Food and Beverage Industry

The food processing sector of Ethiopia is the largest manufacturing industry in the country. According to a country study report by WUR (2013), the food processing industry accounted for 39% of the gross value of production (GVP) in large and medium size manufacturing in 2009/10. The industry achieved a total GVP of 16.220 billion Birr (900 million USD).

The study also shows that sugar, bakery and grain milling were the largest food industry sectors that together contributed about half (47%) of the total GVP. Flour (wheat), sugar, and biscuit were the largest processing subsectors, excluding drinks.

According to the report, there are 560 enterprises in the food manufacturing sector. These manufacturers provide 60,000 jobs. Most of the manufacturers are private (536). Grain millers and bakeries together account for 370 of the total number of industries.

Food processing is not only the largest but also one that offers top opportunities for investment. In fact, Ethiopia has huge potential for the further development of emerging food processing industry sectors such as cereals, pulses, oilseeds, fruits and vegetables, spices, coffee, tea, livestock and meat, poultry, and dairy. In addition, there are prospects for chain development and value addition in new sectors such as commercial intensive scale aquaculture and potato where processing is still non-existent.

This article outlines the key reasons for investment in food processing, business opportunities, and other basic guides for agribusinesses. It is intended to help particularly new investors who wish to enter the sector.

Key Reasons for Investment in food processing

  1. Huge natural resource potential

Ethiopia has vast land and huge natural resource base for developing new areas and improving existing ones. The country has suitable growing conditions for production of a range of food and beverage crops. Cereals, pulses, oilseeds, spices, fruits and vegetables are grown in diverse agro-ecological zones across the country.

Ethiopia is the leading producer in Africa of many agricultural products such as sesame and livestock. That indicates a huge potential for the development of food products of crop and animal sources.

  1. Increasing domestic demand

Ethiopia is one of the most populous countries in Africa. A population of about 90 million offers huge market for processed food products. Studies also show an increasing consumer demand for such food products as meat, edible oil, biscuit, pasta, fruit juices, edible vegetables, and many more.

  1. Export market potential

Ethiopia has a long history and experience in exporting food products. The total export volume in 2011, for instance, was 992 kilotons (WUR 2013). As a result, there is an increasing interest and international recognition for Ethiopian products such as oilseeds, spices, coffee, pulses, and tea.

These products, however, are in most cases exported raw to a range of destinations such as EU, the Middle East, USA and Asia. Food processing and value addition opens much wider room for investment in emerging and new sectors.

  1. Potential for import substitution

Despite its resource potential, Ethiopia paradoxically imports several food products, both in ‘real trade’ and food aid. In 2011, for instance, the total volume of food products imported into Ethiopia was 1,945 kilotons. The top three products in volume (kilotons) were wheat and meslin (1078), cane/beat sugar (246) and palm oil (23) (WUR 2013.). According to the study, processed food is hardly imported. It amounted to a total of 11 kilotons in 2011 of which 8 kilotons was fruit juice.

The current import trend and growing consumer interest implies opportunities for investment in food products that have potential role for import substitution and improvement of the trade balance. An oilseeds business opportunity study ((Wijnands et al. 2011), for instance, identifies such opportunities in soybean edible oilseed production, crushing and processing. That demonstrates the potential of the country to tackle its dependence on imported palm oil and soybean oil for supplying 80% the domestic edible oil consumption despite the potential of the country to be self-sufficient.

A significant amount of soybean blended food is also imported to Ethiopia (Wijnands et al. 2011). Increased domestic edible oil and soybean blended food can substitute these products and improve the trade balance, implying opportunities and economic benefits for investment in soybean production and processing of the imported products locally.

  1. Enabling government policy for private sector role in nutrition and food security

According to WUR (2014), the Growth and Transformation Plan (GTP) of the Government of Ethiopia foresees a Food Security Program including measures at industry and household levels. On the basis of such policy measures, the study identifies opportunities in two special areas of intervention for the private sector. These are:

  • Food fortification. Involvement and role of both the government and the private sector to tack malnutrition through production of fortified food.
  • Preservation. Regional collaboration for transfer of technologies to small-scale farmers that help reduce post-harvest losses and increase food security.
  1. Competitive incentive packages for development of the manufacturing industry

The government offers regulatory and fiscal incentives for investment in high priority export sectors. It provides investment, infrastructure and tax incentives for investors who wish to establish and run private owned industrial development zones, including agro-industrial parks. Those who wish to establish an enterprise in an industrial development zone can also gain such benefits.