Promising investment opportunities in Ethiopian agribusiness

Agricultural Transformation Agency

May 2016, WEF Grow Africa

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Ethiopian agriculture is gaining attention from global investors

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A variety of sub-sectors are taking off, among them beef, dairy, poultry, soybean, fruit & vegetable, wheat, sesame, malt barley, and tef

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FRUIT & VEGETABLE

WHEAT

DAIRYBEEF

SOYBEANPOULTRY

TEFMALT BARLEY

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We have identified and conducted deep-dive analyses on 10 promising investment opportunities; today, we will feature five of them

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BEEF

DAIRY

Cattle fattening and abattoir for the domestic market and regional and Middle Eastern markets

Ultra-High-Temperature Processing (UHT) long-life milk for the domestic market and regional export

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POULTRY

SOYBEAN

Vertically-integrated poultry processing for chicken meat sales to the Ethiopian mass market

Soybean crushing and processing for domestic consumer markets and B2B sales for animal feed

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TOMATO

JUICE

Tomato concentrate processing for domestic and export markets

Mango juice and concentrate processing for Middle Eastern and European export markets

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PRODUCE

WHEAT

Cut, packaged fruit and vegetable for export to European and Middle-Eastern supermarkets

Large-scale wheat processing for pasta, bread, and biscuits for the domestic and regional markets

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SESAME

FEED

Value-add sesame hulling, roasting, and tahini production for the domestic and regional markets

Compound maize-soy blend feed processing for the poultry, dairy, beef sub-sectors

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Why Ethiopia? Ethiopia has the largest livestock population in Africa, with meat exports growing at 25-30% annually

Illustrative investment. A $1-5 million investment in an early-stage integrated feedlot and abattoir has 30-40% IRR

• Livestock comprises 1/6 national GDP and contributed 8% ($211M) of export revenues in 2011

• Ethiopian cattle is well-positioned to tap into protein demand in MENA, the largest food-importing region in the world

• The global beef trade is growing at 4% per year

Priorities for government

The GoE aims to raise red meat production by 52% from 2015-2020. Enhancing private investment in feedlots and ranches and feed production are particular priorities. The GoE targets an over 60-fold increase in production in small feedlots and over 30-fold increase in production in medium feedlots.

Investment size $1-5 million brownfield investment in an overall project of

approximately $15 million

Employment Up to 3,500 direct jobs created and support of over 6,000

smallholder farmers through sourcing contracts

Estimated return IRR of 30-40% over 5 years

Large stock of cattle, abundant feedlot resources, and proximity to a growing appetite for protein make beef an attractive market

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Why Ethiopia? Ethiopia is a 95 million person+ market and urbanization is driving up dairy consumption

Illustrative investment. A $10-12 million investment in a greenfield UHT processing plant has an IRR of 25-35%

• Currently, Ethiopia’s milk consumption is only 19 liters per person – 10% of Sudan’s and 20% of Kenya’s – but urbanization is driving up consumption: per capita consumption in Addis Ababa is 52 liters per person

• In other developing markets, UHT milk has taken off as a substitute for milk – in China, it now accounts for 60% of total milk consumption and in 2012-13, the UHT market in India grew by 53%

• With Ethiopia already spending approximately $10 million annually in foreign powdered milk imports, there is a huge opportunity for domestic UHT production to disrupt the current market

Priorities for government

The GoE aims to increase milk production at an average annual growth rate of 15.5% in the next 5 years. The government is actively encouraging the private sector to produce UHT milk and is making supporting public sector investments in infrastructure, training, and improved breeds.

Investment size A $10-11 million greenfield investment would create a UHT

plant with the largest processing capacity in the Ethiopian

market

Capacity 10,000 liters/hour (80,000 liters/day, 24 million liters/year

Employment 500-600 employees

Estimated return IRR of 25-35% over 5 years

Limited competition, fasting culture, and changing tastes and preferences are pushing long-life milk products to front and center

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Why Ethiopia? A large market with a low base of consumption that could see unprecedented growth

Illustrative investment. A $20 million debt investment in an upcoming poultry processing plant

• Ethiopia has the second-largest population on the African continent and is one of the five fastest-growing economies in the world

• But today, Ethiopians eat an average of only 400g of chicken meat per year, versus 4kg in Kenya and over 40kg in the US

Priorities for government

The GoE is targeting 5x current poultry production in the next 5 years, and investments in poultry have been identified as a key priority in the Livestock Master Plan (LMP), especially in vertically-integrated and large-scale production.

Investment size A $20 million debt investment in an upcoming vertically

integrated poultry plant

Capacity 9-10 million day-old-chicks and 12 million kilograms of

chicken meat

Employment 500+

Estimated return with an interest rate of 15% and a payback period of 7

years is expected to have an IRR of 15-20%

• With rising incomes, accelerating urbanization, and changing tastes and preferences, Ethiopia is becoming one of the world’s last major under-tapped poultry markets.

The potential to disrupt the market is inevitable as the government prioritizes poultry for nutritional and environmental objectives

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Why Ethiopia? With growing livestock sector, there is unmet market for soybean cake as input to animal feed

Illustrative investment. A $1.2 million brownfield investment in soybean processing plant

• Ethiopia’s production in soybean has increased by over 100 fold in the last decade, with a compound growth of 46% in the last 3 years.

• Soybean meal fills the gap in the demand for high protein feed

Priorities for government

The GoE has explicitly prioritized private sector investment in animal feed production. The GoE has targets to increase the average productivity of soybean by 49% between 2015 and 2020 and total volume of production from 72,000 tons in 2015 to 120,000 tons over the same period.

Investment size A $1.2 million debt or equity investment

Capacity At least 5,210 tons of soybean meal cakes and 860,000

litres of soy oil

Employment 100+

Estimated return NPV of $3 million within the next ten years and an IRR of

25-30%

• Ethiopia is endowed with favorable climatic and soil conditions for production in South and Western Ethiopia

Livestock and unique local tastes and preferences are creating demand for a diversified portfolio of soybean products

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Why Ethiopia? Growing local demand for processed tomato represents an attractive investment opportunity

Illustrative investment. A local partner is available to facilitate a greenfield investment of $1.5 - 4 million

• Rising incomes and associated consumer preference shift towards conveniently packed goods are forecasted to lead to demand growth of 5% per annum.

Priorities for government

Fruit and vegetables are a priority sector for the Government of Ethiopia (GoE), which aims to increase production by 47% in the next five years. Domestic and international investors are welcome and will be given priority attention to encourage them to invest.

Investment size A $1.5 - 4 million greenfield investment in an integrated

tomato processing plant

Capacity 4,980 & 9,960 tons per annum, depending on investment

size

Employment Significant

Estimated return IRR of 30-35%

• Ethiopia’s tomato processing sector also represents untapped market potential for export to regional, European and Middle Eastern Markets

Tomato processing is a natural move in a market with abundant produce and limited value-add processing capacity

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• Drive specialization, diversification and commercialization of agriculture for priority commodity value chains in surplus-generating geographic areas

• Enhance production and productivity, quality of outputs, aggregation, value addition and market linkages

• Scale up existing yet proven initiatives that are being undertaken with in the Agricultural Transformation Agenda by the ATA, MoA, RBoA and other partners

• Increase processing and other value addition activities within clusters to generate economic growth within a cluster

• Provide an integrated platform to implement multiple, priority interventions across the value chain and across sectors

• Improve focus and coordination among public sector, private sector, donors and NGOs

• Lay the ground for information delivery infrastructure to optimize extension service provision and develop timely decision support system

ACC Goal ACC Specific Objectives

Increase incomes of small-holder farmers

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Improved access to domestic and international market

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Increased agro-processing and value addition

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Create off-farm employment opportunities

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Ethiopia’s Agricultural Commercialization Clusters (ACCs) Program aims to connect smallholder farmers with commercial supply chains

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ACC priority geographies overlap with Integrated Agro-Industry park plans

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• Investment analysis. The PSA team conducts detailed market analysis, competitive benchmarking, and financial and social analysis on promising investment opportunities, reducing the effort required from investors.

• Technical expertise. Through the ATA’s extensive programs, the PSA team can tap into deep expertise in areas critical to successful investment, including specialized teams on commercial and contract farming, livestock, mechanization, and others.

• Access to local networks. As a government agency with strong connections in the development and private sectors, the ATA is well-positioned to support investors develop critical relationships as they operationalize their investments.

The PSA Team aims to effectively engage private investors and corporations in the

Ethiopian agricultural sector,

with the ultimate aim to connect smallholder farmers with commercial,

market-focused supply chains to increase incomes and improve livelihoods.

The Private Sector in Agriculture (PSA) Team provides targeted support to navigate the Ethiopian investment environment

Innovations to help our country growwww.ata.gov.et