Cotton- Textile -Apparel

Value Chain Report for Ethiopia

Prepared by:

Agridev Consult

Submitted to:

The RATES Center

P.O. Box 1555-00606
Nairobi, Kenya
Email: rates@ratescenter.org

Regional Agricultural Trade Expansion Support Program; P.O. Box 1555-00606

Nairobi, Kenya; rates@ratecenter.org
 Table of Contents
1.0 Background ............................................................................................................................... 1
2.0 Objectives of the Study........................................................................................................... 3
3.0 Data and Methodology............................................................................................................ 4
4.0 Findings of the Study .............................................................................................................. 5
4.1 Cotton Supply and Utilization ............................................................................................ 5
4.1.1 Domestic Production and Market Supply of Cotton................................................... 5
4.1.2 Import/Export of Cotton Lint...................................................................................... 9
4.1.3 Cotton Lint Utilization.............................................................................................. 10
4.2 Cotton Value Chain........................................................................................................... 10
4.2.1 Marketing channels...................................................................................................... 10
4.2.2 Producers...................................................................................................................... 10
4.2.3 Local Assemblers......................................................................................................... 13
4.2.4 Ginneries ...................................................................................................................... 13
4.2.6 Oil Mills ....................................................................................................................... 15
4.2.7 Wholesalers and retailers ............................................................................................. 16
4.2.8 Lint cotton exporters .................................................................................................... 16
4.2.9 Retailers ....................................................................................................................... 17
4.3 Value Added along the Chain ........................................................................................... 17
4.3.1 Summary of Cotton Production and Marketing Constraints..................................... 17
4.3.2 Production Constraints.............................................................................................. 18
4.3.3 Market Constraints.................................................................................................... 19
4.4 Policy and Regulatory Framework ................................................................................... 22
4.4.1 Licensing.................................................................................................................... 22
4.4.2 Trade Policy Reform and Export Promotion ............................................................ 22
4.4.3 Institutional Support for Trade.................................................................................. 24
4.4.4 Import/Export Procedures and Documentation ........................................................ 24
4.4.5 Value Added Tax and Business Profit Tax.................................................................. 27
5. Conclusions and Recommendation....................................................................................... 28
5.1 Production increase through area expansion....................................................................... 28
5.2 Production increase through Intensification (Productivity Increase).................................. 28
5.3 Improving the efficiency of the market .............................................................................. 30
5.4 Other Measures to Improve Marketing Opportunities........................................................ 31
5.5 Institutional and other support ............................................................................................ 32

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1.0 Background

The Ethiopian economy is dominated by agriculture that accounts for over 50 per cent of its
GDP, 90 per cent of its export earnings, and 88 per cent of the labor force. It also supplies food
to the urban areas and raw materials to the manufacturing sector. A variety of crops are grown
seasonally in different parts of Ethiopia, consisting of coffee, cotton, cereals, pulses and oil
seeds. The main cash and industrial crops being coffee, pulses, oil seeds, cotton, fruits,
vegetables, etc. It is estimated that crop production and livestock husbandry account for over 86
per cent of the agricultural GDP. Ethiopia has immense potential for the production of cotton,
but only about 42,000 Ha or some 2% of the potentially suitable area is under cotton. Presently,
most of the cotton production comes from state farms and private commercial farms.

Agricultural productivity in Ethiopia is very low. Because of the importance of agriculture, the
Government of Ethiopia has designed an agriculture-led industrialization strategy with the view
to bring about sustainable development. The agriculture-led industrialization strategy has
accorded the highest priority to agriculture and the rural sector. The main objectives of the
strategy are the following:
(i) attaining accelerated growth;
(ii) creating a conducive environment for the population to properly enjoy the fruits of
development;
(iii) progressively improving the country's participation in the global economy in order to
reap sustained benefits accruing from globalization;
(iv) laying the foundation for a well-developed market-driven economic system as a way out
of perpetual poverty.

The Government also believes that the success of agricultural development depends, among
other things; on the existence of an efficient marketing system. Cognizant of this, the
Government of Ethiopia has placed considerable emphasis on market and marketing issues so as
to enhance rapid, sustainable and broad-based economic growth and thereby reduce poverty. As
part of furthering the enforcement of market liberalization, market centered agricultural
development aims at linking smallholders to both local and international markets through
continually improving their productivity and competitiveness. By doing this, it is aimed to enable
smallholders’ secure reasonable share of benefit from the value adding effect of local and global
agricultural marketing system.

This report presents the findings of the Market Assessment and Baseline Study for cotton in
Ethiopia, which was commissioned by the Regional Trade Center (RATES) and conducted by
Agridev Consult. The Regional Trade Center (RATES) operates as a specialized capacity-
building service operation devoted to increasing the flow and/or value of targeted commodity
products within and among regional marketplaces. Its strategic focus is placed on three key
factors:
a) targeting and providing support to efforts that can be sustained by strategic alliance
partners/organizations that are themselves actors within country and/or regional
marketplaces;

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b) designing all of its activities to increase trade flow and/or value while at the same time
providing the foundation for the sustainability of participating organizations;
c) leading with activities that develop more competitive, transparent regional marketplaces.

To accomplish its desired impacts, RATES carries out a targeted program designed to increase
regional competitiveness in targeted commodities such as maize, cotton and pulses. It works
with and through existing organizations located throughout the region to develop and implement
strategies that support the producers of these commodities, their business support organizations
and the ability of their countries to benefit from expanded production and market access. Part of
its work plan includes market assessment and value chain analysis for each of the commodity
groups targeted.

The report is structured as follows: Chapter 2 presents the objectives of the study and Chapter 3
highlights the methodology used in conducting the study. Chapter 4 presents the findings of the
study, while Chapter 5 summarizes the main conclusions and presents recommendations.

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2.0 Objectives of the Study

The overall objective of this study is to conduct a market assessment of cotton and cotton
products in Ethiopia including a value chain analysis (VCA) that provides a framework for the
development of a strategic plan to improve the value and or the volume of cotton marketed in
Ethiopia. The specific objectives of the study are the following.

• Conduct a VCA starting with seed-cotton and moving through all points of market
transfer and value-added including producers, ginners, spinning industry and the
garment industry. Include by-products such as seed, oil and cake and produce a VCA
flow chart.
• To list all “players” along the chain by name, location type of entity and contact
information. This will include all major producer organizations, cooperatives, and key
corporate (commercial) estates if any; all ginning, textile and apparel companies,
status of operation, etc.
• To identify and explain all issues, problems and constraints at each transfer point in
the chain; i.e. yields, prices, payment systems, transport, quality, frequency of
transfers; manufacturing limitations as well as policy constraints that hinder
export/import of lint and/or textile products.
• To identify volume flow between sectors and cover all local use (rural) and
consumption of cotton and cotton by-products. The proportion of cotton crop retained
and purpose, major export markets for cotton products and by-products, etc.
• To identify and explain the value change between transaction points adjusting for
measurement differences and conversions from one type to another type.
• To identify all trade regulations that govern intra-country flow; exports and imports
of cotton, including local Authorities regulations, sanitary and phytosanitary and pest
risk requirements, tariff and other non-tariff charges on cotton imports, customs
clearance procedures.
• To assess, through consultations with market leaders, the impact of cotton trade
policies and regulations on cross-country movement and cross border trade of cotton.
• To provide insight and perspective on the issues and problem and make
recommendations on interventions at “links” in the value added chain that may assist
the industry in general and the smallholder farmer in particular to improve on volume
and/or value, including identifying issues that will form a base for Regional cotton
Trade rules and policy harmonization negotiations with EAC and COMESA.
• To develop a five-year baseline data for volume and value for the period 1998/99-
2001-2002, including all components of cotton along the chain.

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3.0 Data and Methodology

This study is largely based on secondary data sources and rapid appraisal methods. Secondary
data sources, including documents available on the internet were reviewed to collect data on
area, yield and production of cotton and its by-products, input utilization, marketed quantity,
import/export trends, domestic cotton consumption patterns, stock change, retentions of cotton
and cotton by-products for different purposes and prices at different market levels and for
different markets, etc.

Informal interviews were conducted with key informants in the major cotton producers in Addis
Ababa and Nazret. The purpose of the rapid appraisal survey was to get an understanding of the
cotton marketing channels and the relative importance of the various participants in terms of
volume of flow, gather information on cotton production and utilization patterns, types and
categories of producers, the types of market participants and the level of their participation, the
buying and selling behavior of the different market players, the buying areas and seasonality of
transactions, etc.

Interviews were also conducted with cotton exporters and ginneries to obtain an understanding of
their trade operations, costs and margins as well as technical and policy constraints they face.

Government policies and procedures, including licensing, taxation, customs, quality and
standards, phyto-sanitary requirements and enforcement procedures, were reviewed during the
data collection period.

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4.0 Findings of the Study

4.1 Cotton Supply and Utilization

4.1.1 Domestic Production and Market Supply of Cotton

Ethiopia has enormous potential for the production of cotton. A recent study of the Ministry of
Agriculture indicates that there is some 2,575,810 Ha of land suitable for cotton production,
which is equivalent to that of Pakistan, the fourth largest producer of cotton in the world.
Pakistan harvests about 4.5-5.7 million MT of cotton annually from a total cotton area of 2.9
million Ha.

The low to mild altitude areas of the country are generally known to have an immense potential
for the production of cotton subject to the availability of water. In terms of productivity, high
yields are obtained in areas with an altitude ranging up to an altitude of 1000 meters above sea
level. In the absence of hail, frost, and other unfavorable weather conditions, cotton production
can also be extended into areas with altitude of 1500 meters above sea level.

Out of the total 2.6 million Ha of land suitable for cotton production, 1.7 million Ha or 65% is
found in 38 high potential cotton producing areas and the remaining 0.9 million Ha or 35% is in
75 medium potential districts. Despite this immense potential, Ethiopia currently produces only
about 77,000-84,000 MT of raw/seed cotton annually from a total cotton area of 42,371 Ha.
Annual cotton area planted in Ethiopia accounts for about 3.6% of the total cotton area of eastern
and southern Africa. Cotton is presently produced under both rain-fed and irrigated conditions by
state farms, private commercial farms and smallholders.

There are five state owned enterprises producing cotton in the country. These are Tendaho,
Middle Awash, Upper awash, North Omo and Abobo. During the period 1996/97-200/01, these
state enterprises cultivated about 13,000 Ha of cotton land per annum using irrigation, which is
only 42% of the pre-reform level. The state farms harvested 25,000 MT of seed cotton annually
during the same period. State farms account for 31% of the total national cotton area cultivated
and production. The decrease in area planted by the state farms was mainly due to the transfer of
land to peasants and private commercial farmers. The newly emerging private commercial
farmers and smallholders account for about 42% and 27% of the total cotton area cultivated,
respectively. Area planted under cotton, yield and production obtained during 1996/97-2000/01
is shown below.

The system of production and the technology employed in cotton production varies from
producer to producer to indicate clear differences in production and productivity from different
cotton producers in the country. For instance, the state owned farms relatively use improved
cultural practices and technologies and as the result their productivity per hectare in irrigated

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farms ranges from 2 to 3 metric ton while it is 1.5 to 2 metric ton in rain-fed farms. The
smallholder farmers, although participate in large numbers in cotton production, use traditional
and backward farming practices to produce some 0.8 metric ton of raw cotton per hectare. In
general, the country’s average yield per hectare of raw cotton stands at 1.8-2.0 metric ton.
Ethiopia grows relatively good raw cotton with a fiber length of 27-28 mm. Generally speaking;
there is the potential to produce first class cotton in the country, if procedures ensuring stable
standards of quality are put in place.

Table 1. Area planted under cotton during 1996/97-2000/01 (Ha)

Producer 1996/97 1997/98 1998/99 1999/00 2000/01 Average % share
Tendaho 5,450.0 5,652.0 5,955.0 5,645.0 4,117.0 5,363.8 13
Middle Awash 5,153.0 5,268.0 4,789.0 1,667.0 5,407.0 4,456.8 11
Upper Awash 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 2
North Omo 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0 4
Abebo 250.0 250.0 250.0 250.0 250.0 250.0 1
Total state farms 13,353.0 13,670.0 13,494.0 10,062.0 12,274.0 12,570.6 30
Private commercial farms 18,150.0 18,150.0 18,150.0 18,150.0 18,150.0 18,150.0 43
Smallholders 11,650.0 11,650.0 11,650.0 11,650.0 11,650.0 11,650.0 27
Total 43,153.0 43,470.0 43,294.0 39,862.0 42,074.0 42,370.6 100
Source: (1) State farm enterprises, (2) private commercial farms, (3) Ministry of Agriculture (modified)

Table 2. Production of seed cotton during 1996/97 (MT)

Producer 1996/97 1997/98 1998/99 1999/00 2000/01 Average % share
Tendaho 7,943.7 7,716.5 9,512.5 11,503.4 8,370.4 9,009.3 11
Middle Awash 15,024.1 11,627.5 9,746.3 5,763.8 15,566.2 11,545.6 14
Upper Awash 2,100.0 2,100.0 2,100.0 2,100.0 2,100.0 2,100.0 3
North Omo 3,000.0 3,000.0 3,000.0 3,000.0 3,000.0 3,000.0 4
Abebo 325.0 325.0 325.0 325.0 325.0 325.0 0
State farms total 28,392.8 24,769.0 24,683.8 22,692.2 29,361.6 25,979.9 32
Private commercial farms 45,375.0 45,375.0 45,375.0 45,375.0 45,375.0 45,375.0 56
Smallholders 9,320.0 9,320.0 9,320.0 9,320.0 9,320.0 9,320.0 12
Total 83,087.8 79,464.0 79,378.8 77,387.2 84,056.6 80,674.9 100
Source: (1) State farm enterprises, (2) private commercial farms, (3) Ministry of Agriculture (modified)

Table 3. Yield of seed cotton during 1996/97-2000/01 (MT/Ha)

Producer 1996/97 1997/98 1998/99 1999/00 2000/01 Average
Tendaho 1.5 1.4 1.6 2.0 2.0 1.7
Middle Awash 2.9 2.2 2.0 3.5 2.9 2.6
Upper Awash 2.1 2.1 2.1 2.1 2.1 2.1
North Omo 2.0 2.0 2.0 2.0 2.0 2.0
Abebo 1.3 1.3 1.3 1.3 1.3 1.3
State farms total 2.1 1.8 1.8 2.3 2.4 2.1
Private commercial farms 2.5 2.5 2.5 2.5 2.5 2.5
Smallholders 0.8 0.8 0.8 0.8 0.8 0.8
Total 1.9 1.8 1.8 1.9 2.0 1.9
Source: (1) State farm enterprises, (2) private commercial farms, (3) Ministry of Agriculture (modified)

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At an extraction rate of 37%, the average yearly domestic production of lint cotton during the
period 1996/97-2000/01 was about 29,849.7 metric tons, of which 24,861.0 metric tons or nearly
83% was destined for the domestic market. The respective share of textile mills and handlooms
and handicrafts was 86% and 14% of the annual domestic sales of lint cotton, respectively. Total
annual lint production of Ethiopia represents about 10.4% of total production in eastern and
southern Africa.

The planting period for cotton in Ethiopia considerably varies from area to area. In the lower
Awash Valley, cotton planting starts in late June and ends mid August. In the Middle Awash and
rift valley areas, cotton planting commences sometime in early May and ends early June.
Planting is carried out during late April-early May in Upper Awash; whereas in the Humera,
Metema and Gambella areas planting is done in June-August. Harvesting also shows similar
variation. In Lower Awash, cotton harvesting begins early November and ends mid January, and
in middle Awash the harvesting period for cotton is late December-end of November. In
Humera, Metema and Gambella harvesting takes place starting mid November to end of January.
The planting and harvesting periods of cotton in the major cotton producing areas is shown on
the next page.

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 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Area 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Lower Awash P P P P P P P P H H H H H H H H H H
Middle Awash P P P P P P H H H H H H H H H H
Upper Awash P P P P P H H H H H H H H H H
Rift Valley P P P P P P H H H H H H H H H H
Hummera & Mettema P P P P P P H H H H H H H H H H
Gambella H H P P P P P P H H H H H H H H

P Planting
H Harvesting

Table 4. Planting and harvesting calendar.

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 4.1.2 Import/Export of Cotton Lint

As can be seen from the table below, Ethiopia has exported about 4,989 metric tons of lint cotton
per annum during the period 1996/97-2000/01. Import of lint cotton, however, was negligible.
The amount exported represents 17% of total annual domestic production of lint cotton.

The major cotton markets of Ethiopia are Africa, Asia, and Europe. The largest portion (67%) of
the cotton export was destined to the Asian countries, namely, India, Pakistan Bangladesh, while
about 23 percent of the volume of cotton exports went to Africa essentially to Djibouti. The
remaining 10% was destined to European markets.

1996/97 1997/98 1998/99 1999/00 2000/01 Average

1 Total domestic cotton lint production (MT) 30,742 29,402 29,370 28,633 31,101 29,850
2 Supply to domestic market (MT) 25,746 28,219 24,335 20,959 25,046 24,861
3 Supply to export market (MT) 4,997 1,182 5,035 7,674 6,055 4,989
4 Import of lint cotton (MT)
5 Import of textiles and textile articles (MT) 30,662 34,268 73,983 40,514 42,686 44,423
6 Export of textiles and textile articles (MT) 1,324 1,750 5,630 9,680 8,674 5,412
7 Net import of textiles and textile articles (MT) 5-6 29,338 32,518 68,353 30,834 34,012 39,011
8 Net import of textiles and textile articles in lint Equ. (MT) 0.85 x 7 24,937 27,640 58,100 26,209 28,910 33,159
9 Total lint cotton supply to domestic market (MT) 1-3+4+8 50,683 55,860 82,435 47,168 53,956 58,020

10 Population (000) 58,144 59,822 61,672 63,495 65,344

11 Per capita consumption of woven cloth (m2) 5.60 5.60 5.60 5.60 5.60 5.60
12 Per capita consumption of lint cotton (kg) 1.12 1.12 1.12 1.12 1.12 1.12
13 National consumption needs of lint (MT) 12 x10 65,121 67,001 69,073 71,114 73,185 69,099
14 Surplus/deficit (MT) 9-13 -14,438 -11,141 13,363 -23,947 -19,229 -11,079
Table 5. Cotton supply, import, export and consumption figures.

The average annual volume of lint cotton exported during the period 1996/97-2000/01 is very
small compared to that of eastern and southern Africa. According to the International Cotton
Advisory Committee, cotton lint export from eastern and southern Africa is about 150,000 metric
tons and Ethiopia’s share in the regions’ total volume of export is only 3.4%.

As regards import of lint, although Ethiopia does not import lint cotton as a raw material, it
nevertheless imports substantial quantities of finished textile products. During the period
1996/97-2000/01, the country has imported 44,423 metric tons of various textile articles per
annum worth birr 684.4 million. Volume and value of export of textile articles during the same
period were 5,412 metric tons and birr 53.7 million. Thus, the net import of textile finished
goods during the period mentioned was 39,159 metric tons or birr 630.7 million. In terms of
cotton lint equivalent, the average annual net import was about 39,159 metric tons. Origin of
textile import to Ethiopia is very diversified.

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4.1.3 Cotton Lint Utilization

Various studies conducted in the past show that Ethiopia’s per capita demand for textile products
is about 5.6 m2 or 1.12 kg in cotton lint equivalent. Thus, annual demand for lint cotton during
the period 1996/97-2000/01 is estimated to be about 65,121.3-69,098.8 metric tons. On the other
hand, total annual supply including domestic supply and net import (in lint equivalent) was
58,144.0 –82,435.2 metric tons. This indicates that the country faced substantial deficit in most
of the past 5 years. The demand for and supply of lint cotton during the period 1996/97-2000/01
is shown in the table above. As shown in the table above, the country had surplus amounting to
13,362.5 metric tons of lint only in 1998/99 when import was substantially high compared to
other years.

The deficit shown in the table may have been partially met through informal cross border trade.
Various studies show that the volume of informal cross border trade involving textile products is
considerable. For example, according to the Ethiopian Customs Authority, textile products
normally constitute about 50% of the contraband seizure. It has been estimated that out of the 42
million Birr worth of goods apprehended by the Ethiopian Customs Authority, about 22.5
million Birr worth of good were textile products. UN Statistics on used clothes trading also
shows that Ethiopia has imported about US$ 25.7 million worth of used clothes over a period of
ten years. According the UN data, Ethiopia ranks 13th among the 90 major used clothes
importing countries in the world. The same source also indicates that Djibouti has imported
about US$ 29.1 million worth of used clothes during the same period. This clearly shows that
informal cross border trade of used clothes through Djibouti and other border areas is significant.

4.2 Cotton Value Chain

4.2.1 Marketing channels

As mentioned earlier, total national cotton production by the different producers is estimated at
81,000 metric tons. Cotton is grown as a cash crop and passes through different channels before
it reaches the end users as a finished product. The marketing chain of Cotton and its derivatives
is portrayed in the following chart.

4.2.2 Producers

As mentioned earlier, state farms, private commercial farms and smallholders produce cotton.
Prior to 1992, large-scale cotton farming had been the exclusive domain of state enterprises. The
five state cotton farm enterprises used to produce more than 62,000 metric tons of seed cotton
annually from some 30,000 Ha. Currently, most of the state farm cotton production-about 26,000
metric tons-comes from the Awash valley area. State farms’ share of total annual cotton
production is around 32%.

After the reform of 1992, private commercial farms have also been engaged in cotton production.
Currently there are six major private commercial farms engaged in cotton production, namely,
Lower Awash, Middle Awash, Birale, Humera, Metema, and Wollega farms. The combined

10
share of the private commercial farms is about 45,000 metric tons of seed cotton or 56% of
national cotton production estimate.

As regards the smallholder sector, its annual cotton production is not much known. However,
studies (CSA Farm Management Practices and Meher production surveys) indicate that annual
cotton production by the smallholder sector is about 9,320 metric tons or 12% of national
production. The traditional cottage industries, including handlooms and handicrafts were fully
dependent on cotton supplied by smallholders.

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Table 6. Overview of the cotton industry.

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4.2.3 Local Assemblers

As can be seen from the diagram, rural assemblers play an important role in collecting seed
cotton from smallholder producers. These assemblers are mostly independent operators at
primary markets who assemble and transport the raw cotton using pack animal and small trucks
for sale to private ginneries. They handle about 20% of the cotton produced by smallholders.

4.2.4 Ginneries

There are 11 ginneries operating in the country currently. Out of these, 4 are state owned and
located in the cotton producing enterprises at Tendaho, Middle Awash, South Omo and
Gambella. The remaining 7 ginneries are privately owned and located at various places. 1
ginnery is located at Humera and owned by a cotton-producing share company operating there. 2
ginneries are located in Gonder town and provide service to private commercial farmers and
cotton traders operating at Metema and the surroundings. 4 of the privately owned ginneries are
established in Addis Ababa and offer ginning service to private cotton commercial farmers and
lint cotton exporters operating in Awash valley and other cotton producing areas of the country.

The ginning capacity of both state and private owned ginneries is estimated at 200,000Mt of raw
cotton. Unfortunately, these ginneries are currently operating under capacity because of the low
production of cotton in the country. The total raw cotton production of the country in the past
five years was limited to a maximum of about 84,056 metric tons while the processing capacity
of ginneries remains at about 200,000 metric tons. All the cotton produced by state farms and
private commercial farmers and about 20% of smallholder production is ginned. Thus, the
capacity utilization of the ginneries is nearly 38%. To utilize the excess capacity of ginneries
currently idled, the raw cotton production of the country has to double. This can be achieved
either by doubling the presently cultivated cotton area or intensifying the use of improved
cultural practices and agricultural technologies to increase the yield per hectare twice as much in
all cotton producers of the country.

The ginneries supply about 5% of the cottonseed to commercial farmers and state farms for seed
use and 95% to oil mills for crushing to produce edible oil and oil cake.

4.2.5 The Textile and Garment Factories

Most of the lint cotton annually produced by the public and private ginneries-some 30,000 metric
tons or 37% of the seed cotton annually produced- is sold to domestic textiles mills and the
export market. Domestic textile mills receive about 80% of the lint cotton supplied by ginneries.
The production of textile goods is the largest formal sector manufacturing activity in Ethiopia.
The textile sub-sector accounts for about 36 per cent of total manufacturing in the country.

The textile and garment factories sub-sector consists of seven integrated public textile mills, two
spinning mills, two thread factories, one blanket factory and five large-scale garment factories,

13
and two Hessian sack factories. In addition, there are a few privately owned textile mills and
garment factories. The textile and garment industries by and large cater for the domestic market,
but they are currently facing stiff competition from imported fabrics and used clothing. With the
exception of the knitting sub sector, the textile industry in general is capital intensive.

According to the CSA medium and large-scale industries survey, the current number of
establishments engaged in the textile and garment sector is 6, out of which state enterprises are
23. These establishments employ about 24,000 persons. Employment by state enterprises
accounts for about 65%.

The main products manufactured by the state enterprises are cotton fabrics, nylon fabrics, acrylic
yarn, cotton yarn, woolen and waste cotton blankets, and sewing threads. Most of the integrated
textile mills are engaged in the production and finishing of fabrics. Market yarn for the handloom
weavers and cottage industries is commonly produced in most of the textile mills. The privately
owned factories are predominantly engaged in garment making, but the types of products
manufactured by this sub sector are enormously diverse. The following table shows the major
textile and garment products manufacture in the country and the public factories engaged in the
production of these items.

Table 7. Major produced items.

Major Item produced Enterprises Engaged in the production

1. Cotton Yarn Akaki Textile, Addis Ababa yarn factory, Arbaminch Textile factory, Awasa
Textile factory, Dire Dawa textile factory, Ediget Yarn and sewing factory,
2. Acleric Yarn Dire Dawa Textile,

3. Fabrics Akaki Textile, Arba Minch Textile, Dire Dawa Textile, Ethio-Japan,
Kombolcha Textile, Debre Berhan Blanket factory
4. Blanket Addis Ababa Yarn Factory, Akaki Textile, Gullel Garment Factor,

5.Garment Woven Addis Garment Factory, Akaki Garment Factory, Nathreth Garment Factory,
6.Knitted garment Addis Ababa Yarn Factory,
7. Socks Akaki Textile
8. Sewing thread Ediget Yarn Factory, Nefas silk
Source: Public Enterprises Supervisory Authority

The design capacity of both the state and private enterprises varies according to type of
enterprise and product. According to the CSA data, their yearly production estimate at full
capacity is about birr 962.0 million, but they currently operate at 52% of their full capacity. The
table below shows volume of production of textile products by during the period 1996/97-
2000/01.

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Table 8. Major produced items per year.

Major Products Unit 1996/97 1997/98 1998/99 1999/200 2000/01

Cotton fabrics 000 m2 34,577 38,030 42,959 34,499 44,925
Nylon Fabrics 000 m2 4,193 4,722 4,047 2,921 1,310
Acrylic yarn Tons 2,420 1,257 730 354 411
Cotton Yarn Tons 3,133 2,657 3,408 3,977 5,726
Woolen Fabrics m2
Blanket (woolen) 000 m2 3,763 2,757 3,896 3,334 3,095
Blanket (waste cotton) pcs 244,471 194,466 182,084 144,653 90,311
Blankets (others) pcs 8,275 16,257 34,744 40,478
Bed sheets pcs 27,975 21,094 7,349 4,129 1,778
Shirts Dozen 12,376 16,266 11,647 7,199 4,646
Carpets m2 12,752 6,323 4,779
Gunney bags Tons 6,418 7,649 4,981 5,708 5,981
Hosieries Dozen 174,620 172,040 83,922 86,454 37,869
Wearing apparel (except leather) Dozen 21,883 35,988 58,655 165,926 142,156
Source: CSA, Report on Medium and Large Scale Manufacturing and Electricity Industries, Various Issues.

The annual lint cotton consumption of the textile manufacturing enterprises at full capacity is
estimated at 38,000 metric tons, which can be fully met from domestic supply. However, since
they operate at about 52% of their processing capacity, the domestic supply of lint cotton is by
far in excess of demand.

4.2.6 Oil Mills

In Ethiopia, there are large scale, medium and household level oil processing mills. The number
and processing capacity of household level oil processing enterprises is not known. The design
capacity of the large and medium scale plants is estimated to be about 60,040.4 metric tons of
different types of edible oil. However, due to various problems, the large and medium oil mills
operate at 43% of full capacity. The design capacity of these mills is shown below.

Table 9. Factories and capacities.

Factory Capacity
Addis Mojo 14,234
Hamaressa 4,637
Bahir Dar 4,432
Gondar 3,000
Dil 5,445
Adama 3,000
Akaki 1,365
Teramaj 1,147
Nazareth 1,043
Ediget 938
Dire Dawa 800
Total Large scale 4,000
Total Small Scale 2,000
Grand Total 60,040
Source: Edible Oil Supply Assessment Study, Ministry of Trade and Industry, 2000

15
As regards raw material consumption, only the large and medium scale oil mills utilize
cottonseed as a raw material for oil processing. Their average annual cottonseed purchase is
estimated at 24,500 metric tons, while the total domestic supply is about 42,000 metric tons.
Actual cottonseed oil production, which is estimated at 3,200 metric tons, accounts for about
12% of total domestic edible oil production. In addition to edible oil, the mills produce about
20,000 metric tons of oilcake, which is mostly sold in the domestic market to dairy and cattle
fattening farms.

4.2.7 Wholesalers and retailers

Most of the textile finished products and the edible oil produced by the actors in the cotton chain
passes through a network of wholesalers and retailers before they reach the final consumers. The
relative role and importance of these market actors and their market share, however, is not well
studied.

4.2.8 Lint cotton exporters

As discussed earlier, formal lint cotton export from Ethiopia ranges between 4,987-6,055 metric
tons annually. Currently, the following are registered as cotton exporters by the Ministry of
Trade and Industry.

(a) Birale Agricultural Development PLC

P.O.Box 100037 Addis Ababa
Tel: 663593
Fax: 654505

(b) Middle Awash Agricultural Development Enterprise

P.O.Box 13007 Addis Ababa
Tel: 525606
Fax: (02) 114593

(c) SAMADCO International PLC

P.O.Box 12607 Addis Ababa
Tel: 614262
Fax: 614231
e-mail: samadco@telecom.net.et

(d) Sodec PLC

P.O.Box 55860 Addis Ababa
Tel: 750777
Fax: 757979

(e) Tendaho Agricultural Development Enterprise

P.O.Box 13464 Addis Ababa

16
 Tel: 513651/514113
Fax: 513651
e-mail: tendaho@hotmail.com

4.2.9 Retailers

Retailers play an important role in delivering the cotton lint and cotton by-products such as oil
seed and fabrics to the final consumer.

4.3 Value Added along the Chain

Because of paucity data, an attempt has been made to analyze the value added at different
transaction points along the cottonseed to oil chain. It has been assumed that production of 1 liter
of edible oil requires about 7.69 kg of cottonseed. The current ex-ginnery selling price of
cottonseed is birr 80/100 kg. The ex-factory selling price of edible oil is birr 8.35/lt. Ministry of
Trade and Industry as well as CSA data show that the wholesale and retail prices of edible oil in
Addis Ababa are birr 9.10/lt and birr 9.90/lt, respectively. Thus, the total marketing margin along
the whole chain is birr 3.75 or 37.9%.

Value chain: Cottonseed to cotton seed oil Price (birr)

Ex ginnery cotton seed selling price 6.15
Ex mill cotton seed oil price 8.35
Wholesale price of cotton seed oil 9.10
Retail price of cotton seed oil 9.90
Table 10. Value chain.

As can be seen from the above table, out of the total gross marketing margin, the retailer in
Addis Ababa has about 21.3% share, the wholesaler has 20.0% share, and the processor has
58.6% share. The share of the ginnery of the amount spent by the consumer is about 62.1%.

4.3.1 Summary of Cotton Production and Marketing Constraints

According to a recent study conducted by the Ministry of Agriculture, cotton production and
marketing faces different constraints. The nature and type of the constraints are different. On the
production side, the constraints are related to absence or limited availability of research and
extension services and inadequate supply of inputs, while on the marketing side, the constraints
are related to lack of capacity to supply quality products, inadequacy of the existing
infrastructure, and lack of finance. The details are as follows:-

17
4.3.2 Production Constraints

a) Shortage of Improved Seed Varieties

The seed varieties available in the country are either inadequate or don't meet the required
international standards or both. Not much effort has been made to develop through research
varieties which can allow the production of cotton of acceptable quality and quantity. The seed
variety needed to produce the type of cotton in great demand in the international market is long
fiber seed, and it is not available in the country. More seriously, even the attention given to the
multiplication of those varieties already identified through the limited research undertaken is
minimal. These constraints have seriously undermined the effort to improve cotton production
and productivity.

b) Shortages of Technical Inputs

Needless to say, if one is to meet required quality standards, availability of adequate amount of
technical inputs- fertilizers, pesticides, herbicides, and better equipment - is crucial. The reality
in Ethiopia is, however, the reverse. In spite of its visibility by its absence, the attention given to
the supply of such inputs to the farmers has been minimal, and this has had an obvious negative
impact on improving production and productivity. As cotton is prone to attacks by different
types of pests, absence or inadequacy of pesticides has forced textile factories to receive inferior
raw cotton damaged or infested with honey dew caused by the excretion of sucking insects like
aphides.

c) Absence of Extension Services

Extension service to small-scale cotton producers is virtually nil. What ever is produced at this
level is entirely using traditional practices which can ensure neither adequate nor quality
production. The quality constraint on its part has diminished the potential earnings of small-scale
farmers. In general, absence of extension services has impeded the expansion of modern cotton
production practices in the country.

d) Limited Research Work

Consistent with the overall limited attention given to cotton production in the country, research
on improving productivity is minimal. It is only in one center - Melka Werer- that some research
is undertaken, and even this is limited in scope, focusing only on irrigation practices in the area.
There is no research on rainfed production where the efforts of small farmers are concentrated.

e) Limited Irrigation Practices

Irrigation practices are limited to a few state and large-scale private farms operating in a few
areas. The rest is rainfed where erratic rains frequently cause crop failures or the production of
cotton of interior quality and quantity.

18
4.3.3 Market Constraints

Beyond production, cotton marketing is also constrained by different factors. The most notable
among these are the following:-

19
a) Inadequate knowledge About Market Standards

The Ethiopian Standards Authority has established the quality which domestic cotton production
should fulfill to meet required market standards. These standards are not, however, widely
known by all the players in the marketing chain, and this has prevented producers and domestic
market supplies from taking all necessary precautions to ensure that their products are up to the
standards required.

Furthermore, inspections against the standards are not made by a neutral body which can ensure
fair evaluations, but rather by the buyers themselves, and this practice has often denied farmers a
fair price for their products.

b) Lack of Market Information

The market information system in Ethiopia is generally poor, and cotton marketing is not an
exception. Absence or inadequacy of such a system has deprived producers and suppliers access
to such vital information as alternative market outlets, levels of demand and price, and the
standards required by the various players in the market. Production and marketing decisions
have, as a result, been made either arbitrarily or on incomplete information basis. Needless to
say, producers need market information to help them decide on what, how much, and at what
quality to produce, and traders to decide at what price to buy and sell. Absence of market
information has reduced the competitiveness and bargaining power of farmers and local
suppliers, forcing them to be price takers.

c) Absence of a System for Contractual Production and Marketing arrangement

Cotton production and marketing, as noted earlier, is done in an arbitrary manner in that there is
no practice where -by producers can be assured of a reliable market and traders a steady supply.
The reason for this is that there is no experience in pre-delivery contractual arrangements among
the market players. Such arrangements between producers and traders could have allowed the
former to produce as per an agreed contract and to a required standard, and the later to ensure
timely purchase and payment. It could, have helped ease financial and technical constraints often
faced in the production and marketing process. The traders could, for example, have helped the
farmers to over come financial and technical problems which they often face.

d) Inadequacy of Support Through Service Co-operatives

In spite of the many constraints which cotton farmers face in production and marketing, there is
no mechanism for collective effort to address the problems. Production and marketing is done in
a fragmented and isolated manner, and through individual efforts. A reliable way out of such
constraints is to address them collectively by establishing service co-operatives. Such structures
have proved to be instrumental in other similar activities by ensuring their members access to
markets, better bargaining power in setting prices, and in the supply of agricultural inputs,
among others. At present, there are no service co-operatives operational in most of the cotton

20
producing areas, and where they exist, their focus is on other activities, depriving cotton farmers
the opportunity to expand and get a fair price for their products.

e) Lack of Finance

Cotton production even at a small scale requires finance to purchase technical inputs, like
fertilizer, as well as necessary equipment. Cotton farmers have often faced serious financial
shortages, and so have the traders engaged in the business. Individual attempts to access credit
facilities have not been successful due to lack of collateral. Beyond the production and marketing
of raw materials, textile factories and ginneries, as well as oil mills also face serious financial
constraints, which have limited their ability to purchase new or replace obsolete equipment.

21
4.4 Policy and Regulatory Framework

4.4.1 Licensing

In Ethiopia, commercial registration and business licensing is carried out based on Proclamation
No. 67/1997- titled "Commercial Registration and Business Licensing Proclamation". This
proclamation came into effect in March 1997 and its objective is to improve business-licensing
procedures so as to create conducive business environment and promote free market.

According to this proclamation, all business licenses except those for prospecting and mining,
banking and insurance services, as well as trade in tobacco products, are issued by the Ministry
of Trade and Industry or by the regional Trade and Industry Bureaus. Business license is
acquired by submitting an application form that has been prepared by the MOTI for this purpose.
However, commercial activities that require specific professional qualification are requested to
produce evidence of competence to engage in such activities from an appropriate sectoral
ministry.

Requirements for export trade license are also simple-application in two copies, principal
registration certificate, and passport size photograph. A minimum amount of birr 25 is charged to
issue any business license. Although there is no restriction on the type of commodities a business
should engage in, it is prohibited to engage in trade activities outside those mentioned in the
license. If traders want to diversify their business, they have to submit a formal request for
including other commodities to the licensing authority.

All license holders are required to renew their business licenses every year and are obliged to pay
license renewal charges and business profit tax. Proclamation No. 227/2001 also requires
businesses to obtain TIN (Tax Identification Number) from the tax authority in order to renew
their licenses.

4.4.2 Trade Policy Reform and Export Promotion

Since 1993, the Government of Ethiopia has taken a number of reform measures with the view to
dismantling quantitative restrictions and reduce the level of tariff rates. At present, quantitative
restrictions are applied only to few commodities including used clothings, harmful drugs and
firearms. Tariff levels have also been significantly reduced as part of the measures taken to
stimulate export/import trade; for example, import duty rates (import duty receipts as percentage
of CIF import value) in 2002 was almost half of the amount in 1980-12% in 2002 against 23%
in 1980. According to the Customs Tariff Amendment No.5 based on the 2002 version of the
harmonized system the import duty of selected products is as follows:

• Maize 5%
• Pulses 10%
• Lint cotton 10%
• Wheat 5%
• Wheat flour 10%

22
 • Oilseeds 5%
• Edible oil 30%
• Fabrics 35%
• Cotton seed 5%

Importers are also required to pay 15% value added tax (VAT) based on the CIF value and
import duty. Concerning export, all export duties except those for coffee were totally removed.

As part of the trade reform, additional measures taken by the government include abolishment of
state monopoly in coffee, pulses and oilseeds export and abolishment of the mandatory approval
requirement for export contract by the National Bank of Ethiopia, introduction of foreign
exchange retention schemes (10% of foreign exchange proceeds) by the private sector,
introduction of import duty rebate scheme, and initiation of bonded warehouse schemes. Despite
such measures, however, exporters have not yet realized benefits from these measures, because
of administrative problems and lack of transparency of operational rules.

The Government Ethiopia has also taken measures to attract foreign direct investment with the
view to supplementing domestic savings and investment in various sectors, enabling the transfer
of technical and managerial know-how, and fostering market access to developed countries. In
order to attract foreign direct investment, more sectors that were reserved for nationals have been
opened for foreign participation, no performance goals/criteria were set; foreign investors have
been exempted from custom duties and import tariffs for all capital equipment and up to 15% of
spare parts; they have been exempted from export taxes; they are provided with tax holidays of
up to 5 years, etc.

Despite such measures, however, Ethiopia has only attracted an insignificant amount of foreign
direct investment-0.74% of sub Saharan Africa. According to a recent report, only 59 (worth 3.8
billion birr) out of a total of 311 approved foreign direct investment projects that worth about
15.4 billion birr have become operational during the period 1992/93-2001/02. Even then, only
few of the 59 projects focus on the export market. Those few projects that focus on export
heavily depend on imported raw materials.

In addition to the above-mentioned problems, Ethiopia’s trade facilitation, including customs,

clearing and forwarding, insurance services as well as transport and communication is poor. The
major constraints identified in this regard are the following:

• Lengthy and slow customs procedures that unnecessarily increase cost and delay transit
shipments,
• Dominance of state enterprises in the business of shipping, clearing, forwarding and
insurance that impedes competitive environment
• Shortage of telecommunications because of the monopoly of the Ethiopian
Telecommunications Corporation

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4.4.3 Institutional Support for Trade

Ethiopia has also institutions that oversee the development of the trade sector. The major
institutions include the Ministry of Trade and Industry, the Ministry of Foreign Affairs, the
Ethiopian Export Promotion Agency, and the Ethiopian Chamber of Commerce. These
institutions are entrusted with the responsibility to design and implement trade policy and
strategy and to provide support for the promotion and expansion of export trade; however, their
effectiveness has been hampered by a number of factors including the following:

• Lack of trained manpower capable of formulating policies

• Limited capacity to effectively negotiate trade agreements
• Limited institutional capacity to provide market and trade information
• Lack of coordination among the different actors
• Lack of adequate mechanisms to supervise and monitor trade activities, and
• Bureaucratic procedures followed by the institutions, etc.

4.4.4 Import/Export Procedures and Documentation

The National Bank of Ethiopia has issued directives, titled “Directive to Transfer NBE’s Foreign
Exchange Functions to Commercial Banks Directive No. FXD/07/1998”. According to this
directive, commercial banks are authorized to allow imports and exports (except coffee) and
provide associated services against submission of relevant documents. Import of used goods
except clothing is also permitted. As regards import, commercial banks are authorized to approve
imports of any value, but they have to ensure that values greater than or equal to US$ 1.0 million
are done on international competitive bidding.

Ethiopian importers are required to have a valid license to engage in import activities. Grain is
among the commodities not restricted for importation. Imports can be made using Letter of
Credit, cash against document at sight, advance payment, and through suppliers’ credit.

For importation of goods under L/C arrangement: three copies of proforma invoices showing full
description of good (including quantity, grade, quality, volume, measurement, weight, mode of
shipment, terms of payment, unit and total price of the good at a named place of delivery,
photocopies of valid license, insurance certificate, and clearance certificate from NBE should be
submitted to a commercial bank along with an application form.

Importers who wish to import commodities on cash against document basis should submit to a
commercial bank the following documents:

• A purchase order, proforma invoice and valid trade license

• A copy of local insurance certificate
• An application form along with three copies of chamberized invoices, two copies of
certificate of origin, full sets of shipping documents, two copies of packing list, and clearance
certificate from the NBE testifying the settlement of commitment.

24
The ceiling for importation by advance payment is US$ 5,000 and importers using this
mechanism are required to submit a letter of undertaking along with the above mentioned
documents.

Import applications are valid for 120 days from the date of issue, and applications for import
transit, import freight, and other charges are valid only during the month of issue.

The NBE directive also authorizes commercial banks to allow export through Letter of Credit,
advance payment, or consignment, and the banks are entrusted with the responsibility of
ensuring that export proceeds are repatriated into the country. There is no restriction on the
exportation of agricultural products except forestry products, wild animals and birds.

For export under L/C mode of payment, the submission of the following documents is
mandatory. These include: valid trade license, copy of authorized L/C, 5 copies of Customs
declaration, 6 copies of Bank declarations, 2 copies of valid invoices and a copy of sales
contract. Similarly, for exports under advance payment, the above-mentioned documents, except
copy of L/C are required. For exports under consignment basis, these copies plus first class
foreign bank guarantee is demanded by the commercial banks. Export application is also valid
for 30 days from the date of issue and export transit, freight and other charges for the month of
issue.

Foreign exchange for export transit is provided by the commercial banks upon submission of the
following documents: two copies of an application form, transit invoice, bill of lading (for C&F
and CIF export), insurance policy (for CIF export), original sales contract, and a copy of
commercial bank’s credit advice. Likewise, In order to get foreign exchange for export freight,
the following documents have to be submitted along with two copies of an application letter: bill
of lading, freight invoice, original sales contract, and a copy of commercial bank credit advice.
For other charges, an application form, sales contract, invoice, as well as quality certificate,
weight certificate, bill of lading are needed when necessary.

Moreover, importers and exporters are required to have plant importation/exportation permit and
phyto-sanitary certificate if they intend to import/export agricultural commodities. To effectively
control the sanitary and phyto-sanitary regulations (particularly to regulate noxious weeds and
diseases as well as insect pests), the Ministry of Agriculture, Crop Protection and Production
Regulatory Department has offices in some parts of Ethiopia, including Addis Ababa, Nazret,
Dire Dawa, and Moyale. It is also making preparations to open new branches at Metama and
Humera that are close to the Sudan border. Although most of the formal import of grain (both
commercial and food aid) is through the Port of Djibouti, the Department has no branch at
Djibouti.

Quality testing and certification is also needed in order to ascertain that the commodity to be
exported meets the specifications included in the contract. The Quality and Standards Authority
of Ethiopia (QSAE) is authorized to issue export authorization certificate if the consignment
meets the required specifications. Depending on the destination of the export commodity,
exporters are also required to get movement certificates such as the Certificate of Origin, EUR I,

25
 GSP forms. The following table particularly summarizes the export procedures and the type of
documentation required.

Table 11. Export Procedures and documents required.

N Procedure Document Origin of Document
o.
1 Order acknowledgment Export order Buyer
2 Finalization of export contract Export sales agreement Buyer and seller
3 Application to export Export permit Any commercial bank
4 Registration of export consignment Customs declaration annex Any commercial bank
5 Application of quality testing Quality testing form Quality and Standards Authority of Ethiopia
6 Quality testing and certification • •
Quality assurance certificate Quality and Standards Authority of Ethiopia
• •
Export authorization certificateQuality and Standards Authority of Ethiopia
• Phyto-sanitary certificate • Ministry of Agriculture
7 Compliance with rules of origin Certificate of origin Ethiopian Chamber of Commerce and Dire Dawa
Chamber of Commerce
8 Compliance with tariff schemes EUR I Certificate/GSP form Customs Authority
9 Insurance of Cargo Insurance certificate/policy Insurance company
10 Customs declaration Custom declaration form Customs Authority
11 Movement of cargo from exporter • Transport document • From main carrier
to buyer • Bill of lading • Shipping line
• Airway bill • Airline
• Road consignment note • Road transporter
• Rail consignment note • Ethio-Djibouti Railway Company
Source: Ethiopian Chamber of Commerce: Exporters’ Guide Ethiopia, December 1998

26
 4.4.5 Value Added Tax and Business Profit Tax

All licensed businesses are required to collect VAT and pay profit tax. Value added tax on
grains is 15%. Profit tax is based on taxable income (gross revenue less costs). The following
table shows taxation rate for different income brackets for unincorporated business. Incorporated
business pay 30% of taxable income (Incorporated business proclamation No. 36/1996).

Table 12 Taxable income and tax rate.

No. Taxable Income Per Annum (Birr) Tax rate on every
additional income in
%
1 Not exceeding 1,800 Nil
2 Birr 1,801-7,800 10%
3 Birr 7,800-16,800 15%
4 Birr 16,801-28,200 20%
5 Birr 28,201-42,600 25%
6 Birr 42,601-60,000 30%
7 Over Birr 60,000 35%
Source: Proclamation No. 286/2002

Taxpayers are generally required to declare their income and promptly pay profit tax. Penalty of
20% of the profit tax for delaying income declaration and 2% per month for delaying tax
payment, and 20% for not keeping proper books of account are enforced. The private sector
considers such incidence of tax as a disincentive to invest and expand trading activities.

27
5.0 Conclusions and Recommendation

Ethiopia is endowed with vast areas suitable for cotton production. Many farmers also have
traditional experience in cotton production. Cognizant of the prevailing potential and experience,
the following recommendations are proposed to improve cotton production and marketing in the
country.

5.1 Production increase through area expansion

According to a recent report of the ministry of Agriculture, there are many cotton producing
areas in the country. These areas could be grouped into two. The first group consists of areas
identified in 38 weredas of 8 regions, which have a high potential. They include irrigated farms
currently operated by state farms, private investors and small farmers, those areas in Gambela
and Somali Regions, where irrigation infrastructures have been laid, and rain-fed farms of high
potential currently run by investors and small farmers. The second group consists of farms in 79
weredas in 8 regions. They are farms of medium potential. They are mainly rain-fed farms
currently operated by private investors and small farmers, but have the potential for irrigation
development through river diversions and construction of small dams.

The Government, thus, has to encourage local and foreign investors in order to develop and
utilize the above mentioned potential for expansion.

5.2 Production increase through Intensification (Productivity Increase)

The recommendations on intensification involve use of improved agricultural technologies,

improved farm management practices and research and extension services. These will have a far-
reaching impact beyond the level of production, positively affecting the quality of the product,
which will in turn improve its marketability. The focus in this regard will, therefore, be on the
following:-

a) Application of Improved Agricultural Technologies

The use of improved agricultural technologies such as improved seed, artificial fertilizers;
pesticides, appropriate machinery and implements are crucial to increase production and
productivity and to improve the quality of lint cotton. The use of improved seeds should include:

• Developing and expanding hybrid seeds,

• Introduction and adoption of highly productive and long fiber varieties.
• Involvement of the Ethiopian Seed Enterprise as well as similar other agencies in the
multiplication and dissemination of high quality seeds.

As regards to other technologies, the focus should be on the use of chemical fertilizers, pesticides
and as well as appropriate machinery and implements required for such an activity. Service Co-

28
operatives and other organizations responsible for the supply of inputs must play a big role, and
in this endeavor, they need to be supported and encouraged through all possible means.

b) Application of Better Farming Methods

The focus here must be to develop improved cotton production packages and introduce to
producers through the extension system effectively. The packages should include improved
methods of land preparation, seeding, irrigation practices, harvesting, post harvest handling, crop
protection etc.

c) Improved Post Harvest Management

The activities here include taking proper care of the crop during transportation and storage so as
to prevent losses and damages. Similar care should be made during ginning, particularly in
maintaining the desired moisture level of the crop, and keeping it clean from dirt and waste
materials.

d) Promotion of Crop Rotation

Crop rotation practice must have two purposes. One is to help improve the income of the
farmers by encouraging them to grow crops, such as sesame, haricot beans, and wheat along side
cotton. The crops to be included in the rotation must, however, be short maturing and high
yielding, and that its practice should be compatible with the technology and equipment in use.
The other is to improve the fertility of the soil and to help break the reproduction cycle of pests
and diseases.

e) Effective Extension Services

This is an activity that has been lacking in the past, and the importance of the service to increase
cotton production and productivity is enormous. The Ministry of Agriculture and its counter
parts at regional levels must provide extension service on cotton if production and productivity
are to be increased in the country.

f) Improved Research Works

Research works have also been weak, and this need to be changed if the potential for cotton
production in the country is to be realized. The Ethiopian Agricultural Research Authority must
work hard to expand its research activities to solve crop productivity constraints faced by
different producers in the country.

g) Dissemination of Knowledge About Standards

Knowledge about the quality standards required in cotton production has, as noted earlier, been
limited, and the need to rectify the situation has been obvious. To this effect, the Ethiopian
Standards Authority, in collaboration with other concerned agencies, must advise and support

29
farmers and traders where and when they need such support, and disseminate all information
about standards through all possible means.

h) Promotion of Irrigation Practices

The Ministry of Water Resources and other relevant agencies must work hard to expand
irrigation facilities of all types-large and small- particularly in the rain deficit areas.

i) Availability of Ginneries

The ginneries currently serving the cotton producing areas are obsolete, and not fairly
distributed. It is imperative therefore that they are replaced by modern ginneries, and that its
distribution is improved in such an away that all production areas get an easy access.

j) Other Facilities

The need for the availability of adequately distributed oil processing mills suitable for cottonseed
and the expansion of storage facilities in all production areas cannot be refuted. Hence,
improving the availability and distribution of oil mills and the expansion of storage facilities are
imperative.

5.3 Improving the efficiency of the market

The ultimate measure of the success of the production expansion effort is the benefit which one
derives from improved market access. Hence, serious attention must be exerted to improve the
availability of cotton markets. To this effect, expanding access to the existing markets in India,
Pakistan, Indonesia, and Thailand, where Ethiopian cotton has been sold in the last 4 years in the
first two, and in the last 3 years in the others, must be seen as important outlets as the cotton of
Ethiopian cotton is already known in these countries, and building on this, and bridging the
existing supply gap has to be an important target.

Furthermore, new markets have been opened in Turkey, Egypt, Yemen and Oman. These
countries are nearer to Ethiopia, where the transport cost is lower, and the benefit, accordingly,
higher. Hence, further strengthening marketing ties with them is crucial. Other markets must also
be explored and expanded in due course. These are Italy and Greece, which have occasionally
been importing Ethiopian cotton, and China, Korea Republic, and Japan, where a huge potential
exists. European markets, particularly Germany and Russia, must be considered as options if the
capacity to deliver the type and quality they require is built. To this effect, producing long fiber
lint would have paramount importance.

In general, the market expansion effort must be guided by a cost minimizing and benefit
maximizing strategy for which establishment of contacts with buying companies and supplying
them with products which meet their standards are essential.

30
5.4 Other Measures to Improve Marketing Opportunities

The following additional measures are recommended to improve market opportunities:-

a) Establishment of Strong Market Information System

As noted earlier, it is of crucial importance that producers and suppliers of cotton get adequate
information about the type and quality of the product in demand in different markets. Suppliers
also need information on alternative market outlets and the levels of prices offered in these
markets. Availability of such information helps marketing decisions of where and how much to
sell and at what price. The establishment of a good market information system is therefore
needed to undertake the following:-

Collection and processing of price information from all major domestic markets, and their
dissemination to producers, traders, service co-operatives, and relevant government agencies on
regular basis.

Collection and processing of information on the type, quantity and quality of production at the
farm and intermediary levels, and its dissemination to relevant agencies at wereda, regional, and
federal levels, as well as to traders, service co-operatives, and similar other establishments.

Compilation of information from external markets on levels of prices and demand, and the
quality and standard they expect of the products supplied, and the dissemination of the
information to exporters, producers, service co-operatives, trade unions, and other relevant
bodies on regular basis.

Training and deployment of qualified field enumerates, and establishment of information flow
networks at desired levels.

Building the capacity of service co-operatives, trade unions, and similar other bodies to compile
and disseminate to their members the market information they receive, and providing them with
any other additional support required.

b) Promotion of Contractual Arrangement in Production and Marketing

To ensure a steady supply to buyers at all levels and a reliable market to producers, and to
remedy the many constraints its absence has created, establishment of a system for pre-delivery
contractual arrangements between the following market players is essential.

• between farmers and local buyers;

• between farmers or service co-operatives and ginneries;
• between service co-operatives and exporters or textile factories;
• between local suppliers and exporters, as well as between local suppliers and ginneries
and textile factories, and
• between state and private farms and ginneries and textile factories

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Such contracts are expected to help facilitate the establishment of purchase prices, the type,
amount, and quality of the product to be produced and marketed, payment arrangements between
the parties concerned, obligations of the contracting parties, and the type of support to be
provided to producers. To this effect, a guideline, which specifies the procedures, and the rules
and regulations that need to be observed, must be developed.

c) Encouraging the Participation of Private Investors

Conducive environment has to be created for the participation of investors both in cotton
production and marketing, as well as in oil processing and ginning.

d) Creating Better Access to Finance

The financial constraints faced by cotton producers and traders needs to be addressed through the
following alternatives:-

• Supporting saving and credit associations to broaden their areas of involvement.

• Establishment of Service Co-operative banks with Government's loan-able fund to be
maintained until they are self supporting.
• Establishment and expansion of inventory credit system.
• Provision of financial support to government production enterprises, and similar other
support to private investors.

5.5 Institutional and other support

a) Creating effective institutions that provide services for the promotion of

regional/international trading activities
b) Reducing transaction costs through road improvement, expansion of telecommunication
services

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