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The Lesser Of Two Goods: Ethiopian Flowers Or Food?

September 2, 2014
AFK Insider

Ethiopian flowers are likely to become a hit in the international auction market bolstered by foreign investment such as KKR & Co., an American private equity fund, maiden venture into Africa through Ethiopia’s sweetheart rose producer Afriflora.

But where does this leave the country in terms of food security? This question becomes poignant when considering that 40 percent of the nation’s 80 million people are undernourished, according to an estimate by the International Food Policy Research Institute.

The horn of Africa Nation is the second-largest producer of cut flowers in Africa after Kenya, with 2012 exports reaching $168 million in value. Total exports from Ethiopia total about $3 billion annually, and coffee is its most prominent commodity.

The country’s flower-growers could, by many measures, be considered an example of true commercial success with a major potential benefit of creating much needed jobs. For example Afriflora, a Fairtrade International certified company, employs over 8,700 people.

“Normally one hectare of land merely supports one household consisting of five members. But when this land is used for the production of flowers, it can employ as much as fifty people,” says Mulugeta Ayalew, a consultant and researcher in Addis Ababa.

Jobs are fantastic, but such deployment of land for export agriculture rather than food might give one pause.

Africa as a whole tends to be very reliant on food imports; according to Tinashe Kapuya, manager of international trade and investment intelligence for South Africa’s Agricultural Business Chamber, “Africa’s food import bill is in the excess of $40 billion, which translates to at least 47 percent of the continent’s total food consumption.” 

“A major share of the food bill is basic staples, which can easily be produced in Africa.” 

There are two major factors driving a lack of local food production. One is policy-related.

International trade and policy

In a broad conversation about agricultural investment, Kapuya stresses that the main drivers of underutilization include population growth, low productivity, policy distortions, weak infrastructure, and poor institutions.

Indeed, he stresses that a lack of investment in staple crops is a reflection of government interventions that make these activities less profitable.

He says, “Export bans, price controls, and input subsidies for smallholder farmers often lead to market distortions that affect farm-level profitability.”

Another factor is foreign agricultural policies, namely in the European Union and United States, which effectively reduce global food prices and make it difficult for African farmers to compete. In this regard, it’s hardly surprising that flower farmers prefer to invest in this high-value commodity, rather than cheaper staple crops.

So could the job growth stimulated by export-driven investments make food security a non-issue? The answer is not yet clear, and it surely depends on some combination of wages, job stability, and the growth of the sector.

It could also hinge on monetary policy: The World Bank recently encouraged Ethiopia to devalue its currency, the birr, in order to strengthen exports. Of course, the downside of a devaluation would be price increases on imports. With relatively little local production of foodstuffs, one has to wonder how the average Ethiopian will manage.

The other potential hazard is a lack of investment in more competitive activities, which command higher pricing from differentiation and value-added processing. Despite being the second largest country in Sub-Saharan Africa, the World Bank notes that “Ethiopia has the lowest ratio of merchandise exports to GDP in the world.”

Such investments could significantly boost Ethiopia’s economic growth, according to a World Bank report. If successful, incomes could rise further and provide some measure of insulation from volatile commodity prices. Perhaps then the issue of where Ethiopia’s food is produced would become less pressing.  

Foreign Investment 

Further concerns about the floriculture industry lie in the pervasiveness of foreign, rather than local, investment in Ethiopia. Indian companies are, according to the Oakland Institute, the biggest investors in Ethiopian agriculture, and China’s Export Import Bank provides financing backed by sales of sesame to China (Ethiopia is the fourth-largest producer in the world). 

So there’s money on the table, but is it the right kind? And who is responsible for ensuring that it is?

Ayalew emphasizes that these investments can provide major benefits for local landholders. “If you take flower farms which are closer to established village centers and main transport lines,” he says, “The investors have acquired them… on the basis of voluntary contractual leases. In these farms, the landholders are earning not only rents but also an opportunity to be employed.” 

To ensure that interests are aligned between commercial investors and domestic policy goals, Kapuya endorses the use of private public partnerships (PPPs). “The advantage of PPPs is that they allow for a balanced approach which caters for both investors, and the government which is acting in the public interest.” 

However, there are a lot of commentaries to be found criticizing foreign-direct investment programs’ lack of benefits for the people — these include issues of governmental “land grabs” and the disenfranchisement of those such as pastoral farmers. In 2012, Human Right Watch issued a report on forced relocations of villages in Ethiopia that condemned the program’s abuses and lack of compensatory resources for those affected. 

On this issue, Kapuya notes that the main failures in farm investment and acquisitions have arisen from a lack of governance. In other words, governments must take responsibility for protecting their citizenry. 

However, ensuring that governments do just that is far from a simple matter. Especially where potentially significant revenues arise, the balance between public policy and self-enrichment can lead to some powerful conflicts of interest. 

Defining success is never easy, but if Ethiopia can encourage the right stuff without falling victim to the wrong stuff, there could be a bright future ahead. The main risks — food security, commodity price exposures, and disenfranchisement — could all conceivably be avoided in the future, and the potential is certainly there. 

It’s a matter of having the will and the fortitude to ensure that it does.