food industry and producers. Recently the institute has created Mobile
Processing Unit (MPU) and Mobile Food Testing Laboratory (MFTL) which can be taken to
producers‟ field for on-farm value addition of fruits and vegetables and for food quality testing
laboratory services, respectively.

Mobile Food Processing Unit (MPU)

India is the third largest producer of all foods in the world and one of the greatest losers of
agriculture produce in the post harvest system. Majority of losses occur at the production side
due to lack of technical know-how, lack of availability of technology and lack of food processing
units near the farms which forces the farmers to sell the raw produce at low prices. Many times
when the market price is very low or when there are no buyers for purchase and due to huge
harvest the farmers either throw their produce on the roads or trample in the field. This not only
causes great economic loss for farmers but also reduces the availability of food for consumption.
The input resources like land, water, chemicals, seeds, the energy spent and the time taken for
production are all wasted for nothing. Thus, making a processing unit available on or near the
farm will encourage the producers to process and preserve the produce for higher economic
return at a later date. Setting up a permanent cottage level processing unit is nearly impossible
because numerous such units cannot be created for covering small areas of land and also due to
non availability of continuous power supply, lack of repair and service facilities near the farms.

With this background and a motive to support farming community in processing and value added
produce at the production site, IICPT has created the mobile processing unit. The MPU is a self
sustaining and a standalone unit because it contains a generator for power source and a boiler for

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steam generation. The unit is housed in a mobile van designed specifically for this purpose which
can be taken to fields covering vast areas of agricultural farms.

a) Outside view b) Internal view

Delegates at IICPT observing MPU and discussion with food technologist

The MPU requires only one skilled person for processing and one unskilled person for assistance
during operation. The MPU comprises the following units in it:
 Washer- washes the harvested fresh produces
 Blancher- softens the outer skin and tissues of the produces facilitating for further pulping
 Pulper- extracts the fresh pulp from blanched produces separated from skin and seeds
 Stream jacketed kettle- boils and concentrates the fresh pulp to the required consistency
 Filling machine- fills the concentrate into cans/bottles
 Sterilizing unit- for in-pack sterilization of the filled produces
 Cooling tank- for the sterilized produces
 Storage racks- for storing the processed produces

The MPU can perform on-farm processing further following fruits/vegetables: tomato, chilly,
grapes, apple, sapota, guava, papaya, banana, mango, and kiwi. For example, it can process fresh
tomatoes into puree, from puree to other value added products like tomato paste, concentrate,
ketchup, sweet hot chutney, jam, jelly pickle, thokku, and dry powder can be processed. The
MPU can process up to half a ton raw fruits or vegetables for a shift of 8 hours. As a result of
MPU, tomato producers could get more than nine folds of the net profit from raw tomato

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Mobile Food Testing Laboratory (MFTL)

The increasing number of food processors in urban and rural India necessitates the creation of
numerous food processing laboratories. The few laboratories situated only in cities cannot easily
be accessed by rural food industries, and may even by urban food industries. The time taken for
the food samples to be mailed to distant food testing laboratory and getting the result done is
repulsive. Therefore many food industries do not even bother to get their processed products
tested. The FSSAI is insisting upon quality and safety testing of processed foods. To help the
food industries in the urban and rural India in a timely fashion and at their door steps, the MFTL
was created by IICPT.

The MFTL has the necessary equipment and capability to undertake classical and instrumental
chemical analysis. The layout of laboratory is arranged in such a way that test procedures can be
carried out in sequential manner and risk of contamination can be reduced. The mobile
laboratory is equipped with the latest analytical instruments with the capability to do the standard
chemical analysis.

Mobile Food Testing Laboratory (MFTL) Business Incubation Center’s products displayed

Delegates observing MFTL and discussion with the manager of business incubator

The MFTL is self sustaining and standalone unit because it contains a generator for power
source. The mobile bus is fully air conditioned and is capable of testing under controlled
environmental conditions. The MFTL is managed by one skilled analyst for testing and one
technical person for assistance. The laboratory is competent to carry out the complete analysis as
per standard procedures (like FSSAI, AOAC, AACC and BIS), including physical analysis,
chemical analysis, basic nutrient analysis (such as carbohydrates, protein, ash and crude fiber)

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and adulteration test. The MFTL comprises sample receiving section, food testing compartment
with instruments (UV spectrophotometer, microscope, moisture meter, refrigerator for storage of
chemicals and samples, pH meter, titration apparatus, hot plate, weighing scales, and eye
washer), power generator and water tank.

3.1.4 Gujarat Cooperative Milk Marketing Federation Limited (Amul Diary)

To date 70% of the Indian population still lives in rural areas and 50% of its overall labor force
dependent on agriculture. The rural India contributes over half of India‟s income, has a share of
56% of consumption expenditure of the country. True development of India certainly is not possible
without development of its vast rural population. More than half of all rural households in India do
not have any landholdings. About 40% are marginal and small farmers whose life depends solely on
agricultural incomes. Most of these farmers earn their livelihood from a combination of farm and
non-farm incomes. Availability of remunerative employment opportunities within rural
environment is definitely a major concern in their mind. Dairying in India is considered to be the
backbone of small and medium farmers for the sustainable economic needs throughout the year
irrespective of any major influencing factors like drought, monsoon and other economic
uncertainties.

Delegates at GCMMF (Amul Dairy)

The Prime Minister of India launched Make in India campaign in 2014 with the aim of
transforming India into a global manufacturing hub. The campaign is pivoted on the strength of
India’s human resources. Any policy, which aims at comprehensively dealing with the Indian
economy, must also include provisions for improving the rural economy. New manufacturing units
can decisively transform the rural economy and provide a plethora of positive opportunities. Fusing

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local skills with entrepreneurial and marketing inputs can open up world opportunities for rural
poor.
Amul model of dairy cooperatives in Gujarat is the only sector that has already demonstrated the
ability to double milk procurement price paid to member farmers within six to seven years, in
achieving the strategy that the PM outlined to double farmer‟s income within six years. As part of
Make in Rural India policy, GoI has to aggressively encourage dairy entrepreneurship among rural
youth. If the rural youth view dairy entrepreneurship as an attractive livelihood option, this will
help stop migration from villages to urban areas. Incentive schemes to promote dairy
entrepreneurship and commercial farming among rural youth should be the central pillar of the
Make in Rural India campaign.

Considering the dynamic environment we live in today, the dairy industry is full of opportunities. It
is a vital part of the global food system and plays a key role in sustainability of the rural areas.
Dairying is not just a large economic activity but also an integral part of the social and cultural
heritage. Its uniqueness lies in its unifying power, in the fact that no other industry touches the lives
of millions of farmers. Complementing this are Indian climatic conditions that support animal
husbandry. Dairy is a great tool for equitable growth and income distribution. What remains is
providing market access by offering stable and remunerative prices to farmers and encouraging
this generations-old sustainable livelihood source, a role which is fulfilled by dairy cooperatives
based on Amul model. In fact, Verghese Kurien (father of white revolution and architect of Amul
in India) believed that dairy cooperatives are means of placing instruments of development in the
hands of the farmers themselves. In order to facilitate balanced and inclusive growth, it is pertinent
to progress villages, if villages are to progress, dairy, which is integral part of the rural economy
and livelihood, must also progress. Thus, Make in Rural India is clearly the way to go.

Dairy sector contributes almost 8% to GDP of rural India. Most of the dairy business in organized
sector is in the hands of cooperatives, which are owned by farmers themselves. Dairy farmers have
ensured food security for the country in one of the most critical dimensions- milk and dairy
products. In fact, dairy cooperatives have triggered a socioeconomic revolution in rural India by
generating gainful employment for the most vulnerable sections of the rural population; especially
rural women and landless laborers. As result of the dairy cooperative movement led by Amul, the

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rural women of India have gained some measure of economic independence. Milk is the answer to
questions of economic self-sufficiency of the rural population.

The economic survey 2015/16 explicitly states that the success of dairy industry in India has
resulted from the integrated cooperative system of milk collection, transportation, processing and
distribution, conversion of the same to milk powder and products, to minimize seasonal impact on
suppliers and buyers, retail distribution of milk and milk product, sharing of profits with farmers,
which are ploughed back to enhance productivity and needs to be emulated by other farm
producers.

Milk procurement and sales of dairy products

Increase in per-capita availability of milk in India from 110 g per day in 1970s to 340 g per day in
2016 is one of the reasons which have resulted in remarkable improvement in various health-related
social indicators, since its independence. Enhanced milk availability has contributed towards
decline in malnutrition among children in the country in recent decades. The total milk procurement
by member unions during 2015/16 averaged 17.48 million kg per day, representing growth of
14.3% over 15.29 million kg per day achieved during 2014/15. During the last six years milk
procurement has increased 87%. This growth was a result of high milk procurement price paid to
farmer-members which has increased by 90% over the same period.

Amul cooperative network has always had on marketing of value added, branded milk and dairy
products directly to end-consumers, where the Amul farmers are perhaps the only ones across the
entire world to witness increase in farm-gate milk prices. On the other hand, international dairy
trade has been tough during 2015/16. Ban on export/import of dairy products by Russia, demand
slump in China, doing away with milk quota in Germany and EU resulted chaos in international
dairy industry. Large dairy organizations including dairy cooperatives in EU, Australia and New
Zeeland were heavily dependent on trade in dairy commodities, farmers in these countries are
facing severe crisis in global dairy commodity markets over the last two years. For example, dairy
farmers in New Zeeland suffered 55% decline in farm-gate prices of cow milk in the last two years.
That is, New Zeeland which paid NZ $ 8.50 per kg of milk sold for 2014, paid NZ $ 4.50 for the
year 2015 and now for the year 2016 have announced milk price of NZ $ 3.85 per kg of milk sold.
This shows farmers are facing the heat as their cost of milk production is about NZ $ 5 per kg. This

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is largely because Fonterra, the primary dairy cooperative of New Zeeland, was largely dependent
on dairy commodities business and was therefore vulnerable to the crash in global dairy markets.

Since Amul has always focused on marketing of branded consumer packs of both fresh milk and
value added dairy products, through marketing and technological innovation, it was successful in
swimming against this global trend. Despite sharp declines in farm-gate milk prices across the
world, farmers associated with Amul cooperative network, received 20% higher prices for the milk
they supplied during the last two years. Clearly, farmers‟ control on the entire value chain of
dairying through their own cooperative network and focus on brand-building as well as consumer
marketing, has ensured that Amul farmers are insulated from volatility in global dairy markets.
Better returns from dairying have obviously motivated farmers to enhance their investments in
increasing milk production. The Amul initiative in promoting the concept of commercial, scientific
and cooperative farming is also helping attract next generation of dairy farmers to remain in the
business.

The reasons behind this high performance of the Federation include giant technological leaps
ahead in extending information technology integration and sales-force automation to cover most
of its distributors and markets across India. Technological innovation assisted in micro-level
planning and execution of its sales and marketing strategies. Leveraging on technology, the
Federation has started the process of instant communication with millions of trade partners across
the country; helping align all key channel elements in the same strategic direction. The digital
marketing activities and social media visibility initiatives are helping them to connect with
youngsters and emerging generation of new consumers.

The DNA of brand Amul has always revolved around consumer marketing; in other words,
marketing of value added milk and dairy products to millions of household consumers and genuine
end-users. That is why the crash in world dairy commodity markets and subsequent depression in
Indian dairy commodity market had relatively lesser impact on Amul business. Its flagship brand,
Amul Butter has shown an impressive value growth of 19%. Launch of innovations such as
unsalted butter in consumer packs as well as Garlic & Herbs Buttery spread has helped to further
augment growth in this category. In a major leap ahead in terms of packaging innovations, Amul
Butter has also been introduced in highly convenient, directly usable tubs of multiple sizes. The
Federation also expanded its production capacity of single serve packs, which is helping to expand

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consumer base of Amul Butter, even in smaller towns and interior markets. Similarly, the Amul
Gee sales registered 37% growth in value terms. The Federation has started manufacturing and
marketing ghee variants customized as per regional tastes and preferences, which is helping to
expand market reach for Amul Gee. Amul sales of long-life UHT milk increased 22%. Continuing
their efforts in product innovation, they launched Amul lactose free milk this year for customers
who are unable to enjoy the goodness of milk due to lactose intolerance. They have also recently
introduced single-serve, Amul liquid creamer for whitening tea and coffee.

Sales of Amul Cream in long-life UHT packaging also increased 28% in value terms. Amul Cream
has consolidated its position as the golden standard, trail-blazer and the most preferred brand in this
category. Leveraging on the enthusiastic consumer response to several new innovation flavors and
variants, the entire range of Amul Ice-Creams registered quantum value growth of 18%. The single
largest food brand of India, Amul fresh milk in pouches once again registered high growth of 13%.
In the fresh milk products category, Amul Butter milk registered 24% value growth and sales of
Amul Dahi grew by 16%. Regarding expansion plans, the Federation has already achieved
expansion in milk processing capacity to 28 million liters per day.

Distribution network
Over the years, GCMMF has been improving and strengthening its distribution coverage across
geographical areas, consumer segments and age groups to ensure product availability to its
consumers. These improvements are brought into its existing very unique and robust distribution
model of servicing consumers through its four distribution highways of fresh, ambient,
refrigerated and frozen. Working ahead on the objective of ensuring its products are available as
close to consumers as possible, currently GCMMF has successfully implemented the integrated
Distributor Management System software at 2300 distributor locations across India. this system
has actually brought in the much-needed last mile information availability and complete control on
its reach across markets. Entire sales force is leveraging the benefit of this technology-led market
intervention program by filling the market gaps. It also leveraged the technology for market
intelligence and reporting by implementing e-DSR (Electronic Daily Sales Reporting System) for
its field force. This has resulted in faster information sharing and action.

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Integrating information technology
The Distributor Management System software is completed at most locations and more than 3000
salesmen of these distributors are now booking orders, using sales-force automation system on
mobile. Amul Cart is a mobile application for retailers order booking was also released to facilitate
placing of order directly from mobile by viewing stock availability and entire Amul range of
products. The Federation has also started implementation of Common AMCS (automatic milk
collection system) Application for 18000 Village District Cooperative Societies of Gujarat. Amul
AMCS will integrate Cow-to-Consumer (C2C) IT Value Chain. The application is also providing
mobile applications for producer members, society team and member unions to access AMCS data
at their convenience. Add to this, the Federation has developed portal for reverse auction and e-
procurement which is widely used for cost-effective procurement of goods and services.

Exports
Although the dairy commodity prices have registered the lowest in the last 10 years, Amul‟s exports
in consumer products have shown a good growth. The GCMMF has continued to sell its products
on Global Dairy Trade Auction Platform at a premium, and will also focus on strengthening export
of consumer product portfolio and build the brand truly as “Amul- the taste of India.” .

Cooperative development program

The Federation has also continued to provide support to existing Milk Unions to organize farmers
to build and develop (new) cooperatives and increase milk production and procurement. It has
developed a dedicated initiative to improve animal health services, by conducting health camps
and veterinary routes in milk producing regions of the country. During the last 16 years, the
Federation member unions are implementing Internal Consultant Development (ICD) for
developing self leadership among member producers and thereby enabling them to manage their
dairy business efficiently leading to their overall development and enabling them to implement the
total quality management at Village Dairy Cooperative Societies (VDCS) and market producer
level.

Productivity enhancement program

GCMMF and Milk Unions have identified the gaps which are hindering the efforts of improving
milk productivity and therefore have envisioned integrated intervention to achieve objective of
higher milk productivity and production (titled Strategic Productivity Enhancement Program). The

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concept of this program is designed with the aim to develop a genetically improved animal with
high productivity. It initiates with the selection of elite animals to develop pure bred cows and
buffaloes with high genetic potential by adopting Pure Breeding Program. The program has
identified 20,100 superior animals having high productivity and their better progeny will be
obtained by using 100% pure bull semen. To develop the genetic potential of calves, the Calf
Rearing Program has been implemented, under which around 97,682 calves have been registered.
With a long vision to reduce infertile animals and convert a non-productive animal into productive
asset, it has conducted Fertility Improvement Program (FIP). At present, FIP is successfully being
implemented in selected 2,939 villages covering 0.206 million animals. To generate a database of
animals under animal breeding activities, around 2.374 million animals have been registered in
2,319 villages under E-Animal Program. Activities of Strategic Productivity Improvement
Program and FIP are being monitored through a dedicated system on www.amul.org.in.

Entrepreneurship development program for dairy farmers

This program has conducted 50 programs for dairy farmers based on different segmentation and has
trained 3,316 milk producers. Such milk producers are trained through interactive group workshops
to better understand farm economics and develop management plans for increasing income and
reducing operating costs.

Safeguarding the interests of dairy farmers (policy issues)

One of the reasons why dairy cooperatives have flourished and prospered, especially in Gujarat, is
because the government of Gujarat and the GoI have their wisdom, always safeguard the interests
of Indian dairy farmers. In Gujarat specifically, dairy cooperatives have always been given the
freedom to take the most appropriate business decisions in the interests of their farmer-members.
The policy makers have been proactive in keeping the interests of dairy farmers at the fore front, in
view of tremendous contribution that dairy cooperatives have made towards socio-economic
transformation of rural India. In fact, GoI, readily acknowledged the stellar role played by farmer-
owned dairy cooperatives in rural development.

With current lower international prices of milk fat, there are several Indian traders who are
importing or planning to import butter and butter oil into India, at much cheaper rate and sell it at a
lower price. If this happens, it will be detrimental to the interest of farmer-owned milk cooperatives.
They fear that farmers would be at complete loss as they are already suffering from the impact of

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drought in several parts of the country, but import of dairy fat at very low prices would result into
loss of income for them. You will appreciate that such short-term and opportunistic import will
have long-term adverse impact on farmers and take years to correct. They humbly request the
government to ensure that the current 40% import duty is continued on a permanent basis and also
to ensure that permit for import of dairy products is not issued under current environment since duty
(even at 40%) is not really a deterrent, as global prices are at very low levels.

Milk is the most perishable product that needs to be cooled down to a refrigeration temperature
within 2-3 hours of milking (depending upon the ambient temperature). Cooling milk after milking
is especially important so that its processability will be prolonged further for about 5-6 hrs. In
Ethiopia, though there is great potential to produce huge quantity of milk, short supply in high
demand areas and associated increasing price of milk is evident. Potential production areas are far
away from processing centers and producing households in the potential areas are located scattered
apart in areas where infrastructure is poor, thus making milk collection very difficult.

The few dairy industries, which are located in Addis Ababa and its surroundings, are working at far
below their operating capacities because of insufficient raw milk supply, among other reasons. Milk
supply also shows seasonality nature. During winter and non-fasting times, the supply dramatically
reduces while it becomes good during rainy and fasting periods. It is good to learn from India‟s
practices with regard to stimulating sustainably milk production through incentivizing production at
milk shed areas.

3.1.5 Patanjali Food and Herbal Park

Another important intervention taken by India‟s MOFPI is the mega food park scheme that is
instrumental in developing a strong and vibrant food processing industry through creating increased
employment in rural sector and enable farmers to reap the benefits of modern technology and to
create a surplus for exports. The agricultural sector in India suffers from bottlenecks leading to an
estimated wastage of 25-30% of agricultural produce. India lacks agricultural raw materials of
processable quality. According to the report of MoFPI (2015), only 7 per cent of the total Indian
perishable produce is processed, which is extremely low compared to countries such as the US (65
%), Philippines (78 %) and China (23%). In view of tackling of such bottlenecks, MOFPI released
in 2005 a vision document (Vision 2015) that set out targets for the food processing sector. It set

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targets for enhancing the level of processing of perishable products, value addition and increase
India„s share in global food trade by 2015. To achieve these targets, the Government earmarked
certain investments that were to be disbursed through specific schemes. One of such schemes
enacted by the MOFPI is the Mega Food Park scheme, which is based on the cluster approach for
developing food processing industries.

The team has the opportunity to visit Patanjali Herbal & Food Park Pvt. Ltd (PHFP), one of the
operational mega food parks, located in Haridwar, Uttarakhand, India. This park was operational
since 2010. PHFP has installed state-of-the-art processing machinery imported from countries
that are global leaders in specific food processing machineries and plants such as multi-fruit
and vegetable processing line from Alfa Laval (Sweden based global leader), and Tetra-pak
(Sweden) and Volpak (Italy). In doing so, the park tried to meet the technological requirement
(machinery and equipment) of Mega Food Park preconditioned by MoFPI. The food park is
doing well with regard to capacity utilization. The major reason mentioned for this was the fact
that it installed multi-fruit and vegetable processing lines that are able to function always despite
seasonality. Apart from different fruit and vegetable products, PHFP units for manufacturing of
products such as flour and different spice which run throughout the year using common facilities
year round. It has also put in place fully functional and modern R&D/Laboratory facility. The
food park has become source of employment for about 20,000 persons as direct, indirect and
contract employees. Of which the park engaged more than 11,000 farmers.

In terms of export, PHFP‟s exports include food supplements, juices, and spices to various
countries/regions such as UAE, Middle East, Canada, the US and the UK. It was pointed out
during the visit that the park‟s export is growing from year to year. The increasing trend of
exports of products manufactured by PHFP is being boosted by the existence and functioning of
world class food testing and quality assurance infrastructure serving as common facility within
the park.

4. Key Lessons Learnt

The following are some of the lessons that need to be drawn from India to be adapted in the
context of Ethiopia.

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Cold chain infrastructure development from farm-gate to consumers
Understanding adequate and efficient cold chain infrastructure development from farm-gate to
consumers is required to arrest the high losses in end-to-end cold chain logistic service along the
supply chain of perishables; Ethiopia has to expand its total cold storage operational capacity at
least for some selected food processing subsectors. To do so, first it is important to estimate the
overall average capacity utilization in cold storage of the food processing industries through
conducting an in-depth, need assessment study. The public sectors are expected to play an
initiative role in cold chain development until the potential private sectors will take over a
significant position in cold storage establishments like in the case of India where 92% of the cold
storages are owned by the private sectors. Thus, there is a need to identify commodity based
areas of cold chain interventions across major producing states/areas of agricultural commodities
in the country as well as promoting these opportunities appropriately to attract both local and
foreign investors in this sector. It is also essential to focus on setting up multi commodity cold
storages rather than conventional single commodity cold storages to take advantages of the
economies of scale

Food industry specialized knowledge & technology transfer institutions

Among the key interventions MoFPI undertook are the food processing knowledge institutions it
set up to address technology and skill gaps hindering the development of the food processing
industry. These are National Institute of Food Technology Entrepreneurship and Management
(NIFTEM & IICPT). These world class and autonomous institutes have as a focal point high
quality teaching, research, consultancy, skill development, business incubation and enterprise
development. The pilot scale food processing plants based in the campuses are not only meant to
serve as experiential learning sites but also as technology parks to assist the transfer and
commercialization of research generated technology and showcase the available technology to
industry for further development. In addition, with the aim of promoting processed food industry
among rural entrepreneurs, NIFTEM and IICPT have self contained business incubation centers
established to provide technical as well as monetary assistance to entrepreneurs planning to start
a processed food unit.

MoFPI and its institutions recognized the importance of international accreditation and
standardization and hence have given due emphasis on food safety and quality. Accordingly,

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they have installed fully functional, accredited and modern laboratory facilities giving services
for researchers and other clients seeking testing services. They have segregated laboratories
meant for teaching and demonstration purposes from those accredited and meant for research and
delivery of testing services. In these institutes, management and operation of laboratory
equipment and machinery and testing is being carried out by persons with high academic
qualification having hands-on experience at the same time.

GoE has also acknowledged the need for such specialized institutions and hence established
institutions (FBPIDI &MDIDI) to technically support the development of food industry through
skill development and R&D. However, they are relatively new and are not currently in the best
position to serve the development of the industry because the necessary modern research,
business incubation and technology transfer facilities relevant to most of the subsectors of AFPI
are not in place. In addition, they are not adequately staffed with regard to appropriate
qualification and experience in scientific and technical research. In order to meaningfully serve
the purpose for which they came into being, these institutes shall be strengthened through
building the necessary laboratory, pilot plant and technology transfer facilities along with
adequate human power having necessary experience and qualification.

In addition to creating revitalized and operative FBPIDI & MDIDI, skill development,
technology transfer, business incubation and enterprise development effort need to be
complemented by transformed higher learning institutions (HLIs) into becoming centers of
entrepreneurship, technological development and effective transfer.

Village Adoption Program (VAP)

In order for the HLIs in Ethiopia generate technically capable skilled human resources, it is
important to adapt VAP of the NIFTEM experiences in the context of Ethiopia, which will help
students to understand the complete food chain and socio-technical issues through a unique VAP.
This program has been conceptualized for linking rural entrepreneurs and farmers to the
mainstream economy, and hence this will have to be customized in the context of some selected
domestic universities in Ethiopia, aiming to help the Ethiopian Food Processing sector
accomplish its underprivileged sections of the population with the mainstream economy. VAP is
a compulsory part of both undergraduate and graduate course curricula with four credits in one
year like India in the NIFTEM.

284
Mobile food processing unit and mobile food testing laboratory
Lack of diversity of processed foods, no/little value addition on agricultural raw produces in
most of the rural Ethiopia, and lack of food quality testing laboratory services for existing food
processing companies are one of the major challenges for the food processing industry in
Ethiopia. Introducing and adapting these mobile food processing unit and mobile food testing
laboratories in the context of Ethiopia will have significant impact towards promoting agro-food
industrialization in the rural Ethiopia as well as encouraging the food processing companies
voluntarily produce their products as per the expected quality standards, besides reducing the
cost and delay of delivery time of food quality testing services from abroad. Moreover, it is the
appropriate model for efficient use of our expertise and experience of the scarce processing and
laboratory professionals, even to reach the remote locations.

The role of cooperatives in industrialization of rural Ethiopia

The Indian dairy cooperative is a success story from which many developing economies (with
dominant segment of population comprised of smallholder farmers) should learn lessons. Many
found it an exemplary intervention signifying the importance of remuneration and incentive
enjoyed by primary producers to stimulate increased production of raw materials. This is relevant
especially for Ethiopia as its agro food processing industry is extremely suffering from shortage
of raw materials. The key for the success of the Indian dairy cooperative is the fact that the
cooperatives are made to control their raw material (milk) procurement, its processing and
marketing. In other words, farmers‟ control on the entire value chain of dairying through their
own cooperative network and focus on brand-building as well as consumer marketing, has
ensured that Amul farmers are insulated from volatility in global dairy markets. Better returns
from dairying have obviously motivated farmers to enhance their investments in increasing milk
production. The DNA of brand Amul has always revolved around consumer marketing; meaning
that marketing of value added milk and dairy products to millions of household consumers and
genuine end-users.

Food product and market diversification

The attention given by the GoI to the food processing industry through MoFPI and its diverse
schemes, targets to enter into new domestic and export market and to develop new products for
such new markets. It was witnessed by the visiting team that the endeavor to product

285
diversification was not only exhibited by increasing the raw material type that is to be used as
input for industrialization but also development of diverse products using a single raw material.
Innovation in traditional product development was also seen as a subject of research and
technology transfer aiming to produce marketable ready-to-eat and ready-to-cook traditional
products.
When discussing about product diversification from a single raw material, the famous Amul
dairy cooperative union is worth to be mentioned. Amul has been given due attention to research
and development long ago that its product types today are numerous.

Display of diverse products manufactured by Amul Dairy Cooperative Union

One of the dreams of the father of white revolution and architect of Amul in India, Verghese
Kurien, was to see Amul be technologically autonomous in dairy process and product
development. This was especially important to the Amul dairy cooperative since the then private
and foreign owned dairy processing companies and dairy product importers were working
against the success of Amul. A successful Amul was then believed to be a threat to these
competitors as it would dominate the local market in addition to monopolizing milk
procurement. Kurien‟s stubborn nature, the support he gained from some of top government

286
officials due to his demonstrated commitment and selflessness, the thrust he won of farmers and
their leaders made him strong enough to withstand competitors repeated conspiracy attempt.
In fact, he and his team were the first to successfully convert buffalo milk into powder which
was earlier declared impossible by renowned foreign dairy scientists due to the claimed high fat
content.

Today, the dairy cooperative has made successful packaging innovations to expand its
production capacity of single serve packs to increase the consumer base in great diversity of
customized products as per regional tastes and preferences. To reach distant markets for liquid
milk and cream, long life UHT milk and cream is product of choice. Their product innovation
continued to address niche markets such as the launching of Amul lactose free milk for lactose
intolerant consumers. They have also successfully entered into market for butter milk for
consumers requiring fermented low fat dairy beverage.

287
 Annex 1: Area, production and yield of some cereals and oilseeds over the years from 2000-2014
Wheat Maize Sorghum Linseed safflower sesame rapeseed groundnut
prodn /Mton/

prodn /Mton/

prodn /Mton/

prodn /Mton/

prodn /Mton/

prodn /Mton/

prodn /Mton/

prodn /Mton/
area /Mha/

area /Mha/
yield qt/ha

yield qt/ha

area /Mha/

area /Mha/

area /Mha/

area /Mha/

area /Mha/

area /Mha/
yield qt/ha
yield qt/ha

yield qt/ha

yield qt/ha

yield qt/ha

yield qt/ha
year

2000 1.235 1.062 11.6 2.683 1.656 16.2 1.011 1.188 11.8 0.074 0.032 4.3 0.011 0.006 6.1 0.038 0.016 4.1 0.020 0.014 6.8 0.014 0.012 8.8
2001 1.596 1.204 13.3 3.298 1.893 17.4 1.359 1.549 11.4 0.131 0.064 4.9 0.008 0.005 6.0 0.042 0.019 4.5 0.025 0.015 5.9 0.017 0.015 8.8
2002 1.444 1.006 14.4 2.826 1.507 18.8 1.133 1.546 13.7 0.099 0.051 5.2 0.005 0.004 6.9 0.059 0.039 6.6 0.015 0.017 11.3 0.016 0.013 8.3
2003 1.618 1.166 13.9 2.744 1.791 15.3 1.336 1.784 13.4 0.143 0.077 5.4 0.008 0.005 6.0 0.092 0.062 6.8 0.017 0.020 11.5 0.020 0.029 14.6
2004 1.614 1.099 14.7 2.906 1.802 16.1 1.284 1.742 13.6 0.143 0.077 5.4 0.008 0.005 6.0 0.092 0.061 6.7 0.026 0.029 11.3 0.020 0.021 10.2
2005 2.177 1.398 15.6 3.912 1.950 20.1 1.254 1.716 13.7 0.251 0.152 6.1 0.010 0.007 7.2 0.136 0.115 8.5 0.042 0.036 8.6 0.027 0.029 10.7
2006 2.219 1.460 15.2 4.030 1.526 26.4 1.468 2.174 14.8 0.215 0.126 5.9 0.009 0.006 6.7 0.205 0.149 7.3 0.025 0.024 9.7 0.035 0.034 9.6
2007 2.463 1.474 16.7 3.337 1.695 19.7 1.464 2.316 15.8 0.174 0.108 6.2 0.013 0.011 8.6 0.211 0.149 7.1 0.031 0.029 9.5 0.037 0.051 13.8
2008 2.314 1.425 16.2 3.776 1.767 21.4 1.534 2.659 17.3 0.152 0.170 11.2 0.009 0.008 9.0 0.186 0.187 10.0 0.035 0.048 13.8 0.040 0.045 11.1
2009 3.076 1.684 18.3 3.897 1.772 22.0 1.619 2.971 18.4 0.141 0.151 10.7 0.005 0.006 11.9 0.316 0.261 8.2 0.021 0.023 10.7 0.042 0.046 11.2
2010 2.856 1.553 18.4 4.986 1.963 25.4 1.898 3.960 20.9 0.074 0.065 8.9 0.005 0.005 9.2 0.385 0.328 8.5 0.013 0.023 17.1 0.050 0.072 14.4
2011 2.916 1.437 20.3 6.069 2.055 29.5 1.924 3.951 20.5 0.117 0.113 9.7 0.008 0.009 10.9 0.338 0.245 7.3 0.045 0.075 16.5 0.064 0.103 16.0
2012 3.435 1.628 21.1 6.158 2.013 30.6 1.711 3.604 21.1 0.128 0.122 9.5 0.011 0.013 11.6 0.240 0.181 7.6 0.046 0.073 16.0 0.090 0.124 13.8
2013 3.925 1.606 24.4 6.492 1.995 32.5 1.677 3.829 22.8 0.096 0.088 9.2 0.012 0.008 7.2 0.300 0.220 7.3 0.044 0.062 14.2 0.080 0.112 14.1
2014 4.232 1.664 25.4 7.235 2.115 34.2 1.835 4.339 23.7 0.082 0.083 10.1 0.007 0.006 9.0 0.420 0.289 6.9 0.030 0.054 17.9 0.065 0.104 16.0

Source: FAOSTAT, own calculation

288
 Annex 2: Annual meat and milk production over the years from 2000-2013
Fresh whole Fresh whole Fresh whole Fresh whole
Cattle meat Goat meat Sheep meat Camel meat
cow milk goat milk sheep milk camel milk
Year Prodn Yield Prodn Yield Prodn Yield Prodn Yield Prodn Yield Prodn Yield Prodn Yield Prodn Yield
/ ton/ KG/An / ton/ KG/An / ton/ KG/An / ton/ KG/An / ton/ KG/An / ton/ KG/An / ton/ KG/An / ton/ KG/An
2000 294,070 108.3 25,560 8.5 36,000 10.0 11,050 170.0 900,000 207.4 20,685 50.0 27,400 25.0 77,500 1011.7

2001 303,525 108.4 28,626 8.5 37,750 10.1 13,260 170.0 1,000,000 204.1 17,057 50.0 28,600 25.0 85,000 1062.5

2002 352,554 108.4 32,725 8.5 47,720 10.1 13,430 170.0 2,478,969 603.9 25,500 50.0 35,800 25.0 113,430 1031.2

2003 338,503 108.4 35,700 8.5 53,165 10.1 13,600 170.0 2,500,000 620.0 28,000 50.0 37,500 25.0 160,000 1032.3

2004 339,096 108.4 44,180 8.5 60,409 10.1 13,940 170.0 2,431,149 607.8 34,500 50.0 41,500 25.0 217,495 1061.0

2005 364,767 108.4 48,680 8.5 68,000 10.0 13,260 170.0 2,138,980 686.5 38,000 50.0 45,000 25.0 109,685 1044.6

2006 391,650 108.4 55,000 8.5 79,000 10.1 12,750 170.0 2,318,029 524.2 43,500 50.0 52,500 25.0 95,793 1064.4

2007 371,815 108.4 64,600 8.5 85,000 10.0 17,680 170.0 2,629,521 510.3 50,000 50.0 58,750 25.0 114,185 1038.0

2008 392,888 108.6 64,600 8.5 81,500 10.0 28,900 170.0 3,221,652 423.9 50,250 50.0 55,000 25.0 249,934 1470.2

2009 363,283 109.2 65,450 8.5 85,000 10.0 22,491 170.0 2,940,217 305.4 50,501 50.0 57,150 25.0 150,315 1050.5

2010 437,169 109.1 66,300 8.5 86,000 10.0 31,450 170.0 4,057,998 380.1 52,520 50.0 57,500 25.0 262,822 1117.2

2011 441,845 109.3 68,000 8.5 85,000 10.0 28,050 170.0 3,329,855 314.8 55,000 50.0 56,250 25.0 176,400 823.4

2012 359,987 107.3 71,500 8.5 86,000 10.0 28,050 170.0 3,804,991 355.2 57,500 50.0 57,500 25.0 165,117 990.8

2013 362,876 108.0 74,000 8.5 87,450 10.0 28,050 170.0 4,000,000 367.0 59,000 50.0 58,750 25.0 170,000 971.4
Source: FAOSTAT, own calculation

Annex 3: Honey production and per hive yield over the years from 2000-2013
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Production
/ton/ 29,000 33,776 39,600 37,800 40,900 36,000 51,250 42,180 42,000 41,525 53,675 39,892 45,905 45,000
Yield
Kg/hive 9.0 10.2 9.0 9.0 9.0 9.0 10.5 9.0 8.2 9.0 10.5 8.0 8.8 8.6

Source: FAOSTAT, own calculation

289
Annex 4: Population of cattle, goat, sheep and camel in heads and number of beehives over the years from 2000-2013
Year Cattle Goat Sheep Camel Beehive
2000 33,075,330 8,597,770 10,950,680 400,000 3,220,430
2001 35,383,312 9,620,890 11,438,200 410,000 3,327,370
2002 40,638,800 11,000,000 14,321,780 420,000 4,399,580
2003 39,000,000 12,000,000 16,000,000 435,000 4,200,000
2004 38,749,310 14,850,646 18,074,721 445,000 4,546,245
2005 40,390,098 16,364,048 20,733,913 458,576 4,020,410
2006 43,124,582 18,559,730 23,633,010 436,622 4,884,468
2007 47,570,680 21,709,428 26,117,272 615,197 4,688,010
2008 49,000,000 21,798,540 26,117,272 1,009,040 5,146,990
2009 50,884,005 21,960,706 25,979,919 807,581 4,598,226
2010 53,382,192 22,786,946 25,509,004 1,102,119 5,130,322
2011 52,129,016 22,613,104 24,221,384 979,318 4,993,815
2012 53,990,060 24,060,792 25,489,204 915,518 5,207,300
2013 54,000,000 28,163,340 26,500,000 1,098,312 5,250,000
Source: FAOSTAT

290
Annex 5: Ranking of Ethiopia and comparators based on Competitive Industrial Performance (CIP index), 1990- 2012

Source: UNIDO, own illustration

291
Annex 6: Key manufacturing and AFPI performance indicators of Ethiopia and comparator countries

Philippines
Costa Rica
Sri Lanka

Colombia
Paraguay

Viet Nam

Tanzania
Thailand
Morocco

Ethiopia
Kenya
Brazil
Egypt
GDP, 2014* (MUSD) 43,927 13,567 88,007 131,364 29,474 221,648 1,170,240 232,588 165,261 97,353 28,324 25,742 29,449
MVA, 2014* (MUSD) 8,189 1,234 10,990 20,376 5,269 24,743 146,611 79,336 36,799 23,536 2,827 2,305 1,350
MVApc, 2014* (USD) 382 178 328 244 1067 506 726 1,180 368 254 62 45 14
MVA to GDP (%) 19 9 12 16 18 11 13 34 22 24 10 9 5
Manufactured export, 2012
(%) 83 33 84 73 78 35 60 94 94 82 ND 60 18
F&B to MVA (%) 28.71 39.73 21.16 12.95 ND 30.3 21.27 19.13 21.46 21.48 31.08 48.46 41.22

F&B employment to
manufacturing (%) 17.69 28.01 24.59 21.33 ND 24.15 21.67 19.63 18.23 11.32 ND 43.87 30.21
F&B Wages per employee
(USD) 1,774 4,950 7,779 3,217 ND 6,713 11,300 3,651 5,289 2,715 ND 2,127 1,391
Wage to F&B MVA (%) 10.69 19.55 37.58 27.85 ND 7.71 21.2 22.06 17.62 17.37 ND 14.85 15.61
*(at constant 2005 prices in USD)
Source: UNIDO‟s Statistical Country Briefs (2015), own illustration

292
 Annex 7: Export earnings of Ethiopia & comparator countries from fruit & vegetable products at various market arenas over 2000-2013
2000 2005 2010 2013
World EU MENA SSA World EU MENA SSA World EU MENA SSA World EU MENA SSA
F 1.6 0.22 0.43 0.00 3.7 1.01 1.27 0.01 7.6 1.67 4.22 0.00 17.8 2.37 12.12 0.01
Sri Lanka
P 69.6 29.29 27.11 1.33 40.3 14.52 19.65 1.18 54.6 20.31 22.71 1.31 72.7 24.27 23.89 0.63
F 0.2 0.04 0.00 0.00 0.7 0.02 0.00 0.00 2.7 0.46 0.00 0.00 ND 3.33 0.00 0.00
Paraguay
P 2.0 0.81 0.00 0.00 1.6 1.48 0.00 0.00 3.3 ND 0.06 0.00 8.4 8.55 0.25 0.00
F 225.5 202.95 6.59 0.41 414.4 354.19 4.56 2.77 505.1 437.67 12.82 3.77 557.7 486.90 9.64 2.37
Morocco
P 75.6 60.97 1.43 1.81 127.2 106.80 0.94 3.62 151.6 128.76 4.90 1.36 237.7 200.16 11.70 3.78
F 25 3.04 17.32 0.18 115 89.65 15.78 1.59 ND ND ND ND 953 452.23 277.15 10.81
Egypt
P 39.4 17.82 ND 0.35 81.6 37.59 ND 2.63 ND ND ND ND 418.7 110.32 ND 22.84
F 743.7 309.16 0.13 ND 901.4 422.67 0.09 ND 1460.4 766.67 12.48 ND 1683.1 864.35 20.82 ND
Costa Rica
P 132.5 51.74 0.89 ND 155.2 82.78 0.66 0.22 211.2 112.95 2.20 0.29 341.4 146.98 2.03 1.34
F 493.7 276.29 ND ND 543.2 347.15 ND ND 793.9 549.91 ND ND 822.3 599.50 ND ND
Colombia
P 6.7 1.95 ND ND 26.3 4.49 ND ND 41.4 15.08 ND ND 45.4 15.78 ND ND
F 167.3 121.38 2.15 0.00 431.2 368.39 2.46 0.71 589.2 489.54 6.61 1.27 640.3 556.42 11.35 0.90
Brazil
P 1103.9 718.32 3.93 2.04 1206.9 788.95 18.68 9.82 1945.7 1,327.35 15.87 4.92 2484.4 1,682.55 27.77 9.30
F 122.0 3.48 2.29 0.01 107.3 8.71 5.06 ND 269.5 13.56 11.34 0.04 551.8 13.35 19.14 0.02
Thailand
P 787.5 201.18 21.40 ND 1200.4 304.17 46.26 ND 1966.7 407.26 124.43 ND 2550.5 376.81 126.91 ND
F 359.7 1.94 18.29 ND 442.9 2.33 34.38 ND 407.5 3.69 20.00 ND 1186.9 23.64 171.47 ND
Philippines
P 260.8 50.18 3.08 0.44 396.7 108.74 9.57 1.97 478.9 113.24 13.30 1.64 719.2 146.71 15.37 2.82
F 3.6 0.66 2.66 0.21 5.8 1.39 3.91 0.41 12.8 1.67 10.14 0.34 46.1 19.37 25.69 0.56
Kenya
P 55.7 54.53 0.00 0.93 91.4 86.18 0.46 3.61 130.0 104.96 0.91 19.58 177.2 143.71 7.20 20.71
F 0.4 0.00 0.01 0.27 0.4 0.20 0.00 0.17 0.9 0.44 0.00 0.51 3.6 2.41 0.00 1.16
Tanzania
P 1.5 0.03 0.01 0.14 1.0 0.44 0.00 0.17 5.5 0.55 0.23 1.00 29.4 8.77 1.72 5.57
F 0.7 0.00 0.01 0.69 2.1 0.02 0.01 2.03 4.4 0.28 1.03 2.94 6.3 0.13 0.69 3.07
Ethiopia
P 0.0 0.00 0.01 0.00 8.3 2.63 0.02 5.64 8.1 2.46 0.71 1.31 15.1 7.71 4.34 1.63
Source: FAOSTAT, own compilation
Key: F: pack-house value added fresh fruits, P: processed fruit and vegetables, MENA: Middle East & North Africa, EU: Europe, SSA: Sub Saharan Africa,
ND: no data

293
 Annex 8: Details of Logical Framework Analysis
Hierarchy of objectives
Goal:
The contribution of AFPI to structural transformation of
the economy increased
Objectives:
1. The share of AFPI to GDP of the country increased from
the current 2.2 to 6.7%
2. The share of AFPI increased from the current 14 to 39.4%
of the manufacturing value added (MVA) of the country
3. The level of employment in AFPI increased from the
current 56 to 290 thousands
4. The annual foreign exchange earnings from processed
food exports increased from the current 2435 to 10432
million USD
5. The foreign exchange spent for importing processed food
reduced from the current 1446 to 362 million USD
6. Capacity utilization of existing AFPFs improved from the
current 68 to 95 %
7. Productivity of AFPI improved from the current X to Y %
Objective verifiable indicators
 Share of AFPI to economic transformation
increased
 GDP of AFPI grows by 21% each year
 MVA of AFPI grows by 44% each year
 Employment level in AFPI grows at least 5
folds by 2025
 No. of workers in AFPI grows 18% annually
 Foreign exchange earned from food CSA report
exports grows more than 4 folds by 2025 MoFED report  Proper implementation of investment incentives
 Foreign exchange earned from food NBE report
exports grows 16% each year
 Share of export markets to total food sold
increased from the current 4.3 to 9%
 Foreign exchange spent for food imports
saved 4 folds by 2025
 Foreign exchange spent for food imports
reduced 13% each year
 Capacity utilization grows to 95% by 2025
Productivity of AFPI grows to x% by 2025
294
Means of Assumptions
verification
CSA report  Conducive business/enabling environment
MoFED report  Bottlenecks of AFPI timely addressed
NBE report
CSA report  Conducive business/enabling environment
MoFED report  The identified bottlenecks of AFPI addressed
NBE report
 Availability of technically and managerially
CSA report
MoI reportcapable persons
 Willingness of persons engaged in AFPI
 Conducive business/enabling environment
MoT report
CSA report  Conducive business/enabling environment
MoFED report  Proper implementation of investment incentives
NBE report
MoT report
CSA report  Sufficient & timely supply of raw materials
Survey report  Timely supply of quality spare parts
 Little/no electric outage
 Technically capable workers
Survey report  Sufficient & timely supply of raw materials
 Timely supply of quality spare parts
 Little/no electric outage
 Technically capable workers
 Technological progress
 Hierarchy of objectives Objective verifiable indicators Means of Assumptions
verification
Outputs:
1. Production & export capacity achieved by  No. of expanded/upgraded export oriented MoI report  Sufficient & timely acquisition of land for
expanded/upgraded existing export oriented firms firms CSA report expansion
 Added contribution to MVA & Fex earning Survey  Availability of credit for working capital
from expansion/upgrading  Technically & managerially capable personnel
2. Production & export capacity achieved by newly  No. of newly established export oriented MoI report  Sufficient & timely acquisition of land for
established export oriented firms AFPFs CSA report establishment
 Added contribution to MVA & Fex earning Survey  Availability of credit for investment & working
by new export oriented AFPFs capital
 Technically & managerially capable personnel
3. Production & import substitution (IS) capacity achieved by  No. of expanded/upgraded import MoI report  Sufficient & timely acquisition of land for
expanded/upgraded existing import substituting firms substituting firms CSA report expansion
 Added contribution to MVA & Fex saved by Survey  Availability of credit for working capital
expanded/upgraded existing IS firms  Technically & managerially capable personnel
4. Production & import substitution (IS) capacity achieved by  No. of newly established IS AFPFs MoI report  Sufficient & timely acquisition of land for
newly established import substituting firms  Contribution to MVA & Fex saved by new CSA report establishment
IS AFPFs Survey  Access to credit for investment & working capital
 Technically & managerially capable personnel
5. Production capacity & sales achieved by existing & new  Annual volume of production & sales by FeMSEDA  Credit for investment & working capital
SMEs in AFPI type of products & no. of SMEs report, Survey  Technical supports
6. Production capacity & sales achieved by MEs graduated  No. of effective & sustainably operating FeMSEDA  Long-term credit for graduated firms (like a
from SMEs in AFPI MLEs graduated from SMEs report, 10:90% ratio used at SMEs stage by MFIs)
 Annual volume of production & sales by Survey  Continuous technical support for graduated firms
AFPI subsectors until they could stand by themselves
7. Proven integrated agro-food industry parks scaled up  No. of effective & efficient parks & AFPFs IPDC report  Availability & timely release of the budget required
countrywide at industrial towns, around agricultural encompassed within the parks scaled up MoI report  Lessons from successful countries properly
potential areas countrywide MoFED report adapted in the context of Ethiopian
Survey
8. Domestically manufactured packaging materials for AFPI Annual volume of packaging by type of MoI report  Willingness of investors to involve in packaging
products packaging & products being packed Survey materials manufacturing
 Special incentive & supportive services
9. Domestically manufactured spare parts for AFPFs Annual volume of spare parts manufactured MoI report  The government gives due emphasis
by AFP subsectors Survey  Government supportive services
10. Domestically delivered quality testing lab services for  Type of quality testing lab services MoI report  Willingness of investors to establish lab facilities
AFPFs domestically delivered Survey  Accredited laboratory professionals

295
 Hierarchy of objectives
11. Production capacity & sales achieved by newly established 
fruit climber trees support trellising factory
12. Proven market information dissemination centers (MIDCs)  No. of MIDCs established countrywide
scaled up at industrial towns countrywide
13. Market linkage created among agro-food processors &
potential export markets
14. Proven commercialized farms (CFs) & out-grower
schemes scaled up countrywide
15. Market linkage created among commercialized farms &
AFPFs scaled up countrywide
16. A regular platform organized among stakeholders for AFPI  A regularly functioning platform
development
17. Domestically manufactured electric transformers (by
privately owned manufacturers)
18. Appropriate warehouse (cold storage) established at
export destinations
19. AFPFs established by groups of potential farmers
20. Strengthened & promoted existing AFPFs owned by
coops/unions
21. New AFPFs established by existing coops/unions
Objective verifiable indicators Means of Assumptions
verification
 No. of AFPFs benefited from domestic lab  Technical support from quality control &
services by subsectors assurance government agencies
 The government gives due emphasis
MoI report  The government gives due emphasis
 No. of AFPFs benefited from access to Survey  Facilitation by Ministry of Information …
market information
 No. of AFPFs accessed to reliable export Survey  AFPFs manufactured quality products sufficiently
markets MoI report & sustainably at competitive price
 No. of AFPFs benefited from market linkage MoT report AFPFs are accessed to appropriate packaging
materials at reasonable price
 No. of effectively & sustainably operating MoANR report  Farmers are voluntary to form clusters
CFs & out-growers established countrywide MoLF report  Farmers are guaranteed with market access for
 Annual volume of raw material production Survey their commercialized products in advance
 No. of AFPFs accessed to reliable supply MoA report  The government gives due emphasis
of quality raw materials MoI report  Facilitation by MoA and MoL
 No. of CFs accessed to reliable market Survey
with AFPFs
Interview • Willingness of stakeholders to join a platform
 A joint plan prepared & implemented by Report review regularly & act their responsibilities accordingly
stakeholders
 No. of private firms manufactured EEPA report  The government gives due emphasis
transformers & annual volume of EIC report  Availability of long-term credit
production Survey
 No. of well established warehouses (cold MoI report  Technical support from MoA and MoL
storages) & their capacity & quality to store MoA report
Survey
 No. of effectively operating AFPFs FCA report  Farmers’ willingness to participate in AFPI
established by farmers’ organizations and MoI report  Facilitation by Cooperative Agency
annual volume of production Survey
 No. of effectively operating coop/union FCA report  Coops/unions willingness to involve in AFPI
owned existing AFPFs & annual volume of MoI report  Facilitation by Cooperative Agency
production Survey  Government supportive services
 No of successfully operating AFPFs newly  Coops/unions willingness to involve in AFPI
296
 Hierarchy of objectives Objective verifiable indicators Means of Assumptions
verification
established by existing coops/ unions &  Facilitation by Cooperative Agency
annual volume of production  Government supportive services
22. Supportive services (transportation, storage, packaging,  No. of SMEs effectively delivering FeMSEDA  Facilitation by FeMSEDA
maintenance & repair) to AFPI delivered by SMEs supportive services to AFPI report  Availability of long-term credit (e.g., a 10:90%
 No. of AFPFs efficiently served & reduced Survey ratio from DBE)
transaction costs by type of services
23. Vegetables, fruits & livestock produced by urban agriculture  Annual volume of vegetables, fruits & Survey  Facilitation by Urban Agriculture Office and
(especially by urban women & youths associations) livestock consistently produced by urban Municipality Cooperative Agency
associations report  Willingness of women & youths to form
associations to participate in the activity
24. Properly managed domestic and export markets for AFPI  Effective & efficient domestic & export MoI report  The government gives due emphasis
products markets for AFPI products MoT report
Survey
Activities
1. Existing edible oil processors expanded/upgraded  216 (of which 35 ML sized) edible oil MoI report  Adequate land acquired timely for expansion
processors expanded/upgraded Survey  Credit access for expansion & working capital
2. Newly established edible oil (including cold pressed/virgin  40 ML sized edible oil refineries MoI report  Favorable business environment and incentives
oil) processing firms established established Survey  Awareness creation and technical support for
private investors
3. Existing flour and pasta manufacturing firms  275 flour millers manufacturers expanded MoI report  Adequate land acquired timely for expansion
expanded/upgraded  18 pasta manufacturers expanded Survey  Credit access for expansion & working capital
4. Newly established flour & pasta manufacturing firms 48 & 75 ML sized flour & pasta MoI report  Favorable business environment and incentives
manufacturers established, resp. Survey
5. Pack-house value added fresh fruits & vegetables 13 large sized F&V product processors MoI report  Favorable business environment & incentive s
manufacturing firms established established Survey  Awareness creation & technical support for
private investors
6. Tef based products (injera, flour & injera crumb) 139 ML sized Tef based product MoI report  Favorable business environment & incentive s
manufacturing firms established manufacturers established Survey  Awareness creation for private investors
7. Existing washed, roasted, ground and vacuum packed X coffee processing firms MoI report  Adequate land acquired timely for expansion
coffee processing firms expanded/upgraded expanded/upgraded Survey  Credit access for expansion & working capital
8. Newly established roasted/roasted-ground coffee 2 ML sized coffee processing firms MoI report  Favorable business environment and incentives
processing firms established Survey
9. Existing fruit & vegetable juice processing firms X fruit juice processors expanded/upgraded MoI report  Adequate land acquired timely for expansion
expanded/upgraded Survey  Credit access for expansion & working capital

297
 Hierarchy of objectives Objective verifiable indicators Means of Assumptions
verification
10. Newly established fruit & vegetable juice & concentrate 38 ML sized fruit juice & concentrate MoI report  Favorable business environment and incentives
processing firms processors established Survey
11. Potato chips, frozen French fries and flour manufacturing 45 ML sized potato chips & frozen French MoI report  Favorable business environment & incentive s
firms established fries manufacturers established Survey  Awareness creation & technical support for
private investors
12. Maize starch, germ oil, & corn flakes manufacturing firms 28 ML sized starch & glucose manufacturers MoI report  Favorable business environment & incentive s
established established Survey  Awareness creation & technical support for
private investors
13. Existing malt manufacturing firms expanded/ upgraded 2 malt manufacturers expanded/upgraded MoI report  Adequate land acquired timely for expansion
Survey  Credit access for expansion & working capital
14. Newly established malt manufacturing firms 4 Large malt manufacturing firms MoI report  Favorable business environment and incentives
established Survey
15. Existing pasteurized milk processing firms 16 pasteurized milk processors MoI report  Adequate land acquired timely for expansion
expanded/upgraded expanded/upgraded Survey  Credit access for expansion & working capital
16. Newly established pasteurized & UHT milk processing 31 ML sized pasteurized milk processors MoI report  Favorable business environment and incentives
firms established Survey  Awareness creation & technical support for
private investors
17. Cheese, yogurt and butter manufacturing firms 19 ML sized cheese, yogurt & butter MoI report  Favorable business environment & incentive s
established processors established Survey  Awareness creation & technical support for
private investors
18. Existing honey processing (bulk, table) firms X honey processors expanded/upgraded MoI report  Favorable business environment and incentives
expanded/upgraded Survey
19. Newly established honey (bulk, table) & honey wine 59 ML sized honey & honey wine processors MoI report  Favorable business environment & incentive s
manufacturing firms established established Survey  Awareness creation & technical support for
private investors
20. Existing meat processing firms expanded/upgraded 41 meat processors expanded/upgraded MoI report  Adequate land acquired timely for expansion
Survey  Credit access for expansion & working capital
21. Newly established meat processing firms 11 ML sized meat processors established MoI report  Favorable business environment & incentive s
Survey  Awareness creation & technical support for
private investors
22. Milk powder manufacturing firms established 14 ML sized milk powder manufacturer MoI report  Favorable business environment and incentives
established Survey
23. Glass package (for honey, jams & jellies, tomato juice & 1 glass package manufacturers established MoI report  Favorable business environment and incentives
ketchup) manufacturing firms established Survey
24. Tetra pack (for UHT milk and fruit juices) manufacturing 1 tetra pack manufacturers established MoI report  Favorable business environment and incentives

298
 Hierarchy of objectives Objective verifiable indicators Means of Assumptions
verification
firms established Survey
25. Metal cans (for tomato paste, fruit and vegetable 1 metal can manufacturers established MoI report  Favorable business environment and incentives
products) manufacturing firms established Survey
26. Flexible & rigid plastic package (for dry & other fluid 1 flexible & rigid plastic package MoI report  Favorable business environment and incentives
foods) manufacturing firms established manufacturers established Survey
27. Fruit climber trees support trellising factory established 1 trellising factory established MoI report  Favorable business environment and incentives
Survey
28. SMEs graduated into MLEs in AFPI X SMEs graduated into Y MLEs in Z AFP MoI report  Adequate land acquired timely for expansion
subsectors Survey  Credit access for expansion & working capital
29. Integrated agro-food industrial parks (IAFIPs) 4 IAFIPs established in 4 AFPI subsectors MoI report  Sufficient fund obtained
established at industrial towns, as pilot projects around Survey
agriculture potential areas
30. Accredited laboratory facilities established domestically X accredited laboratory facilities established MoI report  Favorable business environment and incentives
to deliver quality testing lab service in Y AFPI subsectors (such as ….) MoST report  Sufficient fund obtained
31. Existing domestic firms strengthened to manufacture X spare part manufacturing firms for Y AFP MoI report  Favorable business environment and incentives
spare parts (equipment & machines) subsectors (such as…...) strengthened Survey  Reliable market for spare markets
32. New domestic firms established to supply spare parts X spare part manufacturing firms for Y AFP MoI report  Favorable business environment and incentives
(equipment & machines) for AFPFs subsectors (such as…...) established Survey  Reliable market for spare markets
33. Market information dissemination centers established as X market information dissemination centers MoI report  Government belief and commitment to establish
pilot projects at industrial towns, where most AFPFs found established MoT report the center
Survey
34. Commercialized farms (CF) & out-growers established as X CFs and Y out-growers schemes MoA report  Willingness of farmers to form cluster
pilot projects through clustering agricultural producers established MoI report
Survey
35. Market linkage created among commercialized farms and X CFs and Y AFPFs created market linkage MoA report  Enforceable contract arrangement between
AFPFs as pilot projects among them MoI report farmers and processors
Survey
36. A regular platform organized among stakeholders for X platforms of stakeholders organized in Y MoI report  Belief and commitment of the stakeholders
AFP subsectors as pilot projects AFP subsectors Survey
37. Electric transformer supplying domestic firms established 1 electric transformer supplying firms ELPA report  Favorable business environment and incentives
established Survey  Government allows private sectors to involve
38. Warehouse (cold storage) established at export X cold storage established at Y export MoA report  Sufficient fund obtained
destinations destinations MoI report
Survey

299
 Hierarchy of objectives Objective verifiable indicators Means of Assumptions
verification
39. Groups of potential farmers organized to involve in AFPF X groups of potential farmers organized for FCA report  Farmers’ willingness to be organized and involve
establishments Y AFPF establishments MoI report in the sector
Survey
40. Existing farmers’ cooperatives/unions strengthened to X coops/unions strengthened to involve in Y FCA report  Willingness of the coops to involve in the sector
participate in AFPF establishments AFPF establishments MoI report  Favorable business environment and incentives
Survey
41. New farmers’ cooperatives/unions established to X coops/unions established to involve in Y FCA report  Willingness of farmers to form coops for
participate in AFPF establishments AFPF establishments MoI report establishing AFPFs
Survey  Favorable business environment & incentives
42. Women and youths associations established for fruit & X women & youths associations established FCA report  Willingness of women & youths to form
vegetable crop production for F&V production MoA report association for agricultural production
Survey  Financial & technical supports
43. Women and youths associations established for dairy X women & youths associations established FCA report  Willingness of women & youths to form
production for rearing dairy cows MoA report association for dairy production
Survey  Financial & technical supports
44. SMEs involved in transport service in AFPI X SMEs involved in transport services FeMSEDA  Willingness of women & youths to form
report association for participating in the sector
 Financial & technical supports
45. SMEs involved in packaging service in AFPI X SMEs involved in packaging services FeMSEDA  Willingness of women & youths to form
report association for participating in the sector
 Financial & technical supports
46. SMEs involved in storage service in AFPI X SMEs involved in storage services FeMSEDA  Willingness of women & youths to form
report associations to provide the
 Financial & technical supports
47. A separate institution established for managing export Manufacturing industry export market MoT report  Government belief and commitment
markets of manufacturing industries managing institution established
48. A separate institution established for managing domestic Manufacturing industry domestic market MoT report  Government belief and commitment
markets of manufacturing industries managing institution established

300
Annex 9: List of KIIs, FGDs and Firms visited

List of key informants

No Name Affiliations/institutions Position
1 Ato Abebabw Mekonnen Ethiopian Meat Producer & Exporters Association Secretary general
2 Ato Yilma G/ Kidan Ethiopian Coffee Growers, Producers & Exporters Association General manager
3 Ato Getachew Admasu Ethiopian Coffee Exporters Association Public relation head
4 W/rt Haimanot Asfaw Ethiopian Flour Millers Association General manager
5 Ato Mulugeta Tegegne Ethiopian Edible Oil Millers Association Secretary of association
6 Ato Berhanu Lodamo Ethiopian Horticulture Producers & Exporters Association Head, promotion & information
service
7 Ato Meseret Adugnaw Ethiopian Livestock Traders Association General manager
8 Dr. Eng. Shimeles Admasu Food, Beverage and Pharmaceutical Industry Development Institute Deputy general director
(FBPIDI) under MoI
9 Excellency Dr. Fasil Reda UNIDO- Program for Country Partnership (PCP) National coordinator
10 AtoTilahun Gemechu Industrial Parks Development Corporation (IPDC) Marketing research & promotion
director
11 Ato Wondu Adugna Ministry of Trade Minister’s office director general
12 Ato Lisanework Gorfu Ministry of Trade Trade relation & negotiation director
general
13 Dr. Bewket Siraw MoA, Livestock Sector State Minister Acting state minister
14 Excellency Ato Usman Surur Federal Cooperative Agency (FCA) Director general
15 Ato Asfaw Abebe Federal Micro & Small Enterprises Dev’t Agency (FeMSEDA) Deputy director general
16 AtoYosephTsega FeMSEDA Senior information expert
17 Ato Fitsum Tsehaye National Bank of Ethiopia: Domestic Economic Analysis & Directorate director
Publication Directorate
18 Ato Tsigie Genet Development Bank of Ethiopia Principal credit officer
19 Ato Mehari Birhan Food Medicine and Health Care Administration and Control Director general
Authority of Ethiopia (FMHACA)
20 AtoTeshale Belihu Ethiopian Conformity Assessment Enterprise (ECAE) Director general
21 Ato Araya Fesseha Ethiopian National Accreditation Office (ENAO) Director general

301
No Name Affiliations/institutions Position
22 Ato TeshaleYona Ethiopian Intellectual Property Office (EIPO) Director general
23 W/ro Genzeb Akele Agricultural Transformation Agency (ATA) Value chain program senior director
24 Fikadu Tilahun ATA Market service support program
director
25 Ato Solomon Abate Ethiopian Institute of Agricultural Research (EIAR) Agriculture & nutrition research lab
director
26 Dr. Eyasu Abraha Tigray Agricultural Research Institute (TARI) Director general
27 AtoYasin Mohammed Oromia Region Bureau of Industry & Urban Development Industry & construction business
process owner
28 Ato Abdulhakim Abdela Oromia Region BoA Deputy director
29 Dr. Teshome Wale Amhara Region BoA Head, BoA
30 Ato Tameru Debassa SNNPR Bureau of Trade and Industry Executive office head
31 Ato Hilegiorgis Demesie Beza Mar Agro-Industry General Manger
32 Ato Abiyot Asfaw ET Teff General manager
33 Ato Kedir Shenka Ade’a Dairy Processing Cooperative General manager
34 Colonel Teka Shikur Lame Dairy Pvt. Ltd. Co. General manager
35 Ato Aleka AlemAbrha Selam Beekeepers Association: Honey Processing Factory Director general
36 Mr. Alexander Africa Juice Tiliba Share Company General manager
37 Ato Asnake Gadisa Great Abyssinia Plc. Sulilita plant manager
38 Ato Merafe Selassie Mama Fresh Injera Marketing & Export
39 Ato BiyamYohannes Mama Fresh Injera Finance department manager
40 Ato KahsayAsgidom Lemlem Food Complex General manager
41 Ato Habtom Zelalem Lemlem Food Complex Human resource department head
42 AtoTsegaye Abebe Yerer Flour Company Company manager
43 Ato Mohammed Hasen Elfora Kombolcha Agro-Processing Plant General manager
44 Dr. Adgolign Mitku Modjo Modern Export Abattoir General manager
45 Ato Eshetu LegesseF Bless Agro-Food Testing Service Laboratory Laboratory manager
46 Ato Daniel Melese Assela Malt Factory Supply production & sales work
process directorate
47 Ato Sintayehu Mengistie Zenbaba Bee Products Development & Marketing Cooperatives General manager
Union

302
No Name Affiliations/institutions Position
48 Ato Mekonnen Bekele Addis Mojo Edible Oil Company Deputy operations director
49 Dr. Adigolign Mojo Modern Export Abattoir General manager
50 Ato Abiy Zewdu Aster Injera Deputy general manager
51 Ato Biniyam Degefee Sebeta Industrial Complex (Meaza Mango) Finance department head
52 Ato Abiyot Tesfaye Sebeta Industrial Complex (Meaza Mango) General manager
53 Ato Bisrat Tadesse BoAze Food complex General manger
54 Ato Gadissa Hundessa BoAze Food complex Production unit head
55 Dr. G/Medhin Abreha Abergelle Meat Processing Plant General manager
56 Ato Daniel Abergelle Meat Processing Plant Production manager
57 Ato Daniel G/Meskel Welela Honey Processing Plant under Comel Plc, General manager
58 Ato Abreham Welela Honey Processing Plant under Comel Plc, Production manager
59 Bisrat Tadese Kebron Food Complex V/manager
60 Gadis Hundesa Kebron Food Complex Production unit head

Focus group discussants

No Name of participants Affiliations/Institutions Position

1 Ministry of Industry (MoI) head office
Dr. Mebratu Meles Ministry of Industry State minister
Ato Dendena Chemeda Chemicals and Agro-Processing Directorate Directorate director
Ato Muluneh W/kidan Integrated Agro-Industrial Park Project Office Project coordinator
Ato Moges Mesfin Integrated Agro-Industrial Park Project Office Project economist
Ato Ato Ahmed Nuru Policy & Program Monitoring & Evaluation Directorate Directorate director
G/Michael G/Kidan Industry Zone Dev’t & Environment Safeguard Directorate A/director
2 Food, Beverage and Pharmaceutical Industry Development Institute (FBPIDI) under MoI
Ato Bekele Mekuria Cereals and Pulses Processing Directorate Directorate director
Ato Zergagw Feleke Cereals and Pulses Processing Directorate Lead researcher
Ato Tamerat Tessema Oil Seeds Processing Directorate Senior researcher
Ato Yesuf Seid Oil Seeds Processing Directorate Junior researcher
Wrt/ ZinashTadesse Oil Seeds Processing Directorate Junior researcher

303
No Name of participants Affiliations/Institutions Position
Ato Ashenafi Oil Seeds Processing Directorate Junior researcher
Ato Eyoel Legesse Fruits, Vegetables & Spices Processing Directorate Directorate director
3 Ethiopian Meat & dairy Industry development Institute (EMDIDI) under MoI
Ato Tadesse Gueta Milk & Milk Products Processing Research Directorate EMDIDI deputy general director & director
of this directorate
Ato SileshiYeserah Honey & Wax Product Processing & Research Directorate Senior researcher
Ato Samson Adefris Meat Processing & Research Directorate Small ruminant meat processing team
leader
4 Ethiopian Investment Commission (EIC)
Ato Mohammed Seid Investment Operating Sector Deputy director general
Ato Samuel Asefa Investment project, facilitation & after care directorate Directorate director
W/ro Seble Beyene EIC License & registration team leader
5 Ethiopian Revenues & Customs Authority (ERCA)
Ato Nebiyu Samuel Head Office Director general
Ato Gayim Abreha Customs Works & Program Development Directorate Directorate director
6 Ministry of Finance & Economic Development (MoFED)
Ato Mezgebu Ameha Macroeconomic policy & management directorate Directorate director
Ato Gosa Tefera MoFED Junior economist
7 Ministry of Agriculture (MoA)
Ato Walle Getaneh Horticulture Directorate Directorate director
Ato Ali Surer Cereals and Pulses Directorate Directorate director
Dr. Dagnachew Beyene Crop Sector State Minister Minister advisor
8 Ministry of Transport (including Maritime Affairs Authority)
Ato Getachew Tedla Ministry of Transport Transport logistic officer
Dr. Mengist Hilemariam Ethiopian Maritime Affairs Authority Researcher
Ato Birook Dangne Ethiopian Maritime Affairs Authority Researcher
9 Ethiopian Standards Agency (ESA)
Ato Ketema Tolosa ESA A/director general
Ato Yohanes Melese Food & Agriculture Standard Directorate Project coordinator
Mengistu Tefera Food & Agriculture Standard Directorate Directorate director

304
No Name of participants Affiliations/Institutions Position
10 ANRS Bureau of Industry & Urban Development (BoIUD)
Ato Zinaw Lingerih Industry Development Work Process (IDWP) IDWP head
Ato Silesh Alemineh ANRS BoIUD Industry development officer
Ato Mastewal Bewket ANRS BoIUD Industry development officer
AtoTadese Belay ANRS BoIUD Investment inspection & support expert
11 ANRS Bureau of Trade (BoT)
Ato Alemu Jemberu ANRS BoT BoT V/manager
W/ro Marta Eshete ANRS BoT A/ head of market dev’t work process
Ato Abebaw Mekonen ANRS BoT Marketing chain expert
Ato Girma Kebede ANRS BoT Market information expert
Ato Fekadu Tebeje ANRS BoT Trade inspection & regulatory expert
Ato Kassahun Taye ANRS BoT Trade inspection & regulatory expert
Ato Yabibal Getahun ANRS BoT Trade inspection & regulatory expert
Ato Zeleke Ademe ANRS BoT Trade inspection & regulatory expert
12 Amhara Region Agricultural Research Institute (ARARI)
Dr. Tilaye T/Wold ARARI V/director general
Dr. Tilahun Tadesse Crop research directorate Senior researcher
Ato getnet Zeleke Livestock research directorate Senior researcher
13 TNRS Bureau of Trade, Industry & Urban Development (BoTIUD)
Ato Angsom G/Meskel Industry Development Work Process (IDWP) IDWP Head
Ato Mekonen Kinfe TNRS BoTIUD Manufacturing industry regulatory senior
expert
14 TNRS Bureau of Agriculture (BoA)
Dr Mulugeta Yebegashet TNRS BoA Livestock health prevention & quarantine
coordinator
Ato Tesfamariam Asefa TNRS BoA Livestock dev’t technology transfer
coordinator
15 SNNPR Bureau of Trade and Industry (BoTI)
Ato Andualem Alebachew Industry Development Work Process (IDWP) IDWP Head
Ato Tameru Debassa SNNPR BoTI Executive office head

305
No Name of participants Affiliations/Institutions Position
Ato Nigussie Asres SNNPR BoTI Enterprise development agency
16 SNNPR Bureau of Agriculture (BoA)
Ato Mulugeta Tesfaye SNNPR BoA Livestock & fish resource dev’t head
Ato Wondmagegn H/mariam SNNPR BoA Crop production dev’t head
W/ro Fire Tegegne SNNPR BoA Rural extension for women
17 Gondar Malt Factory
Ato Bogale Alemu Gondar Malt Factory Factory v/manager & trade dept. head

Ato Berihun Tassew Gondar Malt Factory Production unit head

Ato Mulat Cheqlew Gondar Malt Factory Finance department head
18 Gondar Sesame Processing Factory
W/roTenawork Dessie Gondar Sesame Processing Factory Company manager
Ato Seid Mustefa Gondar Sesame Processing Factory Production manager
Ato Belsti Abebe Gondar Sesame Processing Factory Quality control head
19 Luna Export Slaughter House Plc
Ato Muluken Addis Luna Export Slaughter House Plc Production unit head
Wro. Helen Nega Luna Export Slaughter House Plc Finance department head
AtoTewodros Assefa Luna Export Slaughter House Plc Administration head
20 Hliana Enriched Foods
AtoTsihaye Assefa Hliana Enriched Foods Company manager
Ato Eniyew Tessema Hliana Enriched Foods V/production manager
Ato Eshetu legesse Hliana Enriched Foods Lab quality assurance manager
21 Nile edible oil refinery PLC
Ato Gashaw Asfaw Nile edible oil refinery PLC Branch association manager
Ato Meseret Takele Nile edible oil refinery PLC Branch association manager
Ato Ismael Ahmed Nile edible oil refinery PLC PLC manager
Ato Getnet Asres Nile edible oil refinery PLC Association
22 Bahir Dar Milk Products Development & Marketing Cooperative
Ato Fikre Degu Bahir Dar Milk … Cooperative Cooperative manager
Ato Minichil Meles Bahir Dar Milk … Cooperative Chair of cooperative
Ato Zewdu Ketema Bahir Dar Milk … Cooperative Finance section head
Ato Tsegaye Miret Bahir Dar Milk … Cooperative Cooperative member

306
 List of visited companies

No Name of firms Major products Region Town

1 Gondar Malt Factory under Ambassel PLC Malt Amhara Gondar
2 Gondar Sesame Processing under Ambassel PLC Oilseeds Amhara Gondar
3 Kokeb Amba Flour Factory Flour Amhara Gondar
4 Gondar Jantekel (Fasil) Milk Processing Factory Pasteurized milk Amhara Gondar
5 Elfora Kombolcha Agro-processing Plant Meat, potato paste Amhara Kombolcha
6 Fuabel Flour Factory Flour Amhara Dessie
7 Wollo Food Complex PLC Flour Amhara Dessie
8 Zenbaba Bee Products Dev’t & Marketing Coop Union Honey Amhara Bahir Dar
9 Bahir Dar Milk Products Development & Marketing Coop Milk products Amhara Bahir Dar
10 Merkeb Coop Union Wheat Flour Factory Flour Amhara Bahir Dar
11 Guder Agro-Processing Industry Flour and biscuit Amhara Bahir Dar
12 Ashiraf Edible Oil Refinery Not functional Amhara Bahir Dar
13 Ashiraf Meat Processing Factory Not functional Amhara Bahir Dar
14 Smart Flour Factory Flour Amhara Bahir Dar
15 Comel PLC: Welela Honey Processing Plant Honey Tigray Mekele
16 Abergelle International Livestock Development: Abattoir Meat Tigray Mekele
17 Lemelem Food Complex Flour, pasta, biscuit Tigray Mekele
18 Selam Beekeepers Association: Honey Processing Factory Honey Tigray Wukro
19 Lame Dairy Pvt. Ltd. Co. Milk, cheese, butter Addis Ababa Lam beret
20 Mama Fresh Injera Injera, flour Addis Ababa Bole
21 ET Teff Injera, flour Addis Ababa Akaki
22 Aster Injera Injera Addis Ababa Addis Ababa
23 Flexible packaging PLC Pasteurized milk packaging Addis Ababa Kality
24 Mulat Abegaz Edible Oil Factory Closed Addis Ababa Salet meheret
25 Kebron Food Complex Flour, Pasta Oromia Burayu
26 Sebeta Agro-Industry Complex (Maaza Juice) Juice Oromia Sebeta
27 Great Abyssinia Plc. Juice and carbonated drinks Oromia Sulilita

307
No Name of firms Major products Region Town
28 Hliana Enriched Foods Plumpy nuts, plumpy soup Oromia Legetafo
29 Bless Agro-Food Laboratory Service PLC Laboratory services Oromia Legetafo
30 Luna Export Abattoir Meat Oromia Modjo
31 Modjo Modern Export Abattoir Meat Oromia Modjo
32 Packaging solutions PLC Yoghurt packaging Oromia Modjo
33 Crown packaging PLC Packaging Oromia Dukum
34 Holland Dairy PLC Milk, cheese and butter Oromia Bishoftu
35 Ade’a Liben Dairy Processing Cooperative Milk, cheese and butter Oromia Bishoftu
36 Anova packaging PLC Packaging Oromia Bishoftu
37 Yerer Flour Factory Flour Oromia Adama
38 Beza Mar Agro-Industry Honey Oromia Adama
39 Assela Malt Factory Malt Oromia Assela
40 Africa Juice Tiliba Share Company Fruits and Juices Oromia
41 Upper Awash Agro-Industry Fruits and Juices Oromia
42 Boazze Food Complex Flour, Pasta and macaroni Oromia
43 Addis Mojo Edible Oil Factory Refined oil Oromia
44 Almi Fresh Milk & Milk Products Processing Milk SNNPR Hawassa
45 Gats Agro-Industry SNNPR Hawassa
46 Admas Flour Factory Flour SNNPR Hawassa
47 Getu Metaferia Flour Factory Flour SNNPR Hawassa

308
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