The Future of Smallholder Farming in Eastern Africa - Uganda ...

6.2. Large-scale processors
To understand the structure of grain-processing factories, a survey of factories was also
implemented, and a total of eight public and private processors were interviewed through a
structured questionnaire covering their operations through the end of 2002. The questionnaire
asked the surveyed processors about a broad range of issues, including marketing, transport,
storage facilities, and the role they envision for the government in regulation.
More than three-quarters of processors handle only one type of grain--wheat, for producing
flour, spaghetti, and macaroni. It was also reported that the average actual processing
capacity of these processors was 47 tons per day, while the potential was 65 tons per day.
This result shows that the processors utilize only about 73 percent of their capacity, mainly
owing to low demand for their products (consumers have a bias in favor of imported flour).
The companies have reported that imported flour has depressed the price of local flour and
their market share.
Most of the processors do not buy grain from the central grain market. Instead they purchase
wheat from farmers’ cooperatives, state farms, EGTE, and other wholesale suppliers. The
majority of the flour factories procure locally produced wheat directly from the producing
areas. Over 95 percent of the wheat requirement was met locally in 2001, and some 86
percent reported having contractual arrangements with local suppliers. 10
Many of the processors have limited storage facilities, with an average storage capacity of
6,656 tons. More than 60 percent reported having less than the mean. Limited storage
capacity implies that processors cannot take advantage of low prices prevailing immediately
after harvest.
The major buyers or customers include distributors, defense, universities, bakeries, retailers,
and individuals. Given the demand-constrained environment, credit sales are used to enhance
sales. Nonetheless, as in the case of brokers and retailers, defaults are serious obstacles.
Default was reported in almost half of the cases, and, on average, birr 272,000 had been lost
in the preceding three years. Weak legal and contract enforcement mechanisms have
constrained the operation of processing firms in Ethiopia.
7. CONCLUSION AND POLICY IMPLICATIONS
Despite some improvements following liberalization, grain marketing systems in Ethiopia are
characterized by a lack of modernization, a limited number of large interregional traders with
adequate storage and working capital, high handling costs, an inadequate market information
system, weak bargaining power, and an underdeveloped processing industrial sector.
10 Note that about a quarter reported to have purchased imported wheat in the domestic market that has come
through food aid and emerging evidences indicate that this has a disincentive effect on local wheat producers
though increasing the total supply of wheat and depressing prices in the local market.