Value Chain Analysis: Feed the Future Value Chain Activity Partnering with the Agricultural Growth Program October 2017

Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

CONTENTS

Executive Summary ...... 1 1. Introduction & Methodology ...... 2 2. Market Analysis of the Commodity ...... 2 2.1 Overview of the Market ...... 2 2.2 Production ...... 3 2.3 Trade ...... 4 2.4 Consumption ...... 6 2.5 Grades & Standards ...... 6 3. Value Chain Actors & Margins Analysis ...... 7 3.1 Farmers ...... 8 Cultivation, Harvest, & Postharvest ...... 8 Seeds ...... 9 Marketing ...... 9 Cooperatives ...... 10 3.2 Traders ...... 10 3.3 Processors ...... 11 3.4 Retailers ...... 12 3.5 Exporters ...... 12 3.6 Supporting Organizations ...... 13 3.7 Value Chain Margins Summary ...... 13 4. Enabling Environment ...... 14 4.1 Accessing Inputs ...... 14 4.2 Accessing Finance ...... 14 4.3 Operating a Business ...... 14 4.4 Linking to Markets ...... 15 4.5 Trading Across Borders ...... 15 5. Recommendations ...... 16

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA EXECUTIVE SUMMARY Ethiopia is one of the top 10 chickpea-producing countries in the world, with nearly 500,000 tons produced in 2015/2016, and has the highest yields of those countries at 1.84 tons per hectare. Ninety- three percent of in Ethiopia are produced in Amhara and Oromia, and 99 percent are produced by farmers with less than 2 hectares of land. Over the past five years, roughly 10 to 16 percent of Ethiopia’s chickpea production was destined for the export market. The largest importer is Pakistan, with India and the United Arab Emirates also importing significant quantities. There are two types of chickpea grown in Ethiopia: desi and kabuli. Desi chickpeas are smaller and darker, used in Ethiopian shiro and in South Asian . Kabuli chickpeas (garbanzo beans) are larger and lighter, and eaten whole or in . The latter commands a higher price in Ethiopia but is a more recent introduction. The hardier and, some say tastier, desi variety predominates in Ethiopia with about a 75 percent market share. Chickpea is usually produced after other major cereal crops, as it thrives in their residual moisture. As a result producers are less dependent on finance than for other crops. Smallholders harvest, thresh, and clean by hand, and this process is blamed for a contamination with dirt and other debris. Chickpeas are mostly marketed through village traders, either by pickup or by bringing to the traders’ facilities and sometimes through cooperatives. Village traders sell to wholesalers, often through a broker if the distances are long. Wholesalers sell to retailers, exporters, and processors, who make baby food, hummus and shiro pre-mix. Retailers primarily sell whole seeds which are semi processed by households, with final grinding done at local grinders. This value chain analysis makes key recommendations for project interventions. 1. Support commercialization of seed producer groups. Since chickpea seeds are open pollinated, there is minimal formal private sector interest. The International Crop Research Institute for the Semi-Arid Tropics (ICRISAT) has set up seed producer groups, but to achieve scale and sustainability, they should be commercialized. 2. Document and disseminate buyer grading requirements. There is ambiguity along the value chain on what buyers need, especially with regard to cleanliness. Buyers want larger seeds but this is not a grading criterion at lower levels of the value chain. 3. Carryout value chain pesticide contamination study and address findings. Recent exports from Ethiopia were rejected because of high levels of pesticide. It is not known where in the value chain this came from nor its prevalence. More research is essential. 4. Explore feasibility of small-sized combine harvest rental services. Dirt and debris contaminate chickpeas through common manual post-harvest practices.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA 1. INTRODUCTION & METHODOLOGY This value chain analysis aims to provide a concise description of the chickpea value chain in Ethiopia, including key constraints and opportunities. The analysis builds off rather than duplicates recent analysis of the chickpea value chain in Ethiopia. It is based on a literature review as well as 13 structured key informant interviews and two focus group discussions conducted with chickpea stakeholders over three 1 weeks of fieldwork in Ethiopia during August to September, 2017.0F Unless otherwise noted, the data presented in the following tables was drawn from Fintrac interviews. This chickpea value chain report proceeds as follows. First, a market and trade dynamics analysis provides an overview of growth opportunities for the commodity. Second, a description of the different levels of the value chain, including key players, and an analysis of how well they are functioning. Additionally, an assessment of the legal, regulatory, and institutional dynamics is provided, which can serve to incentivize or disincentive investment in the value chain. Finally, the report concludes with practical recommendations to improve the value chain. 2. MARKET ANALYSIS OF THE COMMODITY 2.1 OVERVIEW OF THE MARKET There are two main types of chickpeas: desi and kabuli. Desi are smaller, darker and rougher than kabuli and are commonly used in South Asian dal. In Ethiopia, desi chickpeas are used to make a puree called shiro.. Kabuli chickpeas, commonly known as garbanzo beans, are preferred for their size and color and fetch a higher price on the international market. They are primarily eaten unprocessed or in hummus. In Ethiopia, improved kabuli varieties are reported to be increasingly common although the exact ratio between kabuli and desi is not known. Based on interviews conducted for this analysis, about 25 to 30 percent of chickpeas produced in Ethiopia are kabuli. While global chickpea production per capita was relatively flat for several decades, between 2004 and 2014, it increased by 45 percent. India has been the primary driver of this trend. In India, chickpea production increased by more than 70 percent between 2004 and 2014 after having increased by only 20 percent over the prior two decades. At least part of this jump in chickpea production in India may be a 2 result of high chickpea yield increases compared to other pulses.1F In addition, increased demand for chickpea-based processed and snack food may explain part of this trend. Globally, chickpea trade is dominated by imports from India and exports from Australia. Over the past five seasons, Indian chickpea imports have accounted for 36 percent of the world’s chickpea imports, compared to 33 percent for the next four largest importers combined. Similarly, over the same period Australia accounted for 46 percent of the world’s exports, compared to 35 percent for the next four 3 largest exporters combined.2F Other the last four years, Ethiopia exported between 10 percent and 16 4 percent of its chickpea production annually.3F There are mixed projections for the growth in demand for pulses globally, including for chickpeas. Demand is expected to grow with increasing population and incomes. One estimate of the elasticity of demand for pulses is between 1.5 and 2, meaning that a 1 percent increase in income is projected to increase pulse demand by between 0.5 and 1 percent. Part of this project demand growth is the global increase in supermarkets and the associated increase in demand for canned goods, including chickpeas. Additionally,

1 The three weeks was used for interviews across multiple value chains. 2 FAOSTAT, Data Downloaded August 2017 and Comtrade, Data Downloaded August 2017. 3 Comtrade, Data Downloaded September 2017. 4 FAOSTAT, Data Downloaded August 2017 & Central Statistical Agency, Data Downloaded August 2017.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA health conscious changes in advanced markets including gluten free flour alternatives offer promising new 5 sources of demand for chickpeas.4F 2.2 PRODUCTION Chickpeas are the number two pulse in Ethiopia with a little over half the cultivated area and volume of production of faba beans in 2015/2016. The majority of production (over 99 percent) is by producers with 6 less than two hectares of land, who cultivate an average of 0.22 hectares of chickpea per year.5F

7 Figure 1: Top 5 Pulses by Area, Volume, and Yields (MT/ha) for Meher season, 2015/2016 6F

Faba beans (1.91)

Chickpeas (1.83)

Red Haricot (1.56)

Field peas (1.46)

Grass peas (1.81)

0 100 200 300 400 500 600 700 800 900

‘000 MT ’000 HA

8 Of the top 10 chickpea producing countries, Ethiopia has the highest yields at 1.84 MT per hectare.7F The 9 FTFE VCA baseline study estimates chickpea farmers are producing 1,348 kilograms per hectare.8F Within Ethiopia, yields are highest in Oromia, where area cultivated for chickpea has expanded rapidly, accounting for most of the country’s overall chickpea yield increase in recent years. However, experiment stations in Ethiopia reach yields of 4 MTs, indicating significant room for continued yield growth with improved inputs 10 and practices. In 2015/2016, Ethiopia produced 496,302 MT of chickpeas.9F Figure 2: Chickpea Production and Yields (MT/ha) by Region, 2015/2016

Oromia (2.14)

Amhara (1.63)

SNNPR (1.81)

Tigray (1.24)

0 50,000 100,000 150,000 200,000 250,000

5 The International Trade Center (ITC), 2016, United Republic of Tanzania: Value Chain Roadmap for Pulses. 6 Central Statistical Agency, Data Downloaded August 2017. 7 For Figures 1-5: Central Statistical Agency (CSA), Data Downloaded August 2017. 8 Ojjewo, C., 2016, Chickpea Production, Technology Adoption and Market Linkages in Ethiopia. 9 Fintrac, October 2017, FTFE VCA Baseline Report Draft. 10 Central Statistical Agency, Data Downloaded August 2017.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

Figure 3 below shows that chickpea prices in Ethiopia increased dramatically between July 2015 and March 2017, both at farm-gate and retail level. As shown in Table 1, world prices also increased significantly between 2015 and 2016. Value chain stakeholders reported that chickpea prices show little seasonality. The reason given is that many exporters concentrate their buying during peak harvest time (December – January) and therefore demand keeps pace with supply (confirmed in Figure 3 below). For the months where price is available for both producers and retailers, producers’ prices are 83 percent of retail price. However, there is regional variation, for example, in SNNPR producer prices were reported as only 54 11 percent of retail prices.10F Figure 3: Chickpea Farm-gate and Retail Prices, 2015/2016 (Birr/KG)

24 22 20 18 16 Birr/KG 14 12 10 Jul-15 Jul-16 Jan-16 Jan-17 Jun-16 Sep-15 Sep-16 Feb-16 Feb-17 Apr-16 Aug-15 Oct-15 Aug-16 Oct-16 Mar-16 Mar-17 May-16 Dec-15 Dec-16 Nov-15 Nov-16 Producer Retailer

2.3 TRADE Over the past five years, Ethiopia has ranked between sixth and ninth in the world in chickpea exports with 2 to 4 percent of the world’s exports by volume (Figure 4). However, Ethiopia is the largest chickpea 12 exporter from Africa and accounts for about two thirds of the continent’s total exports.1F Globally, exports increased steeply between 2014 and 2015 driven primarily by demand in India. Figure 4: Top 5 Chickpea Exporting Countries and Ethiopia, 2012-2016 3000

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Australia Russia Canada Argentina USA Ethiopia Rest of World

11 Tefera, T., 2014, Analysis of Chickpea Value Chain and Determinants of Market Options Choice in Selected Districts of Southern Ethiopia. 12 Ojjewo, C., 2016, Chickpea Production, Technology Adoption and Market Linkages in Ethiopia.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

13 Annually, Ethiopia has exported between 10 and 16 percent of its production over the past four years.12F Over that period, Pakistan has been the largest importer of Ethiopian chickpea, often by a wide margin. The United Arab Emirates and India have also been major destinations for Ethiopian chickpea (Table 1). Exporters attribute the dramatic increase in price of chickpea exports between 2015 and 2016 to a surge in global demand from the world’s largest importer, India. Additionally informal trade to neighboring drought affected countries including Kenya has attributed to the surge in chickpea prices in Ethiopia. Table 1: Top 5 Destinations for Ethiopian Chickpea Exports by MT, 2012-2016 (price USD/KG in parenthesis) 2012 2013 2014 2015 2016 Top 5 MT Top 5 MT Top 5 MT Top 5 MT Top 5 MT 44,792 30,642 21,179 17,503 36,964 Pakistan Pakistan Pakistan Pakistan Pakistan (.73) (.59) (.47) (.72) (1.08) 10,933 15,736 13,959 15,549 9,860 UAE UAE UAE India UAE (.75) (.61) (.53) (.58) (.99) 8,676 10,419 6,296 8,293 7,962 India Sudan Sudan UAE India (.77) (.71) (.68) (.58) (1.19) Saudi 2,471 2,114 4,584 1,509 3,231 Jordan India Turkey Sudan Arabia (.83) (.62) (.47) (.65) (.81) 1,780 Saudi 2,050 2,972 1,240 1,720 Egypt Jordan Jordan Jordan (.74) Arabia (.71) (.55) (.81) (1.16) All 74,006 40,711 51,093 45,139 62,973 World (.74) (.62) (.53) (.66) (1.07) price .81 .70 .61 .65 .82 Source: Comtrade, Data Downloaded September 2017. The low percentage of total supply of chickpea that is exported, is attributed to poor quality and unreliable supply. In particular, there is a lot a lot of mixing due to harvesting: both between desi and kabuli varieties, between chickpeas and other crops like grass pea, and with dirt or other foreign matter. Additionally, Kabuli chickpeas are often not the right size to meet export market preferences. The lack of vertical 14 integration also is attributed for Ethiopia’s low share of exports.13F However, there are some export advantages including a cropping calendar that is different than competitors, proximity to major Middle East 15 and South Asia markets, and limited application of chemical inputs (de facto organic).14F Figure 5: Top 5 Chickpea Importing Countries, 2012 to 2016 2500

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India Pakistan UAE Algeria USA Rest of world

13 Comtrade, Data Downloaded August 2017 and Central Statistical Agency, Data Downloaded August 2017. 14 USAID, 2012, Cost-Benefit Analysis of Chickpeas Value Chain in Ethiopia. 15 Ojjewo, C., 2016, Chickpea Production, Technology Adoption and Market Linkages in Ethiopia.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

Globally, India is consistently the biggest import market, often doubling or tripling the next largest importer in size. However, its imports are highly variable year to year, fluctuating by more than 100 percent over a three-year period likely based on its own projected harvests. Ethiopian chickpea imports 16 are minimal at less than 0.01 percent of production.15F 2.4 CONSUMPTION Ethiopia consumes 84 to 91 percent of the chickpea it produces, with minimal imports (Table 2). Chickpea 17 producers themselves consume 25 percent of their production.16F Chickpeas are primarily consumed in shiro, a puree made from chickpea flour and eaten with njera. Shiro is most commonly consumed by poorer households as well as by Ethiopia’s Orthodox Christians during their 180 annual fasting days.. Chickpeas are also consumed boiled with grains such as wheat or roasted as a snack, and as flour and hummus. Chickpeas are increasing utilized by food processors in baby food, both for commercial sales and food relief distribution as well as in various snacks and other foods including hummus. Processors include Green Stars, Guts Agro, Fafa, Health Care Food Manufacturers, Hilina Enriched Food Processing, and Ambasel Trading House. Table 2: Ethiopian Chickpea Consumption (MTs) 2013 2014 2015 2016 Production 409,733 423,815 458,682 472,611 Imports 1 36 22 8 Exports 65,631 51,093 45,139 62,973 Consumption 344,103 372,758 413,565 409,646 Source: Comtrade, Data Downloaded August 2017 and Central Statistical Agency (CSA), Data Downloaded August 2017. Pulses in general are a key source of protein for poorer households that may not be able to afford animal protein and also contain other nutritional benefits. Therefore, their consumption can be used as a proxy 18 for food security and the higher pulse prices, the lower the protein intake of the poor.17F However given the variety available, lower income consumers may have the option of substituting a cheaper pulse for a more expensive one.

2.5 GRADES & STANDARDS There are not any common or quantifiable grading specifications for desi or kabuli chickpeas throughout the value chain. At the farm and trader level chickpeas are classified by type (desi or kabuli), color, and cleanliness. Unlike the domestic market, export markets do reward larger sizes and exporters complain that chickpeas are too small. Table 3 shows one exporter’s grading requirements, including purity, moisture, size, and color. A wholesaler in Addis Ababa who sells to exporters knew the exporters test his supply, but was unaware of the exact grading requirements. When the wholesalers’ shipments to the exporter are rejected, the wholesaler just sells to the domestic market where prices are nearly as high. Table 3: Export Chickpea Grades Type Purity (%) Moisture (%) Size (mm) Color Desi 99 <10 4.5-6 Red Kabuli 99 <10 5-7 Cream

16 Comtrade, Data Downloaded August 2017 & Central Statistical Agency, Data Downloaded August 2017. 17 Fintrac, October 2017, FTFE VCA Baseline Data. 18 USAID, 2017, El Nino in Ethiopia: Pulse Price Trends – March 2017.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA 3. VALUE CHAIN ACTORS & MARGINS ANALYSIS

Figure 6: Chickpea Value Chain Map

Domestic market Exports End Market (84% to 91% (9% to 16%)

Processors Exporters e.g. Fafa, Guts Buyers Retailers e.g. Albar Trading Agro (300 to 16,000 MT) (~300 MT)

Wholesalers (~200 MT)

Traders

Cooperatives and Village traders FCUs

Smallholders (<2 HA) Large farms Producers (99%) (1%)

Seeds and fertilizer Pesticides Inputs FCUs to Coops, Government, Self multiplied, other Private farmers

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

3.1 FARMERS Cultivation, Harvest, & Postharvest Chickpeas fix nitrogen and thrive where there is residual moisture from a previous crop. Therefore they 19 are often cultivated directly after a harvest of cereal crops.18F About a quarter of chickpea production is 20 21 consumed by producers,19F who report also increasing income from their sales of chickpea.20F Desi types are preferred by many because they are more moisture stress resistant whereas kabuli types require more inputs to maximize their yield potential. Additionally, desi are said to have better taste. Yet kabuli types have higher prices. In focus groups, producers only reported using some DAP if the rainy season is too long. Some reported using insecticide. In general however Ethiopian chickpea production is said to be low input intensity, 22 although there are no recent adoption estimates available for improved inputs.21F There is some pest and disease problem. One commercial farmer complained of a high incidence of pests at flowering and pod 23 stages.2F In Oromia, producers reported a significant root rot problem that cost one farmer at least half of his crop. They have reported it to the local Department of Agriculture but thus far the problem has not been addressed. Another problem is harvest and postharvest loss, which in focus groups, producers estimated this to be up to 20 percent. And Potential intervention: even before harvest producers may lose their chickpeas to Explore feasibility of combine animals eating the plants. If not harvested on time, chickpeas harvester rental services with small may dry and fall on the ground. Furthermore, rain during combine harvesters. harvest time can cause pods to open and drop their seeds. Smallholders harvest with a sickle, transport to a threshing site, and then use oxen for threshing. They lose grain transporting to the threshing site. Buyers at all levels complain chickpeas are mixed with dirt and other debris. Producers report that to avoid dirt and debris mixing with the chickpea, one has to make a mud plaster or put down plastic before threshing to avoid contamination. However they say not all farmers use either of these techniques and as a result there is contamination. Even with these techniques, the oxen’s hooves can stir up dirt and contaminate the chickpea. After threshing, producers attempt to remove hulls by throwing the chickpeas in the air and letting the wind take the lighter material. Producers report postharvest storage is also a challenge. Producers can store for 9 to 12 months if price is too low. They store the chickpea in sacks elevated in their house, where rodents and weevils can be a problem. Some report storing with insecticide to prevent this but proper practice is not always applied, which can lead to contamination. The insecticide should be between the sacks and not in them and should be wrapped in plastic. It is not obvious if producers are following this recommended practice. Women are involved in all harvest and post-harvest activities, except tilling with oxen. Women are said to be heavily involved in cutting the crop, carrying from the field to the threshing site, and sometimes selling the lower quality portion to the market. There are some large commercial chickpea farmers. They are also hindered by lack of post-harvest mechanization and struggle with the same dirt and debris contamination as faced by smallholders. As a result, for example, one large commercial farm is unable to access the top exporter because of poor

19 USAID, 2012, Cost-Benefit Analysis of Chickpeas Value Chain in Ethiopia. 20 Fintrac, October 2017, FTFE VCA Baseline Report Draft. 21 Tefera, T., 2014, Analysis of Chickpea Value Chain and Determinants of Market Options Choice in Selected Districts of Southern Ethiopia. 22 Ojjewo, C., 2016, Chickpea Production, Technology Adoption and Market Linkages in Ethiopia. 23 National Chickpea Platform, 2017, Meeting Report.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA quality. This commercial farm wants to buy a combine harvester but access to finance is the limited. The challenge for large commercial farms is that they are only competitive with mechanization but investment capital is expensive and hard to come by. In order to lease land from the government for a large-scale project, commercial farmers are required to invest in and work with smallholders in the community. Seeds

24 Globally, there are very limited hybrid chickpea seeds and therefore producers multiply their own seeds.23F As a result, the private sector’s involvement in seeds is limited and less than two percent of all legume 25 seeds in Ethiopia is said to originate from the private sector. 24F Instead seed is often multiplied by farmers individually through the cooperative system or through seed producer associations set up by International Crop Research Institute for the Semi-Arid Tropics (ICRISAT). Unions report that parent seeds for multiplication are sometimes late arriving from the government. Seed cultivars in Ethiopia are said to be old with the average age 17.5 years. Dissemination of newly released varieties is slow not because of regulation but because of limited government capacity for producing early generation seeds. Some producers interviewed stated a preference for Arerti seeds, distributed from The Ethiopian Institute for Agricultural Research (EIAR) because they like the large seed size. Recently the Italian pulses trading company Agricultural Commodities Supply (ACOS) was unsatisfied with the supply of chickpea from Ethiopia and began importing an improved variety from Mexico, with EIAR approval. This kabuli variety is higher yielding and produces larger seeds. ACOS multiplies the seed through its affiliated cooperatives, providing it with access to higher quality supply than other exporters. Marketing In focus groups, chickpea producers reported that the choice of who to sell to is based purely on price which is determined by phone call to several local traders. Producers reported that cash advances for chickpea are limited because chickpea is cultivated after other crops when there is not a cash shortage. However traders say at times they do give out advances. Producers bring their chickpeas to the trader or cooperative, or the trader or cooperative picks up the production from their farm. The primary reasons for rejection by buyers are too much contamination, weevils or shriveling. Table 4 below shows low and high producer prices collected through fieldwork for this study. Some producers sell by characteristics while others sell only by type (desi or kabuli). However even within those types, it is likely that buyers had a minimum quality standard that looked similar to the description given by smallholders from Amhara. Note that kabuli prices were about 25 percent higher than desi prices for the smallholders in Oromia. Table 4: Producer Prices, 2016/2017 (Birr/Quintal) Location Grade/Description Low price High price Smallholders, Amhara 1. Seeds fully filled, no foreign matter, 1,725 2,230 no old seeds 2. Not as filled, more foreign matter, 1,500 2,000 some old seeds 3. The rest – for animals Price not available Price not available Smallholders, Oromia Kabuli Arerti (bigger seeds) 2,600 2,600 Kabuli - Shalo 2,450 2,450 Desi 2,000 2,000 Large farm, Oromia Unspecified 2,500 3,000

24 Gaur, P., Unknown, The Chickpea Success Story. 25 Debre Zeit Agricultural Research Center, 2017, National Chickpea Platform: Meeting Report.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

Cooperatives As of 2012, 36 percent of smallholders in Ethiopia were members of an agricultural cooperative with 22 26 percent of cooperative members being women.25F In general, agricultural cooperatives provide three main services: access to inputs (92 percent of cooperatives), credit (71 percent), and marketing (47 percent). Many provide these services to members and non-members alike. Access to inputs is the main motivation 27 for joining a cooperative for 79 percent of members as members get priority access to inputs.26F Cooperatives earn revenue through membership fees and margins or commissions on services provided. Eighty percent of cooperatives were affiliated with a farmer cooperative union (FCU), or an apex body to 28 facilitate and coordinate services amongst primary member cooperatives.27F FCUs distribute inputs and credits to primary cooperatives and aggregate their production for marketing. As discussed above, chickpea FCUs and cooperatives are involved in multiplying chickpea seed. This in fact appears to be their most important role in the chickpea value chain, given the seed industry’s limited interest in chickpea seeds. FCUs interviewed for this study, reported buying only a small share of the chickpeas their members produced. They lack the storage capacity to buy more, even though there is market demand. One FCU commented that even in selling the small amounts they marketed, they faced a problem of inconsistency of supply quality between their members. Another mentioned that some of their cooperatives overpay for bad quality and then have difficulty selling. Table 5: FCU Buy and Sell Prices, 2016/2016 (Birr/Quintal) Location Grade/Description Buy low Buy High Sell Low Sell high Oromia Mostly Desi 2,300 2,500 2,500 2,800 Oromia Kabuli 1,800 2,100 1,850 2,350 Desi 1,650 1,850 1,950 1,950

3.2 TRADERS Producers mostly sell to village traders and either transport to the traders or the traders pick them up farm-gate. Village traders sell to wholesalers either locally or in Addis Ababa. Wholesalers in Addis Ababa use a broker to procure from village traders in production areas who will transport the chickpea by one or two ton trucks. Exporters will give wholesalers 10 to 15 days to fill an order specifying price. The wholesaler then communicates this to the suppliers. Sometimes for a big order a wholesaler will get an advanced payment from an exporter. One village trader complained that there is a three to four-day lag between dropping off his supply and payment. Once or twice a year he has the experience of not being paid at all. He once tried to take a broker to court to get the 400,000 ETB he claimed was owed but was not successful. He has also received bad checks in the past so there is clearly no practice of a formal receipt system that would give legal standing to transactions. This lack of receipts can be a problem for remote traders forced to deal to rely on unfamiliar brokers from far away. Wholesalers may make advanced payments by two or three months if they have a relationship with the producers. In fact, a 2014 study found that wholesalers were the major source of credit in the chickpea 29 value chain in SNNPR.28F One wholesaler interviewed was able to access one million ETB credit from the

26 International Food Policy Research Institute (IFPRI), 2013, Agricultural Cooperatives in Ethiopia: results of the 2012 ATA Baseline Survey. 27 Ibid. 28 Ibid. 29 Tefera, T., 2014, Analysis of Chickpea Value Chain and Determinants of Market Options Choice in Selected Districts of Southern Ethiopia.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

Oromia Cooperative Bank this year because he is a shareholder and his house is the collateral. He said he would not have been able to get a loan close to that size were he not a shareholder. Both village traders and wholesalers reported similar quality challenges. The biggest problem and one they hear from their buyers is mixing with dirt and other debris. However, one wholesaler suspects that buyers exaggerate the problem to reduce the price. According to this same wholesaler, the cleanliness requirements of exporters is not possible for smallholders. Another wholesaler in Addis said dirt is not a problem because exporters have machines to clean chickpeas. Besides dirt and debris contamination, other quality challenges for traders include shriveling from frost, premature harvest, untimely rain that results in color changes, weevils, and other distortions. Some exporters have on-site laboratories to test chickpea for export criteria, but this is not necessarily communicated Potential Intervention: to their suppliers. One wholesaler said he did not understand Document and disseminate buyer what they look for even though two of his shipments were requirements throughout value chain. rejected this past season. In that case, the wholesaler sells locally. In other words, he can buy all at one standard and then let the export chose the best and still have a guaranteed market for the rejected chickpeas. Table 6 shows that some traders describe their purchases by type (kabuli or desi) while others distinguish by color and minimum foreign material requirements. The price premium for kabuli over desi ranges from 17 to 38 percent, with the premium higher when prices are lower. Table 6: Chickpea Trader Buy and Sale Prices, 2016/2017 (Birr/Quintal) Trader, Buy Buy Sell Sell Grade/Description Location Low High Low High Village trader, 1st. cream color, minimal foreign material 1,700 2,000 1,850 2,200 Amhara Wholesaler, Kabuli 2,300 2,500 2,400 2,600 Oromia Desi 1,800 2,100 1,900 2,150 Wholesaler, Kabuli 2,200 2,700 2,250 2,750 Addis Ababa Desi 1,600 2,300 1,650 2,350

3.3 PROCESSORS Chickpeas are used as an ingredient in baby food, making up about 10 percent of some common recipes in Ethiopia (maize is the main ingredient). While this is primarily produced for institutional buyers and food relief programs, companies are trying to diversify to the commercial baby food sector. However, they face strong competition from both the higher end imports of baby food and from cheaper homemade baby food. Other products processed from chickpeas include an easy-make shiro mix that only requires adding water, snack foods, and hummus. Chickpea processors face challenges with small seed size and impurities. Food manufacturers face competition from lower priced competitors who do not meet the competency standards required by the Ministry of Health. These requirements include nutrition, ingredients, and shelf life labeling, as well as annual inspections of manufacturing facilities. The added cost of compliance means that companies which comply are at a competitive disadvantage with less educated consumers. One large processor buys exclusively from FCUs with 1 to 3-month contracts specifying the quantity and price market price on delivery. They pay 30 percent of the estimated cost in advance. The contracts are not legal agreements and FCUs do not always deliver on time. However, they prefer this to the open market where they previously had bad experiences of suppliers giving them good samples but delivering bad products. They also did not get invoices previously as traders wanted to avoid taxes.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

Cash flow may be a problem for processors as buyers are often slow to pay. Sometimes institutional buyers take as long as 8-10 months to pay whereas supermarkets may take as long as a year. Additionally, chickpea price volatility and especially the recent steep increase in chickpea prices hurts manufacturers as they are reluctant to increase product pricing and pass on added costs to their customers. Table 7: Chickpea Manufacturer Buy and Sale Prices, 2016/2017 (Birr/Quintal) Grade/Description Buy Price (Low) Buy Price (Low) Sale Price Kabuli 3,200 4,000 Chickpeas Desi (for Shiro) Unknown 2,500 Shiro mix 5,000 Commercial baby food Processed 7,200 (250 gram package) Products Food relief baby food 1,600 (1 quintal package) Local small-scale millers are used for final processing of both shiro and a chickpea flour used in some bread. Household consumers clean the chickpeas, grind them, and sometimes mix them with other ingredients and then take that mix to local millers for processing into a shiro flour. These local millers only act as service providers and do not themselves sell chickpeas. 3.4 RETAILERS Rural retailers often buy directly from producers and sell primarily unprocessed. Urban retailers buy processed and unprocessed chickpeas mostly from wholesalers. Supermarkets sell processed chickpea products as well as cleaned and packaged dry chickpeas. A 2014 study found that retailers had the highest 30 gross margins in the value chain at 14.4 percent.29F 3.5 EXPORTERS While there are numerous exporters, the chickpea export market is dominated by a single exporter, Abreham Abebe Mengiste, who over the past three seasons has accounted between a third and fourth of all chickpea exports by volume. That exporter has exported three or four times more volume than the 31 next largest exporter. There is significant variation in volume of exports by exporter each year.30F Reportedly, there are no exporters specializing in chickpea export exclusively, which might explain the 32 variation in volume of exports by exporter year to year. 31F As a result of the foreign currency shortage, some exporters are said to be exporting just to earn foreign currency and not to make a profit. They buy up chickpea above market price to earn foreign exchange for imports. For example, one stakeholder reported that some companies export chickpeas at a 40 percent loss but then use the foreign currency to import other goods at a 200 percent profit. This obviously distorts the market and increases prices. In fact, one exporter said he stopped exporting chickpeas this past year because prices were too high for him to compete. The apparent entry and exit of exporters year by year and the use of chickpea exports just to earn foreign currency also weakens incentives for quality. Many exporters are apparently competing on price and are not on the market long term. Therefore, establishing a reputation for quality and investing in your supply chain to achieve that quality becomes less important. Exporters buy through wholesalers, from cooperatives, FCUs, and from large commercial farms. They will give a timeframe for suppliers to fill the order as well as the price and sometimes make advanced payments. Exporters say that Ethiopian chickpea sizes are too small and as a result they are not competitive in

30 Tefera, T., 2014, Analysis of Chickpea Value Chain and Determinants of Market Options Choice in Selected Districts of Southern Ethiopia. 31 Debrezeit Agricultural Research Center, 2017, Chickpea Production and Export: Trends and Analysis for Ethiopia. 32 USAID, 2012, Cost-Benefit Analysis of Chickpeas Value Chain in Ethiopia.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA international high-end markets. Additionally, there is much variation in quality of chickpeas due not only to diverse agro-climatic conditions but also diverse farming and postharvest practices. 3.6 SUPPORTING ORGANIZATIONS ICRISAT has been working on improving chickpea seeds and increasing access to improved seeds. They have developed Potential Intervention: eight out of the ten chickpea seeds in production in Ethiopia. Support commercialization of seed In 2013, the TL II Chickpea Project identified shortage of producer groups. improved chickpea to be a major constraint. Public sector seed companies were not interested in producing chickpea seeds. The project established 20 farm seed producer associations, each with about 100 members in Amhara and Oromia. These are now said to be 33 the major source of seeds in the country.32F However only 20-30 percent of the yield gap is estimated to 34 be variety related.3F Currently one of ICRISAT’s priorities for chickpeas in Ethiopia is to commercialize seed producer associations. Another priority is promoting chickpea as break crop in irrigated areas to break the pest cycle and take advantage of chickpeas ability to thrive in residual moisture. They are also looking at combine harvested varieties common in India, as well as pest resistant varieties. The Ethiopian Institute for Agricultural Research in Debre Zeit has a chickpea breeding program and is said to be prioritizing chickpeas. Chickpeas are not however viewed as a high priority crop by the Government and is not one of the crops that the Agricultural Transformation Agency is working on. There is the Pulses, Oilseeds and Spices Processors – Exporters Association. They are not involved at the producer level and it is not clear how active they are nor the extent of their focus on chickpeas. 3.7 VALUE CHAIN MARGINS SUMMARY Note that the margins below are based on very limited sample and are illustrative rather that representative. Additionally, the wholesalers likely are under-reporting their margins as a gross margin of just two or three percent is not realistic. In fact, a 2014 study found gross margins for wholesalers of around 12 percent. Additionally, though no data was collected for this analysis, that same study found 35 retailers had the highest margins in the value chain at 14 percent gross.34F Throughout the value chain, there are significant premiums available for kabuli over desi variety. Table 8: Illustrative Chickpea Value Chain Gross Margins Summary for 2016/2017 (Birr/Quintal) Buy Sell Margin Level Type Low High Low High Low High Kabuli 2,525 Producer Desi 2,000 Kabuli 1,800 2,100 1,850 2,350 50 250 FCU Desi 1,650 1,850 1,950 1,950 300 100 Village trader Unknown 1,700 2,000 1,850 2,200 150 200 Kabuli 2,250 2,600 2,325 2,675 75 75 Wholesalers Desi 1,700 2,200 1,775 2,250 75 50 Kabuli 3,200 4,000 Processor Desi 2,500

33 Debre Zeit Agricultural Research Center, 2017, The National Chickpea Stakeholders’ Innovation Platform to date: structure, experiences, challenges and achievements. 34 National Chickpea Platform, 2017, Meeting Report. 35 Tefera, T., 2014, Analysis of Chickpea Value Chain and Determinants of Market Options Choice in Selected Districts of Southern Ethiopia.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA 4. ENABLING ENVIRONMENT 4.1 ACCESSING INPUTS The government has a heavy hand in fertilizer and improved seeds provision but not as much involvement as some stakeholders would prefer, such as in pesticide regulations and enforcement. Consequently, private sector importers and manufacturers of quality inputs, both seeds and pesticides, face competition from heavily subsidized and promoted government seeds and from cheap imitation pesticides which are often ineffective. While new pesticides must be registered before introduction, once imported there is no follow-up inspection to ensure quality as advertised. Unlike with other crops such as maize, there is no formal and coordinated government mechanism to assess demand for seed and disseminate accordingly. Instead cooperatives and FCUS are the primary mechanism for seed multiplication and distribution and they get their parent seeds from the EIAR or in some cases such as with ACOS, the private sector. Fertilizer is the domain of the Government of Ethiopia (GoE) which distributes imported fertilizer through the cooperative system after assessing demand. Fertilizer is distributed to 33 government warehouses around the country. From there, selected cooperatives unions take up the fertilizers allocated to them on credit and transport to the stores of other unions that are not selected, as well as to their primary cooperatives. Individual producers buy the varieties and quantities of fertilizers they need from their local primary cooperatives. Issues with this system identified by interviewees include delays, shortages, and lack of appropriate options for different agro-climatic zones. In response to those challenges, a fertilizer market liberalization policy has been proposed but is not yet approved. The proposed changes include recommendation of about 14 different varieties of fertilizers based on the recently completed soil mapping of the country; establishment of different fertilizer blending factories in different regions of the country; and incentivizing both local and international investors to engage in production of fertilizers locally. 4.2 ACCESSING FINANCE As discussed previously, producer demand for credit in chickpeas appears to be relatively low because it is cultivated following harvest and sale of other crops. Throughout the value chain, interest rates are high, between 12-24 percent per year, with the higher end of the range from microfinance institutions (MFIs). In general smallholders are reluctant to borrow because of the risk of having to pay back after a lost harvest. Limited crop insurance is available in parts of Oromia but administrative costs are high and currently crop insurance must be subsidized to be affordable for smallholders. For larger borrowers not only are interest rates considered high, but collateral requirements are difficult to meet even for relatively successful traders and input providers. There is also a prevalent view that loans are not issued impartially or objectively. Exporters can access finance at a reduced interest rate if they have a contract from the buyer. With a contract, the interest rate is 9 to 10 percent. Without, the rate is 13 to 14 percent. However not all exporters have a contract and can access this discount. 4.3 OPERATING A BUSINESS Lack of law enforcement puts businesses who comply at a competitive disadvantage. Food processing companies complying with competency standards from the Ministry of Health incur higher costs than those able to skirt these requirements. Not only is there a fee of 50,000 birr per year, but compliance itself adds cost including packaging and labeling. Pesticide companies compete against unregulated imitation products that both undercut their market and hurt consumer confidence. Traders also face similar enforcement issues, with registered traders having to pay taxes while unregistered companies avoid them.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

Additionally, some traders view taxation as arbitrary, with the tax inspector basing their tax bill on the stock they have when the inspector comes and not their actual records. Price volatility is also viewed as a challenge by chickpea businesses due to the interaction of supply, a strong domestic market, the international market, and the distorting role of exporters able to export at a loss to earn foreign currency. 4.4 LINKING TO MARKETS Access to roads and markets is limited for producers in Ethiopia, especially for producers with less than a hectare. The table below shows distances for maize producers from relevant infrastructure and institutions as an approximation for chickpea producers. The table shows that producers with smaller landholdings have to travel significantly further than those with larger farms to reach a road or market. The combination of small farm size with long distance from markets doubly increases marketing costs. Table 9: Maize Farmers Access to Infrastructure and Institutional Services, 2012 Distance to nearest (minutes) <0.5 ha >.5-1 ha 1-2 ha >2 ha All Dry season road 40.6 72.9 21.4 8.5 44.4 All weather road 84.5 97.9 38.7 22.2 83.7 Asphalt/tar road 201 218.2 106.1 125.9 198.4 Market place 83.7 86.5 50.9 36.2 82.1 Woreda center 162 162.2 101.2 95.1 158.3 Agricultural coop 73.1 88.4 57.0 44.6 74.4 Agricultural input dealer 75.6 90.1 56.1 34.3 76.4 Source: International Food Policy Research Institute (IFPRI), 2015, Maize Value Chain in Ethiopia: Structure, Conduct and Performance. 4.5 TRADING ACROSS BORDERS According to the World Bank Logistics Performance Index (LPI), Ethiopia ranks 126 out 160 countries scored for trade logistics performance. Table 10 below shows that Ethiopia performs the best in customs (defined as “the efficiency of customs and border management clearance”) and the worst at timeliness (defined as “the frequency with which shipments reach consignees within scheduled or expected delivery 36 times”). 35F One exporter complained that certifying exports is costly and requires going to multiple offices for documentation. Additionally, inspection capacity is low which causes delays. Table 10: Ethiopia’s Ranking on Logistics Performance Index 2017 (out of 160 countries) Customs International Logistics Infrastructure Tracking Timeliness Overall Shipments Competence &Tracing LPI 80 102 117 133 133 149 126 Source: World Bank, Data Downloaded October 2017. Ethiopia’s stark trade imbalance and consequential inflated value of foreign currency poses problems for importers. Input providers complain they lack hard foreign currency to import enough to keep up with demand. One input wholesaler estimated this shortfall at 25 percent. The foreign currency shortfall increases costs and adds delays, so manufacturers stockpile imported ingredients. Some exporters are said to export chickpeas at a loss just to earn valuable foreign exchange, obviously distorting the market. In 2016, chickpea exports originating from Ethiopia were rejected because of excess chemical residue. It is not entirely Potential Intervention: clear where this excess chemical residue originated from or its Carryout study on pesticide prevalence. Some speculate that it is at the farm level while contamination studies along the others say it may have been contamination from pest prevention value chain and develop strategy treatment during storage. In either case, this is a liability for the to address findings. entire sector and all value chain actors.

36 World Bank, Data Downloaded October 2017.

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA 5. RECOMMENDATIONS

Recommendation 1: Support commercialization of Seed Producer Groups

Feasibility Medium

Potential impact High

Resources required Medium Because chickpea seed is open pollinated (not hybrid), private sector seed companies have little financial incentive and are not involved in chickpea seeds. ICRISAT has already Rationale developed seed producer groups producing improved seeds and is looking to fully commercialize them for sustainability and scale. Additionally, ACOS is multiplying high quality improved seeds through cooperatives but scale is limited. Assess capacity of seed producer groups and develop strategy to commercialize. This Activities may include business skills and marketing training as well as facilitating access to finance. Assess potential of expanding ACOS seed production through seed producer groups. Potential partners ICRISAT, ACOS, MFIs

Recommendation 2: Document and disseminate buyer grading requirements

Feasibility High

Potential impact Medium

Resources required Medium There is confusion throughout the value chain about what buyers actually require in terms of quality. For example size is not a grading criteria at lower levels even though Rationale exporters and processors look for larger seeds. Likewise there is confusion on how clean chickpeas actually need to be. Through extensive interviews with buyers, determine their requirements, and approximate premiums. This includes desi and kabuli for retail, processing, and export Activities markets. Identify best practices for producers to achieve these requirements. Disseminate these requirements and best practices through the national extension system and directly through project trainings. National Chickpea Platform, Pulses, Oilseeds and Spices Processors – Exporters Potential partners Association, MoANR

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Feed the Future Ethiopia Value Chain Activity | Value Chain Analysis: CHICKPEA

Recommendation 3: Carryout study on pesticide contamination in the value chain and develop strategy to address findings Feasibility High

Potential impact Medium

Resources required Medium Importers have recently rejected Ethiopian chickpea because of high chemical Rationale concentrations. However it is not clear exactly where in the value chain was the source of the problem, nor the actual extent of the problem. Carryout a study to identify where in the value chain the over-application of chemicals is occurring and how extensive it is. It may be some producers over-applying pesticides Activities and/or applying low quality pesticides. Or it may be the chemical treatment used in storage at various levels, including the farm level. Based on the findings, develop and implement a strategy to address this problem. National Chickpea Platform, Pulses, Oilseeds and Spices Processors – Exporters Potential partners Association, Crop Life, EIAR

Recommendation 4: Explore feasibility of combine harvester rental services with small combine harvesters and mobile threshing equipment Feasibility Low

Potential impact High

Resources required High Postharvest losses are high and contamination of chickpeas also high due to manual harvest and threshing. Most production is by smallholders who obviously do not have Rationale the resources to mechanize. The possibility of introducing smaller combine harvesters was also raised in the National Chickpea Platform meeting in August 2017. Assess availability, cost, and appropriateness of smaller combine harvesters and mobile threshing equipment. Analyze demand for the services as well as potential profitability Activities for service providers. Identify appropriate service providers as well as complimentary services they could or may already be providing. Potential partners National Chickpea Platform

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