Investment opportunities in the Ethiopian Spices sub-sector · over 100 Dutch companies active in...

Investment opportunities in the Ethiopian

Spices sub-sector

Sjoerd HermsAdvance Consulting BV

6

ContentsMajor trends in the development of the spices sub-sector 5Investment opportunities 15Sources of further information 25

Written by: Sjoerd Herms¹With technical support of: Addisu Alemahu², Gertjan Becx³, Beemnet Mengesha², Willem van Oort⁴

Edited for series consistency: Monika Sopov⁵ and Gertjan Becx³

Layout and illustrations Erika Endrődiné Benkő ▪ [email protected] on design of 360Ground ▪ www.360ground.com

¹ Advance Consulting, The Netherlands² Ethiopian institute of Agricultural research³ AGRIBiz.et, brand of the Agribusiness Support Facility, Ethiopia⁴ Lithos Spices BV⁵ Centre for Development Innovation (CDI), Wageningen UR

Commissioned by the Embassy of the Kingdom of the Netherlands in Addis Ababa.

Please quote as: Herms S. 2015, Business Opportunities Report Spices #6 in the series written for the "Ethiopian Netherlands business event 5–6 November 2015, Rijswijk, The Netherlands”

Please contact the following organizations for more information and support: ▪ Advance Consulting; Sjoerd Herms; [email protected]; T: +31 318 672 709 ▪ Embassy of the Kingdom of the Netherlands in Addis Ababa; [email protected], T: +251 (0)11 371 1100 ▪ Enterprise Agency part of the Netherlands Ministry of Economic Affairs; [email protected], T: +31 88 602 1047 ▪ AGRIBiz.et part of AACCSA; [email protected], T: +251 (0)91 266 0725

Contributors:

Commissioner:

2 3

Foreword from

Lidi Remmelzwaal Ambasador of the kingdom of the Netherlands in Ethiopia

Not many people realize how much Ethiopia has changed over the last two decades. Ethiopia combines strong economic growth with impressive results in poverty reduction and other social indicators, food security and infrastructure; a structural transformation of the economy is underway, with an increasing role for manufacturing and industrialization. For the coming years, the perspec-tive for future private sector investment is promising in many areas, especially in sectors where more value can be added and where large numbers of jobs can be created.

Of course these developments have also had its effect on the changing relation between the Netherlands and Ethiopia. Although development cooperation is still very much needed for years to come, the relation has broadened into a dynamic partnership, in which Aid and Trade and economic cooperation are becoming more and more prominent.

Many Dutch companies have discovered the potential in Ethiopia; at present we have are over 100 companies with a permanent basis in Ethiopia and the number is increasing. Although the majority of these companies is active in horticulture/agriculture, there is also Dutch presence in other sectors like transport, construction, tourism, food & beverages etc.

Opportunities in Ethiopia are almost endless and one of the promising areas is the Agro-sector of Spices. The Netherlands Embassy in Addis Ababa therefore felt the need to commission a Business Opportunity Report, to provide further insight into the opportunities in spices sub-sector and specific information for companies that are interested to invest in this sector in Ethiopia.

This Business Opportunity Report will also be used as an important input for the first Ethio-Netherlands Business Event that will take place on 5 and 6 Novem-ber 2015 in the Netherlands. This important event will focus on a selected number of promising sectors in Ethiopia, such as seeds, oilseeds, poultry, dairy, spices, textiles and logistics.

The idea for this Ethio-Netherlands Business Event surged in a dynamic discussion that I had with my colleague, the Ethiopian Ambassador to the Netherlands (based in Brussels). We felt that the growing economic coopera-tion, the ambition of Ethiopia and the numerous oppor-tunities for Dutch companies deserve a much broader and prominent approach, such as this Ethio-Netherlands Business Event, in addition to sectoral economic and trade missions.

In good partnership between Ethiopia and the Nether-lands this initiative was further developed and together with many other partners and stakeholders this idea has been turned into reality. This Business Opportunity Report is an important building block for the Ethio-Netherlands Business Event.

I hope that this Business Opportunity Report on Spices will prove to be instrumental for raising the interest of Dutch companies to invest in Ethiopia and will pro-vide them with useful and realistic information. The Ethio-Netherlands Business Event will certainly offer an interesting podium for this and I am very much looking forward to this important event. It will certainly be yet another step in the further strengthening and broad-ening of the partnership between the Netherlands and Ethiopia.

Message from

H.E. Teshome Toga Ambassador of the Federal Democratic Republic of Ethiopia to the BENELUX, Baltic Countries and Permanent Representative to European Union

On behalf of the Ethiopian Embassy, I would like to warmly welcome you to the business event organized by both the Ethiopian Embassy in Brussels and the Embassy of the Kingdom of Netherlands in Addis Ababa. The Ethio-Nether-lands Business Event, being first of its kind, is aiming at enforcing the ever-growing friendly relations between the two countries. It is my strong believe that both the Ethiopian and Dutch private sectors shall benefit from this impor-tant business forum as it creates a unique opportunity for new networks and acquaints the Dutch private sector with valuable insights about business opportunities in Ethiopia.

Presently, Ethiopia and the Netherlands enjoy good diplomatic relations and a strong development and eco-nomic partnership. Ever since the Netherlands opened its diplomatic Missions in Addis Ababa in 1950, the relation grew from strength to strength. Most recently, the second round of political consultation took place in The Hague from 5 to 6 March 2015, where we emphasized the need to further stimulate the economic relations by maintaining and diversifying the foreign direct investment (FDI) and trade between the two countries. Our statistics clearly indicate that Dutch investors are leading among Europeans in FDI flows in Ethiopia. Tapping into the Dutch investment opportunity and potentials in Ethiopia, the Dutch government has included Ethiopia in almost all financial instruments available for the private sector encouraging investment in developing countries.

Trade between the two countries is showing an encour-aging development in recent years. Today, there are over 100 Dutch companies active in Ethiopia, and this number is increasing. However, I strongly feel that the current level of investment is not commensurate with the potentials of the two countries. My government is highly

committed to promote the private sector by offering a comprehensive set of incentives to enhance the FDI in the country. Investors shall be accorded with several in-centives depending on the sectors; such as custom duty payment exemptions on capital goods and construction materials, income tax exemptions from two to seven years and carry forward losses. Similarly, several export incentives have been put in place to encourage investors aspiring for export. Ethiopia is highly devoted to protect investment through its Investment Code that protects private property, repatriation of capital and profit. More importantly, my government guarantees constitutional protection from expropriation. Ethiopia is also a signatory to the International Investment agreements such as the Multilateral Investment Guarantee Agency (MIGA), Bilat-eral Investment Promotion & Protection Treaties (BIPPT), and the International Convention for the Settlement of Investment Dispute (ICSID). Equally, Ethiopian products have duty-free, access to the U.S. and EU markets.

Ethiopia is now going through a constant multifaceted economic growth and transformation. Ethiopia’s improved economic infrastructure, abundant and affordable labor along with its excellent climate and fertile soil remains the country’s comparative advantage attracting investors. Market wise, the >90 million population and strategic geographical location offer a wide market access. Ethiopia with its huge investment potential has a lot to offer for the Dutch private sector. My government is ready to address any investment request from the Dutch private sector and to create economic interdependence between the two countries and peoples. It is therefore, my sincere believe and expectation that the outcome of this business event will highly equip participants with the required information and techniques necessary to elevate the economic rela-tions of the two countries to a higher level.

Using this opportunity I would like to extend my appreci-ation to all the stakeholders who took part in organ-izing this important event both in Ethiopia and in the Netherlands along with our Embassy in Brussels. My special thanks also goes to my counterpart and friend Lidi Remmelzwaal, the Ambassador of the Kingdom of the Netherlands to Ethiopia and Djibouti for her tire-less effort and the excellent working relations we have developed over the last two years.

With my best wishes for the success of the Ethio-Netherlands Business Event.

1

Major trends in the development of the spices sub-sector

1.1 Production trade and consumption

1.1.1 WorldSpice trade developed throughout Asia and the Middle East in around 2000 BCE. Its contribution to world civilization is well recognized, as it established and destroyed empires, led to the discovery of new continents, and in many ways helped lay the foundation for the modern world. Spices have lost the status and allure that once placed them alongside precious metals as the world’s most valuable items, but the spice sector remains dynamic.

Out of the almost 400 products of the herbs and spices category, about 40 to 50 are of global economic and culinary importance. Global consumption of spices is expanding steadily with growth rates of between 2% and 5% per annum. Globalization, access to information, growing population, shifting consumer trends towards health and authenticity in developed economies, sustained economic growth in developing economies and increased con-sumption of meat in developing countries (the “march of the meat eaters”) have resulted in a growing spices market.

Asian-Pacific and European consumers are the largest consumers of spice, and the global market for spices is projected to exceed US$16 billion by 2019. The market for spices in developed economies such as Europe and North America will continue to grow, but more slowly than in other regions due to maturity of the industrial sector. The Asia-Pacific region is projected to be the fastest-growing market for spices, at an annual growth rate of 8% from 2014 to 2019. The food processing industry in Asia will be an important driver behind this growth.

►►►

6 Major trends in the development of the spices sub-sector Major trends in the development of the spices sub-sector 7

There is a shortage in supply for most spices. Total production was estimated at 7.8 million MT per annum in 2013. Chillies are the most widely grown spice with a total production of 3.5 million MT per annum in 2013. Next comes ginger, with an annual world production of 2.1 million MT.

Because of its vast population and spicy food tradition, India is the largest producer and consumer of spices. Other top producers include China, Bangladesh, Turkey and Pakistan. About 80% of global production is ‘captive use’ in the countries of origin. India even exports less than 20% of its production. Vietnam is the most promi-nent export-oriented country, and is responsible for approximately 50% of the global black pepper trade.

Global trade in spices was estimated at 1.5 million MT per annum in 2013, of which exports to developed economies in the EU, USA and Japan accounted for 700,000 MT. Traditional large exporters of spices (turmeric, ginger and black pepper), such as China and India, are becoming net importers.

The gap between increased demand, insufficient supply and speculation results in a steady increase of prices. For example, prices for spices imported to the EU from developing countries increased by 6.8% per year on average between 2010 and 2014. The prices of vanilla (+24% per year), pepper (+20%), cloves (+20%) and cinnamon (+10%) showed an exceptionally strong increase.

1.1.2 EUThe EU market for spices has grown steadily over the years. EU imports amounted to 533,000 MT with a value of € 1.9 billion in 2014. The volume of imports grew by an average of 3.8% per year between 2010 and 2014.

There is substantial intra-EU trade in spices. Direct imports from outside the EU amounted to 302,000 MT in 2014, representing a market value of € 1 billion. The main products imported from outside the EU comprised capsicums, ginger and pepper.

China is the EU’s largest trading partner, and supplies mainly ginger (51% of imported volume) and cap-sicums (45%). India is the second largest seller, and markets predominantly turmeric (19%), pepper (17%), capsicums (14%) and cumin seeds (14%) on the EU market. Number three, Vietnam, is the chief supplier of black pepper (87%).

Consumption in the EU amounted to 385,000 MT in 2012. Consumption grew by 1.7% per annum between 2010 and 2013. The largest drivers of consumption are the increasing popularity of spices, improved usage of condiments and seasonings, food innovation, health awareness and the demand for convenience products such as ready-made meals.

The leading consuming EU markets are the UK, Ger-many, Romania and Hungary, which together account for 58%. Northern and Western European buyers often impose strict food-safety requirements. Although de-mand in both regions is expected to stabilise or grow slowly over the next few years, the demand for sustain-able products is expected to grow steadily. The Eastern European countries Romania, Hungary and Bulgaria are large consumers of sweet pepper powder, and consump-tion has increased significantly as a result of rising incomes in recent years.

Asia81%

Africa

12%

Europe2%

Latin America & Caribbean4%

North America<1%

Oceania<1%

Global spice production 2013 EU spice imports in 2014

Market value of US$16.6 billion

by 2019

Market value of US$12.0 billion in 2012

4.8% compound annual growth rate

Import volume of 533,000 tons

in 2014

Import volume of 328,000 tons in 2010

3.8% compound annual growth rate

CHILLIES 45%

Annual world spice production

GINGER 27%

OTHER SPICES 28%

2000… 2013

2000… 2013

↑ 5.9% annual growth rate for production

↑ 2.5% annual growth rate for production

CHILLIES 25%

Spice imports from outside EU in 2014

GINGER 23%

OTHER SPICES 31%

BLACK PEPPER 21%

Historical black pepper prices

0,00,51,01,52,02,53,03,5

20132012

20112010

20092008

20072006

20052004

20032002

20012000

1999

1998

1997

1996

China35%

India17%

Vietnam

11%Indo-nesia7%

Brazil5%

Peru3%


1.1.3 AfricaAfrica has a substantial role to play, and the continent is responsible for 12% of global spice production. This is likely to increase in the coming decade, as high prices and an increased sense of scarcity move the sector to-wards investing in development of new production areas.

African producers mainly focus on domestic and regional markets. Although Africa accounts for 12% of global production, the continent is only responsible for 6% of the volume imported into the EU. In contrast, Latin America and the Caribbean are responsible for 10% of EU-imported volume, while they account for 4% of global production.

Trade between African countries and between Africa and the Middle East and India is estimated at 300,000 MT per annum. It mostly comprises of exports from Nigeria, Ethiopia, Tanzania and Côte d’Ivoire to Uganda, Kenya, North Africa, Middle East and India.

1.1.4 EthiopiaEthiopia is situated on the ancient spice trail from Asia, and the city of Axum was an important hub in the early spice trade. Ethiopia is home to many spices, and due to its ecological richness, the country is suitable for growing 60–100 species.

Arabian and Persian spice traders along the ancient spice trail left their mark on Ethiopian cuisine. Today Ethiopia is one of the largest consumers of spices in Africa. Ethiopia grows many spices, used not only to flavour bread, butter, meat, soups and vegetables, but also to produce medicines and perfumes. Most of the spices produced (+90%) are consumed domestically.

EUROPE

INDIANOCEAN

Egypt

Ethiopia

Arabia

Persia

IndiaChina

Java

Chillies and ginger production in 2013

ASIA69%

AFRICA21%

720,000 MT2,400,000 MT240,000 MT120,000 MT0 MTAMERICAS

7%EUROPE

3%OCEANIA

0%ASIA89%

AFRICA10%

220,000 MT 1,900,000 MT 10,000 MT 0 MT 0 MTAMERICAS

1%EUROPE

0%OCEANIA

0%ASIA69%

AFRICA21%

720,000 MT2,400,000 MT240,000 MT120,000 MT0 MTAMERICAS

7%EUROPE

3%OCEANIA

0%ASIA89%

AFRICA10%

220,000 MT 1,900,000 MT 10,000 MT 0 MT 0 MTAMERICAS

1%EUROPE

0%OCEANIA

0%

Black Pepper is the ‘King of Spices’, often intercropped with coffee trees. Still small in Ethiopia, although already grown in the SNNP Region on the Bebeka, Green Coffee Industry and Nati coffee plantations. In Ethiopia the variety grown is the Panniyur, with its floral aroma and high peperine content (> 7%).

Chillies Ethiopia has good climatic and soil conditions for growing chillies. The most commonly grown type is the Mareko Fana variety, a pungent long chilli of dark-red appearance (pungency is at least twice as high as required for Western food processors). Also grown are the smaller Mitmita chillies, an even hotter, red, small pepper. The local spice blend berbere, is a mix of Mareko Fana chillies with other locally grown spices. Quality, in terms of hygiene, is low due to poor drying and storage.

Ginger The Ethiopian variety is fibrous, more pungent and has a higher volatile oil content (8%) than Asian ginger (6%). The taste is similar to Nigerian ginger, and is well-accepted in western cuisine. It was Ethiopia’s most exported spice until 2013, primarily to neighbouring countries. Due to the bacterial wilt disease, which spread in 2014 throughout the country, production has decimated.

Black cumin In Ethiopia black cumin serves as a flavour in bread and sauces, as well as an ingredient in the berbere spice mix. Black cumin is cultivated in Amhara, Oromia and SNNP Regions at an altitude ranging between 1500 and 2500 m.a.s.l., often intercropped with cereals. Black cumin is predominantly consumed in Africa and the Far East. The crop is not popular in Western markets, where the white cuminum cynimum is preferred.

Turmeric The Alleppey type is appreciated in Africa, India and North America. Europe prefers the Madras type. The local variety has a curcumine content of 4%, which is superior to Madras (2%), but lower than Alleppey (6%). Its colour is in-between the bright yellow Madras and the more orangey Alleppey variety. Post-harvest curing/cooking experience at farm level, which is necessary to bring out the colour and curcumine, is limited in Ethiopia.

Black cardamom The local variety Aframomum corrorima, or korarima, is important in Ethiopian dishes. The crop is native to Ethiopia, and is well-appreciated in Africa and Asia. The whole pods find no export market in the EU, because de-shelling is too laborious. The seeds sometimes find a limited market in bakery applications in the EU, where the preference is for green cardamom, the ‘Queen of Spices’. The SNNP region is the main producer of black cardamom.

Long pepper is well-appreciated in Africa and Asia, but not yet accepted as a spice ingredient in western cuisine. The crop is a climbing vine, which grows in about the same areas as black pepper. In Ethiopia long pepper is used as a cheap substitute for black pepper in flavouring Wot, a type of stew. It is cultivated in south and south-western Ethiopia.

Most important spices cultivated in Ethiopia


The area under spice cultivation in Ethiopia varied between 330,000 ha and 500,000 ha in the period 2005–2013. Total spice production increased from 238,000 MT in 2005 to 418,000 MT in 2013. Chillies, ginger, black cumin, black cardamom and turmeric were responsible for 97% of the national annual aver-age spice production volume in the same period.

The SNNP, Oromia and Amhara regions contributed respectively 37%, 32% and 25% to the average annual spice production during the period 2010–2014. Crops produced in these regions mainly comprise chillies, gin-ger, black cumin, black cardamom, turmeric, fenugreek, black pepper and coriander. The SNNP region is the main producer of ginger, turmeric and black cardamom, while the Oromia and Amhara regions are chiefly responsible for production of chillies and black cumin.

So far Ethiopia isn’t recognized as a major exporter of spices, and the contribution of spices to the national economy is low. Agricultural exports primarily comprise coffee, chat, pulses and oilseeds. These crops accounted for 55% of the total export value of US$ 1.7 billion in 2013, whereas spices represented 0.8% of the total export value.

Spice exports in 2013 and 2014 amounted to 15,000 MT per annum, representing a value of US$26 million. Ginger was the most exported spice, and was responsible for nearly 50% of total export value. Chillies came in second, followed by turmeric and black cumin. Exports of ginger will almost entirely disappear in 2015, because of the bacterial wilt disease.

The majority of spices exported from Ethiopia finds its way throughout Africa. In 2014 the continent was responsible for 66% of the total export value, whereby the Sudan and South Sudan took the lion’s share of 54% of total ex-port value. Yemen and Saudi Arabia are the main trading partners in the Middle East, which account for 12% of total exports. The Far East is responsible for the off-take of 20% of exported spices, predominantly in India and Indonesia. A limited volume of 2.5% finds its way to Europe.

1.2 Value chain1.2.1 OverviewThe international spice supply chain is complex (see table on next page). In general there are two trading channels: (a) the export-oriented trade channels for 1st and 2nd grade spices, and (b) the domestic trading channel for 3rd grade spices, which account for more than 90% of Ethiopian spices consumed.

1.2.2 Challenges in the value chain

▶ Weak infrastructure: the Ethiopian spice sector is affected by weak infrastructure in the main spice production areas in the SNNP, Oromia and Amhara regions. Feeder roads are often limited or in bad shape, leading to high cost of transportation. Irriga-tion and electricity are often not in place.

▶ Limited access to finance: Smallholder farmers, local collectors, village traders and woreda mer-chants have limited access to finance. This has resulted in low investments throughout the value chain. Historically there has also been little invest-ment in the spice value chains by the public sector, which focussed on the development of staple and cash crops such as coffee, chat, pulses and oilseeds with higher foreign exchange earning capacity.

▶ Lack of commercial orientation towards high-value international markets: There is a big disconnect between expectations of international buyers in the high-end markets of EU, US and Japan, and practices of smallholder farmers in the field. Smallholder farm-ers are generally not aware of the requirements of international markets. Local collectors and traders predominantly grade products according to pri-

mary sensorial aspects (size, colour and moisture), so there is no incentive for smallholder farmers to adopt international requirements. Educational levels, information asymmetry and the significant size of domestic/regional markets also contribute to the fact that international norms remain an extremely abstract concept for smallholder farmers.

AMHARA

SNNP

OROMIA

Average spice production shares 2005 –2013

Major spice producing areas of Ethiopia with share of average annual production during 2010–2014

GINGER 22%

CHILLIES 56%

BLACK CUMIN 6%

BLACK CARDAMOM 4%

TURMERIC 2%

OTHER SPICES 10%

GINGER 46%

US$ 12 million

CHILLIES 23%US$ 6.1 million

BLACK CUMIN 9%US$ 2.4 million

TURMERIC 8%US$ 2.1 million

OTHER SPICES 14%

US$ 3.5 million

Spice exports in 2013

37%32%

25%

2009/10

527 1385 838 634

3,645 3,057 1,903 4,405 5,113

5,192 8,966 5,380 4,968 3,255

20,067 25,058 16,737 17,155

Ethiopia

Ethiopia

Ethiopia

Ethiopia

USA/Europe

Far East

Middle East

Africa

2010/11

2011/12

2012/13

2013/14

Ethiopian spice export destination markets with the value exported ( in US$)

Internal Market Exports to Africa and Middle East

Exports to EU, USA and Japan

3rd grade unpolished

turmeric

2nd grade cured & polished turmeric

(Alleppey)

1st grade cured & polished turmeric

(Madras)

3rd grade ginger, whole

2nd Grade ginger, whole

1st grade ginger, sliced


Challenges in primary productionCultivation of spices by smallholder farmers is normally performed on small plots of land (< 0.5 ha) around homesteads and in natural forests. It is estimated that around 5 million smallholder farmers are involved in spice production. Spice yields are low, as cultivation practices are based on traditional knowledge that has been transferred from generation to generation. Small-holder farmers hardly use farming tools and inputs as pesticides, fertilizers and improved seeds. Moreover, the production system is mostly based on rain-fed agriculture, planning is poor, and farmers don’t allocate suitable land for the cultivation of spices.

Smallholder compliance with international requirements is specifically difficult in the case of spices, because of the relevance of appropriate handling during the “first mile”, which involves drying and post-harvest transport. On average, post-harvest losses are 25–30% through-out the entire supply chain. The largest share is borne by smallholder farmers during the “first mile”. Traditional drying methods, where the product is spread out in the sun, are a source of contamination by foreign matter such as dirt and dust, as well as infestation by insects and rodents. Quality gets further distorted as (insuffi-ciently dried) spices are transported over bumpy roads by person, donkey or truck, leading to product waste, development of mould and loss of volatile oil content.

In many cases, smallholders are the poorest farmers with low-level education. As a result, their negotiation power is limited and further brought down by the lack of ap-propriate storage capacity. It is also challenging to raise awareness about international market requirements and to convince them to adopt better cultivation practices.

Challenges in local tradeTransaction costs in the local spice trade are high. In addition to a large amount of consecutive interme-diaries, smallholders sell small quantities, often only a few kilograms, to local collectors and village traders. Moreover, these traders often don’t have access to appropriate storage facilities and packaging materials, and may resort to malpractices such as adulteration with low-value materials. In cases where preliminary washing is performed by local collectors and village traders, the quality of water is generally poor and so washing often does more harm than good.

Challenges in international tradeThe high transaction costs in the local spice trade result in high local prices, which are regularly on par with world market levels for turmeric, ginger and chilli. Wholesale traders that cater to the export-oriented market channel often experience great difficulties with sourcing under these conditions and/or resort to marketing their stocks on the local market. This leads to incidences of contract defaults. When global price levels increase, contract defaults become even more likely. Although no statistics are available, industry experts believe that Ethiopian contract defaults signifi-cantly exceed the international ‘standard’ of 25%.

The global market is dominated by various multina-tional companies, and the key players include McCormick & Company (US), Associated British Foods (UK), Fuchs (Germany), Ajinomoto (Japan) and Olam International (Singapore). Although different distribution channels have blurred in recent years, specialized brokers and importers remain an important channel, because pro-cessors increasingly prefer low stock and short lead times. Over the last few years large trading companies have also been losing market share to smaller niche brands and to retail chains like Walmart.

As Ethiopia is still an unknown origin, the country still has to build experience and trust, before it can export ground spice to the EU. However, Bebeka, ESEF and YSO have just commenced grinding for exports to the West African and Indian markets.

The most common reason for contract default on exports to the EU is the inability of Ethiopian companies to meet EU product-quality standards. Food safety and product quality are top priorities in the EU, and spice imports need to comply with regulatory and voluntary standards. The European Spice Association (ESA) publishes a Quality Minima Document for most traded spices in line with EU food legislation. Products that are not con-sidered safe, will be denied access to the EU. Common reasons for rejection are the presence of salmonella and artificial colorants. Many EU importers also require the implementation of food-safety management systems that are recognised by the Global Food Safety Initiative (GFSI), or in other words ‘accepted by major retailers’. The most important food safety management systems in the EU are BRC, IFS, FSSC22000 and SQF.

1

2

3

4

5

6

$

PRIMARYPRODUCTION

LOCAL TRADE

LOCAL PROCESSING

FINAL USE

INTERNATIONAL PROCESSING

INTERNATIONAL TRADE

In Ethiopia approximately 98% of spices is cultivated by smallholder farmers. In general, spices are in good condition at the moment of harvesting, but post-harvest treatment and storage is mostly unhygienic and of low quality. Spices are predominantly intercropped with coffee, banana, maize, sugarcane and teff. Smallholders are rarely organized in unions, but some cooperatives (Tsehay Multipurpose Farmers’ Cooperative, Farmers Cooperative Union FCU, SOS Sahel) promote spices as part of their “crop portfolio”. A few export-oriented companies like YSO and ESEF are operating outgrower schemes. The major spices produced by commercial farmers such as Bebeka are red pepper, chillies, paprika, ginger, turmeric and black pepper.

Smallholders heavily depend on local collectors, village traders and woreda merchants to market their products. Smallholders who live in the vicinity of a village also bring their produce to rural markets. For the domestic trading channel, village traders and woreda merchants make use of larger-scale markets, mainly in Addis Ababa, Adama, Metema and Deri Dawa. The export-oriented trade channel is dominated by wholesale traders, who have storing capacity and strong networks with local traders. Between every smallholder farmer and trader, there can be up to six con-secutive intermediaries actually marketing the spices to end-consumers in Ethiopia or overseas.

Around 30 companies are involved in spice processing, and Brundo International, Estub Baltina, Fasika Spice, Balitina, Bafrekote , Selam Baltena, YSO, ESEF and Bebeka are the major players. Usually grading, cleaning, drying, grinding and packaging is done under poor conditions. The best-known ground product is berbere, a mix of chilli peppers with korarima, black cumin and turmeric. Spice (blends) are packed in plastic sachets of different sizes. Packaging is usually unbranded, although some branding is being developed.

While a large number of smaller traders serve the domestic market, a limited number of financially strong exporters supply the international market. YSO, ESEF and Bebeka are the biggest exporters. Conventional bulk spices are normally traded on the world market. The main international spice trading centres are Rotterdam, London and Hamburg. Products traded in smaller quantities, or according to special specifications with respect to origin and grade, are imported directly by agents, international brokers and trade houses. There is active inter-trade among trade houses and international brokers.

The role of spice blenders in the EU, US and Japan includes activities such as sourcing, cleaning, treatment against bacteria and spores, processing, grinding, storing, blending and selling. Spices are mostly imported whole, and McCormick, Fuchs, van Hees, Intertaste and Sabater are prominent international players. Large-scale grinding and crushing is increasingly taking place in producing countries in Asia (India, Vietnam, China), because of low labour costs and improved processing facilities and detection techniques.

Final users comprise (1) food-processing industries (55–60% of total use in export-oriented channels compared to 5–10% in the domestic channel) that integrate spices in food and beverages manufactured for customers, (2) the retail sector (35–40% vs. 80–90%) where consumers purchase powder mixtures, fresh/dried, essential oils and oleoresins of spices for home consumption, and (3) the catering sector (10–15% vs. 5–10%) comprising restaurants, bakeries, and confectioners that purchase spices for their preparations.

Export

Overview of the international spice supply chain

The investment opportunities in this chapter are drawn from Ethiopian-European perspective. There is great potential for Ethiopian spices in the EU market, because of high prices and sustained shortages. Growth for spices in this market with over 500 million consumers is predicted to remain steady. A growing sense that raw materials are becoming scarce is driving EU importers to develop partnerships with suppliers from new origins that can comply with EU requirements for food quality and safety.

The growing domestic demand for spices in China and India will lead to less exports to the EU from these countries. This provides opportunities for Ethiopia, which has a significant comparative advantage over the main global market players (China, India, Turkey and Pakistan) given the availability of abundant and affordable labour that can translate in cost savings of more than 50%. Ethiopia is also geographically better located closer to the EU than the major spice-producing countries India, China, Vietnam, Indonesia and Pakistan.

In addition, Ethiopia has extensive experience in spice production. Its 90 million inhabitants are one of the largest consumers of spices in Africa, and are able to absorb lower quality products at attractive prices for most spices. Land is available in Ethiopia with the appropriate climate, water resources and soils for spice cultivation, and a conducive investment policy that promotes foreign direct investments by means of income tax exemption, import duty exemption and allowance for losses carried forward.

►►►

Investment opportunities

2

16 Investment opportunities Investment opportunities 17

▶ Adaptation to healthier lifestyles

A large segment of the EU market is turning towards more healthy food. Unhealthier food ingredients like salt, sugar and synthetic additives are being replaced by spices, and several large food processors have set ambitious reductions goals. Another noticeable trend is that the per capita consumption of meat in the EU has stabilised, and is even decreasing in some EU countries. The meat industry is the largest user of spices. However, corresponding loss in demand for spices will partially be offset by other segments as vegetarian food products, which also use substantial quantities of spices.

▶ Growing popularity of ethnic food

Culinary traditions from other continents are being embraced by EU consumers as a result of internation-alisation. Flavours and spices of Mexican, Moroccan and Thai cuisine are especially popular at the moment, in addition to the more established Chinese and Indian cuisines. Furthermore, the EU population is becoming more multicultural with a growing share of people from various Asian and North African ethnic groups.

▶ Increased interest in convenience food

With single households increasing and EU consumers spending less time on meal preparation, the demand for easy-to-prepare meals is increasing. These food products rely on spices to retain and enhance food flavour.

▶ On the lookout for new origins

High prices and an increased sense of scarcity are moving the sector towards development of new produc-tion areas. Latin America, the Caribbean and Sub-Saharan Africa are expected to become more important producers for international markets in the coming decade. For example, Rwanda and Malawi are emerging as exporting countries of bird’s eye chillies.

▶ Food fraud concerns

Food fraud in the trade of crushed and ground spices is increasing, as a result of high prices of some spices in recent years. Spices can be adulterated intentionally (e.g. by cheaper varieties, salt, shells or synthetic varie-ties) or unintentionally (e.g. by spill-overs from fertilisers or insects). Recent developments have made EU buyers increasingly reluctant to source from outside the EU.

▶ Growing sustainability awareness

There is a growing awareness among consumers and buyers in the EU of environmental, social and economic issues related to the food they consume. Many EU buyers of spices are implementing sustainable sourcing policies. Since different EU companies have different sustainability priorities and fall under different regula-tory regimes, there is no single way that addresses sustainability issues in terms of voluntary and/or regu-latory standards. Considerations vary, from a simple website check of direct suppliers, to complete scrutiny of their supply chain.

▶ Focus on increasing productivity

Due to growing scarcity on the world market, the spice industry is looking at means to increase on-farm yields. Sector initiatives focus on training in sustainable prac-tices, better water management, development of im-proved spice varieties and proper use of pesticides and fertilisers.

▶ Prices structurally high

For more on this, refer to Chapter1. Industry experts expect prices to remain high or continue to grow.

▶ Devaluation of the Euro

The value of the Euro has fallen significantly in relation to the US dollar during the past one-and-a-half years. The average exchange rate was around 1.32 EU/USD in the first quarter of 2014, but dropped to 1.11 EU/USD at the beginning of the third quarter in 2015. Weak-ening of the Euro negatively affected EU importers holding long-term contracts with their suppliers, as most spices are quoted in US dollars.

▶ Stricter allergens legislation

Regulation 1169/2011 went into effect in December 2014. This regulation concerns new labelling rules regarding specification of ingredients of pre-packed food products in order to make it easier for people with food allergies to determine what products to avoid. If a product includes more than 2% spices, the label must list any allergens, glutens or sulphites contained in the spices.

2.2 Export of spices2.2.1 Turmeric exportsIndia is the largest producer, consumer and exporter of turmeric in the world, and accounts for 75% of global production. Other major producers are China, Myanmar, Nigeria, Bangladesh, Pakistan and Sri Lanka. Indian tur-meric production significantly fluctuates due to unstable yields and variable cultivation acreage. According to labour availability and previous-season prices, farmers decide if they replant or switch to another cash crop for the following season. Indian production dropped to 1 million MT in 2014 from between 1.1 million MT and 1.2 million MT in 2012 and 2013, forcing the country to start importing turmeric.

Indian production and price levels are directly felt on international markets. Turmeric prices are highly volatile and usually follow a seasonal pattern in relation to the crop cycle in India. Fresh arrivals of the crop in February attain a peak during April, which results in lower prices during the period February–June. Prices trend upwards from July until harvest commences in February. The seasonal pattern of turmeric prices provides a good opportunity for Ethiopian turmeric. The crop is harvested from December to March, and can benefit from attrac-tive prices in December and January.

India exported 10,000 MT of turmeric to the EU in 2014. Turmeric is often imported in ground form in the EU through German and Dutch importers and processors. Spain is virtually the only country in the EU that imports and processes whole turmeric. The food industry in the EU has the largest share of turmeric consumption, and is responsible for more than 80% of the imports. Consumers and processors in Northern EU prefer the Madras variety over Ethiopia’s Alleppey type. The Ethiopian turmeric variety is preferred in Southern EU and the USA, although interest in Northern Europe is emerging.

The SNNP Region is responsible for 76% of Ethiopia’s turmeric production, which has increased from 2000 MT in 2008 to 12,000 MT in 2013 and 2014. Ethiopian turmeric has potential for a smallholder-driven invest-ment model for various reasons. Smallholder farmers have cultivation experience, there is a strong internal market for lower-grade products, and soil and climate conditions in the SNNP Region are excellent. Moreover, transport from the turmeric belt to the seaport of Djibouti is relatively efficient, and Ethiopian exporters have experience in exporting to India, the Middle East and Africa. The biggest challenge to be addressed by potential investors is the limited post-harvest curing/cooking experience at farm level, which is necessary to bring out the colour and curcumine.

Turmeric price seasonality index. Source: Angel Research

125

115

105100

95

85

75Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Seasonal index

Monthly average

2.1 Trends in the EU market for spices

SNNP76% oftotal turmeric production

2000 MTproduction

in 2008

12,000 MTproductionin 2013/14

24% oftotal turmeric production


2.2.2 Black pepper exportsPepper production takes place mainly in Asia, which accounts for 83% of global production. Over the last 15 years significant shifts have occurred in producing countries, as a result of harvest quality, world market prices and demand, and policies in production countries. Vietnam established itself as the world largest coffee grower in the 80s and 90s. When coffee prices came under pressure, the country intercropped coffee with black pepper. Consequently Vietnam became number one in black pepper cultivation with an average annual production of 140,000 MT in the period 2011–2014.

Average annual global consumption of black pepper in-creased from 312,000 MT in the period 2011–2013 to 351,000 in the period 2010–2013. Average annual global consumption is expected to increase to 410,000 MT in the period 2022–2025 on the back of a growing population with increased spending power. Because global produc-tion increased by 0.3% per annum between 2009 and 2012 and global demand grew by 3% per annum, global stock levels decreased and prices rose (see Chapter 1 for more). As production increase is expected to remain lower than the increase in demand, global stock levels are ex-pected to reduce and prices to rise in the coming decade.

Direct imports of pepper into the EU amounted to 69,000 MT in 2013, which was equivalent to €370 million. A select group of countries supply the EU, and Vietnam (40% of EU imports), Brazil (16%), Indonesia (11%) and India (7.1%) were the most important sources in 2013. EU imports of black pepper have been inelastic to price changes, and have remained stable throughout the economic recession despite the significant increase in price.

More than 90% of EU imports comprise whole pepper. Only the UK imports predominantly processed pepper, which constituted 62% of its imports in 2013. Ger-many, which is responsible for the largest EU imports of 30,000 MT, only sources 0.5% in grounded form, because buyers want to control their processing.

Large EU buyers (Germany, The Netherlands, UK, France, Spain, Italy) generally supply their own market and smaller neighbouring countries. EU exporters add sig-nificant value to re-exported and processed products. The average price of crushed/ground pepper re-ex-ported by EU is 38% higher than the price of imports.

Despite the economic crisis, EU consumption grew by 2.4% per annum between 2009 and 2013. EU demand is expected to continue to grow in the long-term. Growth in food and drink products is expected in Eastern Europe, where food expenditure is expected to be 30–35% higher in 2021 than it was in 2000. In Western Europe the consumption of food products will stabilize, but people are expected to eat more spicy foods.

Ethiopian production volumes of black pepper are low. It is estimated that less than 100 tons are grown in the SNNP region on the Bebeka, Green Coffee Industry and Nati coffee plantations. Ethiopian black pepper has potential for a coffee plantation-driven investment model similar to Vietnam. As a major coffee exporter, the country has numerous highly professional coffee plantations with cultivation and export experience. As Ethiopia is currently an importer of black pepper, there is also a strong internal market for lower-grade products. As cultivation of black pepper is relatively new and black pepper vines need 5 years to mature, extensive practical research should be undertaken by potential investors on soil and climate conditions. Currently, ex-periments with black pepper are taking place at Jimma research centre.

2.2.3 Sweet paprika exportsLike chillies, sweet paprika is a capsicum variety. Whereas the pungency of chilli varieties like Jalapeño (2,500–8,000 SHU) and Bird's Eye chilli (100,000–225,000 SHU) are high, sweet paprika generally does not exceed 500 SHU. China, Peru and the US are the main producers of sweet paprika, and are responsible for 67%, 17% and 10% of global production respec-tively. Spain, Israel, Hungary, Serbia, South Africa and The Netherlands are the most important secondary producing countries. Global production of sweet paprika decreased for the second consecutive year in 2014 from 159,000 MT in 2012 to 130,000 MT in 2014.

There is strong global demand for sweet paprika, which increased steadily by 2.8% per annum from 139,000 MT in 2010 to 155,000 MT in 2014. Mexico, South-Western USA and Southern Europe are the most prominent markets for whole pods, which consti-tute 17% of total demand. Ground paprika and chilli blends account for 50% of demand, and find their way to North America and Europe. Oleoresins are respon-sible for 33% of demand, and are marketed worldwide.

For the coming years global demand is expected to increase and pressure on global production is projected to sustain, leading to increased prices. Water and fuel costs, increased farm profit margins and new regula-tions, are the general drivers of pressure on global production and prices. Specifically, inflation, labour shortage in primary production regions, internal demand and competition from chilli will negatively influence China’s paprika production. Production in Peru is ex-pected to decrease further because of higher production costs and increased interest in other crops such as fresh fruits, vegetables and quinoa. Pressure on US production is mainly expected from increased production costs.

In the past, sweet paprika was cultivated for supply to the Ethiopian Spice Extraction Factory, where it was produced into ground paprika and oleoresins. As there is hardly a local market for sweet paprika of <500 SHU-pungency in Ethiopia, it is virtually not being cultivated in Ethiopia today. Only the company Paprikana produces sizeable volumes of paprika, which it mainly exports to the Middle East.

As Ethiopia has extensive experience with cultivation of other capsicum varieties, there are good prospects for sweet paprika investments in Ethiopia. Paprikana

has proven that it is possible. The ‘Papriqueen’ variety holds greatest promise. Because of strong international market prospects and relatively low intensity post-harvest treatment, it is advisable to (start with) exports of sweet paprika pods which have potential for a small-holder-driven investment model, where the cultivation experience is already present. Commercial production (preferably in greenhouses) holds the largest prospect in the short run, because growers need to build expe-rience controlling the risk of pollination from chillies. Potential investors should be aware that the absence of a local market for lower-grade sweet paprika will pose challenges.

Average black pepper production from 2001 to 2014 (in MT)Source: Harris Spice and Jayanti Group

2001–20052006–20102011–2014 (Estimated)±% change over 10 years

Development value and volume imports pepper by EU28, 2009–2013Source: Eurostat, 2014

Evolution of global production (in '000 MT)

Paprika demand by region

2008

21 23 19 18 16 15 15

54 49 39 44 39 28 21

32 45 53 79 85 78 78

16 20 16 15 19 16 16

Other

USA

Peru

China Total

2009

2010

2011

2012

2013

2014

2008

2009

2010

2011

2012

2013

2014

123 137 127 156 159 137 130

India BrazilMalaysia Indonesia Vietnam Others Total

300,000

200,000

100,000

0

-32% -30% -25% 3%

44% 43% 6%

250%

200%

150%

2009=100%Index

Value

Volume

2009 2010 2011 2012 2013

USA andCANADA

40%

EUROPE 29%

CHINA17%

MEXICO 9%

OTHERS 5%


2.2.4 Ginger exportsIn 2013, direct imports of ginger in the EU amounted to 69,000 tons, or the equivalent of € 90 million. In 2013, the dominant supplier of ginger to the EU was China (60% of EU imports). Between 2009 and 2013 EU imports of dried ginger grew by 9.5% per year in spite of the economic crisis.

Large shifts have taken place in supplier countries to the EU. Both imports from India and Thailand fell by more than 20% per year between 2009 and 2013. Peru (+74% per year) and Nigeria (+18%) increased their exports considerably. These shifts are a result of the quality of harvests worldwide, global price levels and the development of demand and production in the countries of origin. Peru increased its production con-siderably, because of its low wages, good climate and the intensive training of ginger farmers.

In 2013 consumption of ginger in the EU countries amounted to 88,000 MT, and increased by 8.8% per annum between 2009 and 2013. The food-processing industry is responsible for 70–80% EU consumption, and dried ginger is usually imported in slices or large pieces. Only 8.9% (8500 tonnes) of total EU-imported ginger is crushed or ground. Dried ginger is used espe-cially in bakery (e.g. gingerbread, cookies), Asian food products and in drinks such as ginger ale and ginger beer. Western EU countries account for 55% of EU consumption. The UK (33% of consumed volume), Germany (10%) and the Netherlands (10%) are the biggest EU consumers.

EU demand and imports are expected to continue to grow in the long term. Important drivers will be the growing appreciation for Asian food in Western Europe and increased spending on food in Eastern Europe.

Ginger was predominantly cultivated in the SNNP Re-gion (81% in 2013), and was Ethiopia’s most exported spice up to 2013. The crop was primarily exported to neighbouring countries amounting to an export value of US$ 12,000,000 in 2013. Due to bacterial wilt disease, which spread throughout the country in 2014, produc-tion levels are expected to decrease from 92,000 MT in 2013 to only a few hundred MT in 2015.

However, there are good long-term prospects for Ethio-pian ginger, as its Nigerian-taste profile is preferred by EU consumers. Ginger has potential for a smallholder-driven investment model, as smallholder farmers have cultivation experience. Also, there is a strong internal market for lower-grade products, and soil and climate conditions in the SNNP Region are excellent. Moreover, transport from the ginger belts to the seaport of Djibouti is relatively efficient, and Ethiopian exporters have experience in exports to India, the Middle East and Africa.

Potential investors should be well aware of long-term consequences of bacterial wilt disease, which basically decimated Hawaiian ginger production for ten years. The Ethiopian government is now implementing soil remediation programs in the SNNP Region, and Jimma research centre is developing resistant seed. A particular issue with Ethiopian ginger is its ammoniac odour that requires packaging in gunny bags. Another challenge that should be addressed by potential investors is the low quality of post-harvest drying at farm level.

2.2.5 Chilli exportsChillies are capsicum varieties with high pungency and are the most imported spice in the EU. In 2012 total im-ports of chillies amounted to 39,000 MT, with a value of € 78 million. Historically the volume of imports grew by an average of 3.6% per year between 2008 and 2012, while the import value increased by 8.2% per annum.

Imports of chillies have fluctuated strongly throughout the years. However, as with many spices, the economic crisis didn’t have a significant impact on total imports. They are usually only a minor ingredient in a final food product and contribute little to total cost. As such, demand and imports are price inelastic, i.e. demand doesn’t decrease when price increases.

Spain is by far the biggest consumer of whole chillies and accounts for 84% of EU consumption. The country is also the most important EU producer. Spain doesn’t have a tradition of eating hot food. It does, however, have a tradition of using paprika and, to a certain extent, ground chillies in sausages. A large part of the consump-tion is industrial demand for the processing industry, which exports throughout the EU. Spain is therefore also the most important market for processed chillies.

Asia (mainly China) and Latin America (mainly Peru) are the most prominent suppliers of chillies to the EU. Grinding and crushing is increasingly done at source in Asia and Latin America. Controlling the pungency is therefore crucial, forcing processors to source varied and large supplies from several sources. Asia and Latin America are in heavy competition. The market share of Latin America has dropped from 53% in 2008 to 44% in 2012, while Asian countries increased theirs from 36% to 42%. African countries are major suppliers of African bird’s eye chillies. However, exports from Africa have been consistently low (around 3% market share), because European importers have experienced supply problems.

As with imports, consumption has fluctuated strongly throughout the years. However, despite the economic crisis, consumption increased on average by 2.7% per annum between 2008 and 2012. In the long run demand for chillies is expected to grow faster than the overall food and drink industry. Compared to their eating habits in the 1960s, UK consumers nowadays eat dishes that are 400 times spicier (i.e. hotter). As sustained growth

in the EU demand for food and drink products is ex-pected by 2020 (mostly from Eastern European coun-tries) and EU consumers in high-consuming countries are expected to eat spicier dishes, the market outlook for chillies is promising.

Chilli is the most commonly produced spice in Ethiopia, and production amounted to 234,000 MT in 2014. The crop is cultivated throughout the SNNP, Amhara and Oromia Regions, with centers of production in Ghion, Bako and Harar. Chillies were the second most exported spice in 2013, with a value of US$ 6.1 million, and are expected to become number one in 2015 due to deci-mation of ginger exports. The crop is primarily exported to Africa and the Middle East.

In the long run, Ethiopian chillies have potential for a smallholder-driven investment model. Smallholder farmers have the required experience in chilli cultiva-tion, there is a strong internal market for lower-grade products, and soil and climate conditions in the SNNP, Amhara and Oromia Regions are excellent. Moreover, Ethiopian exporters have experience in exporting to India, the Middle East and Africa. As smallholder farmers need to build experience with intensive post-harvest treatment and local traders need to gain expertise in product grading, commercial production (preferably in greenhouses) holds the largest prospects in the short run.

'000 tons80

60

40

20

0

EU28 imports of dried ginger, 2009–2013 (in '000 tons)Source: Eurostat, 2013

2009 2010 2011 2012 2013'000 tons

40

30

20

10

0

EU27 imports of chillies, 2008–2012 (in '000 tons)Source: Eurostat, 2013

2008 2009 2010 2011 2012

22 Investment opportunities

2.3 Steam sterilizationEU buyers are increasingly asking for steam-sterilized spices as a way to combat microbiological contami-nation. An important downside of steam sterilization is that it negatively affects the volatile oil content, which produces the flavour. Steam sterilization can earn a significant premium of US$ 0.20 per kg for suppliers who are able to provide spices that are steam sterilised at source.

Investment in sterilisation facilities are relatively costly (up to $1.1 million) in comparison with investments in rural cleaning and grading facilities. Potential investors should also take into account that steam sterilization is only effective if food safety is taken into account during drying, storage, packaging and transport. Contamination after sterilisation should be avoided at all costs.

2.4 Rural cleaning and gradingBebeka, ESEF and YSO have just commenced grinding for exports to the West African and Indian markets. and the EU market for ground spices provides good opportunities. Yet, investments in large-scale grinding facilities for exports to the EU are long-term invest-ment prospects. Ethiopian production levels of relevant crops such as ginger and black pepper won’t justify the investment today. Also, there are growing worries amongst EU buyers regarding food adulteration. Many are, and will remain, hesitant to buy processed spices from developing countries. As Ethiopia is still an un-known origin, the country still has to build experience and trust, before it can export ground spices to the EU.

However, rural value addition provides excellent oppor-tunities for investors to increase their margins. A big challenge in the ginger supply chain is the low quality of post-harvest drying at farm level. By washing, slicing and drying the crop down to <12% moisture, the volatile oil content is better preserved, its colour better enhanced and mould growth avoided. This results in a significant premium of $0.20 per kg. For turmeric the same pre-mium can be obtained by investing in curing/cooking facilities at rural level, to bring out the colour and cur-cumine. Currently this practice does not take place in the turmeric belt.

Sources of further information

3

26 Sources of further information Sources of further information 27

Government organizations

National Agricultural Research System Contact:The National Agricultural Research System (NARS) is in charge of innovating technologies that contribute to yield increase. NARS includes federal and regional research institutes as well as universities. Among others, the NARS are responsible for variety development, breeding, adap-tation and trials, supporting pre-scaling or early scaling-up initiatives, providing technical backstopping, training and advisory services. Tepi Agricultural Research Center is the center of excellence for turmeric, cardamom, black pepper, black cumin, ginger and chillies. Areka Agricultural Research Center has extensive research activities on root crops, including ginger and turmeric. Jimma Agriculture Research Centre is a public research organization serving as a national center of excellence for coffee, but also implements a black pepper programme.

Ethiopian Institute of Agri-cultural Research (EIAR)www.eiar.gov.et

Ministry of Agriculture Contact:The Ministry of Agriculture is responsible for extension services and marketing. The ministry is responsible for scaling up and commercializing new technologies that come through the research pipeline or other proven sources. It is also responsible for promoting best agronomic practices, as well as marketing and household utilization of agricultural products. Though the main focus is on smallholder farmers, the Ministry still gives considerable emphasis to commercial farms. The Federal Cooperative Agency, part of the Ministry, is involved in capacity building and overseeing cooperatives and unions.

Tel:+ 251 11 551 8040/ 551 7354Fax: +251 11 551 1543E-mail: [email protected]

Farmers’ organizations

Farmers’ Cooperative Union Contact:Farmers’ Cooperative Union is a multi-purpose agricultural union, representing 33,000 farmers. The union comprises 42 primary coffee cooperatives and 22 primary ginger-turmeric-honey cooperatives in the Wolaita and Hadero woredas. These primary cooperatives are responsible for drying and processing of spices around the woredas. Farmers’ Cooperative Union, based in Addis and represented by Mr. Abel Ayele, takes care of produce marketing and sales. Farmers’ Cooperative Union expects to export 150 MT to the EU in 2016.

Tel: + 251 91 269 9291E-mail: [email protected]

Tsehay Multipurpose Farmers’ Union Limited Contact:The Union was founded in the year 2000 as a multi-purpose agricultural union, bringing together 112 primary cooperatives with a total of 94,000 members and 45 permanent employees. The primary cooperatives are mainly involved in production of sesame, chickpea, malt barley, teff, black cumin, white cumin and ginger. The Union is responsible for sourcing from its members, but also markets inputs (fertilizers, herbicides, etc.) and construction materials at a discount to its members.

Tel: +251 91 809 8824 Fax:+251 58 111 5054 E-mail: [email protected]

SOS Sahel Ethiopia Contact:SOS Sahel was established as an independent national NGO in 2008, working with smallholder farmers in Alabo woreda. The NGO established a primary cooperative, with around 150 members, which also focuses on improving yields of the Mareko Fana chilli variety. Members have access to improved chilli seed from around 40 ha of nursery. It is foreseen that 1000 kg of improved seed will be distributed in 2015.

Tel: + 251 11 416 0391E-mail: [email protected]

Sector and development organizations

Ethiopian Pulses, Oilseeds and Spices Processors-Exporters Association (EPOSPEA) Contact:EPOSPEA was established in 1998 with the objective of building the capacity of its members to make them competitive in the global market. Currently EPOSPEA has more than 130 active members, who take advantage of the country’s favourable policies for the sector. The Association serves, promotes and protects the interests of its members, builds their capacity to participate and compete in the global market and contribute towards the economic development of Ethiopia. The following activities are under the jurisdiction of the Association: (a) providing up-to-date local and foreign market information, (b) delivering advocacy services to create an enabling environment, (c) creating international business opportunities, and (d) providing members with business development services.

n/a

Ethiopian Spices, Aromatic and Herbs Products Growers and Processors Association(ESAHPGPA)

Contact:

ESAHPGPA is the umbrella organisation for the Ethiopian spices, herbs and aromatics sector. It represents the interests of its members in all matters pertaining to production, processing, packaging, quality assurance, food safety and marketing of spices, herbs and aromatics, includ-ing oleoresins, essential oils and seasonings. The association was established in August 2014 under the Ministry of Industry as one of the private-sector associations in Ethiopia. Currently it has over 45 members.

ESAHPGPA’s mission is to increase and diversify foreign currency inflows by matching the quality of spices, herbs and aromatic plants with international standards, thereby creating improved incomes and additional jobs amongst actors in the sector. The association aims to attract foreign and local investments, and to create market linkages and networks between all stakeholders in the spices, herbs and aromatics sector.

n/a

Agricultural Business Support Facility (ABSF) Contact:ABSF is a multi-million Euro collaborative initiative of the Embassy of the Kingdom of the Netherlands in Ethiopia and the Addis Ababa Chamber of Commerce and Sectoral Associations (AACCSA). Despite growing organizational capacities, medium-sized Ethiopian companies in the agricultural sector face challenges with company strategy planning, market strategy planning, financial forecasting and acquiring finance to seize existing market opportunities. ABSF is committed to contribute towards overcoming these challenges in four sectors: spices, poultry, potato and aquaculture. ABSF was designed and launched in December 2012, and strives to achieve the following objectives: (a) attract foreign direct investment in Ethiopia’s agribusiness sector, (b) increase the number of new domestic companies in the agribusiness sector, (c) increase trade between Ethiopia and high-value markets, (d) provide hands-on business support services, (e) promote agribusiness opportunities, (f) support young entrepreneurs to get necessary skills and attitudes, (g) support the spices, poultry, potato and aquaculture subsectors, and (h) enable integration of services into AACCSA.

n/a

28 Sources of further information

Private sector partners

Bebeka Coffee Estate (Horizon Plantations)Horizon Plantations is the agribusiness investment group that belongs to the MIDROC conglomerate, which focusses on producing, processing and marketing of various agricultural commodities. The companies’ portfolio includes coffee, tea, cocoa, cereals, millet, pulses, oilseeds, spices, fruits, vegetables, flowers, honey, medicinal plants, essential oils and rubber. One of Horizon’s plantations is the Bebeka Coffee Estate, the world’s largest non-fragmented coffee plantation of 100 km². Bebeka Coffee is organic-certified, and the processing plant has a capacity of 200 MT per day. Bebeka is also specialised in spice production, including black pepper, cinnamon, cardamom, turmeric, ginger and vanilla. Export of spices to Asian and EU destinations started in 2012. Around 300 ha of turmeric was planted in 2015, and black pepper cultivation is planned to expand to 1000 ha.

Ethiopian Spice Extraction Factory (ESEF)The Ethiopian Spice Extraction Factory (ESEF) was established in 1970. ESEF runs a major processing operation in Addis Ababa (Kality), with 150 staff who are familiar with food standards like HACCP and ISO. The company is active in the processing of Ethiopian spices such as ginger, turmeric, chilli peppers, paprika, as well as the processing of onions, the milling of wheat, the extraction of soybeans and the production of bakery products. ESEF exports mainly to clients in the neighbouring countries and to India. Because the company is able to meet international standards, it has been exporting ginger and turmeric to the EU since 2012. The owners of ESEF are co-owners of the EDEN ginger and turmeric processing unit at Areka in Wolaita woreda, where the company runs an outgrower scheme of 1100 farmers.

YSOYSO Import-Export, established in 1969, is currently one of the largest private companies exporting Ethiopian spices (turmeric, ginger, cardamom, black cumin). The company employs 35 full-time staff, and during harvest season 300–500 extra workers are hired on a temporary basis. The head office is located in Addis Ababa. YSO has 11,000 m2 of warehouses and modern processing operations in the town of Adama (Nazareth), next to the new highway towards Djibouti Port. YSO works closely with farmers in the spice-growing areas, including provision of post-harvest processing to maintain product quality.

JoyTech FreshJoyTech Plc was established in 2003. It operates a vast complex of greenhouses with two farms, 30 km east of Addis Ababa. Over 500 workers are employed to grow and process high-quality flowers and herbs. Fresh herbs include chives, coriander, dill, basil, marjoram, melissa, mint, rucola, rosemary, sage, sorrel, tarragon and thyme. JoyTech also produces different varieties of chillies and is planning to expand to dried herbs. The company exports 365 days per annum to Europe, Japan, Singapore, Russia and the Middle East. From field and greenhouse to the packing factory and cold truck distribution, every aspect of the operation integrates modern technological systems with good agricultural growing practices. This ensures that strict European standards are achieved.

Nati Coffee (GMH International Business)Nati Coffee has coffee plantations in Hawassa (420 ha) and Teppi (180 ha). On the Teppi plantation the company has commenced intercropping of black pepper with coffee. To date, 6 ha of black pepper have been planted and the ambition is to expand to 110 ha. The first crop of 5 tons of exportable black pepper is expected in 2016. In the Teppi plantation also, 50 ha turmeric is grown. Thanks to improved post-harvest processing, Nati expects to produce 25 tons of EU-exportable turmeric in 2016, in addition to the volume of 150 tons for local and regional supplies.

BalegreenBalegreen is located in the Oromia Region at 600 km distance from Addis Ababa. The 250 ha farm produces spices and herbs such as black cumin, coriander and fenugreek. The owner of Balegreen, Mr. Million Bogale, is president of ESAHPGPA and for that reason very much interested in setting standards for export-quality spices. Next to spices, Balegreen also grows chickpeas, lentils, alfalfa and teff.

Investment opportunities in the Ethiopian Spices sub-sector · over 100 Dutch companies active in...

Documents

Transcript of Investment opportunities in the Ethiopian Spices sub-sector · over 100 Dutch companies active in...