Report No. 969b-ET

Ethiopia FILE COAppraisal of the Grain Storage pyand Marketing ProjectMay 17, 1977

East Africa RegionGeneral Agriculture Division

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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CCRRENCY EQUIVALENTS

Currency Unit Ethiopian BirrUS $0.483 Birr 1.00US $1.00 Birr 2.07US $483,000 Birr 1.0 million

WEIGHTS ASD MEASURES

1 kilogram (kg) 2.205 pounds (lb)1 quintal (qt) 10C kilograms (kg)1 metric ton (MT) 2.2046 pounds (lb)1 square meter (m2) 1.19599 square yards (sq)1 cubic meter (mi3 ) 1.3079 cubic yards (cu)1 hectare (ha) 2.471- acres (ac)1 kilometer (km) 0.62 (mi)

ABBREVIATIONS

ADDU Ada District Development UnitAIDB Agricultural and Industrial Development BankAIMS Agricultural Inputs Marketing ServicesAMC Agricultural Marketing Corporation

CADU Chilalo Agricultural Development Unitc.i.f. Cost, insurance, freightCIu Crop Information UnitCSO Central Statistical OfficeDAP Diammonium Phosphate.ECA Economic Commission for AfricaEGA Ethiopian Grain Agency (formerly Ethiopian Grain Board)EGC Ethiopian Grain CorporationECODD Extension and Co-Operative Development Department (formerly EPID)ESI Ethiopian Standards InstituteFAO Food and Agriculture Organization of the Un-ted Nationsf.o.b. Free on boardGDP Gross domestic productICB International Competitive BiddinigMC Marketing CenterMCT Ministry of Commerce and TourismMIIF Market Infrastructure Improvement FundMOA Ministry of Agriculture and SettlementMPP Minimum Package ProgramNBE National Bank of Ethio3iaPPD Planning and Programmiag Department of MOARMEA Resident Mission in Eastern AfricaRRC Relief and Rehabilitation CommissionSIDA Swedish International Developme-ntll Authority

SORADEP Southern Region Agricultural Development ProjectUSAID United States Agency for Int-ernational DevelopmentWADU Wollayita Agricultural Development Unit

GOVERNMEN7 OF ETHIOPIA

FISCAL YEAR

July 8 - July 7

FOR OFFICIAL USE ONLY

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ...... .......................

I. INTRODUCTION ........................................ 1

II. BACKGROUND ................................ 2

A. General ........................ 2B. The Agricultural Sector .................. 2C. Land Reform ................................. 3D. Production, Consumption, and Trade in Cereals,

Oilseeds and Pulses ........ 3E. The Package Programs ....... *.et . ................ 5

III. MARKETING AND PRICE POLICIES ............. 5

A. General Policy ...... ........................ 5B. New Structure of Grain Marketing ............. .. 6C. Input Distribution ........................... 8D. Price Policy ....... ......................... 8E. The Institutional Framework .................. .. 10

IV. THE PROJECT ......................... o .............. 13

A. General Description .... 13B. Detailed Description .............. . ............ 13C. Project Costs 8 . . .............. 16D. Financing ...................................... 17E. Procurement . ...............,.. ............. 18F. Disbursement .................. ... ... 18G. Accounts and Audit .... 19

V. ORGANIZATION AND MANAGEMENT .. ....................... 19

A. Agricultural Marketing Corporation .... ......... 19B. Ethiopian Grain Agency ............ ,............. 21C. Crop Information Unit . ......................... 22

VI. BENEFICIARIES AND FINANCIAL RESULTS .... . . 22

VII. ECONOMIC BENEFITS AND JUSTIFICATION ........ ......... 25

VIII. AGREEMENTS REACHED AND RECOMMENDATIONS ............... 27

This document has a rmtricted distribution and may be used by recipients only in the performanrcof their oMcial dutiss. Its contents may not otherwise be disclosed without World Bank authotiaation.

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TABLE OF CONTENTS (Continued)

ANNEXES

1. Production, Consumption and Trade in Cereals, Oilcrops and Pulses2. Input Supply3. Government Grain Marketing Policy4. Price Policy5. Servicing ECODD Marketing Centers and Cooperative Societies6. State Farm Production7. Grain Imports and Security Reserves8. Agricultural Marketing Corporation9. Marketing Regulation and Improvement10. Market Intelligence and Analysis11. Crop Forecasting12. Ethiopian Grain Agency13. Economic Analysis14. Implementation Schedule15. Estimated Schedule of IDA Disbursements16. Storage Construction17. Government Cash Flow18. Customs Duties and Taxes19. Monitoring Indices

MAP

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

SUMMARY AND CONCLUSIONS

i. Following the revolution of 1974, the new Ethiopian Government ispromoting the redistribution of income in favor of the rural poor and is assign-ing a larger role to the public sector. The long awaited land reform of March1975 has removed the main constraint to accelerated agricultural developmentand as a result the Minimum Package Program (MPP), launched in 1971 andreceiving IDA support, is now expected to expand rapidly. However, evenbefore the events of 1974 and 1975 it was apparent that measures to improveagricultural marketing were urgently needed since year to year price fluctua-tions, and the low prices prevailing in the immediate post-harvest period andat isolated village markets, were limiting farmers' incentives to adopt recom-mended imDrovements, notably, the use of fertilizers.

ii. Taking advantage of the changed conditions following land reform,Government has created an Agricultural Marketing Corporation (AMC) as atrading organization, to handle the output of State Farms, grain imports andincreasing production from MPP areas so that, with an expected 45% share ofthe total wholesale trade in grain, oilseeds and pulses by 1980/81, it wouldbe in a position to exercise a major influence on pricing in private trade.At the same time Government would use AMC as its instrument to maintain sta-ble market prices within certain ranges (price limits) and would compensate AMCfor losses incurred in any import, export and/or buffer stocking operationsthat it may undertake to maintain these limits. The lower limit would beset to assure the producer sufficient incentives in the use of recommendedinputs. The upper limit would determine the extent of subsidy requirements.If set at import parity, no subsidy would be involved but, based on forecastworld market conditions, domestic prices would have to rise to nearly doubletheir 1975 level. If set below import parity to protect consumers from aprice rise of this magnitude, imports of grain would need to be subsidized,and in addition it may be necessary to subsidize farm inputs to maintain theproducer incentives stipulated by the lower limit. The level of consumerprotection would be left to Government to determine and would have no directrelationship with the Project.

iii. To facilitate integration with the agricultural development programand to better utilize its managerial, storage and transport resources, AMCis also responsible for the import, domestic procurement and distributionof farm inputs. In addition to the establishment of AMC, Governnent hasexnanded the export oriented duties of the Ethiopian Grain Agency (EGA) tocover sunervision and regulation of domestic trade in grain, oilseeds andpulses, promotion of market infrastructure improvements, analysis of thedevelopment of the grain market to provide a better basis for policy decisionsand evaluation of Project performance and the marketing system as a whole.

iv. The Project would over four years support the establishment of anorderly grain marketing and input distribution svstem in Ethiopia and would

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provide AMC with incremental storage facilities for produce and farm inputs,vehicles, office and storage equipment, some internationally recruited staff,a headquarters building and incremental permanent trading capital. TheProject would also strengthen EGA through the provision of vehicles andoffice equipment, technical assistance, operating costs for the new InternalMarketing and Market Intelligence Departments and through the establishmentof a fund to support improvements to local market places. Finally, theProject would improve crop forecasting by providing a new Crop InformationUnit within the Ministry of Agriculture and Settlement with vehicles andoffice equipment, technical assistance and consulting services, and operatingcosts during the Project period.

v. AMC is established as a public authority under the Ministry ofAgriculture and Settlement with the necessary powers to carry out the grainmarketing and input distribution tasks and to implement the Government'sprice policy decisions. It has superseded the Ethiopian Grain Corporation(EGC) and the Agricultural-Inputs Marketing services (AIMS). Operatingthrough branch offices, AMC aims at covering its costs including deprecia-tion and a reasonable return on its permanent non-redeemable capital. TheEthiopian Grain Agency (EGA) would continue to be responsible to the Ministerof Commerce and Tourism, and new legislation has been promulgated to coverits additional tasks of domestic market supervision and policy formulation(on the basis of improved market intelligence) was well as its export traderegulation functions.

vi. The Project would cost US$34.6 million; its foreign exchange compo-nent would be US$12.4 million. The proposed IDA Credit of US$24.0 millionwould cover 75% of the Project's total costs net of taxes (US$2.62 million).The remaining 25% would be met by Government. The IDA and Government contri-butions would be channeled to AMC in the form of permanent non-redeemablecapital and to EGA and MOA as grants. The resources of EGC and AIMS, esti-mated at US$10.2 million, have been transferred to AMC and Government wouldassure AMC sufficient overdraft facilities with commercial banks at standardinterest terms to meet its peak trading capital requirements.

vii. Construction of storage facilities would be spread evenly over theProject period and would be scattered over some 7-11 locations in any one year.Contracts would be let in accordance with Bank/IDA guidelines. Contracts forconstruction estimated to cost more than US$200,000 equivalent would be subjectto International Competitive Bidding (ICB) with a 7 1/2% preference to domes-tic contractors, as would the construction of a headquarters building. Pro-curement of vehicles and equipment would be subject to ICB. Orders for lessthan US$80,000 equivalent would, however, be procured under normal Governmentprocedures.

viii. The Project's objectives, to stabilize prices at levels providingadequate production incentives, to expand and improve input distribution andto improve market infrastructure, are expected to increase the production ofgrain, oilseeds and pulses but it has not been possible to quantify thesebenefits.

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Neither has it been Possible to estimate the value of an increased capacitvto meet localized food emergencies, nor income distribution effects froma possible reduction in marketing margins. Thus the quantifiable benefitscan be attributed only to reduced storage losses due to the elimination ofsubstandard warehouses and to the Incremental marketing capacity createdunder the Project, which has been valued at estimated existing margins inprivate trade. About 65% of project costs are included in the economicanalysis. The marketing structure which would be strengthened and sup-ported by the Project would facilitate the expansion of the package pro-grams which introduce new production techniques to small farmers. At thesame time, the Project would help to protect consumers from excessive retailmargins and seasonal price variations.

ix. The economic rate of return is estimated to be 18%. The Projectfaces considerable risks emanating from shortage of managerial staff and de-ficient knowledge about the volume and flow of present trade, about the costsand profits in private trade and about supply and demand. The Project includesmeasures which would improve the decision-making framework of the grain sub-sector. A sensitivity analysis reveals that the Project is able to absorbconsiderable adverse developments. The Project would still yield a rate ofreturn of 10% if costs were increased or benefits reduced by 20%.

x. This would be the Bank Group's thirteenth lending for agricul-tural development in Ethiopia since the beginning of 1969. Three of theseprojects have been for livestock development. The remaining projects in theagricultural sector include the Lower Adiabo Development Project, two WolamoDevelopment Projects, and Humera Settlement, Amibara Irrigation, CoffeeProcessing, Minimum Package, and Drought Areas Rehabilitation projects;agricultural credit was also included in a DFC project to the Agriculturaland Industrial Development Bank (AIDB).

xi. The necessary assurances having been obtained, the proposed Projectis suitable for an IDA credit of US$24.0 million to the Government of Ethiopia.

I

I. INTRODUCTION

1.01 Although a precise strategy for future agricultural development inEthiopia has not emerged since the revolution of 1974, the Provisional Military

Government clearly intends to promote a radical redistribution of resources and

incomes in favor of the rural poor and to assign a much larger role to the

public sector. In the wake of the land reform measures of March 1975 theemphasis in agriculture will be on widespread development measures and on food

crop production.

1.02 Even before the events of 1974 and 1975, it was apparent that measuresto improve agricultural marketing were urgently needed, since year to year price

fluctuations, the extent of seasonal price variations and in particular thelow prices prevailing in the immediate post-harvest period and at more isolated

village markets were limiting the adoption of improvements, notably, the use

of fertilizer under the Minimum Package Program launched in 1971. Land reform

has altered the situation in two major ways. First the nationalization of

large scale farming enterprises and their conversion into State Farms has led

to their output being marketed through public sector channels. Secondly, land

reform may have temporary disruptive effects on production and will lead to

increased on-farm consumption. Resultant deficiencies in marketed output will,

for the time being, have to be made good by imports which will also be handled

by the public sector. These changes provide a favorable opportunity for the

introduction of the reforms in the marketing system for grain, oilseeds and

pulses proposed under the Project.

1.03 This would be the Bank Group's thirteenth lending to Ethiopia for

agriculture since the beginning of 1969. The Minimum Package, WollamoDevelopment (two phases) and Lower Adiabo Projects emphasize smallholder

production. Other projects include three livestock projects, a land settle-

ment project at Humera, an irrigation project at Amibara, and Coffee Process-

ing and Drought Rehabilitation Projects. In addition, a DFC project included

an agricultural credit component to the Agricultural and Industrial Develop-

ment Bank (AIDB). The Amibara Project has suffered from cost overruns.

Overall, performance has been mixed. Difficulties have occurred particularly

where major structural reforms have taken place since project approval, and

where security problems have been experienced.

1.04 The original project proposal was prepared in 1973/74 by the

Ministry of Agriculture with assistance from the Bank's Resident Mission in

Eastern Africa (RMEA) and the United States Agency for International Develop-

ment (USAID) and was reviewed by a pre-appraisal mission which visited Ethiopia

in August 1974. During appraisal in March 1975 it became clear that theProvisional Military Government intended to institute public control over

marketing and pricing and that changes in the project concept were also

required to take into account the implementation of the land reform measures.Accordingly, the project was rewritten in June-July 1975 in Ethiopia by a

working group consisting of Messrs. B. Nekby, K. Niemann (IDA), R. Crofts

(Consultant), Ahmed Maruf (Agricultural Inputs Marketing Services - AIMS),

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Mamo Desta (Ethiopian Grain Corporation - EGC), Aklu Girgire (Agriculturaland Industrial Development Bank - AIDB), and R. Brereton (Advisor to theEthiopian Grain Agency - EGA). This appraisal report has been based on thefindings of the first appraisal mission, the documents provided by the workinggroup and the Ethiopian Government's detailed comments on these documents whichwere communicated to the Bank in September 1975 and discussed in February 1976.

II. BACKGROUND

A. General

2.01 Ethiopia, with a total land area of about 1.2 million km2 liesin the northeastern horn of Africa just north of the Equator. The centralpart of the country is mostly high plateau, 1,500 to 3,000 meters above sealevel and dissected by gorges and broad valleys; this plateau is surroundedby extensive lowlands, most of which are inhabited only by nomadic pastoral-ists. The country may be divided into six basic ecological regions whichvary considerably with regard to topography, climate, soils, natural vegeta-tion and agricultural potential. While no detailed land use data are avail-able, it is estimated that about 50% of the land is Permanent pasture, 10%is cultivated, 20% is barren desert or swamps, 10% rivers and lakes and 10%forests. The country's extremely rugged terrain is a serious obstacle tointernal transportation, communication and economic development.

2.02 The total population, estimated at 28 million in 1975, is growingat an annual rate of about 2.5%. Total gross National Product (GNP) was esti-mated at US$2.8 billion in 1975. About 90% of the people live in rural areas,and overall per capita income is estimated at US$100.

B. The Agricultural Sector

2.03 The agricultural sector is characterised by wide climatic andecological diversity which allows a large variety of crops to be grown. TheEthiopian peasant farmer possesses a high level of traditional agriculturalskill, but lacks an efficient marketing system, access roads, credit, exten-sion and veterinary services and improved seeds, as well as fertilizer andother farm inputs. Although 8 of every 10 Ethiopians derive the main partof their income from farming, agriculture contributed only about 50% of GNPin 1974. Average total annual family output (at farm prices) is aboutBirr 600 (USS300), and three quarters of this represents subsistence consump-tion. The total value of agricultural output in 1974 was about Birr 2.8million; cereals, coffee, and other crops accounted for 80% and livestockand livestock products for the remaining 20%.

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C. Land Reform

2.04 Under the land reform decree of March 4, 1975, all rural land wasnationalized and user rights for a farm family were limited to 10 ha. Mostcommercial farms were taken over by Government, some were settled by small-holders, but the majority are at least temporarily being cultivated as Statefarms (100,000 ha during the 1975 season). To implement the reform and promotefuture development, farmers are being organized into peasant associations eachwith about 100-200 farming family members. About 21,000 such associationshave been formed. Tenancy, which was common in the southern part of thecountry, has basically been abolished during the first phase of the reform.Credit for oxen and tractor plowing is being provided to ex-tenants and topeasant farmers settled on previous commercial farms.

D. Production, Consumption and Trade in Cereals,Oilseeds and Pulses (Annex 1)

2.05 In the past, Ethiopia has in a normal crop year produced some4.5 million MT of grains, oilseeds and pulses giving rise to a small cerealdeficit of the order 25,000 MT 1/ and a surplus of over 200,000 MT of oilseedsand pulses which have constituted an important export. Following land reform,on-farm per capita consumption is expected to increase 2/ and, with other percapita consumption remaining unchanged, total consumption of grain, oilseedsand pulses would grow by 3.8% per annum. Despite efforts being made tocounter the disruptive effects of land reform, some immediate drop in totalproduction appears likely, 3/ but thereafter, it should be possible to accel-erate development and achieve a 5% growth rate in production. On theseassumptions, and under normal weather conditions, grain import requirementsare estimated to amount to about 100,000 MT per annum during the next fewyears until Ethiopia would regain self-sufficiency in the mid 1980s (Annex 7).This import level assumes a shift from the production of pulses and oilcropsfor export to domestic food production and exports would not regain theirprevious level until 1982.

2.06 Total off-farm consumption and exports of grain, oilseeds and pulseswas estimated to be about 1.5 million MT in 1974/75 and this volume is expectedto increase to 1.8 million MT by 1980/81. Estimates of urban consumption and

1/ Covered by imports, principally of wheat and wheat flour.

2/ Due to the income redistribution effects of land reform favoring ex-tenants.

3/ Favorable weather appears at least partly to have disguised this dis-ruption.

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exports have been aggregated and these in-crease from 0.75 million MT in 1974/75to 1.1 million MT in 1980/81; the balance of the total off-farm consumption

being handled at local levels without entering the wholesale trade (Annex 8,Table 1). In 1974/75 640,000 MT or almost 90% of all wholesale trade was

handled by private merchants. In the past, grain imports 1/ have beenprocured almost entirely by the Ethiopian Grain Corporation (EGC) while the

private sector has handled the export of pulses and oilseeds. As a result of

the land reform, large commercial farms handling their own marketing have

been replaced by State Farms, marketing their output mainly through public

channels.

2.07 Despite market fragmentation, a major influence in price formation

has been exerted by the terminal market at Addis Ababa (and to a lesser extent

that at Asmara) where the operations of the larger wholesale stockists are

concentrated. In the absence of reliable crop forecasts, the subjective pro-

duction estimates of these wholesalers have been the crucial market force,

especially during and immediately after harvest, since they command the facil-

ities (storage and finance) for seasonal stockholding. The costs of marketing

are high due to bad roads, double transport (because of lack of storage and

capital in rural areas), numerous title transfers in the marketing chain, high

storage losses, lack of grading with accompanying high transport costs for im-

purities and inefficient crop forecasting and thus high risks and margins in

seasonal storage. The producer is generally in a weak bargaining position

because of his need to sell immediately after harvest to meet tax and debt

payments, lack of on-farm storage, lack of relevant price information, un-

controlled weights and measures, limited competition between buyers and the

considerable effort required to bring produce to market so that the producer

frequently sells even if the price is unduly low. There are considerable

price variations from one year to another which discourage the farmer from

making large cash outlays for inputs.

2.08 The Ethiopian Grain Agency (EGA) was originally established in 1950 as

the Ethiopian Grain Board (EGH) with wide power to regulate and improve the dom-

estic and export trade in grains, pulses and oilseeds. Until its reorganizationin 1971, EGA's operations were minimal, but since then it has instituted measures

for export licensing and quality control and set up an overseas market intelligence

unit. In 1960, the Ethiopian Grain Corporation (EGC) was established as a public

corporation with the aim of promoting domestic market price stability. With a

storage capacity of 33,0000 MT (of which 29,000 MT in silos), RGC handled a series

of grain import operations but not until the establishment of State Farms in 1975

did it make any significant domestic market purchases. Previously EGC's averageshare of the total wholesale trade was less than 5% and this was insufficient

1I/ Donated supplies of grain and foodstuffs to alleviate famine conditions

in Wollo and Tigre provinces were imported during 1974/75 by the Relief

and Rehabilitation Commission but not considered as commercial imports.

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to exert any significant influence on prices. EGC did not achieve its aimsbecause of Government's failure to define its priorities and to provide itwith both sufficient fixed capital and access to bank credit for tradingcapital, absence of any channel for direct purchase from peasant producersand poor management, as exemplified by bad timing of imports, lack of controlover credit sales and failure to operate a proper cost accounting system.However, EGC was able to maintain reasonably good warehousing standardsand to avoid undue physical losses on the volumes of grain handled.

E. The Package Programs

2.09 The main attack on the problems of improving peasant farming isthrough a series of comprehensive projects, such as Chilalo AgriculturalDevelopment Unit (CADU), Wolamo Agricultural Development Unit (WADU), AdaDistrict Development Unit (ADDU) and Southern Region Agricultural DevelopmentProject (SORADEP) and the nationwide Minimum Package Program (MPP) all operat-ing under the auspices of the Extension and Co-Operative Development Department(ECODD) of the Ministry of Agriculture and Settlement. These programs focuson grain production and the encouragement of the use of fertilizers and im-proved seeds through the coordination of extension, input supply and credit.The potential impact of these programs is illustrated by the projected MPPgrowth from about 350 operational extension areas with 150,000 participatingfarmers in 1976 to 575 extension areas with 400,000 participating farmers,(10% of all farm families) in 1980. 1/ Additional farmers would benefit fromthe comprehensive schemes.

2.10 Each MPP extension area has a marketing center for input distributionwhere sales are made on cash or credit terms and which will eventually becomea primary cooperative society. Input procurement and distribution to marketingcenters/cooperative societies was handled by the Agriculture Input Market-ing Service (AIMS) 2/ a subsidiary of the Agricultural and Industrial Develop-ment Bank (AIDB) which finances credit sales. Fertilizer consumption hasincreased rapidly during the last few years to a present level of 56,000 MTand is projected at 125,000 MT by 1980/81. Comprehensive projects offersfarmers an alternative produce marketing channel in competition with privatetrade, and the MPP has reached the stage where similar produce marketingfacilities are needed to support the development effort by ensuring incentivesto fertilizer use.

III. MARKETING AND PRICE POLICIES

A. General Policy

3.01 An outline of Government policy and the respective roles of thepublic and private sectors in wholesale and retail trade was given in the"Declaration on Economic Policy of Socialist Ethiopia" published on February 7,1975, which stated that:

1/ This program is now being revised and the numbers involved could be higher.2/ The functions of AIMS have now been taken over by AMC.

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"The Government may, where necessary, engage in wholesale andretail business in order to stabilize prices particularly ofbasic consumption items, and thereby protect the interestsof the masses. Strict control will also be exercised on theprivate sector with regard to supplv, prices and distributionof goods."

In the grain marketing field, the Government's specific aims are to assurestable producer and consumer prices, to maintain adequate producer incentives,to reduce marketing margins through greater efficiency and reduced risks andprofits and to assure an adequate food supply in all parts of the country.These aims might have been achieved through the establishment of a statutorymarketing board with monopoly purchasing powers operating on a fixed buyingprice system, but this is not considered feasible under Ethiopian conditionsbecause of the fragmentation of the market and the extent of the managementand financial resources such an organization would require. Instead theGovernment has established an Agricultural Marketing Corporation (AMC) tohandle the output of the State Farms, grain imports, and the growingproduction from MPP areas, so that AMC would be responsible for some 45% oftotal wholesale trade of grain, oilseeds and pulses by 1980/81 and be in aposition to exercise a major influence on prices. In addition, the EthiopianGrain Board has been empowered to regulate the domestic market, to improvemarketing intelligence services and to promote market infrastructure improve-ments. The respective roles of AMC, the private trade and cooperatives duringthe Project period are outlined below.

B. New Structure of Grain Marketing (Annex 3)

Produce Buying

3.02 The role of private traders operating in local markets and betweenproducers and wholesalers would remain basically unchanged under the newmarketing structure, but, in order to improve trading efficiency, EGA whas beengiven extended powers and resources to assist local authorities to strengthentheir supervision of marketing practices and standards and to promote marketinfrastructure improvements.

3.03 At the same time, within an expanding number of MPP areas AMCwould provide an alternative channel. to compete with private trade. Marketingcenters established by ECODD in these areas would act as agents of ANC forthe purchase of grain, oilseeds and pulses. Such purchases are likely tobe mainly of the incremental production in these areas. As these centersbecome primary cooperative societies they would be free to market their pro-duce either through AMC or private channels. The size of each society wouldbe determined by its viability and would generally cover a number of peasantassociations formed as part of the land reform measures. Now that ECODD isresponsible for all facets of cooperative development (including promotion,registration, supervision, audit and assistance), the orderly conversion of

Marketing Centers to cooperatives should be facilitated. In addition, AMCwould have responsibility for marketing the State Farm output of grain,oilseeds and pulses, totalling some 50,000-100,000 MT per annum during theProject period.

Wholesale Trade

3.04 Through procurement from ECODD marketing centers/cooperative societiesand State Farms and its responsibility for grain imports (para. 3.09), AMCwould have a sufficiently large share (increasing from 26% to 45%) of whole-sale trade in cereals, oilseeds and pulses, to allow it to exercise a con-trolling influence over basic price levels and assure year to year pricestability. With its widespread network of branch offices AMC would also bein a position to provide an improved distribution of food supplies byinterregional transfers, and, with increased facilities for seasonal storage,AMC would aim at reducing seasonal price variations.

3.05 In order that the activities of private wholesalers comply withnational objectives (para. 3.01), strict control over wholesale trade wouldbe introduced, requiring major wholesalers to be licensed by EGB under condi-tions covering storage standards and hygiene, quality control, and maintenanceof stock registers. It was agreed at negotiations that the Borrower would,in accordance with its credit policies, ensure the availability of creditadequate to facilitate the wholesale trading of grain.

3.06 Through the nationalization of unused or leased warehouses duringthe second half of 1975 and through the elimination of substandard storageas a result of the proposed licensing system the capacity of private tradewould be reduced. In 1975-76 the private sector handled just over 500,000 MTand this is projected to rise to 610,000 MT by 1980/81.

3.07 Secondary cooperative unions would be established gradually at theawraJa (district) level, but, during the Prolect period, these unions are notexpected to handle grain marketing. Major exceptions would be the existingmarketing organizations within CADU and WADU which would act as a link betweenAMC and the primary cooperative societies/marketing centers in these projects.

Retail Trade

3.08 Retail trade would remain largely in private hands subject to theoverall control and support from EGA noted above with respect to producebuying (para. 3.02). However, while AMC is primarily a wholesale organization,it is empowered to establish retail outlets where circumstances warrant, forexample in locations where private retail capacity is insufficient.

Import and Export

3.09 AMC is solelv responsible for arranging imports of grain to ensureadequate national food supplies. Government has set up an Export-Import Cor-poration mainly to handle Government-to-Government trade deals and to ensure

imported oupplies of essential manufactured goods. For its grain imports,AMC may utilize the services of this Corporation on an agency basis for specificshipping and forwarding operations. As to exports of oilseeds and pulses, AMCwould be free to export these itself or sell them to private exporters or tothe Export-Import Corporation.

C. Inputs Distribution (Annex 2)

3.10 To facilitate integration with ECODD's agricultural developmentprogram and to better utilize its own managerial, storage and transport re-sources, AMC is also responsible for the import, domestic procurement anddistribution of farm inputs (fertilizers, insecticides, seed and minorimplements) to State Farms and ECODD marketing centers/cooperative societies.

D. Price Policy (Annex 4)

3.11 It is likely that, even under normal growing conditions, Ethiopiawill have to import grain during the next few years (para. 2.05). Since worldmarket prices are forecast to remain considerably above the present domesticprice level, there will be an upward pressure on domestic prices. However,in a very good year, a temporary domestic surplus may develop and the resultantfall in prices, if unchecked, could destroy producer incentive to use recom-mended yield increasing inputs on which the expansion of grain output solargely depends. The Government intends to provide farmers with sufficientincentives to improve farming techniques and at the same time to protectconsumers from undue hardship by giving AMC the responsibility of conductingits operations so as to maintain grain prices within agreed limits. Govern-ment would reimburse AMC for losses incurred in any import, export and/orbuffer stocking operations that it may undertake to maintain these limits,but for its normal buying and selling operations AMC would be free to fixits day-to-day prices at any point within these limits so as to be able tocompete with private traders. Government has rejected the alternative systemof rigid publicly announced "floor" and "ceiling" prices because of enforce-ment difficulties under the mixed public/private marketing structure andbecause, until crop forecasting and market intelligence have been greatlyimproved, any system will need to be flexible and price limits may well haveto be adjusted within a season if forecasts on which they were based provewrong.

3.12 The lower price limit would be set at a level sufficiently high togive farmers adequate production incentives, taking into account inter alia,the costs of inputs, and the costs of transporting produce from farmers tomarketing centres. If imports are needed to meet a short fall in domesticsupplies, then without intervention the import parity price would be theautomatic upper price limit. For wheat, this would imply that domestic priceswould be allowed to rise some Birr 20 per quintal, or to nearly double theirpresent domestic level, before imported supplies could come in. If, as seems

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most probable, Government wishes to protect consumers from the effects ofa rise of this magnitude, then it would need to fix the upper limit at alevel below the import parity and be prepared to bear the difference as aconsumer subsidy. Budgetary and foreign exchange considerations would beparamount in the fixing of actual upper limits. A spread of at leastBirr 5.00 is considered essential to provide the necessary market flexi-bility since within this spread both AMC and private traders would be freeto adjust to minor demand/supply changes. Within the price limits fixed byGovernment, AMC would establish (a) its prices for different grades, (b)price ranges for different branches, (c) producer prices in different areas,and (d) seasonal price variations after calculating its costs for these oper-ations (including depreciation and interest on permanent capital; Annex 4).

3.13 EGA-with its market intelligence service strengthened under theProject would be responsible for conducting an annual review which would takeinto account all relevant factors including production and consumption fore-casts, import needs, world market price developments and likely subsidy costs,and the budgetary situation, on which Government would decide for the follow-ing season the level of price limits and fertilizer prices, together withthe subsidies involved. At negotiations, assurances were received thatminimum grain prices would be set at a level sufficiently high to givefarmers adequate price incentives, that AMC would be free to fix its day-to-day wholesale prices within the ranges established by Government on therecommendation of EGA and that Government would reimburse AMC losses incurredin imports of grain and fertilizer, and in buffer stocking operations carriedout in support of the price limits. (Annex 4). Assurances were also receivedthat the Borrower would consult with IDA from time to time, on the adequacyof the price system in respect of farmer incentives.

Pricing of Oilcrops and Pulses

3.14 Ethiopia is normally an exporter of pulses and oilseeds (Annex 1),although the volume is expected to decrease temporarily after land reform(para. 2.05). AMC would establish its wholesale prices in Addis Ababaand other major centers equal to export parity prices and would derive itsregional and producer prices in relation to these export prices. Governmentis presently undertaking a study of price stabilization for export crops.

Pricing of Tnputs

3.15 Fertilizer prices to farmers would depend on the level at which thelower price limits are fixed (para. 3.13), on world market prices and on theamount of subsidy required to maintain producer incentives. Government hasreintroduced variable prices for fertilizers with different nutritionalcontent and some geographical price differential for major zones is beingconsidered.

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E. The Institutional Framework

Introduction

3.16 The main organizations directly concerned with the implementationof the marketing and price policies set out above, namely AMC, EGA and theCrop Information Unit (CIU) of the Ministry of Agriculture and Settlementwould be supported under the Project; their functions are examined below.In addition, a number of other institutions would play important supportingroles, notably (a) ECODD which in MPP areas administers the Marketing Centersresponsible for the sale of inputs to and the purchase of grain from peasantfarmers and will be responsible for their eventual conversion into cooperativesocieties; (b) the Agricultural and Industrial Development Bank (AIDB) whichwill continue financing saEes of inputs to farmers and cooperative societies;(c) the Ministry of Agriculture and Settlement which controls the operationsof the State Farms; and (d) the commercial banks, also now nationalized, whichwould be the main source of the working capital for AMC's trading operations.

(a) The Agricultural Marketing Corporation (AMC)

3.17 AMC has been established in place of the Ethiopian Grain Corpora-tion (EGC) and the Agricultural Input Marketing Services (AIMS). AMC would begiven the necessary additional resources to enable it to purchase grainthrough ECODD marketing centres, to market the output of State Farms, toarrange necessary grain imports, to undertake bufferstocking operations whenjustified, to operate retail outlets where necessary and to distribute inputs,mainly fertilizer and seed. These main activities are described in moredetail below.

Buying through ECODD Marketing Centers/Cooperatives (Annex 5)

3.18 AMC purchases through the ECODD network are projected to increasefrom 15,000 MT 1975/76 to some 160,000 MT in 1980/81. AMC would reimburseECODD's costs at the rate of Birr 25 per MT handled to provide full costcoverage at a volume of 800 MT (produce and inputs) per Marketing Center. Theestimates of total wholesale requirements on the one hand and the estimates ofprivate grain trading capacity and AMC procurement from ECODD, State Farms andfrom abroad on the other requires AMC to purchase directly from producers andtraders a quantity of grain rising from 80,000 MT in 1975/76 to 140,000 MT in1980/81 (Annex 8, Table 2).

Buying from State Farms

3.19 Following land reform, Government has taken over the large commer-cial farms. In some cases settlement by landless peasants has taken place,but many units are now being run as State Farms under the direction of theMinistry of Agriculture and Settlement. Small-scale settlement on such farms

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has reduced the cultivated area but through the opening of state farms in newareas the level of production would increase over the Project period. Assur-ances were received during negotiations that produce from State Farms wouldbe marketed through AMC under normal circumstances (Annex 4). 1/

Import and Export of Produce (Annex 7)

3.20 To make good estimated production deficits, AMC is expected toimport some 100,000 MT of grain annually throughout the Project period (para.2.05). Following the expected switch to domestic food production, AMC'sexports of oilseeds and pulses would initially be small. Any special invest-ment to increase Ethiopia's import capabilities (e.g. installing bulk handlingand transport facilities) would not be justified because of the expected tem-porary and spasmodic character of the import volume.

Domestic Sales

3.21 Out of the estimated 500,000 MT to be handled by AMC in 1980/81,about 50,000 MT is expected to be exported leaving 450,000 MT to be soldon the domestic market. Sales to the mills would have risen to 210,000 MT,while other wholesale sales would amount to 240,000 MT. Retail sales would beconfined to cases where retail margins were excessive or the retail tradingcapacity was insufficient. At negotiations, assurances were received thatthe nationalized mills would procure their grain requirement from AMC at itsprevailing wholesale prices to the extent that AMC is able to supply (Annex4).

Security Reserves (Annex 7)

3.22 AMC would construct 50,000 MT of storage which, during the Projectperiod, could be brought into use for limited buffer stocking operations, i.e.the surplus arising from an exceptionally good harvest could be carried overfor sale in the next year thus reducing the need for more expensive imports.Eventually, when there is a return to self-sufficiency, these stores would beused to maintain security reserves that would only be utilized under Govern-ment authority to meet emergency conditions such as famine and drought. Theprovision of these stores follows the recommendations of an FAO mission inwhich the Bank cooperated. 2/

1/ State Farms would use channels other than AMC in the event that thelatter were unable to handle part of the State Farm output.

2/ A policy and action plan for strengthening national food security inEthiopia: ASC/FSP/ETH November 1974.

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Input Supply (Annex 2)

3.23 AVC would procure and distribute fertilizers, seeds, pesticides andimplements (for hand and ox cultivation) to ECODD marketing centers and StateFarms. Fertilizers and pesticides would be procured from abroad while seedand implements would be bought mainly from domestic sources. By 1980/81, AMCwould distribute some 140,000 MT of inputs, of which fertilizer would accountfor some 125,000 MT. Ultimately, AIDB would make credit available to coopera-tive societies to procure inputs from AMC. But, under present conditionswhere cooperative societies are not yet formed, ECODD must continue to providethe link between the farmers and AIDB. So as to facilitate the eventualtransition to a cooperative system, ECODD would serve as AIDB's agent inextending loans to farmers and/or pre-cooperative groups of farmers. Sincethis credit would be in kind, AIDB (using ECODD as its agent) would buy theinputs from AMC at the marketing centers.

(b) The Ethiopian Grain Agency (EGA) (Annex 12)

3.24 Because the regulation of agricultural trade falls within theambit of both the Ministry of Agriculture and Settlement and the Ministry ofCommerce and Tourism, EGA is established as a separate agency on which bothMinistries as well as other interests are represented. Although its activi-ties were formerly confined to the regulation of export trade, Governmenthas reorganized and strengthened EGA to increase regulation and supervisionof domestic marketing and to promote improvements. EGA would, through thelicensing of wholesale traders in the domestic trade, require them to maintainminimum standards of storage hygiene, keep standard records and make regularreturns of their operations and stock position. At lower stages in themarketing chain EGA would encourage and supervise the establishment of alicensing system by local authorities and operate a Market InfrastructureImprovement Fund (MIIF) to provide matching loans to assist financing ofbasic market improvements, such as the provision of public weighing facili-ties, water supplies and access roads, stores for renting, etc. at majormarkets (Annex 9).

3.25 EGA's existing overseas market intelligence service would be expandedto make EGA the focal point for data collection, analysis and research in themarketing field, so that it would provide both Government and AMC with improvedbases for decisions on pricing, imports, buffer-stocking and the size and loca-tion of new storage facilities (Annex 10).

(c) Crop Information Unit (Annex 11)

3.26 An essential element in determining marketing and price policies isa reliable system of crop forecasting. Because of physical difficulties andadministrative weakness, crop forecasting in Ethiopia is a matter of guessworkand subjective opinion rather than an objective evaluation. Government intendsto initiate systematizing and coordinating the present efforts in this fieldand has created a Crop Information Unit (CIU) within MOA. CIU would trainand utilize the staff of ECODD and other organizations to widen the scope and

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regularity of crop reporting and collate these reports with other relevantdata (e.g. meteorological information) so as to produce timely reports forEGA's reviews on which Government decisions and AMC operations would be based.These reports should also serve as an early warning system that would enablethe Relief and Rehabilitation Commission to investigate further any indicationof incipient crop failure in particular areas.

IV. THE PROJECT

A. General Description

4.01 The Project would over four years (1977/78-1980/81) support theestablishment of an orderly grain marketing and input distribution system inEthiopia and would provide (a) for the Agricultural Marketing Corporation(AMC), incremental storage facilities for produce inputs and bufferstocks,a headquarters building, vehicles and equipment, higher level staff and in-cremental permanent trading capital; (b) for the Ethiopian Grain Agency (EGA)vehicles and equipment, operating costs for the new Internal Marketing andMarket Intelligence Departments for four years and a fund to support improve-ments to local market places; and (c) for the new Crop Information Unitwithin the Ministry of Agriculture and Settlement vehicles and equipment,operating cost for four years and consulting services to plan for the useof remote sensing in crop forecasting.

B. Detailed Description

Agricultural Marketing Corporation (Annex 8)

4.02 The Project would provide for the construction of storage capacityfor some 350,000 MT, to enable AMC to handle the expected increase in itstrading volume over the Project period. Of this incremental storage, about250,000 MT would be for produce, and 50,000 MT each for input storage andsecurity reserves. In the case of produce storage the requirements have beencalculated on the basis of 75% of volume bought, to allow for the concentra-tion of AMC purchases into a four-month period and the need for separationof varieties and grades.

4.03 The volume of inputs to be handled would increase from 60,000 MTin 1976/77 to 140,000 MT in 1980/81. Some of the requirements would bedelivered direct to State Farms and ECODD marketing centers reducing the AMCpeak inventory to 50% or, some 70,000 MT in 1980/81. The storage require-ments have been reduced by the transfer from AIMS to AMC of an existing 19,000MT store. The balance of 51,000 MT would be covered by the construction ofnew storage for input distribution since the peak utilization periods for

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both grain and inputs coincide. The Project would also finance a headquartersbuilding for AMC in Addis Ababa. To facilitate communications, it has beendecided to house ECODD in the same building and share the costs of construction.

4.04 All warehouses would be for sack storage with a raised floor to deterrodents, and would be of a standard design (Annex 16). A four-year constructionprogram, detailing the size, location and phasing of warehouse constructionover the Project period has been agreed between IDA and the Borrower.Assurances were obtained at negotiations that construction would be carriedout pursuant to this program, provided that, in the event of a variationof greater than 25% in the aggregate annual volume of construction, or anyother substantial deviation from the program planned by AMC for any year, thefollowing year's construction program would be established by agreementbetween the Government and IDA.

4.05 The Project would finance 4 weighbridges, 10 mechanical cleaners,-16 conveyor belts, 59 platform scales, 5,1 sack carriers and other miscella-neous equipment (Annex 8, Tabl ,6) in connection with the warehouses andprovide 11 4-wheel drive, 21 standard vehicles, 13 motorcycles and officeequipment for the AMC headquarters and branch offices. About 40 trucks havebeen purchased by AMC since its establishment, and the Project would provide40 additional trucks to AMC. This would allow AMC to handle about 40% ofits peak transport requirements; the balance would be met by the privatesector or by the National Transport Corporation (NATRACO). A mobile workshopwould be provided to supplement existing private facilities.

4.06 Inventories of inputs and produce would vary during the year. Thevalue of peak inventories would reach Birr 135 million in 1980/81. TheEthiopian banking system would only be able to provide about 75% of thesetrading capital requirements so that th6 remainder, Birr 30 million, shouldbe provided to AMC in the form of permanent trading capital. About Birr 13million has been transferred from EGC and AIMS and the incremental require-ments of Birr 17 million would be provided by the Project.

4.07 The Project would finance 7 key Management staff (5 Ethiopian and 2expatriate) who have been appointed (Birr 3 million), and provide for specialistassistance in training and systems planning (Birr 400,000).

Ethiopian Grain Agency (Annex 12)

4.08 The Project would provide for four vehicles and office equipmentfor the new Internal Marketing and Marketing Intelligence Departments tobe established in EGA. It would also finance salaries of Ethiopian staff I/

1/ Of which 15 high-level staff at the end of the Project period.

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(Birr 873,000) and other operating costs (Birr 460,000) such as travel, officesupplies, fuel, utilities. Funds would be provided for training of Ethiopianstaff (Birr 424,000) and for five specialist staff who would be internationallyrecruited.

4.09 The Project would include provision for a Market InfrastructureImprovement Fund (MIIF) of Birr 1.0 million to be administered by EGA forthe improvement of grain market facilities, particularly in the provinces.EGA's main task would be to draw up a plan for utilizing the fund and to deter-mine priorities with reference to such factors as present and likely futuremarket throughputs, present condition of market facilities, and other con-siderations, such as town plan implementation. On the basis of thisreview, proposals for selected markets would be submitted to EGA's Board.During negotiations assurances were received that any disbursement from thefund would be matched by at least an equal amount from the local authorityconcerned.

Crop Information Unit (CIU) (Annex 11)

4.10 The Project would provide two vehicles and office equipment for thenew CIU together with funds for salaries of Ethiopian staff (Birr 78,000) andother operating costs including training and payment of part-time crop re-porters (Birr 634,000). In addition to two high level Ethiopian staff theProject would also provide for international recruitment of the head ofthe unit during the first three years (Birr 300,000) and for a study ofthe use of satellite images in crop forecasting (Birr 150,000).

C. Project Costs (Annexes 8, 11, and 12)

4.11 Total cost of the Project is estimated at Birr 71.7 million(US$34.6 million) with a foreign exchange component of Birr 25.7 million(US$12.4 million) or 36%. A breakdown is presented below:

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Foreign

Birr million US$ million ExchangeLocal Foreign Total Local Foreign Total %

AMC

A. Investment CostsStorage 19.21 4.80 24.01 9.28 2.32 11.60 20

Headquarters building 0.45 0.20 0.65 0.21 0.10 0.31 30

Trucks, vehicles andequipment 1.28 3.85 5.13 0.62 1.86 2.48 75

Subtotal 20.94 8.85 29.79 10.11 4.28 14.39 30

B. Incremental PermanentTrading Capital 10.20 6.80 17.00 4.92 3.29 8.21 40

C. Staffing and TechnicalAssistance 0.85 2.55 3.40 0.41 1.23 1.64 75

Total 31.99 18.20 50.19 15.44 8.80 24.24 36

EGA

A. Vehicle and equipment 0.06 0.11 0.17 0.03 0.05 0.08 65

B. Operating costs 1.18 0.15 1.33 0.58 0.07 0.65 11

C. Technical assistance 0.67 1.65 2.32 0.32 0.80 1.12 71

D. Market InfrastructureImprovement Fund 0.60 0.40 1.00 0.29 0.19 0.48 40

Total 2.51 2.31 4.82 1.22 1.11 2.33 48

MOA (CIU)

A. Vehicles and equipment 0.02 0.04 0.06 0.01 0.02 0.03 67

B. Operating Costs 0.64 0.07 0.71 0.31 0.03 0.34 10

C. Technical Assistance 0.11 0.34 0.45 0.05 0.17 0.22 76

Total 0.75 0.45 1.22 0.37 0.22 0.59 37

Base Costs 35.27 20.96 56.23 17.03 10.13 27.16

Physical Contingencies 2.30 0.93 3.23 1.11 0.45 1.56 29

Price Contingencies 8.41 3.79 12.20 4.07 1.83 5.90 31

GRAND TOTAL includingContingencies 45.98 25.68 71.66 22.21 12.41 34.62 36

Costs are estimated at November 1976 prices. Physical contingencies at a

rate of 10% have been included for civil works, equipment and operating costs.

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Price contingencies have been included on both local and foreign costs at thefollowing annual rates: civil works 13% in 1976, 12% in 1977-79 and 10X there-after; trucks, vehicles and equipment 9% in 1976, 8% in 1977-79 and 7% there-after; operating costs and technical assistance 10% throughout. Taxes includedin Project costs amount to Birr 5.42 million (US$2.62 million).

4.12 In addition to the incremental permanent trading capital includedin Project costs, an assurance was received at negotiations that Governmentwould assure AMC sufficient overdraft facilities with the commercial banks.Peak loan requirements for trading capital are expected to reach Birr 105million in 1980/81.

D. Financing

4.13 Project costs would be financed in the following amounts andproportions:

US$ Million Percentage

IDA 24.00 75Government 8.00 25

Subtotal 32.00 100

Taxes 2.62

Total 34.62

The proposed IDA credit of US$24 million would be on standard terms to Govern-ment. This would cover 100% of the total foreign exchange costs of aboutUS$12 million together with US$12 million of local costs or about 69% oftotal Project costs including duties. The balance (US$10.62 million) wouldbe contributed by Government but partially offset by customs duties (US$2.62million). The IDA and Government contributions would be made available toAMC as permanent non-redeemable capital. AMC's authorized capital would benot less than Birr 100 million and over the Project period, its issuedcapital would be expected to increase as indicated in Annex 8, Table 15and summarized below:

1976/77 1977/78 1978/79 1979/80 1980/81-------------- (Birr million) -------------

AMC's permanent non-redeemable issuedcapital 25.30 52.88 63.21 74.50 84.93

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To meet EGA and MOA needs, funds would be channeled through the Ministry ofFinance as grants. In view of the risks and uncertainties (para. 7.02) the

AMC legislation provides that AMC would set aside 10% of its profits aftertaxes and depreciation allowance in a reserve fund until this fund has reacheda level of 25% of the issued non-redeemable capital and that any loss sustainedby the Corporation in commercial operations would be written off by transfers

from the reserve fund. EGA would onlend the MIIF funds at 10% interest with10 years amortization without grace period.

4.14 An assurance was obtained during negotiations that the Borrower would

ensure effective co-ordination and co-operation among all the agencies involved inthe implementation of the Project. A condition of credit effectiveness would be

that Government had extended to AMC additional permanent trading capital of not

less than Birr 4.25 million. EGA is presently financed by a special cess on

exports of oilseeds and pulses. Since the estimated decrease in export volume,

and the expansion of EGA's operations under the Project, would make this method

of financing insufficient, the EGA legislation provides for EGA to receive

funds from the Government budget to cover its revenue deficits.

E. Procurement

4.15 Contracts for vehicles, equipment and civil works would be awardedon the basis of international competitive bidding in accordance with WorldBank guidelines; orders would be bulked whenever practicable, and a 7-1/2percent preference would be allowed for domestic civil works contractors.In the case of civil works where international competitive bidding is notpracticable for reasons such as the small size or scattered location of somewarehouses, contracts not to exceed US$200,000 equivalent would be awardedon the basis of competitive bidding, advertized locally in accordance withGovernment procedures satisfactory to the Association; the aggregate totalof such contracts during the Project period would not exceed US$2 millionequivalent including contingencies. The local construction industry hasexperience in this type of work and is considered at present to have suffi-cient capacity to meet Project needs. Orders of less than USS80,000 equiva-lent for certain vehicles and equipment would also be excluded from interna-tional competitive bidding and would be awarded on the basis of similar localcompetitive bidding procedures; such orders would not exceed a total ofUS$500,000 equivalent including contingencies. AMC purchases of produce tobe financed from the proceeds of the Credit would be made from local suppliersin accordance with current AMC procurement procedures in a manner satisfactoryto the Association.

F. Disbursement

4.16 The Credit would be disbursed against:

(a) 100% of the value of AMC's local purchases of produce;

(b) 100% of foreign cost of technical assistance and consultingservices; and

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(c) 100% of foreign and 75% of local cost for vehicles andequipment;

(d) 75% of total cost for operating costs, civil works andmarket infrastructure improvement.

The amount of $6.15 million to be disbursed under (a) represents 75% of theestimated incremental permanent trading capital requirements of AMC over theProject period. 1/ All disbursements would be fully documented. Operatingcosts for EGA and MOA would be reimbursed against appropriate certificates ofexpenditure, approved by the General Manager for EGA and by the Head of CIUfor MOA, respectively. The documentation to support such disbursements wouldbe retained by EGA or MOA and would be available for inspection by IDA staffduring the course of a supervision mission. So that AMC can construct thestorage necessary before the opening of the 1977-78 marketing season, theProject would provide up to US$1.5 million in retro-active financing to coverProject expenditures for storage design and construction of warehouses afterNovember 1st, 1976. Estimated schedule of disbursements is at Annex 15. Anyfunds remaining in the Credit account at the end of the Project would be re-allocated with the approval of the Association for the continuing developmentof grain marketing.

G. Accounts and Audit

4.17 To provide a basis for its pricing decisions, evaluation of thecomparative efficiency of the public marketing effort and determination ofsubsidy elements, AMC would establish a comprehensive cost accounting systemwhich would allow cost identification in different operations such as producebuying, seasonal storage, retailing, buffer stocking, distribution of inputsand distinguish different types of produce and inputs. Each AMC branch wouldbe treated as an individual cost center in budgeting and accounting. EGAand MOA would maintain separate Project accounts. During negotiations,assurances were obtained that all accounts would be audited, in accordancewith sound auditing principles consistently applied, by the Auditor-Generalor any other independent auditors acceptable to the Association, and that AMC,EGA and the CIU would submit their annual accounts, together with the auditor'sreports, to the Association within 6 months of the end of each fiscal year.

V. ORGANIZATION AND MANAGEMENT

A. Agricultural Marketing Corporation (AMC) (Annex 8)

5.01 As the main instrument for the implementation of the Government'smarketing and price policy, the Agricultural Marketing Corporation (AMC)has been established as a public authority with necessary powers to carryout the functions described in para 3.17-3.23 above and to supersede theEthiopian Grain Corporation (EGC) and the Agricultural Inputs and MarketingServices (AIMS).

1/ The remaining 25% of incremental permanent trading capital would beprovided to AMC by the Borrower as a condition of effectiveness of theCredit.

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5.02 The Agricultural Marketing Corporation is designed to function asan autonomous public enterprise having a separate corporate identify. TheChairman of .he Board is the Minister of Agriculture and Settlement or hisrepresentative, and other members are representatives of ECODD, EGA, theMinistry of the Interior, the National Bank and the Ministry of Finance, andthe General Manager of AMC. The main duties of the Board are to:

(a) lay down policy guidelines;

(b) approve the budget, annual report and accounts;

(c) approve the Corporation's strategy at the openingof each season, for the implementation of Governmentdecisions on prices, grain imports, bufferstocks,exports of agricultural products, and input purchasedistribution;

(d) consider and approve management recommendations withregard to monthly adjustment of the Corporation'sprice structure;

(e) supervise the operation and activities of the Corporation.

5.03 The General Manager has been appointed by the Government, on therecommendation of the Minister of Agriculture and Settlement and has fullresponsibility for the Corporation's day-to-day operations, within the policyframework laid down by the Board of Directors. AMC's functional organizationis shown in Chart 1 of Annex 8 and consists of four main departments, - acommercial department controlling operations including branch activities,a transport department handling AMC's own and hired transport, an accountsand administration department and a technical department responsible for theconstruction and maintenance of warehouses, and stock management. In addition,there are legal, internal audit and planning and programming sections, thelatter including an internal performance evaluation unit responsible formonitoring AMC's performance. 1/ Since there are no simple criteria againstwhich the performance of AMC could be judged, the work of this monitoring unitis particularly important for management guidance. In addition, the GeneralManager is to arrange consultations with representatives of consumers andproducers at branch level to review AMC's performance and expansion plans.AMC operates through branch and sub-branch offices of which fifteen are opera-tional as they have been taken over from EGC.

5.04 The specialist staff to be financed under the project fill thefollowing seven key posts:

1/ See also Annex 19.

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(a) Deputy General Manager:

(b) Deputy Director of Commercial Department;

(c) Cost Accountant;

(d) Senior Accountant or Financial Controller:

(e) Chief Engineer;

(f) Head of Transport Department;

(g) Chief of Planning and Programming Section.

An assurance was received during negotiations that IDA would be consultedprior to the appointment of successor staff to these posts.

5.05 AMC's total staff requirement would be about 40 high level and 140middle level staff, most of whom would be required from the beginning of itsoperations. Twenty high level and 30 middle level staff have been transferredfrom existing organizations, mainly through the absorption of EGC and AIMS,reducing the net requirement to 20 high level and 110 middle level staff(Annex 8, Table 7). Some commercially experienced staff are available asa result of the reduction in the activity of many foreign-owned businesses.

5.06 Since AMC would be operating as a commercial enterprise and wouldneed to have maximum flexibility in its personnel policies, all its staffwill be employed on contract terms.

B. Ethiopian Grain Agency (EGA) (Annex 12)

5.07 Under the Project, EGA would assume increased responsiblity fordomestic trade market regulation and improvement as well as market intelli-gence and analysis. Legislation has recently been promulgated to give EGAthe powers necessary to implement Project proposals. Under this new legis-lation, EGA would continue to be responsible to the Minister of Commerceand Tourism, and its policv-making Board would be composed of representa-tives of the Ministry of Commerce (Chairman), the Ministry of Agricultureand Settlement and the National Bank, the Executive Chairman of AMC andits own General Manager, to whom would be delegated the responsibility forits day-to-day operations. Separate ad hoc committees representing con-sumers, producers and the private trade would be designated and consultedon major policy decisions.

5.08 Under the Project two new Departments would be established withinEGA's headquarters organization for Market Intelligence and Internal Marketing(covering the licensing of private traders, supervision of local markets andpromotion of market improvements). This expansion of EGA's functions would

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involve the creation of a total of 17 high level and 9 middle level posts. Fivehigh level posts are expected to be filled in the first instance by interna-tionally recruited staff - the Director of the Internal Marketing Departmentand Head of its Marketing Improvement Section (which would be responsible forthe administration of the Market Infrastructure Improvement Fund) and theDirector of the Market Intelligence Department and the Heads (2) of its Dataand Market Analysis Sections. One of the important functions of the MarketIntelligence Department would be to act as a monitoring unit for the Project.

C. Crop Information Unit (Annex 11)

5.09 The CIU has been established within the Planning and ProgrammingDepartment of the Ministry of Agriculture and Settlement and will be staffedwith two high level posts, one of which would be filled by international re-cruitment for the first three years.

VI. BENEFICIARIES AND FINANCIAL RESULTS

Beneficiaries

6.01 The following major types of benefits would be realized as a resultof the Project:

(a) Increased Production - Farmer Incentives. TheProject originates from a concern that peasantproducers would lack sufficient incentives toadopt the new techniques promoted through thepackage programs without the assurance of fairand stable prices. The importance of this hasbeen illustrated by CADU experience where a dropin grain prices in 1972 resulted in two yearsstagnation in the adoption of inputs. With theforecast reductions in domestic supply, grainprices would probably increase anyway, andbenefits attributable to the Project would thusbe limited to protection of producers' interestsin a good harvest year and firmer integration ofremote areas with the national marketing systemwhich should help improve producer prices.

(b) Increased Production - Reduction of Losses. Theelimination of 55,000 MT of substandard warehousesthrough the new licensing system and the constructionof properly designed incremental storage facilitieswould reduce storage losses. Market infrastructure

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improvements through MIIF would have a similar thoughinitially small effect.

(c) Increased Production - Input Distribution. The distri-bution of an expanding volume of farm inputs at theright time and to the right place is an importantpart of the agricultural development program. How-ever, it is not possible to isolate the benefitsfrom these endeavors from the extension efforts underthe package programs.

(d) Income Redistribution. The Project aims to reducetrading margins and to eliminate alleged irregula-rities in weighing, grading and calculations. Ifmanaged efficiently (see however para 7.02) AMC couldbe expected to operate on lower margins deriving fromsmaller storage losses, proper location of warehouses(avoiding double transport), reduced risk marginsthrough stabilization and the planned scale of operations(including input supply) which would reduce unit over-heads. The EGA licensing system is designed to improvethe supervision of the private grain trade and similarlyto improve marketing practices. However, the lack offirm data prevents any qualitative or quantitativeassessment of the Project's probable effects on merchants'incomes.

(e) Consumer protection. The construction of storage inthe provinces and the provision of buffer stockfacilities would reduce the incidence of localizedfood shortages. AMC's retailing capacity would beused in areas where private trade margins appearexcessive and/or service deficient. More generally,the fixing of upper limits to grain prices(possibly combined with import subsidies) would givefurther consumer protection. Here again benefitscannot be quantified.

(f) Savings of Public Expenditures and Foreign Exchange fromBufferstocking. A capacity would be created to carry overstocks from good harvest years to normal or below normalyears when these stocks would be available to replace ex-pensive imports.

(g) Incremental Marketing. The Project would providefacilities for the forecast increase in wholesaletrade. These incremental services are valued atthe estimated present average margins in the pri-vate trade. 1/

l/ As noted above (d) no data are available on profits in private trade.

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6.02 Although no precise distinction can be drawn between consumers andproducers of marketed grain 1/ the distribution of the above benefits mightbe as follows:

(a) Producers. Improvement of producer incentives(para 6.01 (a)) and expanded input distribution(para 6.01 (c)) would significantly assist thepackage programs (para. 2.10) to expand theiractivities. A possible margin reduction betweenfixed wholesale prices and producer prices(para. 6.01 (d)) would benefit farmers.

(b) Consumers. Lower storage losses (para. 6.01 (b))or increased marketing efficiency (para. 6.01 (d))would reduce seasonal price adjustments and thusavoid unduly high consumer prices for grain laterin the season.

(c) National Interest. The incremental wholesalemarketing (para. 6.01 (g)) and the buffer stockingcapacity (para. 6.01 (f)) would be of benefit tothe economy and in the latter case to the Government.

AMC Financial Results

6.03 An analysis of AMC's financial results is presented in Annex 8,Tables 12-15. This is based on pricing principles outlined in Annex 4 andthe expected volume of transactions. Available information about the marginsin private trade indicates that AMC would be competitive when applying thesepricing principles. The results show that in 1980/81, AMC would cover allcosts including depreciation and obtain a return of about 10% on permanentcapital.

Government Cash Flow (Annex 17)

6.04 Apart from transfers from ex,isting institutions, Government outlayswould comprise Project costs for AMC, EGA and MOA. AMC would cover its opera-ting costs and replacement investment from its trading margins, but EGA andMOA activities would require additional annual budgetary support both duringand after the Project period. Possible grain and fertilizer import subsidiesdo not fall within the scope of the Project. 2/ In addition to the IDA con-tribution, inflows would consist of duties (Annex 18), and dividends on AMCpermanent capital. The Project requires Government investment of BIRR 16.2

1/ A producer may have to buy from the market in case of crop failure ormay sell his produce after the harvest and buy supplies later in theseason to avoid high storage losses.

2/ The Government may fix subsidies at a certain level with or without theProject.

- 25 -

million dsr:h: the Project period but the projected inflow of dividends fromAMC would t-:-.Uce ehe net call on Government resources to Birr 0.93 million,over the Project period. Thereafter, there would be a net annual inflow ofabout B-lr9 5.3 million until 1987/88 when repayments of the IDA credit wouldreduc@ it to Birr 4.8 million annually. Turnover tax on sales of grain andinputs is not included among the Government revenues since this income wouldbe forthcoming even without the Project.

Foreign Exchange

6.05 The production impact of the Project (para. 6.01 (a) and (c)) cannotbe quantified but any increase would lead to a reduction of grain imports oran increase in pulse and oilseed exports. Reduction of storage losses (para.6.01 (b)) io expected to allow foreign exchange saving of Birr 1.4 million an-nually. The construction of buffer stock facilities would substitute lowercost domestically produced grain for imports and in any one year when fullyused would result in foreign exchange savings of about Birr 17.5 million.However, the frequency of good and bad years and thus the utilization of thefacilities cannot be predicted with any certainty (see however the assumptionsmade in para. 7.01). These facilities would in any case be required forsecurity reserves (para. 3.22). If incremental marketing facilities werenot to be constructed there would be increased losses and a disincentive toproduction for the market, and increased imports would be needed.

VII. ECONOMIC BENEFITS AND JUSTIFICATION (Annex 13)

7.01 The main quantifiable economic benefits of the Project result fromthe establishment of additional marketing capacity to handle the incrementalvolume of produce traded (para 6.01 (g)) and from a reduction in storage losses(para. 6.01 (b)). Accordingly the costs of input supply, buffer stocks, exist-ing public marketing and market infrastructure improvement have been excludedin the economic analysis and to the extent 1/ that AMC's activities replaceprivate trade, an appropriate adjustment has been made for savings in theprivate sector. The resulting rate of return for the Project over 20 yearsis 18%. This would increase to 25% if the value of buffer stocks are includedunder the assumptions that good harvest years occur every fourth year and thatthe buffer stock facilities then are fully utilized to reduce imports at fore-cast high prices the following year. The proportion of costs included in theeconomic analysis is 65% in the latter alternative and 60% if buffer stockingis excluded. Foreign exchange costs and benefits have been included at theofficial rate of exchange as there is no basis for calculating the foreignexchange benefits attributable to trading margins (Annex 13) and since theforeign exchange component is likely to be similar in costs and benefits.Unskilled labor has been shadow priced at 50% of current rates.

7.02 The Project faces considerable risks due to lack of informationabout the existing marketing system, effects of recent reforms, uncertain-ties about the future and shortage of experienced staff. The followingmajor risk elements deserve attention:

I/ 55,000 MT of sub-standard private storage would be replaced byAMC stores.

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(a) Volume of Wholesale Trade. Knowledge of the volume and flowof present trade and of existing storage facilities isdeficient and may result in excessive and/or wrongly locatedstorage facilities and high AMC costs. The projected gradualexpansion of warehouse facilities would minimize these risks.

(b) Volume of Public Marketing. AMC's share of total wholesaletrade would also depend on its ability to compete with privatetrade in the marketing of peasant production. Two situationsmay conceivably arise. Private trade may have been discouragedby recent price controls, anti-hoarding rules, credit restric-tions and nationalization of storage and the proclaimed re-strictions on the activities in the private sector and AMC'sshare may increase so much that it is unable to provide adequateservices and operate efficiently. The result would be a dis-incentive to production and reduced benefits. With the newpricing system and removal of credit restrictions and with theexceptions for grain trade made in the new legislation (Annex 3),private trade is however likely to retain its present volume.If on the other hand AMC is unable to operate at least asefficiently as private trade, it may acquire a low share ofthe market or be forced to cut its margin to an extent thatit would operate at a loss. However, available informationconcerning AMC's operation in the past two seasons and CADUmarketing experience indicates that AMC would be competitive.

(c) Basis for Managerial Decisions. Inadequate information on thesize of the harvest, local shortages and surpluses, on-farmconsumption and available stocks may cause errors in pricing,in the volume and phasing of imports and in inter-regionaltransfers, which may prove costly to AMC. The Project wouldattempt to minimize these uncertainties by providing forimprovement in crop forecasting and market intelligence. Asnoted in para. 3.11 the system of price limits would also givemore room for maneuvering than a system with fixed and announcedfloor and ceiling prices.

(d) Availability of Staff. The expected rapid expansion ofpublic marketing will require very competent managementand a considerable number of new staff. On the managerialside the Project would provide for technical assistanceand training and adequate numbers of middle and lower levelstaff are believed to be available.

7.03 The Project would, however, be able to absorb the impact of consi-derable adverse developments. A sensitivity analysis indicates that a 10%

increase in costs or 10% reduction of volume of grain handled or of themarketing margins would reduce the economic rate of return to about 15% while

- 27 -

a 20% increase in costs or reduction of benefits would result in a rate ofreturn of about 10%. Only if there is a simultaneous increase of costs by 20%and decline of benefits by 20%, would the return drop to an unacceptable levelof 3%. If buffer stocking benefits are included, however, this return wouldbe 9%.

7.04 Other non-quantifiable benefits include (a) the increases in produc-tion that may result from the attempts to assure a minimum return to recom-mended inputs and improved and expanded input distribution, (b) improvedcapacity to reduce the incidence of local food shortages, and (c) incomeredistribution in favor of producers and consumers, resulting from anyreduction in trade margins (para. 6.01 (d)).

7.05 The Project would ensure permanent employment for an additional 400persons by 1980/81. AMC's handling of incremental grain dnd inputs wouldalso by that time have created about 6,000 temporary employment opportunities.The construction of warehouses would create additional job opportunitiesthroughout the Project period for about 1,500 persons.

VIII. AGREEMENTS REACHED AND RECOMMENDATIONS

8.01 It would be a condition of credit effectiveness that the Borrowerhad extended to AMC on additional contribution of Birr 4.25 million aspermanent trading capital.

8.02 Following are some of the more important assurances obtainedduring negotiations:

(a) the Borrower would, in accordance with its creditpolicies, ensure the availability of credit adequateto facilitate the wholesale trading of grain (para. 3.05);

(b) minimum grain prices would be set at a level,sufficientlyhigh to give farmers adequate price incentives (para. 3.13);

(c) AMC would be free to fix its day-to-day wholesale priceswithin the ranges established by the Borrower on therecommendation of EGA (para. 3.13):

(d) the Borrower would reimburse AMC losses incurred in theimport of produce and inputs, and in buffer-stockingoperations carried out in support of the price limits(para. 3.13);

(e) The Borrower would consult with IDA from time totime on the adequacy of the price system in respectof farmer incentives (para. 3.13);

(f) the produce of state farms would normally be marketedthrough AMC (para. 3.19);

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(g) the nationalized mills would procure their grainrequirements from AMC to the extent that AMC is ableto supply (para. 3.21);

(h) construction of warehouses would be carried out pur-suant to the detailed four-year construction programagreed between the Borrower and IDA (para. 4.04);

(i) in the event of a variation of greater than 25% in theaggregate annual volume of warehouse construction, orany other substantial deviation, from the agreed programin any year, the following year's program of constructionwould be established by agreement between IDA and theBorrower (para. 4.04);

(j) disbursement from MIIF would be matched by at leastan equal investment by the local authority concerned(para. 4.09);

(k) the Borrower would ensure that AMC has sufficientoverdraft facilities with the commercial banks(para. 4.12);

(1) the Borrower would ensure effective coordinationand cooperation among all the agencies involved inthe implementation of the Project (para. 4.14);

(m) IDA would be consulted prior to the appointmentof successor staff to the seven key AMC managementposts (para. 5.04).

8.03 The necessary assurances having been received, the Project is

suitable for an IDA credit of US$24 million to the Government of Ethiopia.

ANNEX 1Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

PRODUCTION, CONSUMPTION, AND TRADE IN CEREALS,OIL-CROPS AND PULSES

A. Production and Consumption

1. Data on production and consumption of grains, oilseeds and pulses arenonexistent but may be derived from sample surveys of cultivation of differentcrops, yield sampling and various studies of per capita consumption and popu-lation. The estimates in Table 1 reflect the situation in 1974/75 under normalgrowing conditions. A breakdown of production by crop and region is providedin Table 2. Consumption may similarly be broken down by region (Table 3) andan estimate of regional surpluses and deficits derived. These estimates mayin turn be compared with observations on the direction and volume of graintrade. Arussi, Bale, Begemdir and Shoa are definite surplus regions whileEritrea and Tigre imports substantial amounts of grain. The status of theremaining regions is uncertain (Table 4).

Table 1: Production and consumption of cereals, oilcrops andpulses under normal growing conditions 1974/75 /1 (OOOMT)

Cereals Pulses/Oilcrops TotalProduction /2 3,780 705 4,485

On farm consumption 2,666 159 2,825Rural non-farm 482 52 534Nomad 100 -15 85Urban 538 86 624

Total Consumption 3,786 282 4,068Implied Foreign Trade Imp.6 Exp. 423 Exp. 417 /3

Total 3,780 705 4,485

/1 Based on material provided by J. Dalton, Economic Commission forAfrica (ECA).

/2 After deduction of 17% for seed, feed and waste./3 Actual exports were about 210,000 MT which suggests that either

production has been exaggerated,' consumption underestimated orthat this year was characterised by adverse growing conditions.

Table 2: Estimated Production of Cereals, Pulses and Oilseeds by Region for a "Normalu

Production Year (000 MT)

CEREALS Total Total Grand

Maize Sorghum/Millet Barley Wheat Teff Total Pulses Oilseeds Total

Harvested Production 1059 1315 892 484 804 4554 566 580 5700

Waste and Seed 96 345 1215Feed

Production, ExcludingWaste, Seed and Feed

Arussi 42 14 195 114 13 378 29 27

Bale 31 3 85 37 10 166 9 17

Begemdir 6 180 45 17 91 339 51 37

Eritrea 12 141 30 10 9 202 12 46

Gojjam 12 68 42 13 96 231 30 23

Gemu Gofa 38 22 10 2 9 81 2 _

Harrarghe 76 286 7 5 8 382 11 2

Illubabor 83 18 3 1 17 122 8 2

Kefa 91 17 8 3 29 148 8 -

Shoa 253 105 204 146 211 919 202 31

Sidamo 76 7 16 1 9 109 22 -

Tigre 5 60 28 20 34 147 24 21

Wollega 132 43 19 2 64 260 12 26

Wollo 22 128 48 31 67 296 50 3

Total 879 1092 740 402 667 3780 470 235 4485

Source: J. Dalton, ECA

December 17, 1975.

ANNEX 1Page 3

Table 3: Consumption of Cereals, Oilcrops and Pulses 1974/75 (000 MT)

On Farm RuralRegion Consumption Non-Farm Nomads Urban Total

Arussi 133 27 - 13 173

Bale 95 20 13 7 135

Begemdir 220 56 1 27 304

Eritrea 162 35 14 99 310

Gemu Gofa 87 18 2 9 116

Gojjam 212 53 2 23 290

Harrarghe 271 33 31 51 386

Illubabor 93 11 3 7 114

Kaffa 143 18 3 21 185

Shoa 573 74 2 264 913

Sidamo 91 43 6 27 167

Tigre 210 57 3 29 299

Wollega 234 28 1 14 277

Wollo 301 61 4 33 399

2,825 534 85 624 4,068

Source: J. Dalton ECA

December 17, 1975.

ANNEX 1Page 4

Table 4: Regional Surpluses or Deficits of Grain, Oilseeds andPulses (000 MT)

Eubank's Dalton'sProvince According to Tables 2-3 Observations /1 Observations /2

Arussi +261 +72 +150Bale + 57 +38 + 57Begemdir +123 +35 +123Eritrea - 50 -100 - 50Gemu Gofa - 33 0 0Gojjam - 6 +25 + 10Harrarghe + 9 +10 - 20Illubabor + 18 -10 - 20Kaffa - 29 -15 - 29Shoa +239 +80 +239Sidamo - 36 -35 0Tigre -107 -40 - 90Wollega + 21 -10 + 21Wolle - 50 0 + 5

Exports 417 75 396

/1 Cereals only; K. Eubanks, Ministry of Agriculture (MOA)./2 J. Dalton, ECA.

0ff-farm consumption of cereals, oilseeds and pulses is estimated at1.2 million MT (29%) and the marketed volume including exports would thus be1.5-1.6 million MT (Table 1). A large portion of this marketed volume isdirect transfers between producers and consumers or handled by local trade.The volume moving in commercial channels may be estimated from the urbandemand plus exports and amounts to about 0.85 million MT.

2. Imports of cereals increased somewhat during the last decade and parti-cularly in 1974 (120,000 MT) in view of the drought. (Table 5) Imports are,however, normally only about 1 percent of total consumption. Exports ofoilseeds and pulses have grown considerably during the last few years andreached in 1973 a level of about 225,000 MT (Table 6).

ANNEX 1Page 5

Table 5: Grain Imports, 1962 - 1974 (000 MT grains or grain equivalent)

1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 19731/ 19741/

Wheat 1.1 - - 6.6 8.3 0.1 - 4.5 31.5 34.1 5.05 11.79 1.02

WheatFlour 6.2 4.8 8.8 18.8 38.7 28.2 21.7 23.9 38.9 11.3 0.05 0.05 0.06

Total Theat 7.3 4.8 8.8 25.3 46.9 28.3 21.7 28.3 70.2 45.4 5.1 11.84 1.08

Maize 0.2 - - - 3.8 0.1 - - 1.0 0.1 - 0.76 0.26

Sorghum - - - - - 0.2 - - - - 0.8 2.13 -

Other - 0.3 1.2 1.9 - - - - - - - -

Total 7.5 5.1 10.0 27.2 50.7 28.6 21.7 28.3 71.2 45.5 5.9 14.73 1.34

-e'torts 2/ -3.5 -1.0 -1.4 - -0.1 -0.4 -1.3 -3.9 -2.9 -5.3 -5.2 -7.8 -7.23

Netimports 4.0 4.1 8.6 27.2 50.6 28.2 20.4 24.4 68.3 40.2 0.7 6.93 5.89

1/ Excludes imports under the drought relief program which amounted to:

1974 120,00C I-T

1975 (est.) 20,000 MT

2/ Excluding 5,000 to 15,000 tons of unrecorded exports from eastern Hararghe area toSomalia in recent years.

Source: Annual. Trade Statistics

ANNEX 1Page 6

Table 6: Export of Cereals, Pulses, Oilseeds and Oilcakes, 1962-1974(000 MT)

1962 1963 1964 1965 1966 1967 1968 1969:- 1970 1971 1972 1973 1974

CEREALS 3.5 1.0 1.4 - 0.1 0.4 1.3 3.9 2.9 5.3 5.2 7.8 7.23

Wheat - 0.1 - - - - - - - - - 2.9 2.70

Maize 0.7 0.5 0.5 - - - - 0.1 - 0.1 0.1 1.1 1.04

Barley - - 0.1 - - - - - - 0.1 - - 0.06

Durrah 2.8 0.4 0.7 - 0.1 0.4 1.1 3.8 2.9 3.7 5.1 3.8 3.43

Othercereals - - 0.1 - - - 0.2 - - 1.4 - - -

PULSES 67.7 67.9 59.9 52.7 67.7 69.1 74.6 78.6 50.5 63.6 76.7 114.1 116.54

Horsebeans 22 29.1 19.9 17.8 22.4 24.7 18.5 27.4 15.6 16.6 17.1 31.7 25.99

Chickpeas 5 8.5 15.3 9.5 10.9 10.7 13.8 8 2.1 6.4 9.2 11.3 8.13

Haricots 14 9.6 10.7 19.7 19.5 17.9 19.3 16.7 17.1 22.5 28.4 49.8 45.97

Lentils 25.3 16.2 10.4 5.7 14.9 15 22.1 24.5 15.7 17.9 21.6 19.8 36.45

Beans,others 1.4 4.5 3.6 - - 0.8 0.9 2.0 - 0.2 0.4 1.5 -

OILSEEDS 56.8 76.9 .75.7 72.3 62.5 57.7 50.0 56.0 56.1 63.7 89.9 112.8 93.02

Groundnut 3.2 5.4 7.1 3.4 2.0 1.6 3.1 1.8 0.6 1.3 1.2 2.3 3.56

Linseed 25.9 37.1 31.0 19.3 10.5 9.7 3.7 0.3 0.5 0.1 0.1 0.4 2.00

Cottonseed 1.6 3.8 4.9 4.9 7.8 11.2 6.9 9.9 7.3 12.9 19.6 12.7 3.31

Casterseed 7.1 7.2 6.8 4.4 5.2 1.9 1.0 1.9 0.7 1.2 1.4 3.9 1.62

Sesame seed 9.6 8.5 14.3 21.4 20.3 19.7 27.0 30.7 39.7 36.7 52.7 82.1 84.57

Niger seed 5.7 10.1 9.3 10.8 6.8 8.8 6.9 10.3 7.1 11.0 14.1 10.1 7.56

Otheroilseeds 3.7 4.8 2.3 8.1 9.9 4.8 1.4 1.1 0.7 0.5 0.8 1.4 0.40

OILCAKES 26.2 12.2 22.8 - 10.9 31.2 25.7 33.9 26.7 40.0 53.3 52.9 33.53

Niger 15.3 1.6 13.8 - 1.6 16.4 7.9 11.1 5.7 6.4 15.3 13.4 6.91

Groundnut 1.2 1.3 4.3 - - 0.9 1.9 2.0 2.0 2.4 2.3 3.9 2.45

Cottoncake - - - - - - 0.4 6.4 10.9 10.7 7.3 18.0 19.76

Lincake - - - - 8.8 9.1 11.3 8.6 5.4 18.8 22.1 10.0 4.32

Otheroilcakes 9.7 9.3 4.7 - 5.0 4.8 4.2 5.8 2.7 1.7 6.3 7.4 0.09

Source: Annual Trade Statistics

December 17, 1975.

ANNEX 1Page 7

B. Structure of Grain Trade

Private Trade

3. Wickstrom 1/ estimated that the number of dealers engaged in thegrain trade between the producer and the terminal markets ranged from12,500 to 25,000 in rural areas and 4.000 and 8,000 in the towns, andEubanks 2/ found that there were some 25 major grain merchants at Addis Ababawith a combined storage capacity of 100,000 tons. In addition, there aresome thirteen large flour mills with a total capacity of 160,000 tons perannum, that handle the major part of marketed wheat supply (Appendix 1).

4. Within the marketing hierarchy, functions are frequently blurred.For example, in the rural sector a trader may well act as a dealer on hisown account, as an agent for an urban wholesaler, as a retailer to ruralconsumers, as well as being a truck owner or a farmer. While the medium andlarger-scale traders obtained commercial bank credit (partly secured byproduce stocks) for their marketing operations, they used their own sourcesof finance rather than institutional credit for investments in storage andmarketing facilities. Most longer-term stock holding (Table 7) was con-'centrated in the terminal markets (particularly Addis Ababa) where storagefacilities and the necessary risk capital were available.

5. "Open markets" at over 2,500 market villages throughout the countryoperate at intervals according to a prescribed market calendar and constitutean important part in rural social, as well as economic, life. Urban marketsoperate on a daily basis as do the main terminal markets at Addis Ababa,Nazareth and Asmara. Most urban market facilities are rudimentary and thesemarkets are characterised by congestion and labor intensive operations.

6. Despite the fragmentation of the market, it appears that a majorinfluence in price formation is exerted by the terminal market at Addis Ababa(and to a lesser extent that at Asmara) where the operations of the larger

wholesaler stockists are concentrated. In the absence of any reliable cropforecasts, it is the subjective production estimates of these wholesalerswhich is the crucial market force, especially during and immediately afterharvest, since they command the facilities (storage and finance) for seasonalstockholding - an operation which, because of the uncertainties involved,carries with it high risks and the possibility of either high profits orhigh losses. 3/

1/ "Increasing Efficiency in the National Grain Marketing System"Wickstrom EPID Publication No. 14, October 1973: pp 10 and 12.

2/ "Findings of a Market Structure Survey": PPD, Min. Ag., July 1973.

3/ Marketing of selected agricultural commodities in the Baco area,W. Manig, November 1973.

ANNEX 1Page 8

Table 7: Storage Capacity (MT)

Agricultural Marketing Corporation

Private (incl.

Owned Rented State Farms AMC Rented)Storage

Arussi 8,000

Bale

Begemdir 300 1,000 -

Eritrea 1,000 6,000 145,000

Gemu Gofa - - 3,600(cotton) -

Gojjam 3,000 -

Harrarghe - - 1,050 3,500

Kaffa - 1,000 - 3,000

Illubabor 1,000 100

Shoa 25,200 37,500 5,000 360,000

Sidamo - - 10,000 -

Tigre - - 1,000

Wollega 1,000 -

Wollo 1,500 5,000(repair) 20,000

33,0001/ 45,600 32,650-2/ 532,5003/

Source: EGC, Eubanks,MOA and Mission Estimates

1/ of which silos 29,000 MT2/ of which for grain 25,000 MT

3/ of which nationalized mills about 20,000 MT

of which AMC rented storage 45,000 MT

January 21, 1977

ANNEX 1Page 9

7. In primary markets, the ceiling price on any one day seems to bedetermined by the ruling terminal market price (after deduction of marketingand transport costs) which local traders obtain by telephone. Below thisceiling, local market prices are largely determined by traders according toavailable supplies and, because of farmer reactions, appear to show consider-able irregular price movement. Resultant excessive regional price differen-tials tend to persist because of imperfect market integration. Seasonalprice variations in excess of levels justified by storage costs and risksfrequently occur. Because speculative stockholding is concentrated at termi-nal rather than regional markets, grains often flow back to producing regionswhen shortages force up local prices during the preharvest period.

8. There is a legal requirement that traders should be registered withthe Ministry of Commerce and Tourism, but this is more honored in the breachthan in the observance. Municipalities controlling urban markets generallyrequire an annual licensing of traders using the market facilities.

9. The Ethiopian Standards Institute (ESI, established in 1970) has,in consultation with the Ethiopian Grain Board (EGB) prescribed standards formost agricultural commodities but through lack of any enforcement agency,these remain largely ineffective. In practice, the use of mixed plantingmaterial and conservative tastes based on color and origin make objectiveclassification difficult. In any case, a priority task is to reduce theamount of impurities at present accepted in traded lots at primary markets.

10 Execution of the Weights and Measures Proclamation of 1963 is alsoentrusted to the ESI. At primary markets, traditional volume measures, whichare both variable and ill-defined, continue in use. Where scales are employed,these are rarely, if ever, checked and serve more as a means of reducing theeffective price paid to the producer.

Ethiopian Grain Agency

11. The Ethiopian Grain Agency (EGA) was established in 1950 as anautonomous government agency, its members being the Minister of Commerceand Tourism (Chairman), the Minister of Agriculture and Settlement, theMinister of Finance, the Governors of the National Bank and CommercialBank and the General Manager of the AID Bank. Its primary objectives are(a) to maximize the export of grains, flour, pulses and oilseeds, (b) toimprove the quality and grade of these exports and (c) to protect Ethiopia'sforeign exchange position.

12. To achieve these aims, EGA is empowered to:

(a) regulate the prices at which these commodities may bepurchased and sold for export or domestic consumption;

(b) counsel with the Minister of Agriculture and Settlementon production and marketing problems;

AN= 1Page 10

(c) license and control all exports of all grains, flour, pulses and

oilseeds from Ethiopia.

(d) license merchants cleaning these products.

13. Until 1971, EGA's operations were minimal and export certification

requirements were carried out on its behalf by the Ministry of Commerce and

Tourism. Since then, EGA has been reorganized and given financial autonomy

by the allocation to it of the proceeds of a special tax on exports. EGA

has implemented control and licensing of cleaning facilities, instituted

a system of quality inspection, introduced measures for improved storage,

hygiene and pest control, 1/ and initiated a market intelligence service.

All these activities relate solely to export commodity operations, but, powers

are widely drawn and EGA was for example involved in the recently introduced

price control measures for grain produCed for domestic consumption. Recent

legislation has greatly increased EGA's role in domestic trade regulation

(Annex 12).

Ethiopian Grain Corporation

14. Prior to the establishment of AMC direct state intervention in

grain trading was through the Ethiopian Grain Corporation (EGC). Established

by charter in 1960 as a Corporation with limited liability, EGC's main object

was defined as the encouragement of "the increased production of agricultural

products... by stabilizing the market, improving the quality of agricultural

products and by exporting agricultural products". Its authorized eapital

wes Birr 15 million consisting of 150,000 common shares of Birr 100 each, of

which 120,000 were held by the Ministry of Finance and 30,000 by the Commercial

Bank of Ethiopia. All powers of the Corporation were vested in its Board of

Directors made up of representatives of the Ministries of Finance, Agricul-

ture, Commerce and Tourism, and National Community Development, the Planning

Commission and the Commercial Bank of Ethiopia, who elected their own

chairman. The Corporation operated as a commercial entity and was intended

to make profits and pay dividends on its share capital.

15. EGC's paid up capital only amounted to Birr 9.5 million (US$4.6 mil-

lion) because of the Ministry of Finance's share-holding some Birr 5.5 million

(US$2.65 million) or 46 percent remained unpaid. 2/ EGC's capital was largely

utilized in the acquisition of land and construction of stores. As of June

30, 1974, it owned storage with a total capacity of 33,000 MT of which 29,000

was in silos (20,000 at Addis Ababa).

16. Because the growing urban consumer demand for wheat flour and bread

was outstripping the domestic production of wheat, EGC undertook a series of

1/ In conjunction with the Plant Quarantine Section of the Plant Production

and Protection Division of the Ministry of Agriculture.

2/ A special contribution of Birr 4.2 million, was, however, paid by the

Ministry of Finance in 1975.

ANNEX 1Page 11

wheat import operations mainly under externally financed projects. The firstin the early 1960s was under a US PL 480 scheme; the second involved imports

of 4,000 tons of wheat in 1965 and a further 6,000 tons in 1970 under WorldFood Program auspices; and the third covered shipments of some 30,000 tons

of Australian wheat in 1970/71, financed under UK bilateral assistance. Thesewheat imports were mainly sold to the fast growing local flour milling indus-try, whose capacity expanded from 40,000 tons in 1965 to about 160,000 MT

in 1975. In order to obtain greater influence over the consumer price forflour, EGC acquired and operated its own flour mill, (Adowa Flour Mill SC).

Of the WFP imports in 1965, some 34 percent were diverted for emergency faminedistribution. Sales of wheat were originally on credit terms to encouragebakers and millers to buy from the Corporation, but this practice was stoppedin 1973 because of the extent of defaults.

17. EGC was allowed to retain the proceeds of sale of imports as workingcapital to finance domestic purchases, particularly during the immediatepostharvest season, with the object of stabilizing producer prices. Butwhereas, thanks to imports, its share of the wheat market could be as high as40 percent, EGC's market share of other commodities averaged about 1.5 percentwhich was insufficient for it to be a price leader. In the absence of anyproducers' organization, EGC bought mainly through large farms and middlemenon a commission basis. Because of insufficient information and experience andlack of Government price policy, it was not possible for EGC to operate anypre-announced producer prices, and it could only follow market price trends.Shortage of working capital frequently limited its stockholding ability andreduced its capacity to influence seasonal price variations. EGC's limitedoperations in most years failed to generate sufficient gross profit to coverits administrative overhead costs. As of June 30, 1974, accumulated deficitsamounted to Birr 6.8 million due in part to the need for special provisionsto cover (i) adjustments in stock values (Birr 662,000), (ii) bad and doubtfuldebts (Birr 1,200,000) and (iii) income tax and turnover tax totallingBirr 2.2 million as a result of a High Court decision that EGC is not exemptfrom such taxes.

Rs. Government price control measures during 1975 did not provide forany seasonal adjustment of prices to take the costs of stockholding intoaccount. This and the fear of action against "hoarding" led private whole-salers to limit their operations, and a large part of seasonal stockholdingwas borne by the EGC and small farmers. With additional funds provided bythe Ministry of Finance (Birr 4.2 million) and the Commercial Bank (Birr 2.9million), EGC during the period January to June 1975 purchased some 70,000tons of cereals (mostly wheat and maize) and had to rent storage with acapacity of some 46,000 tons to supplement its own storage facilities. Mostof EGC's purchases came from commercial farmers now going out of business.During the second half of 1975 EGC disposed of the grain by rules to institu-tional buyers, the mills and to the public (max. 50 kg lots) and made aprofit of about Birr 2 million. It did not sell to private wholesalers.The buying operations were largely financed by a merchandise loan and overdraftfacility (both 9.5% interest) with the Commercial Bank.

ANNEX IPage 12

19. From the past experience outlined above, it appears that the mainweaknesses in EGC and its operations stemmed from:

(i) lack of definition of its priorities between the objectivesof providing producer incentives, assuming consumer protec-tion and making profits on its operations;

(ii) failure by Government to provide EGC with the necessaryfinancial resources as shown by

-- failure of the Ministry of Finance to subscribe in fullthe EGC's capital, aggravated by the eventual impositionof taxes on EGC's operations;

-- much delayed remuneration in respect of special operations(e.g., famine relief in 1965/66);

-- absence of provision for working capital and access tonecessary bank credit on reasonable terms;

(iii) absence of any direct link to the peasant producers throughwhich EGC could operate in its domestic purchases; and

(iv) poor management, as exemplified by

-- bad timing of imports (in 1972 these arrived in the post-harvest season and merely served to depress producer pricesfurther and added to EGC's operational losses);

l osses on credit sales;

-- infrequent physical stock-takings to check book records;no cost accounting procedures;

-- dispersion of resources in side-line activities (e.g.,exports of haricot beans).

On the credit side, EGC was able to maintain reasonably good standards inits warehouses and silos, and to avoid undue physical losses on the grainit has handled.

ANNEX 1Page 13

C. Price Behavior for Selected Commodities

20o Th- behavior of prices in response to changing market conditionsis one of the performance criteria of a market. Large fluctuations in prices 9

while indicating the market's sensitivity to interacting forces of supply anddemand, are generally considered undesirable because of the economic risk suchfluctuations imposed on individuals. On the production side, these risksrepresent a serious disincentive and have a depressing effect on the nationaloutput. For planning purposes, the type and magnitude of price fluctuationssignal deficiencies which can be alleviated through appropriate investmentsand policy measures.

210 Information on prices of agricultural commodities is both scarceand inaccurate. Nevertheless, an analysis of the data available can providea rough indication of the pattern of price movements and, as such, a valuablebackground for the design of a marketing project. In this annex some aspectsof temporal and geographical variation in prices are summarized for selectedcereals, pulses and oilseeds.

22. The data analyzed are the Ethiopian Grain Corporation's (EGC) whole-sale price series for Addis Ababa, Nazareth, Asmara and Dire-Dawa for theperiod 1966-74. For Addis Ababa, retail price data collected by the CentralStatistics Office have also been utilized. Producer prices are available froma few selected locations in the CADU and Bako areas and have been used toanalyze the wholesale-producer price margins.

Year-to-Year Variation

23. The simple yearly averages of monthly wholesale prices displayed arelatively flat trend during the period 1966-72 for all commodities. For1973-74 a relatively modest upturn in prices was noticeable for cereals whilesharp increases occurred for pulses and oilseeds. This different behaviorreflects the differences in the commercial link for the two commodity groupswith the world market which is relatively weak for most cereals, but moreprominent for oilseeds and pulses.

24. There are large variations in prices from one year to the next anda pronounced pattern in the price fluctuations with the two major featuresbeing that the largest year-to-year changes were increases rather thandecreases and that the maximum changes for the 1966-74 period are heavilyconcentrated in two years. For cereals, 1970 was the year with the mostspectacular price increases which in Addis Ababa ranged from about 30-60percent above 1969 levels. For oil-seeds and pulses, the 1973 increasesin most cases exceeded those of 1970 and fell generally into the range ofabout 60-100 percent. Some sharp declines in prices occurred in 1968 and1972 when prices were about 40 percent lower than during the preceding yearsfor some commodities. Prices appeared to be less stable for the period1970-74 compared with 1966-70.

ANNEX 1Page 14

Intra-Seasonal Variation

25. Equally important to producers are the variations in produce priceswithin a year. The data seem to show that seasonal variation maxima tendedto coincide with the years with the highest interyear variation, althoughthere were quite a few exceptions. Percentagewise, seasonal fluctuations aremuch larger than yearly fluctuations and for the ten crops studied, the highestmonthly price for a given year and crop frequently exceeded the lowest bymore than 100 percent.

26. There is an extreme irregularity in the seasonal pattern of wholesaleprices. While the seasonal peak generally occurs between June and December,there are numerous exceptions for individual crops. Furthermore, price peaksmay be extremely pronounced one year and completely absent the next. Thedifference between the March and September prices in the Addis Ababa whole-sale market is shown in Table 8 for the 1962-74 peried and average Birr 3.20per quintal. The variations shown render speculation a very risky business.Reduction of seasonal fluctuations will require an improved crop monitoringand forecasting system. Since the uncertainties can only be reduced butnot eliminated, an agency concerned with seasonal stocking operations musttherefore start with a strong financial backing and maintain an appropriatetrading margin to remain solvent over time. This means that the trading marginin addition to regular operating costs and a "normal" profit, should thusinclude a risk premium which over time can be adjusted to equal the truefinancial cost of seasonal stockpiling. Such a premium currently charged bytraders may at times mistakenly be referred to as "excess profit," and assuch be assumed to be available for redistribution to producers/consumers.This notion of prospective distribution benefits is correct only insofar asthere may still be some excess profit above the risk premium (so far un-substantiated) and since a very large organization, such as the proposed AMC,could operate on a smaller risk premium than smaller operators because ofthe possibility of risk spreading in a large heterogenous national market.

Regional Variation

27. An examination of wholesale prices reveals a certain regionalprice pattern. Prices generally display group behavior between markets,i.e., are either all above or below the respective levels in another market(e.g., Addis Ababa). For example, prices have been generally higher in Asmaraand lower in Nazareth than in Addis Ababa. However, regional margins differbetween commodities. For example, the average Addis Ababa - Asmara marginfor 1973/74 for brown teff was Birr 0.39, while for maize it was Birr 1.02.While the respective origins of supply are likely to be the main reason forthis difference, further clarification is definitely needed. Changes in theproduction and consumption pattern through land reform and other developmentefforts and provision of market infrastructure are bound to affect theregional price differentials. That regional margins are very sensitive issubstantiated by the fact that they have varied significantly from year toyear and even oscillated between positive and negative within years.

ANNEX 1Page 15

Table 8 Seasonal Variation in Addis Ababa Wholesale Prices

Difference Between March and September Prices Birr/nt( 6 months)

White Teff White Wheat Maize Sorghum Barley

1974 0.96 0.29 0.62 3.04 1.20

1973 5.28 9.24 8.89 5.88 7.56

1972 3.07 -1.22 -1.85 0.80 -1.82

1971 2.05 1.12 0.64 0.15 4.67

1970 11.80 19.38 10.89 11.82 11.42

1969 2.32 -0.01 5.52 5.43 2.59

1968 -0.25 0.26 1.86 -3.52 -0.26

1967 2.44 2.97 -0.71 1.35 3.05

1966 -1.75 -1.56 -0.99 -0.27 -2.18

1965 9.09 2.38 5.05 6.28 4.58

1964 4.68 10.48 4.61 7.72 4.94

1963 3.05 -0.37 -0.69 0.31 -0.85

1962 1.98 3.86 2.85 2.77 2.91

Total 44.72 46.82 36.69 41.76 37.81

Average 3.44 3.60 2.82 3.21 2.91

Average all crops 3.20

Source: EGC wholesale prices.

January 21, 1977.

ANNEX 1Page 16

Crop-to-Crop Variation

28. Relative crop prices within a given market have also varied tremend-ously in Ethiopia. These variations are, of course, interrelated with thethree types of variation described above but require separate analysis asthey are of utmost importance from a farm budget point of view. The extensionservice, for example, has to take into account shifts in comparative advantageamong crops in dispensing its advice to farmers. The example below illustratesthis point.

Unit Price of Selected Crops in Relation to WhiteWheat, Addis Ababa

Percent difference from wheat1970 1974

Brown teff +17.6 +27.2Maize -33.2 -32.5Rapeseed - 5.7 -40.0Neug + 7.4 +73.3

29. Relative crop prices are of decisive economic importance for thecountry as a whole since they determine the allocation of scarce economicresources. A stable relationship reflecting the long term comparativeadvantage in different parts of the country is essential for the agriculturaldevelopment efforts.

Retail Margins

30. Retail price series are available only for Addis Ababa. A comparisonwith EGC's wholesale price series indicates that brown teff has had a conti-nuous negative retail margin. The reason for this could not be found. Forwheat, retail margins are relatively large 1/ but have shown a tendency inrecent years to narrow somewhat. For barley, maize and sorghum, the averagemargin is about Birr 3 per quintal and there has been no significant changeover the past five years. A study by Maning 2/ reveals the retail marginsin a small market village in western Shoa. Again the average margin for teffis negative - Birr 0.65 per quintal while the margins for maize and neugare Birr 1.55 and 6.83 respectively.

1/ The comparison may possibly refer to wholesale wheat and retail wheatflour.

2/ Maning, W., Marketing of selected agricultural commodities in theBako area, Ethiopia, 1973.

ANNEX 1Page 17

Wholesale and Retail Prices, and Retail Margins,Averages for 1970-74 (Birr/gt)

Prices MarginWholesale Retail Absolute As Percent of

Wholesale Price(percent)

Wheat (white) 24.98 38.34 13.36 53.5Barley 18.96 21.63 2.67 14.1Maize 17.63 20.00 2.37 13.4Sorghum 23.70 27.53 3.83 16.2Teff (Brown) 32.47 31.02 -1.45 -4.5

Producer - Wholesale Margins

31. Producer prices are only known for a few locations in the Chilalo(CADU) and Bako (Manig study) areas and the estimates are very un-certain. The difference in relation to the Addig Ababa wholesaleprices have been calculated to establish an average margin during themain buying season after the harvest. This margin has been adjustedupwards by 10 percent due to the cheating on weight and calculationswhich has been established as normal in the CADU area. The unweightedaverage margin per quintal/km is Birr 0.32. The transport and handlingcomponent is estimated at Birr 0.14.

Place Distance from Crop Average Average margin TimeAddis Ababa Margin adjusted for Period

cheating

(km) Birr/qt Birr/qt Birr/km

Sheboka 247 Maize 3.40 4.50 0.0187 1970/72Teff 20.15 22.65 0.0917 1970/72Neug 3.69 5.87 0.0238 1970/72

Asella 175 Wheat 3.13 5.06 0.0289 1968/74Barley 3.67 4.93 0.0282 1971/73

Huruta 150 Wheat 1.56 3.80 0.0253 1968/74Barley 3.89 5.38 0.0359 1971/74

Bekoji 235 Wheat 4.57 6.47 0.0275 1968/74Barley 4.84 6.10 0.0260 1971/74

Asassa 300 Wheat 4.97 6.66 0.0222 1971/74Barley 6.22 7.28 0.0243 1971/74

0.0320

ANNEX 1Page 18

Parity Prices

32. Foreign trade parities are used to indicate what the opportunitycosts are of producing domestically versus importing from foreignsources, or consuming domestically versus exporting. The concepthas to be used with caution since world market prices have beenunstable in recent years and it is neither possible nor desirableto rigidly link a national economy to the world market. Further-more, the world market is generally not a reliable source ofsupply for very large requirements. But in the long run it is ina country's best interest to adjust domestic prices as closelyas possible to parity levels if the country has to enter the worldmarket as a substantial buyer or a seller.

33. Parity prices can be calculated at various levels in the market,i.e., farm gate, wholesale, retail or port, and vary according tolocation throughout the country. As an example, a rough calculationof import parity prices for early 1975 is presented below.

Import Parity Prices, Wholesale Addis Ababa for Maize,Sorghum and Wheat, January - February 1975

Maize Sorghum Wheat(US$/MT)

F.O.B. US Gulf Ports 126 114 153Ocean Freight 37 37 37C.i.f. Ethiopian Port 163 151 190

(Birr/MT)C.i.f. Ethiopian Port 333 308 388Port charges 14 14 14Handling charges 40 40 40Domestic transport 60 60 60

Import Parity, Addis 447 422 502

Actual Addis Wholesale Price 135 235 240

Addis Wholesale as % of 30 56 48Import Parity

Source: Mission estimates.

34. The calculation shows that cereal prices in Ethiopia are considerablyout of line with world prices. This can have serious consequencesas heavy imports may be required in the next few years; and theGovernment faces a decision to subsidize imports out of budgetaryresources or allow consumer prices to rise. For export crops asimilar calculation would show up to what price level the countryremains competitive in the world market.

ANNEX 1Page 19

D. Marketing Costs

35. The present costs of handling of grain are summarized below:

Birr/MT

Weighing, bagging and stitching 2.50Loading or unloading 1.50Transportation per km. 0.10Bags (100 kg; use 7-8 times) 4.00Pest control 1.00

Storage losses 1-2% (12 months warehouse)

E. Marketing Problems

36. Reliable information on which to analyze and assess the performanceof the existing marketing system in Ethiopia is lacking. Amongobservers and commentators, however, there is a consensus of opinionthat the system has been characterized by:

(a) high transport costs, particularly where feeder roads areconcerned: double transport due to lack of local capitaland storage facilities;

(b) the weak position of the producer because of:

(i) his need to sell immediately after the harvest tomeet tax, debt and rent payments;

(ii) restricted facilities for on-farm storage;

(iii) the fact that he virtually has no option except toseU his produce on the day when he brings it to theprimary market; and

(iv) lack of relevant price information.

(c) lack of competition between buyers;

(d) uncontrolled weights and measures which operate to thetraders' advantage;

(e) labor-intensive market operations;

(f) numerous title transfers in the marketing chain;

ANNM IPage 20

(g) nonexistence of grading and quality otandordo leading tomost traded lots having a high impurity content (up to 15percent), which adds to the transport costs of the presentsystem;

(h) low standards of storage hygiene and pest control, althoughlooses on this account often appear to be =zggQTated

(i) lack of price stability from one year to another and thusa reluctance from farmers to use cash inputs; and

(j) inefficient crop forecasting and thus high risks and marginsin seasonal storage.

F. CADU Alternative Outlet

37. CADU has since 1968/69 undertaken to market particularly wheat and

barley in competition with private trade. The purpose has been to

improve the producer prices by reducing the marketing margins and

to stabilize prices, thereby improving farmers' incentives and pro-

duction. The project has been buying at an increasing number of

marketing centers (now 30) most of which are being converted into

primary cooperative societies. The crop buying is concentratedin the period December - March to allow for input distributionfrom the same centers/societies in April - June. An analysis ofthe activities 1/ reveals that the project in the period 1968/69-

1972/73 has offered the farmers between Birr 2.23 - 4.94 (average3.14) more than the local traders per quintal of whemet (after priceadjustment of the latter downward by 10 percent due to the cheatingin weight and calculations that have been establiohed). After ad-

justing the cost of expatriate staff to Ethiopian wage levels GADUhas made losses during the first four years of operation varyingbetween Birr 1.36 - 2.29 per quintal. In 1972/73 the project, how-ever, made a small profit (Birr 0.40) and the average loss for theperiod thus amounted to Birr 0.96. The presene olume of trading1974/75 is about 24,000 MT and at this volume CkDU has no difLicul-ties in breaking even while reducing the traditional average marginby about Birr 3.00 per quintal. 2/ An attempt to lntroduce floorprices in 1971/72 failed since the project had no control overimports and no possibilities of forecasting domestic supplies. Bycarrying most of the purchased stocks to the follczwilng year whenprices rose considerably, it was possible to minimi2e the losseesTo what extent CADU's trading (now 16 percent.of tot& markretedproduction) has influenced the pricing and marketing practices of

private trade has not been firmly established. CADU fixes its

1/ Haglund, Lars, The Grain Marketing System of Chilalo, CADU 1974.2/ Including seasonal storage.

ANNEX 1Page 21

prices in relation to the Addis Ababa wholesale prices afterdeduction of its costs (now about Birr 7.00 per quintal) andprivate traders appear to maintain a certain relation to theCADU price level.

G. Project Objectives

38. In order to improve market efficiency it is proposed (a) tosupport a public marketing channel, (b) to regulate andimprove private trade and (c) to improve market intelligence.The Project would have three basic objectives:

(a) to assure stable producer and consumer prices at alevel which provides adequate producer incentives;

(b) to reduce marketing margins; and

(c) to assure an adequate national food supply in all partsof the country.

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

Major Grain Mills

(1975) Maximum Processing Storage capacity

(a) Nationalized Name Location Capacity (MT p.a.) (in MT)

(Ministry ofCommerce,Industry &Tourism) Kaliti Food Products Addis Ababa 15,000 10,000

A. Mihos & Co. Addis Ababa 21,600 2,000

Adowa Flour Mills (EGC) Akaki 12,480 -

National Flour Mill andk Addis Ababa 30,000 2,800

Debre Zeit Flour Mills 3 Debre Zeit

A. Mihos Flour Mills Dire Dawa 9,000 2,000

Red Sea Flour Mills Asmara 14,300 500 (rented)

Sub-Total 102,380 17,300

-(b) Private Astron Brothers Addis Ababa 28,800 N.A.

Holeta Flour Mills Holeta 2,160 N.A.

Abate Flour Mills Addis Ababa 5,475 N.A.

Akaki Flour Mills Akaki 6,500 N.A.

Nazreth Flour Mills Nazreth 14,400 N.A.

Machinaziom Eritrea Asmara 1,820 N.A.

Sub-Total 59,155

Total (a & b) 161,535 17,300

December 17, 1975. |

X >

ANNEX 2Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

INPUT SUPPLY

1. The Agricultural Inputs acd Warketing Services (AIMS) came intoexistence on July 89 1972 as a subsidiary company of the Agricultural andIndustrial Development Bank (AIDE), the major shareholder of the company. Itsauthorized and paid-up capital was Birr 500,000 divided into 5,000 commonshares. The objectives of the coapany were:

- to import, procure, market, distribute, and sellagricultural inputs including fertilizers, improvedseeds, insecticides, herbicides and implements;

- to provide small farmers, Government agriculturalorganizations, agricultural cooperatives, packageprojects and commercial farmers with the agricul-tural inputs on credit; and

- to provide clients of the Agricultural and Indus-trial Development Bank and AIMS own customers withmarketing and warehousing facilities for grains.

All powers of the company were vested in its Board of Directors composed ofrepresentatives of:

- The Agricultural and Industrial Development Bank S.C.

- the Miniotry of Finance

- The Ministry of Aggiculture and Settlement

- The Ministry of Cotmerce and Tourism

The Chairman of the Board was the Managing Director of AIDB. The companyoperated as a business entity and waz intended to make profits and pay divi-dends on its share capital.

2. Fertilizer Woo ae major input handled by AIMS. The main customerswere ECODD, coordinating -he small hlder development programs, and the Statefarms (previously also the private comnercial farms). The volume of fertili-zers handled by AIMS expanded rapidly.

ANNEX 2Page 2

Volume Volume Sold to Sold to State farms/procured (MT) Sold (MT) ECODD commercial farms (MT)

(MT)

1972 4,167 1/1973 12,750 16,822 8,915 7,9071974 24,250 24,343 16,239 8,1041975 32,887 40,485 30,893 9,5921976 55,000 56,404 (est.) 37,404 (est.) 19,000 (est.)

Total 138,054 138,054 93,451 44,603

1/ Carry-over from AIDB.

Other inputs handled by AIMS were pesticides, seeds and small implements (forox cultivation).

3. Input distribution has been plagued by considerable problems: thehandling of fertilizers in port has been deficient and some damage due torain has occurred; bagging was inadequately checked and complaints about under-weight bags frequent; all fertilizers were taken to Addis Ababa and some doubletransport resulted; preparation at the receiving end (the marketing centers)was often inadequate; suppliers and transporters frequently did not live up totheir contracts. The results have been late deliveries and excessive costs.Accounting problems and late changes of plans have increased the strains and,being separate and independent institutions, EPID and AIMS were not alwaysable to resolve the problems in a way that would minimize the damage.

4. The fertilizer requirements for 1976/77 are estimated at 56,400 MT(para. 2). The forecast for the following years is (MT):

1977/78 72,0001978/79 86,4001979/80 103,7001980/81 124,400

If the average c.i.f. price during the project period were to be Birr 500 perMT and if the price to the farmers were maintained at Birr 500 per MT then asubsidy would be required to cover domestic handling cost Birr 251 per MT;(Annex 4). With the requirements forecast above this would mean that the fer-tilizer subsidy would increase from Birr 18 million in 1977 to Birr 31 millionin 1980. The requirements of other inputs during the project period areforecast below (Birr '000):

ANNEX 2Page 3

1977/78 1978/79 1979/80 1980/81

Seed 1,000 1,500 2,000 3,000Pesticides 4,500 6,000 8,000 9,000Implements 1,000 1,500 2,000 2,000

Total 6,500 9,000 12,000 14,000

5. The responsibilities for the distribution of fertilizers, seeds,

pesticides and implements have now been transferred from AIMS to AMC. Vete-rinary supplies are expected to be handled by the new Pharmaceutical Corporation.Cattle, chicken and other breeding animals would not be handled by AMC butwould be distributed through the Livestock and Meat Board or other channels.AMC may handle feed but only marginal quantities are expected to be soldduring the project period.

6. Seed is produced by a number of institutions on an ad hoc basis:

Wheat and Barley (CADU, Holetta)

Sorghum (Alemaya)

Teff (Debre Zeit)

Maize (Awassa, CADU)

In view of the high transport cost ECODD has designed a scheme to multiplyseed in the region of consumption through contract growers. The organizationof seed multiplication will ultimately be entrusted to a Seed Corporation.For the time being the following division of labor between AMC and ECODD issuggested.

ECODD Procuring of base seed (domestically). Identificationand supervision of contract growers. Cleaning and certi-fication of the seed.

AMC AMC would buy and distribute the seed to ECODD marketingcenters/cooperatives and State farms. AMC would alsoimport seed when necessary.

The ECODD tasks are expected to be transferred to the proposed Seed Corpora-tion as and when formed.

7. ECODD presently operates a small DDT mixing plant at Mekele but thistask is expected to revert to the Tigre Agricultural and Industrial Develop-ment Corporation. AMC will import pesticides and raw materials for this andother plants and distribute the pesticides to the ECODD marketing centers/cooperatives and the State farms.

ANNEX 2Page 4

8. It is also necessary to clarify the relationship between AMC, ECODDand AIDB. 1/ AMC as a new organization cannot be expected to extend suppliers'credit to large numbers of cooperatives and individuals, only some of whichwould market their produce through AMC. Ultimately, AIDE would make loansavailable to cooperative societies to procure inputs from AMC. Where coope-rative societies are not yet formed and registered (the normal case) ECODDmust continue to provide the link between the farmers and AIDB in such a wayas to facilitate the eventual transition to the cooperative stage. ECODD wouldthus serve as the agent of AIDB in extending loans to farmers and/or pre-cooperative groups of farmers. Since this credit would be in kind, AIDB (usingECODD as its agent) would procure the inputs from AMC at the marketing centers.AMC using working capital from the commerical banks would procure and distri-bute the inputs to the cooperative societies, the marketing centers and theState farms.

1/ Discussed in detail in Annex 5.

ANNEX 3Page 1

ETHIOPYA

GRAIN STOCSAE AMD HAETING PROJECT

GOVERNEUNT GRAIN H&UZETING POLICY

General

1. An outline of Governaent policy and the respective roles of thepublic and private sectors In uholesale and retail trade was given in the"Declaration on Economic Policy of Socialist Ethiopia" published on February 7,1975 1/, which stated that:

"The Government may, where necessary, engage in wholesaleand retail business in order to stabilize prices parti-cularly of basic consumption items, and thereby protectthe interests of the masses.

Strict control will also be exercised on the privatesector with regard to supply, prices and distributionof goods."

2. oIn the grain marketing field, the Government's main aims are:

(a) to assure producer and consumer prices at levelswhich provide adequate incentives to the producerand at the same time safeguard consumers' interests.

(b) to assure an adequate national food supply in allparts of the country, and

(c) to improve the efficiency of the grain marketingsystem at all levelso

3. To achieve these objectives, Government has established an Agricul-tural Marketing Corporation (AM¢C), which would have a substantial share inthe e^rholesale grain trade, and has enlarged the functions of the EthiopianGrain Agency (EGA) so as to regulat amd supervise the private trade andpromote market improvements. Thz respective roles of AMC, the private tradeand cooperatives during the Project period are outlined below.

Wholesale Trade

4. As indicated in Annex )i, there is a frequent blurring of functionsin the present marketing structure wYhich makes it difficult to frame a precisedefinition of the term "wholesaler." For Project purposes, it would be assumed

1/ This policy has been fuTther elaborated in Proclamation 76 of 1975 on"Commercial Activities undertaken by the Private Sector" (Appendi 1).

ANNEX 3Page 2

that a "wholesale trader" is defined as one who engages in stockholding fordistribution either later in the season and/or in another region and whoseoperations and/or resources exceed certain minima (to be prescribed by thelicensing authority - para 7).

5. As it handles the output of State Farms, grain imports and thegrowing production from MPP areas, AMC will have a substantial and increasingshare of total marketed volume of grain, oilseeds and pulses. Because ofthe nationalization of some private storage and the elimination of substandardfacilities (para. 15) the capacity in private trade will be reduced to about500,000 MT which is expected to be fully utilized.

6. Through its substantial share of wholesaling operations, AMC willbe able to exercise a controlling influence over basic prices and helppromote the price stability that is one of Government's main aims (para 2).Proposed price policy guidelines are set out in Annex 4. Improvements incrop forecasting and market information services detailed in Annexes 10 and11 should enable AMC to plan its strategy for appropriate interregional trans-fers of stocks to assure proper distribution of supplies, as well as holdingstocks to meet consumer demand until the next season's harvest comes in.

7. In order to ensure that the activities of wholesalers complementthe policy and operations of AMC, strict control over wholesale trade wouldbe needed. This would be achieved by requiring major wholesalers to belicensed by EGA under the conditions set out in Annex 9, covering storagestandards and hygiene, the maintenance of stock registers and rendering ofreturns as required by EGA.

Intermediate Trade

8. Private traders will continue to operate as intermediaries in thepresent marketing chain between the producer and the terminal markets. Simi-larly the private retailer will provide the link between the wholesale marketand the consumer. But in order to improve the efficiency of the operationsof this private sector, EGA has been given extended powers and resources toassist local authorities to strengthen their regulation of private tradersand to make market infrastructure improvements as outlined in Annex 9.

9. At the same time, AMC will provide an alternative marketing channelwhich would operate in competition with the intermediate private trade incertain areas. Marketing centers established by ECODD would act as agentsof AMC for the purchase from producers of their cereal, oilseed and pulseproductions (Annex 5). The relations of these marketing centers with AMCafter they become fully fledged cooperatives would be as described in thenext section of this annex. During the Project period AMC would also provideall fertilizer inputs and market all cereals, pulses and oilseeds producedon State Farms including those created by nationalization of private commer-cial farming enterprises (Annex 6).

ANNEX 3Page 3

Role of Cooperatives

100 To help ensure that the promotion of cooperatives is coordinatedwith agriculvural development, the Cooperative Department (previously partof the Ministry of National Community Development and Social Affairs) hasbeen transferred to EPID (the Extension and Project Implementation Departmentof the Ministry of Agriculture) which was renamed ECODD.

110 When they reach a sufficient stage of development, marketing centersin MPP areas would be registered as primary cooperative societies and at thatstage would be free to market their grain, oilseeds and pulses either throughAMC or private channels. ECODD would retain responsibility for registering suchcooperatives, auditing their accounts, and providing them with technicalassistance (in bookkeeping, marketing of other crops, etc.).

12. Multipurpose cooperatives concerned with such matters as inputdistribution, credit and output marketing would normally be expected to cover3-10 peasant associations to ensure the viability of the society. Where suchcooperatives are established in areas not yet covered by the AMC marketingchannel, the possibilities of establishing special links between the coopera-tive and the nearest AMC branch would be explored.

13. Establishment of Awraja (district) level of secondary unions ofservice cooperatives is foreseen, but during the Project period these unionsare not expected to handle any grain marketing or input distribution opera-tions. At some development projects, such as the Chilalo Agricultural Develop-ment Unit (CADU) and the Wolamo Agricultural Development Unit (WADU), marketingorganizations exist which have become or will develop into secondary coopera-tive unions serving the Project area. These marketing organization/secondarycooperatives will continue to handle both input distribution and producemarketing and would act as a link between AMC and primary societies in suchProject areas.

Conclusions

140 Having been created by merging the Ethiopian Grain Corporation(EGC) and the Agricultural Inputs and Marketing Service (AIMS), AMC wouldreceive additional resources under the Project (Annex 8) to carry out itstasks0 It is not presently intended that AMC should become either a coopera-tively owned organization or a produce marketing board, but rather that itshould be the agency for the implementation of government policies conceivedin the national interest. Its handling of input distribution should helpreduce AMC's unit overhead costs.

15. In absolute terms, the capacity of private wholesale trade willbe about 500,000 MT during the Project period after the nationalization of

ANNEX 3Page 4

about 100,000 MT of unused or rented storage under proclamation 47 of 1975 on"Government Ownership of Urban Lands and Extra Urban Houses" and after theelimination of about 50,000 MT (10%) of substandard storage facilities(para. 7). The private trader would continue to be the main intermediarybetween producers and wholesale markets and similarly, retailing functionswould remain mainly in private hands. AMC's proposed activities in producebuying are restricted to incremental volumes involved.

16. The justification for the adoption of this mixed Government/privatemarketing system includes:

(a) In the short-run much can be done to regulateand supervise the private trade (see Annex 9).With minimal investment, many Government policiescan be carried out relatively cheaply by licencingand control. This would allow Ethiopia to takeadvantage of its existing decentralized privategrain network in a cost effective manner.

(b) The private trade would provide a basis measure orstandard upon which to judge AMC's marketing margins.This should provide a rough measure of AMC's opera-ting efficiency. If AMC costs diverge sharply fromthose of the private trade, it would be a warningthat a closer look is required to correct any ineffi-ciencies that have developed in MIC operating pro-cedures.

(c) An active private trade would also provide a form ofmarket intelligence for AMC. Private stock changes,forward buying and price movements would give AMCan indication of how the trade judges future cropand price prospects. To carry out this function, thetrade must have the necessary freedom of action.The EGA market intelligence service (Annex 10) wouldmonitor private trade stocks and prices. Actions byprivate traders would be one of the inputs in EGA'sCrop/Prices forecasting system.

(d) During the Project period, the ECODD and cooperativemarketing centers would be operating in competitionwith the private trade in an increasing number of TPPareas but not in non-NIPP areas. Outside the selectedIPP areas the traditional private traders will be thesole buyers. Much of their business will consist ofassembling small lots from scattered villages or

ANNEX 3Page 5

farmers, and moving the grain to market places wherethe grain would be sold to either AMC or private whole-salers. The ECODD marketing centers will be locatedalong roads in major grain producing areas. For AMCto service the hinterland would be administrativelyand financially very costly and for the foreseeablefuture this function would be left to the privatetrade. Transport and assembly costs very greatlyfrom region to region outside ]PP areas, but AMCwould be able to exercise a stabilizing influenceon producer prices through its purchase prices at-ECODD marketing centere, where it would be readyto buy the grain produced outside MPP areas eitherfrom individual farmers, peasant associations,private traders or cooperatives. The major objectivescan thus be achieved without overestimating AMC's mana-gerial capacity.

17. For the private trader to carry out his role, he must know what the

Government policy is and within what framework he is required to operate. 1/

Within such limits, the private trader should be encouraged to perform thefunctions allotted to him, e.g., he should be assured access to long-term

credit for investment in improvements and short-term credit for working capital.

Foreign Trade

18. Government has established an Export-Import Corporation under theMinistry of National Resources and Development, which will handle Government

to Government trade operations and also compete with private exporters in

other foreign trade fields, with the aim of ensuring that the producer receives

the highest possible price where agricultural exports are concerned. However,AMC is solely responsible for arranging authorized imports of grain to assure

national food supplies (Annex 7). In making these imports, AMC may utilize

the services of the Export-Import Corporation on an agency basis for specific

shipping and forwarding operations involved.

19. AMC also has the sole responsibility for the import and distributionof fertilizers and insecticides to State Farms and MPP areas, and has takenover the staff and facilities of AIMS previously engaged in these operations.

20. For exports of oilseeds and pulses purchased by AMC from State farms

and through the ECODD marketing channel, AMC may either

(a) deal directly with foreign buyers and handle allexport operations itself or use either the Export-Import Corporation or private exporters as itsagents; or

1I See Proclamation 76 of 1975, Op. cit.

ANNEX 3Page 6

(b) sell to the Export-Import Corporation (e.g., to meetpart of a barter trade transaction); or

(c) sell through private exporters, who will continue tobe subject to regulation and control by EGA.

If and when AMC decides to undertake all export operations itself, it wouldneed specialized storage, grading and cleaning facilities, as well as expe-rienced staff. For this reason, in the initial stages, when the firstpriority would be the establishment of its major activities, it is consideredmore likely that ANC would adopt the alternatives at (b) and (c) above.

ANNEX 3Appendix 1Page 1

PROCLAMATION RELATING TO COMMERCIALACTIVITIES WHICH MAY BE UNDERTAKEN

BY THE PRIVATE SECTOR

"ETHIOPIA TIKDEM"

WHEREAS, it has been provided in the Declaration on Economic Policyof Socialist Ethiopia and in the Government Ownership and Control of the Meansof Production Proclamation that certain activities be left to the private sector,and;

WHEREAS, it is the duty of the Government to determine and regulatesuch activities;

NOW, THEREFORE, in accordance with Article 6 of *the Definition ofPowers of the Provisional Military Administration Council and its ChairmanProclamation No. 2/1974, it is hereby proclaimed as follows:

1. Short Title

This-Proclamation may be cited as the "Proclamation Relating toCommercial Activities undertaken by the Private Sector, ProclamationNo. 76/1975".

2. Scope of this Proclamation

This Proclamation shall not apply to:

1/ any individual enterpriser or business organizationwhich lawfully carries on commercial activity on theeffective date of this Proclamation;

2/ construction work, surface transport, inland watertransport, the publishing of newspapers and magazines.

3. Definitions

In this Proclamation, unless the context otherwise requires:

1/ "Capital" shall mean cash used for carrying out com-mercial activity, the value of trade receivable, of stockand of fixed assets, but does not include buildings.

ANNEX 3Appendix 1Page 2

2/ "License" shall mean a license issued pursuant to theIndustrial Licence Proclamation (Proclamation No.292/1971), the Foreign Trade Proclamation (Proclamation No.

293/1971) or the Domestic Trade Proclamation (ProclamationNo. 293/1971) or the Domestic Trade Proclamation (Proclama-tion No. 294/1971).

3/ "Minister" shall mean the Minister of Commerce and Industry.

4/ "Ministry" shall mean the Ministry of Commerce and Industry.

5/ "Commercial activity" shall mean trade or industrial activity.

4. General Provisions

1/ No licence as wholesaler, retailer, importer, exporter, servicedispenser, domestic or foreign trade auxiliary, industrial ownershall be issued to a person who has a permanent job.

2/ No person shall obtain more than one licence nor possess morethan one business or establish a branch. Only one licence maybe issued to a commercial agent, a commercial broker or acommission agent for his respective activity.

3/ A commercial activity shall be carried on only by an indi-vidual enterpriser.

4/ The Minister may, for the purpose of ensuring the properdistribution of goods and services to the consumer, limitthe number of licences to be issued in certain areas.

5. Wholesaler

1/ The capital of a wholesaler shall not exceed three hundred

thousand (300,000) dollars.

2/ Sub-article (1) of this Article and sub-article (2) ofArticle 4 shall not apply to wholesalers of agriculturalproducts, hides and skins.

6. Retailer

The capital of a retailer shall not exceed two hundred thousand(200,000) dollars.

7. Foreign Trade

The Minister may waive the restriction of sub-article (2) ofArticle 4 in respect of export and import trade.

ANNEX 3Appendix 1Page 3

8. Industry

1/ The capital in the private sector of an industryshall not exceed five hundred thousand (500,000)dollars.

2/ The Minister may waive the restrictions of sub-article (2) of Article 4 in respect of industrialactivity.

3/ Notwithstanding sub-article (3) of Article 4, anindustrial activity may be carried on by generalpartnership whose members shall not exceed five andwho actively participate in the carrying out of itsactivity.

9. Dispenser of Service

Where a service requires spec'ial qualifications, the Ministershall ascertain whether the applicant has met the require-ments.

10. Delegation

The Minister may delegate his power to other Governmentauthorities for the proper implementation of this Proclama-tion.

11. Article 3 of the Domestic Trade Proclamation

The provisio to sub-article (1) of Article 3 of the DomesticTrade Proclamation (Proclamation No. 294/1971) is hereby deleted.

12. Regulations

The Minister may issue regulations for the proper carryingout of this Proclamation.

13. Penalty

Any person who contraveness this Proclamation of regulationsissued hereunder is punishable, upon conviction, with fineup to ten thousand (10,000) dollars or with imprisonmentup to two (2) years or with both.

14. Effective Date

This proclamation shall come into force on the date of itspublication in the Negarit Gazeta.

Done at Addis Ababa, this 29th day of December, 1975

ANNEX 4Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

PRICE POLICY

A. General Policy

1. It appears likely that, even under normal growing conditions, Ethiopiawill have to import grain during the next few years (Annex 7). Since worldmarket prices are forecast to remain considerably above the present domesticprice level, without intervention there would be an upward pressure on domesticprices. However, in a very good year, a domestic surplus may develop and theresultant fall in prices, if unchecked, could destroy the incentive to pro-ducers to use recommended yield increasing inputs on which the expansion ofgrain output so largely depends.

2. One of the main aims of Government policy in the grain marketingfield is to assure producer and consumer prices at levels which provide ade-quate incentives to the producer and at the same time safeguard consumers'interests (Annex 3). To achieve this aim, Government has taken the firststeps towards the operation of a system providing "floors" and "ceilings"to limit price variations for the major grains. The alternative of a fully-fledged Marketing Board with monopoly buying powers and operating a fixedprice system is not feasible because of the rudimentary character and inherentweaknesses of the present marketing system and the drain on resources thatcreation of a Marketing Board would involve.

3. The main instrument of Government marketing policy is the Agricul-tural Marketing Corporation (AMC) (Annex 8) handling the output of Statefarms, the incremental marketed production from MPP areas and grain imports.By 1980/81 AMC would account for some 45 percent of total wholesale tradeand so be in a position to influence the market price through its price andstock holding operations.

4. The main principles on which Government price policy is basedare:

(a) the price paid to producers is to be maintained at alevel which would give farmers' adequate productionincentives, taking into account costs of productionand marketing.

(b) to protect the interest of consumers, Government is tofix an upper limit to price variations. To make thiseffective, deficiencies in domestic supplies wouldhave to be made good by imports which at prevailingrelative prices would involve Government subsidies.

ANNEX 4Page 2

(c) these upper and lower price limits are not to bepublished because they would be based on weak databoth as to crop forecasting and market intelligenceand may have to be revised within a season. Publi-cation in such circumstances would not provide anyvalid guarantee to the producers and would be morelikely to serve the interests of private speculatorsand undermine the position of AMC under the mixedtrading system in which it will be operating.

(d) AMC's price, stock holding and stock movement opera-tions aim at making the price limits effective, thuseliminating the need for any official price control.

(e) a system of geographical price variations operatesfor both purchases of grain and sales of inputs,mostly fertilizer. This has been the establishedpractice under the previous free marketing systemand is in consequence well understood. To operatein the interests of equity a system of uniformprices would be difficult and costly and likely tolead to distortions in production and produce flows.The aims of equity would, it is considered, be bestachieved through fiscal measures, such as a variableland tax that favored the remoter areas.

Determination of price limits for cereals

(a) Lower price limit (i.e. safeguarding producer incentive)

5. Although increased attention in the extension work will be directedtowards the improvement of agronomic practices (soil preparation, manuring,spacing, weeding, etc.) the main opportunity to increase yields is presently,and is likely to remain, the expanded use of fertilizers and improved seeds.Assuming the incremental domestic production resulting from the expansion offertilizer use would replace imports from abroad, it would be correct tovalue this production at the price of such imports delivered to Addis Ababa(import parity price, Annex 1). The value of the use of fertilizers to theeconomy would then presently be:

ANNEX 4Page 3

Maize Wheat Sorghum

Incremental yield from fertilizer useqt/ha 1/ 16.1 3.5 4.1

Import parity price Birr/qt 2/ 47 51 45

Gross value of incremental productionBirr/ha 757 179 185

Cost of unsubsidized fert. to farmersBirr/ha 3/ 105 75 75

Benefit/cost ratio to economy 7.2 2.4 2.5

1/ Average from crop sampling 1973/74 and 1974/75.

2/ Based on average prices January - September, 1975.

3/ Based on fertilizer quotations September, 1975.

These figures suggest that the use of fertilizers in maize production isespecially favorable and such use should therefore be given special encourage-ment.

6. To indicate a procedure that could be followed to arrive at lowerprice limits a series of tables have been included in the succeeding para-graphs, but it is emphasized that these must be regarded as illustrativeonly.

7. On the assumptions that:

(a) the minimum average benefit/cost ratio to providesufficient incentive to fertilizer use is 1.5:1.

(b) because it constitutes a special case a benefit/costratio of 2.5:1 would be applied to maize.

(c) fertilizer prices to peasant farmers would be main-tained at their present (subsidized) level ofBirr 50 per quintal.

ANNEX 4Page 4

The following minimum producer prices would be then required:

Teff Wheat Barley Maize Sorghum

Fertilizer costBirr/ha 50 50 50 75 50

Average benefit/costratio to farmers 1.5 1.5 1.5 2.5 1.5

Required gross returnBirr/ha 75 75 75 188 75

Incremental yield 1/qt/ha 2.6 3.5 3.4 16.1 4.1

Necessary minimumproducer priceBirr/qt. 28.8 21.4 22.1 11.7 18.3

91 (rounded) 29 21 14 2/ 12 18

1/ Average from EPID crop sampling 1973/74 and 1974/75.

2/ The crop sampling result of 3.4 implies that fertilizer use would becomeeconomic only at a price which exceeds that for wheat. The lower tole-rance limit for barley has therefore been fixed in relation to the wheatprice which in turn means that fertilization would be uneconomic ataverage incremental yields.

8. If the above producer prices are assumed to apply to the main pro-ducing areas which are on average 200 km from Addis Ababa, then allowing forthe costs involved (para. 20) a margin of Birr 7.00 would need to be addedto arrive at Addis Ababa wholesale market lower price limits. In thefollowing table, these Addis Ababa wholesale market lower price limits areset out alongside annual average wholesale prices for the nine years 1966 -1974:

Addis Ababa Wholesale PricesCommodity Illustrative Annual

lower price Averageslimit 1966 - 1974

Teff 36 25.6 - 37.3Wheat 28 29.1 - 31.7Barley 21 13.1 - 22.5Maize 19 12.4 - 21.2Sorghum 25 15.3 - 28.7

ANNEX 4Page 5

The illustrative lower price limits may thus be said to be in line withhistorical price series.

Upper price limit (i.e. safeguarding consumers' interests)

9. The upper price limit is determined by Government's willingness tosubsidize imports when these are necessary to supplement domestic suppliesand keep down prices to the consumer. The major factor in deciding thelevel of subsidy in any given season is the cost to Government and thefinancial implications of different subsidy policies are discussed inAnnex 7. But it is also necessary to ensure that the "spread" betweenupper and lower price levels is reasonable for if this spread were toonarrow, unduly frequent interventions would become necessary. To be ableto absorb minor deviations in forecast supply and demand, to counter variationsin private sales and to allow differentiation of different qualities a minimumspread of Birr 5.00 per quintal has been taken for illustrative purposes. Onthis basis, the upper and lower price limits would be:

Addis Ababa Wholesale MarketLower Upperlimit limit

Teff 36 41

Wheat 28 33

Barley 21 26

Maize 19 24

Sorghum 25 30

In practice, upper and lower price limits would have to be fixed for themajor categories of each commodity that are commonly traded, so the list wouldbe longer. It should be noted that the price limits above are those fixedat the opening of the season and would be adjusted at monthly intervals(para. 24). 1/

Given that the import parity price for wheat is Birr 50 per quintal, that inan import situation the domestic price level is likely to be at the uppertolerance limit and that the imports occur later in the season when this limithas been adjusted to Birr 36 per quintal, a subsidy of the order of Birr 14 perquintal, would be implied under the above example.

1/ The new price policy was introduced for the 1975/76 marketing season(Appendix 1).

ANNEX 4Page 6

Pricing of o; .o.n and pulses

10 Ethiopia is normally an exporter of pulses and oilseeds (Annex 1)although during the Project period, these exports are projected to decline asproduction, particularly on State.farms, is switched to food crops. However,AMC would continue the practice of the free market and establish its pricesfor pulses and oiloeeds on an export parity price basis. Should particularlyfavorable Torld market conditions develop for any one crop, Government mayimpose a cooa tn lvlo funds for a stabilization fund to finance subsidieswhen world maTkat prices fall. The establishment of a stabilization fund forall export crops is under investigation.

Pricing of Inputs

11. As indicated above, the average price to the peasant farmer of DAPand Urea is expected to be retained at about .Birr 50_per quintal to encouragedomestic grain production. Consideration will be given to the reintroductionof a differentiation in the prices for fertilizers with different nutritionalcontent I/ and to establish some geographical price variation for major zonesin view of the transport costs. Without such a variation the comparativeadvantage of different crops in different parts of the country will be dis-torted and transport costs substantially increased.

Pricing policy procedure

12. On the basis of the above principles for AMC pricing the Governmentwould conduct an annual review of and decide on the price limits and thefertilizer subsidy in the light of price developments on the world market,import requirements and the budgetary situation. Once the limits have beenfixed, the Government vould undertake to reimburse AMC for necessary grainimports by the difference between the actual import cost and the prevailingupper tolerance limit. If import requirements have been overestimated, thesurplus will have to be stored by AMC until the next season, in which caseAMC will need to be compensated for its carrying costs and any loss on salesof these remaining stocks. Similarly, AMC would be compensated in connectionwith the importation of fertilizers by the difference between actual importand sales costs on the one hand and the decided sales price to the farmers.The execution of Government's grain (oilseeds and pulses) marketing and pricepolicy would then be the sole responsibility of AMC.

B. AMC Price and Stockholding Policies

General

13. AMC hae a dual role in grain marketing. On the one hand, it providesthe marketing channel for the output of State farms, for the growing productionfrom MPP areas and for imports; thus handling a significant portion of thetotal quantity of grain entering the wholesale trade. Its second function

1/ Some differentiation was introduced in 1976 but does not fullyreflect quality differences,

ANNEX 4Page 7

is to use its position as the major wholesaler in a market system where thebalance is handled by private traders to reduce price fluctuations throughthe operation of the flexible system of price limits of which the principleshave been outlined in Section A.

14. Through its stockholding and stock movement operations, AMC shouldbe able to make the price limits effective. On the basis of crop forecasting(Annex 11), at successive stages during the growing season revised estimatesof production would be used to check on import needs. A good harvest (noimports) would imply Addis Ababa (Asmara) wholesale prices at or close tothe lower limit, while forecasts of a poor harvest would mean that the post-harvest prices will be approaching the upper limit. As the season progressesand more information becomes available, the prices of course would be adjustedaccordingly. If prices tend to exceed the upper limits, AMC will release stocksand if time allows, increase imports. If on the other hand, prices tend tofall below the established minimum levels, the Corporation would cease sellingand accumulate stocks. The latter situation would be unusual since Ethiopiais expected to face an import situation during the Project period. However,facilities for buffer stocking (security reserves) when established wouldallow a 50,000 MT carry-over in case of a bumper crop.

Branch Office Wholesale Prices

15. Since wholesale prices at most other main markets are determinedby the Addis Ababa level, the price ranges at AMC branches would be establishedby deducting the cost of transport in the case of "exports" to Addis Ababa andadding the cost of transport in the case of "imports" from the capital. To alesser extent, the Asmara wholesale price level acts as the price determinantwithin its "catchment area". The resultant price structure in any one monthfollowing AMC's fixing of its wholesale price levels for Addis Ababa andAsmara is illustrated by the following example (for a certain crop, varietyand grade).

ANNEX 4Page 8

Wholesale Wholesale Retail BuyingBranch Export Import Selling 2/ 100 km away

Level 1/ Level 1/ from Branch 3/

Addis Ababa X 4/ X X + 3.00 X = 6.00

Nazareth X-l.00 X+l.00 (.+1.00)+3.00 (X+1.00)-6.00

Shashamene X-2.50 X+2.50 (X+2.50,)+3.00 (X+2.50)-6.00

Jimma X-3.35 X+3.35 (X+3.35)+3.00 (X+3.35)-6.00

Dire Dawa X-5.29 X+5.29 (X+5.29)+3.00 (X+5.29)-6.00

Lekempt X-3.22 X+3.22 (X+3.22)+3.00 (X+3.22)-6.00

Debre Markos X-3,05 X+3.05 (X+-3.05)+3.00 (X+-3,05)-6.00

Dessie X-4.00 X+4.00 (X+4.00)+3.00 (X+4.00)-6.00

Mekelle X-7.62 X+7.62 (X+7.62)+3.00 (X+7.62)-6.00

Y-2.97 Y+2.97 (Y+2.97)+3.00 (Y+2.97)-6.00

Asmara Y Y Y+3.00 Y-6.00

1/ "Export" means movement from a branch to Addis Ababa (Asmaara)."Import" means movement from Addis Ababa (Asmara) to a branch.

2/ See Para. 23.

3/ See Para. 20.

4/ Wholesale price in Addis Ababa for a given month.

5/ Wholesale price in Asmara for a given month.

ANNEX 4Page 9

If the regional price tends to exceed the above mentioned upper limit of the

range, local stocks should be released and/or additional supplies brought in,while in the opposite situation sales would be discontinued and stockspossibly exported to nearest deficit area.

16. The Asmara wholesale price would also be fixed within the pricelimits but, due to the deficit nature of the area, may almost always be at the

upper limit. If sufficient grain should not be forthcoming from Asmara in-fluence area (area within which it is more profitable to send towards Asmara

than to Addis Ababa) and the rest of the country has asurplus, then theGovernment must either allow the Asmara price to exceed the upper limitor AMC has to be compensated separately for transfers to Asmara (Birr 10.79minus difference X - Y). As long as Ethiopia is a net importer of grain,sufficient imports would be directed to Asmara via Massawa.

Operational Margins

17. AMC would need to calculate operational margins for the followingmain types of grain trade operations:

(a) purchases at ECODD marketing centers/cooperativesocieties

(b) purchases from State farms

(c) import purchases, including subsidy element

(d) seasonal storage

These operational margins would have to be fixed at levels that ensure fullcost coverage, including interest on fixed capital, depreciation and a risk

element.

18. For this purpose, overheads must first be determined and thenallocated between the operations concerned. On the basis of estimated costsfor 1980/81 1/ (the last year of the Project period), AMC's overheads wouldbe as follows:

1/ Price contingencies have been neglected in this example to simplifycalculations.

ANNEX 4Page 10

AMC Overhead Costs 1980/81

Birr'000

Operating costs HQ and branches(exclu. retail shops) 6,429 Annex 8, Table 8

Interest on capital cost of buildingsand equipment (1OZ) 4,091 Annex 8, Table 13

Risk Margin 760 Nominal figure

Depreciation of buildings andequipment 1,720 Annex 8, Table 13

Subtotal 13,000

Less specific overheads for

seasonal storage (para. 24) 4,347

buffer stocking (para. 25) 532

sale of inputs (para. 27) 711

Subtotal 5,590

TOTAL 7j410

19. No firm basis for distributing these remaining overheads between thedifferent activities presently exists. The suggestion below is thus a roughestimation based on subjective impressions of the efforts required in theconduct of the different activities.

ANNEX 4Page 11

Share of Overhead Birr% Birr '000 Volume MT per MT

Buying and wholesaling of grain 45 3,335 400,000 8.34

Importing and wholesaling of grain 15 1,112 100,000 11.12

Seasonal storage 10 741 170,000 1/ 4.36

Retailing 5 370 92,690 3.99

Buffer stocking 5 370 50,000 7.40

Buying and selling inputs 20 1,482 137,000 10.82

TOTAL 100 7,410

1/ On average 34% of volume bought (Annex 8, Table 11).

(a) Determination of buying prices at ECODD marketing centers/cooperativesocieties

20. The producer prices would be established for each MPP area inrelation to the actual cost of buying and transporting the produce and wouldbe fixed for a month at a time. ECODD would be reimbursed for the cost ofoperating the marketing centers at a price per MT bought, calculated on abasis giving full cost coverage at optimal utilization of the center (Annex 5,para. 7). The price for a specific MPP area would be established by deductingthe following costs from the wholesale price prevailing at the nearest AMCbranch office.

Variable costs: Birr/MT

Bagging and stitching 2.50

Loading and unloading 3.00

ECODD MC costs 25.00

Interest on working capital (1 month) 2.50

Transport to AMC branch office(e.g., 100 km) 10.00

Bag 4.00

AMC overheads (para. 19) 8.34

TOTAL 55.34

ANNEX 4Page 12

Allowing an additional 100 km for transport to Addis Ababa, the cost would be

Birr 65 per MT. The comparable historical margin in private trade is estimated

at Birr 64 but recent inflation is likely to have increased this margin to

Birr 70. There are likely to be some variations in these costs as between

crops but these would only be of a minor character.

(b) Purchases from State Farms 1/

21. There the same costs as in (a) would apply with the exception of

the ECODD marketing center charge. Where State farms performed some of the

services involved the margin would be further reduced and AMC's purchase

price correspondingly increased.

(c) Import operations

22. The import parity price would be determined by the c.i.f. price

and the cost of bringing the grain to the wholesale market. An estimate of

the parity price for wheat can be derived as follows:

Birr/MT

Pricee f.o.b. U.S. ports 1/ 274

Ocean freight 76

Port charges 14

Handling charges 40

Transport to Addis Ababa 60

Interest (4 months 10%) 10

Local Bank charges (3%) 10

AMC overheads (para. 19) 11

Import parity price 495

1/ Forecast 1980 price (in constant dollars).

In an import situation, the domestic wholesale price is likely to be at the

upper price level and the difference between this level and the import

parity price would normally determine the subsidy that Government would have

to pay to AMC (para 12).

(d) Seasonal Storage

23. The prices of grain, including the upper and lower price limits,

would have to be adjusted upward to allow for storage costs which would be

determined along the following lines:

ANNEX 4Page 13

Birr per

Variable Costs MT and Month

Loading and unloading 0.50Interest on stocks (1 month, 10%) 2.50Loss in storage (2% per year) 0.50

TOTAL 3.50

Specific AMC costs Birr '000

Warehouses

Depreciation: 3% of capital cost 1/ 690Interest 10% of capital cost 2,301Maintenance 1% of capital cost 230

Storage equipment

Depreciation: 10% of capital cost 51Interest : 10% of capital cost 51Maintenance : 5% of capital cost 25

Pest Control 397

Insurance (stocks and buildings) 207

Physical contingencies (10%) 395

Cost per year 4,347Cost per month 362

On average inventory of 34% or 170,000 MT specific AMC storage costs wouldbe Birr 2.13 MT per month.

Birr perSummary of Seasonal Storage Costs MT & Month

Variable costs 3.50Storage specific AMC costs 2.13AMC overheads (para. 19; 4.36 - 12) 0.36

TOTAL 5.99

1/ Birr'000Value Balance (133/151 x Birr 8,700,000) 7,663Construction (Birr 70 x 242,000 MT) 16,840Less: Depreciation - 1,489

23,014

ANNEX 4 -Page 14

The cost for six months would be Birr 36 per MT which compares with ahistoric margin in private trade of Birr 32, which has probably increasedto Birr 35 as a result of recent inflation. The relatively high AMC costsare due to the low utilization of the storage facilities in an import situa-tion. However, by 1980, the average inventory would rise from 34% to 40% asdomestic supplies replace imports and as a result AMC's monthly costs wouldbe reduced to Birr 5.75 per MT per month or Birr 34.50 per MT for a six-monthperiod.

Buffer Stocking Operations

24. Under the project 50,000 MT of additional storage would be cons-tructed and intended eventually for security food reserves but it is possiblethat, in an exceptional growing year which gave rise to a domestic surplusthese facilities would be used to carry-over the accumulated stocks for sale inthe following year. Before authorizing any such limited buffer stocking ope-rations, Government would need to examine the financial costs involved. Onthe assumption that Ethiopia experiences such exceptional harvests only oncein four years and that the facilities are only used once in that period, AMC'sspecific costs have to be calcualted on a four-year basis as in the followingexample:

ANNEX 4Page 15

Specific AMC Costs for Buffer Stocking Blrr '000

Warehouses

Depreciation: 3% of capital cost 1/ 99Interest: 10% of capital cost 330Maintenance: 1% of capital cost 33Insurance: 0.3% of capital cost 10Guarding 12Physical Contingencies (10%) 48

532

BirrCost per MT and year 10.64

Cost per MT and 4 years 42.56

Variable Costs Birr/MT

Loading - unloading 3.00Interest on stocks (12 months, 10%) 30.00Insurance of stocks (0.3%) 0.90Storage loss (2%) 6.00Fumigation 1.00Seasonal storage (6 months atBirr 3.00) 2/ 18.00

TOTAL 58.90

Total Buffer Stocking Costs Birr MT

Specific AMC Costs (4 years) 42.56

Variable costs 58.9n

AMC overheads (4 x 7.40, para. 19) 29.60

131.06

Birr '0001/ Construction (Birr 70 x 50,000 MT) j3,50- 0

Less Depreciation (50/494 x Birr 1,962.000) -1993,301

2/ Assuming the grain is s.ought in Yarch and sold 'n September thmefollowing year.

ANNEX 4Page 16

Authorized buffer stocks would have to be accounted for separately in AMC'sbooks and their cost would be shown as AMC's average purchase price pluscarrying charges (Birr 131 per MT in the above example). On authorizingtheir release, Government would pay AMC the difference between this bufferstock cost price and its selling price. At current price levels, thisdifference is likely to be considerably less than the cost of subsidisingimports.

25. The annual cost of carrying permanent security reserves amounts toBirr 59 per MT and is made up as follows:

Birrper MT

Specific costs for one year 10.64Variable costs 40.90AMC overheads 7.40

58.94

These costs may be increased if losses due to price variations are made inthe regular replacement of old stocks with fresh grain.

Input Pricing

26. AMC's selling price would need to be calculated for different inputsbut the following example refers to DAP (Annex 2).

ANNEX 4Page 17

AMC: Determination of SellingPrice for DAP

Specific AMC Costs: Birr '000

Warehouses

Depreciation: 3% of capital costs 1/ 143Interest 10% of capital costs 433Maintenance : 1% of capital costs 43Insurance : 0.3% of capital costs 14Guarding 13Physical contingencies (10%) 65

711

Cost per MT 5.19

Variable costs Birr

Stevedoring 10Local Bank charges (3%) 21Loading-unloading and transportation (1100 km) 113Interest (10%; 6 months on c.i.f. price) 35

179

Total Wholesale Selling Margin

BirriMT

Specific AMC costs 5

Variable costs 179

AMC overheads (para 19) 11

195

AIDB would need to add coverage for the following costs before selling to thefarmers via ECODD marketing centers/cooperative societies.

1/ Birr'000Balance (18/151 x Birr 8,700,000) 1,037Construction (Birr 70 x 51,000 MT) 3,570Less: Depreciation (69/494 x Birr 1,962,000) - 274

Total 4,333

ANNEX 4Page 18

Birr/MT

Marketing centers/ coop societiesadm. costs 25

Bad debt charge

80% credit sales

25% downpayment

5% bad debts 15

Turn over tax 10

Unsold carryover (10% interest;10% of volume) 5

Relocation of fert. (10%; 50 km) 1

56

If the c.i.f. price Assab is Birr 500, the real cost of fertilizer deliveredto the farmer would be Birr 751 per MT. If the Government decided to maintain

the average price to the farmer at Birr 500, it would have to pay AMC a subsidy

of Birr 251 per MT to allow the Corporation to sell DAP to AIDB at Birr 444per MT.

Accounting Implications

27. The examples quoted above have been based on the best available databut must necessarily be regarded as illustrative. It would be essential for

AMC to develop a proper cost accounting system that not only permits separation

of costs and charges according to type of operation (particularly necessarywhere claims for Government subsidy are involved), but also provides for a

progressive improvement and refinement of the basis of the calculation. It is

for this reason that key staff in the establishment of a proper cost account-

ing system for AMC have been appointed and funded under the Project.

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

Addis Ababa Wholesale Prices 1975/76

Dec.-Type of grain Feb. March April May June July Aug. Sept. Oct. Nov.

1. 1st White Teff (Magnal 41-44 41-44 42-45 42-45 43-46 44-47 44-47 44-47 44-47 45-48

2. 2nd White Teff (White) 36-39 36-39 37-40 37-40 38-41 38-41 39-42 39-42 39-42 40-43

3. Mixed Teff (sergegna) 32-35 32-35 32-35 33-36 34-37 35-38 36-39 36-39 36-39 37-40

4. Red Teff 27-30 28-31 29-32 30-33 31-34 32-35 32-35 31-34 31-34 32-35

5 1st White Wheat (Magna) 31-34 31-34 31_34 32-35 32-35 33-36 33-36 34-37 34-37 35-38

6 2nd White Wheat (White) 26-29 26-29 26-29 27-30 27-30 28-31 28-31 30-33 29-32 28-31

7. All other Wheat ExceptBlack wheat 24-27 24-27 25-28 25-28 25-28 26-29 26-29 26-29 25-28 25-28

8. Rlack wheat 22-25 22-25 23-26 23-26 24-27 24-27 25-28 25-28 24-27 23-26

9. 351dhite Barley (Magna) 24-27 25-28 26-29 27-30 28-31 29-32 30-33 31-34 30-33 28-31

10 Other Barley 19-22 19-22 20-23 20-23 21-24 21-24 22-25 22-25 21-24 20-23

11. White Sorghums 26-29 26-29 27-30 27-30 28-31 29-32 30-33 30-33 29-32 28-31

12. Other Sorghums 21-24 21-24 22-25 22-25 23-26 23-26 24-27 24-27 23-26 23-26

13 Finger Millet 16-19 16-19 17-20 18-21 19-22 20-23 19-22 18-21 18 21 18-21

14. Maize 16-19 17-20 18-21 18-21 19-22 19-22 20-23 20-23 19-22 18-21

15. Nuge 35-38 37-40 39-42 41-44 43-46 45-48 43-46 41-44 39-42 37-4o

16. Rape 29-32 29-32 29-32 31-34 31-34 35-38 37-40 35-38 31-34 31-34

17. Flax 33-36 34-37 34-37 36-39 36-39 38-41 38-41 36-39 34-37 34-37

18 White Peas 30-33 34-37 34-37 35-38 35-38 36-39 33-36 33-36 30-33 28-31

19. Mtixed Peas/Lentils 25-28 25-28 25-28 25-28 27-30 27-30 27-30 25-28 23-26 23-26

December 15, 1976.:H r

eN

ANNEX 5Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

SERVICING ECODD MARKETING CENTERS

AND COOPERATIVE SOCIETIES

1. The number of marketing centers for input supply are expected toincrease from 350 to 575during the Project period. Grain marketing has beenintroduced in the CADU and WADU areas and at a few scattered centers (coopera-tive societies) under the MPP program. Under the proposed next stage of MPPmarketing activities would be introduced at 50-60 centers annually and wouldembrace 265 centers by 1980/81. The combination of input supply and marketingwill limit the grain buying season to the period December-March.

2. In selecting areas for introduction of crop buying three factorshave been taken into consideration:

(a) volume of incremental production through ECODDactivities;

(b) progress in cooperative formation;

(c) distance from Addis Ababa (Asmara). A longer distanceis likely to mean greater marketing inefficiencies.

The ECODD marketing centers would buy produce from farmers andtraders from within as well as from outside the MPP area. Priority wouldbe given to input customers only if the capacity temporarily should belimited.

3. With the addition of grain marketing, the functions and the divisionof labor between ECODD, AMC and AIDB at the marketing center (MC), minimumpackage project (MPP), regional (branch) and national level would be asfollows:

ANNEX 5Page 2

ECODD AMC AIDB

(a) Marketing Center/Primary Coop. Soc. level:

Estimate input requirements X

Receive loan applications, prepare loanagreements X

Have documents signed by farmer andguarantors X

Receive, store and issue fertilizer X

Collect down payments or cash payments X

Estimate grain buying volume X

Grade, bag, store and dispatch grain X

Collect repayment X

Register and remind defaulters X

Collect market information X

Provide information about AMC prices X

Cooperative promotion X

(b) MPP - Level (supervisor):

Review and aggregate estimates ofinput requirements X

Supervise processing of loan agreements X

Collect and forward documents and funds X

Review and estimate aggregate cropbuying volume and estimate workingcapital requirements X

Distribute crop buying advances X

Collect and deposit repayments X

ANNEX 5Page 3

ECODD AMC AIDB

Audit cash and stocks X

Notify AMC of need to remove grain X

Guide action against defaulters X

Review and forward market information(village markets) to AMC branch office X

(c) Regional (Branch) level: 1/

Review and aggregate estimates of inputrequirement XReceive, check and file copies of loanagreement, receipts and journals, estab-lish account cards for MC, MPP and regionand forward to AIDB monthly. Verify withbank statements and audit MPP levels. X

Review and aggregate crop buying volumeand estimate working capital require-ments X

Tender for transport (for grain withinregion) X

Remove grain from marketing centers anddistribute sacks X

Store and sell produce X

Establish profit and loss accounts andbalance sheets for each MC X

Participate in budgeting and planningof the expansion of the regional program X X

Plan and guide cooperative promotion andassist registered coop. societies X

Collect (wholesale markets), review(village markets), and forward priceinformation to AMC and EGB X

l/ In the areas where a secondary union is or will be formed (e.g., CADU &WADU) the union may take over most of the ECODT and AMC functions.

ANNEX 5Page 4

ECODD AMC AIDB

(d) National level:

Review and aggregate estimates of inputrequirements and credit needs X X X

Procure, receive, 1/ store and distributeinputs to MC and coop. societies X

Grant loans to registered cooperativesocieties and allocate funds for the inputdistribution program (cash and credit) man-aged by ECODD X

Pay AMC for inputs at delivery to MC (regis-tered coop. societies would pay AMC directly) X

Keep aggregate account for the ECODD inputdistribution program and receive and checkmonthly statements for MC, MPP and regions X

Operate a minimum fleet of own lorries X

Tender for transport X

Arrange interregional transfers ofgrain X

Review and aggregate crop buying volumes X

Distribute advances to MPP supervisorsfor_crop buying X

Review market information and issuemonthly pricing instructions X

Procure and distribute sacks toregional offices X

Receive, check and file copies of loanagreements, receipts and journals fornon-regionalized parts of the country.Establish account cards for MC and MPPand forward to AIDB monthly. Verifywith bank statements and audit theseMPP areas X

1/ The Addis Ababa, Nazareth and Kombolcha branches of AMC would be res-ponsible for the storing and distribution.

ANNEX 5Page 5

ECODD AMC AIDB

Supervise cooperative credit and theECODD input distribution program X

Reimburse ECODD for the services providedby the marketing centers and determineamount of subsidy X X

Keep accounts for ECODD activities X

Keep accounts for AMC operations X

Cooperative promotion registration,supervision, assistance and financing X

4. At a marketing center, two marketing assistants with one scale canbuy a maximum of 15 MT per day (from about 75 farmers) and during a 3-1/2month season the maximum volume would be about 1400 MT. Assuming the storecan be emptied every fortnight, this will require a storage capacity at themarketing center level fo 200 MT. Allowing for some carry-over of inputsthis capacity would be increased to 300 MT. The utilization of the capacitymay vary with the season (being highest immediately after harvest) and theinitial volume of trade of course may also be low. However, it may be notedthat the buying volume can be doubled if another marketing assistant andscale is added and if the produce is removed weekly.

5. The build-up of the crop-buying activities during the first fouryear phase is described in Appendix 1 and summarized below:

ANNEX 5Page 6

Province 1977/78 1978/79 1979/80 1980/81No. of Vol. No. of Vol. No. of Vol. No. of Vol.MC MT MC MT MC MT MC MT

Arussi(CADU) 30 35000 30 40000 33 50000 33 60000

Sidamo(WADU) 15 3750 20 5000 25 7500 30 10500

Shoa S. (Ada,SORADEP etc.) 21 7350 21 9450 26 14300 26 15600

Kaffa 10 3500 15 5750 15 7250 15 7750

Tigre 17 4500 23 5700 27 8200 33 11100

Bale 9 4050 14 6700 14 8100

Gojjam 25 7500 30 11500 30 14500

Wollega 26 9700 26 12300

Harrarghe 23 5750 34 10800

Shoa SW 24 10800

Total 93 54100 143 77450 219 120900 265 161450

Average perMC(MT) 582 542 552 609

6. The ECODD extension efforts have so far almost exclusively beenconcentrated on cereal crops. Crop buying would thus have a similar focus.Smaller quantities of pulses and oil crops would be bought in certain areas.An estimate of the composition of the expected buying volume is summarizedbelow (MT):

ANNEX 5Page 7

1977/78 1978/79 1979/80 1980/81

Teff 5425 9280 14980 20965

Wheat 28760 39930 52075 67920

Barley 9135 12980 15700 20725

maize 6710 7800 19945 27150

Sorghum 320 310 4100 7040

Oilcrops/pulses 3750 7150 14100 17650

Total 54100 77450 120900 161450

7. The annual costs of operating a marketing center for input distri-_bution would be of the order of Birr 5,500 including interest and depreciation.These costs would increase to about Birr 20,000 with the addition of grainmarketing and the construction of a 300 MT store. During the Project periodAMC would reimburse ECODD and the registered cooperative societies by Birr 25per MT handled. This would allow full cost coverage if the volume of inputssold and grain bought exceeds 800 MT (220 MT for only input distribution).The AMC reimbursement would at that volume represent about 7 percent of themarketing center turnover. To the extent that this volume is not reached,ECODD would thus not cover its costs and would require a subsidy. This wouldbe regarded as development costs and be budgeted by ECODD. However, shoulda center not reach the specified volume over a four-year period the reasonswould be reviewed and remedial action (e.g., amalgamation) be taken. Thecosts for expanding the number of marketing centers and for adding producemarketing to a number of existing centers would all be included under thenext phase of MPP which is likely to have a similar time frame as this Project.The cost of adding produce marketing amounts to Birr 9.25 million over thefour-year period and includes the construction of an additional 145 small(300 MT) stores.

ETHIOPIA- * GRAIN STORAGE AND MARRETING PROJECT

Build-up of Grain BuvinR Operation

1977/78 1978/79 1979/80 1980/81-+ovince/MPPA No. of MC Vol./MC Total MT No. of MC Vol MC Total MT No. of MC Vol./MC Total MT No. of MC Vol./MC Total MT

1. Arussi, CADIT 30 1.170 35,000 30 1,330 4o,ooo 33 1,515 50,000 33 1,818 60,000

2. Sidamo WADU 15 250 3,750 20 250 5,000 25 300 7,500 30 350 10,500

3. Shoa S.ADDP 7 350 2,450 7 450 3,150 7 550 3,850 7 600 4,200Nazareth 4 350 1,400 4 45° 1,800 4 550 2,200 4 600 2,400Others 5 350 1,750 5 450 2,250 5 550 2,750 5 600 3,000SORADEP 5 350 1,750 5 450 2,250 10 550 5,500 10 600 6,ooo

4. KeffaJimma 5 350 1,750 5 450 2,250 5 550 2,750 5 600 3,000Asendabo 5 350 1,750 5 450 2,250 5 550 2,750 5 600 3,000Others - - - 5 250 1,250 5 350 1,750 5 350 1,750

5. TigreEnda Selassie 5 300 1,500 5 300 1,500 5 400 2,000 5 500 2,500Agame 6 300 1,800 6 300 1,800 6 400 2,400 6 500 3,000Axum-Adwa 6 200 1,200 6 200 1,200 6 300 1,800 6 300 1,800Hulet Awlalo - - - - - - 4 200 800 4 200 800Enderta - - - 6 200 1,200 6 200 1,200 6 300 1,800Raya & Azebo - - - - - - - - - 6 200 1,200

6. BaleAdaba - - - 5 450 2,250 5 550 2,750 5 650 3,250Robe - - - 4 450 1,800 4 550 2,200 4 650 2,600Others - - - - - - 5 350 1,750 5 45o 2,250

December 15, 1976.

X O2

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

Build-up of Grain Buying Operation(Continued)

1977/78 1978/79 1979/80 1980/81

Province/MPPA Mc Vol./MC Total MT c Vol./MC Total MT Mc Vol./MC Total MT MC Vol./MC Total MC

7. GojjamRahar Dar - - - 5 300 1,500 5 400 2,000 5 500 2,500

Dangela - - - 5 300 1,500 5 400 2,000 5 500 2,500

Finote Selam - - - 6 300 1,800 6 400 2,400 6 500 3,000

Debre Markos - - - 5 300 1,500 5 4°0 2,000 5 500 2,500

Richena - - - 4 300 1,200 4 400 1,600 4 500 2,000

Others - - - - - - 5 300 1,500 5 400 2,000

8. WellegaSire - - - - - - 5 350 1,750 5 450 2,250

Digga - - - - - - 5 350 1,750 5 450 2,250

Gihimbi - - - - - - 5 350 1,750 5 450 2,250

Henna - - - - - - 6 450 2,700 6 550 3,300

Others - - - - - - 5 350 1,750 5 450 2,250

9. HatrargheChercher - - - - - - - 6 250 1,500

Jijiga - - - - - - - - - - -

Habru - - - - - - 4 250 1,000 4 350 1,400

Wobera - - - - - - - - - 5 250 1,250

Gara Muletta - - - - - - 5 250 1,250 5 350 1,750

Harrar - - - - - - 9 250 2,250 9 350 3,150

Gursum - - - - - - 5 250 1,250 5 350 1,750

10. Shoa SWTulu Rolo - - - - - - - - - 7 450 3,150

Wolkite - - - - - - _ _ _ 6 450 2,700

Buta Tira - - - - - - 6 450. 2,700

Others - - 5 450 2,250

Grand Total 93 54,100 143 77,450 219 120,900 265 161,450

AV/MC 582 542 552 609

December 15, 1976.0I,L0

ANNEX 6Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

STATE FARM PRODUCTION

1. As a result of the "Public Ownership of Rural Lands Proclamation"published on April 29, 1975 in the Negarit Gazeta and effective as of March 4,1975, some 500 privately owned commercial farms were combined into elevenState Farms under the jurisdiction of the Ministry of National Resources andDevelopment. No compensation is being paid for the value of the land, butGovernment has declared its intention of fair compensation for movable pro-perty and permanent works. The rate of compensation, however, has not yetbeen determined. The new management of these farms is being handled eitherby former owners now employed by the Government or by newly appointed managerstransferred from other ministries or hired from nationalized commercial enter-prises. These farms have now been placed under the jurisdiction of the Ministryof Agriculture and Settlement.

2. In addition there are some large scale agricultural farms whichwere Government owned prior to the Land Reform and which are now also underthe auspices of Ministry of Agriculture and Settlement.

3. Table 1 gives a breakdown by individual farms, of cultivation ofdifferent commodities during the 1975/76 season. The data has been obtainedthrough discussions with farm management. The conclusions are that the mainfood crops of all Government operated farms are maize and wheat with anestimated combined production of about 70,000 MT followed by sorghum, teff,haricot beans, barley and other pulses and oil crops with an estimated totalyield of about 10,000 MT. In addition, the State Farms are engaged in theproduction of cash crops. The largest crop of this kind is cotton (30,000 ha),followed by coffee (6,300 ha). A small area (90 ha) is used for tobacco. Theremaining area is used for sisal (1,800 ha), orchards (citrus, 900 ha) andvegetables (mainly pepper, 700 ha). 4,200 ha are presently covered by forests.

4. The intention of the Government in accordance with the Land Procla-mation is that a large portion of these farms would be handed over to small-holders. The first areas to be broken up in this manner will be the rain-fedfarms engagod in food crop production. At the same time it is anticipated thatthe State Farms will acquire virgin lands for cultivation. Therefore, theState Farms' marketable production is expected to be as follows:

1977/78 50,000 MT1978/79 60,000 MT1979/80 75,000 MT1980/81 100,000 MT

ANNEX 6Page 2

5. The storage capacity of all the State Farms combined is grosslyinsufficient. For the estimated annual grain production of about 80,000 MTin the 1975/76 season, storage for only 25,000 MT is available. The storageshortage is going to worsen, since the operations are gradually moving awayfrom the established areas to virgin lands and consequently leaving existingfacilities behind for settlement areas. The inadequate facilities are furtherreduced by a substantial number of warehouses which need repair to be fullysuitable for grain storage.

ANNEX 6Page 3

Table 1 State Farms, area cultivated and estimated production, 1975.

Area (ha)

Farm Grain, Oilseeds Other Forest Totaland pulses Crops

Ministry of Agriculture

Rift Valley Lakes 15,900 300 - 16,200

Upper Awash 4,660 7,530 - 12,190

Middle Awash 600 3,355 - 3,955

Lower Awash - 2,650 - 2,650

Tendaho - 11,192 - 11,192Arba Minch 170 2,240 - 2,410

Cheffa 2,059 - - 2,059

Eastern 569 697 - 1,266

South-Western 2,000 5,995 4,190 12,185Livestock Dev. Corp. - - - -

Chilalo 29,468 - - 29,468

Chebo-Gibe 2,000 700 - 2,700

Awash Valley 500 3,600 - 4,100Didessa 2,000 - - 2,000

Wolkite 1,400 200 - 1,600Fincha - - 100 100

Ministry of Community Developmentawassa 2,366 1,900 - 4,266

Land Reform Postponed

Humera and Jijiga

Total 63,692 40,359 4,290 108,341

December 15. 1976

ANNEX 7Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

GRAIN IMPORTS AND SECURITY RESERVES

Consumption

1. The present demand for cereals amounts to about 3.8 million MT asshown in Table 1. If per capita consumption on farms were to increase by 1.8%per annum over the Project period as a result of the land reform while percapita non-farm consumption is held constant the total food grain requirementswould be 4.7 million MT by 1980/81 (Table 1).

Table 1: Growth of Demand for Food Grains ('000)

Pop. 1974/75 1980/81Population GrowthGroup Rate Z Pop. Kg/cap Con- Pop. Kg/cap Con-

'000 & year sumption '000 & year sumption'Q000 MT '000 MT

On farm 1.9 18,294 146 2,666 20,481 163 3,338

Ruralnon-farm 2.2 2,678 180 482 3,052 180 549

Nomad 1.0 2,110 47 100 2,240 47 105

Urban 6.0 2,943 183 538 4,174 183 764

Subtotal 3.4 7,731 145 1,120 9,466 149 1,418

Total 2.35 26,025 146 3,786 29,947 147 4,756

2. Under normal growing conditions Ethiopia -as basically selfsufficientin cereals before the land reform (Annex 1, Table 1) and it is still too earlyto judge either its immediate or the long run effects. Considerable effortshave been made either to settle peasants on the ex-commercial farms or to organ-ize State farms for their cultivation. Cereal crops have been emphasized andwill to some extent replace former production which focused on exports of oilcrops and pulses. In spite of these commendable efforts, total cultivated areadecreased somewhat, plantings in some areas were late (particularly of the

ANNEX 7Page 2

early crops such as hybrid maize) and the conditions in the formerly surplus

producing areas of the Setit Humera and Jijiga regions were unsettled.

It appears that total ceteal production was about 60,000 MT, below the esti-

mated 1974/75 level. This necessitated grain imports during 1975176 of 70,000

MT. As to the long run effects of land reform, ECODD and CADU are already

experiencing an increasing demand for fertilizers and other inputs. The

incremental production expected during the MPP second phase would imply a 5

percent annual growth in total cereal production.

Import requirements

3. On the basis of the assumptions about consumption and productionpresented above, grain import requirements are estimated in Table 2. During

the project period there seems to be a substantial import need which, however,

gradually diminishes and in the mid 1980's self-sufficiency is likely to be

re-established. Actual imports have been assumed to be limited to 100,000 MT

because of handling and financial constraints reviewed below.

Table 2: Import Requirements of Cereals (000 MT; Normal Weather)

Estimated 1/ Estimated 2/ Assumed Reduction in

Consumption Production Gap Imports 3/ Exports 4/

1976/77 4,079 3,815 264 100 164

1977/78 4,234 4,003 231 100 131

1978/79 4,395 4,201 194 100 94

1979/80 4,562 4,409 153 100 53

1980/81 4,756 4,629 127 100 27

1/ Pop. growth plus increase in on-farm consumption.

2/ 5 percent growth from 1975/76.3/ Reflecting handling and financial constraints.

4/ Oilseeds and pulses.

Financial Constraints

4. The costs of importing grain to Addis Ababa during the Project

period is estimated at Birr 494 per MT (Para. 22, Annex 4). These costs

would decrease if all or part of the imports are obtained on concessionary

terms. If the imported grain is sold at the upper price limit 1/ of the

1/ Plus 4 months seasonal adjustment = Birr 355 per MT.

ANNEX 7Page 3

illustration in para. 4, Annex 4, an annual subsidy of Birr 14 million would berequired for 100,000 MT of wheat imported on commercial terms. The importsubsidy could be reduced if the domestic wholesale price is adjusted upwardsand completely eliminated if it is put at the import parity level.

Handling onstraintse

5. Grain would be imported through three main ports and their facilitiesand capacity are as follows:

Assab

Assab on the Red Sea in southern Eritrea is the closest to Ad4is Ababa (860 kim)It has six warehouses covering a total area of about 15,000 m . In 1973, theport handled 174,000 MT of imports and 167,000 MT of exports of which pulses,oilseeds and cakes, totaling 65,000 MT, made up 40 percent. The total tonnagehandled (341,000 MT) represented a 60-70 percent utilization of port facilities,so that there was a theoretical spare capacity of 100,000 to 130,000 MT availa-ble in 1973.

Distribution of imports is entirely by road, and there are some 1,500 trailer-trucks operating between Assab and Addis Ababa. With an average capacity of22 MT, each truck is capable of making a maximum of one round trip per week.The freight rate for grains transported from Assab to Addis Ababa is currentlyBirr 5.25 per quintal or 6 cents/ton/km, which is below the average of 10 cents/ton/km applying to other all-weather road transport in Ethiopia. Loading7andunloading of trucks at Assab is handled by clearing and forwarding agents atthe port.

Massawa

Massawa on the Red Sea in Northern Eritrea is only 114 km from Asmara, thesecond largest city of Ethiopia, to which it is connected by road and rail.Rail transport has declined in importance, and the Northern Ethiopian Railroadis facing closure. The distance by all-weather road (via Asmara) to AddisAbaba is 1 .195 km.

2The port of Massawa has six warehouses covering 12,000 m . In 1973, the porthandled 128,000 MT of imports and 227,000 MT of exports, of which pulses,oilseeds and cakes totaling 148,000 MT represented about 65%. The totaltonnage handled in 1973 (255,000 MT) represented a capacity utilization of 60-70 percent giving a theoretical spare capacity of 110-140,000 MT.

Dj ibouti

Situated at the entrance to. the Red Sea, in the territory of the Afars andIssas, Djibouti is connected to Addis Ababa (751 km) by the Franco-Ethiopianrailway (FER) which carries virtually all Ethiopian traffic handled by the port.

ANNEX 7Page 4

The port of Djibouti has 12 public warehouses covering more than 18,000 m 2as well as seven privately owned warehouses with an area of nearly 7,000 m 2Ethiopia has special traffic rights and transit concessions in the port.Comparable traffic statistics to these given for Assab and Massawa are notavailable, but in 1969/70 the FER carried some 176,000 MT of imports and119,000 MT of exports. Grains, pulses, oilseeds and cake at 18,000 MT repre-sented some 15 percent of the export traffic. FER's theoretical carryingcapacity is four trains of 20 x 20 MT wagon per day in each direction. Infact, FER is operating at about 40 percent capacity and cannot go much abovethis level.

6. The experience gained by Relief and Rehabilitation Commission (RRC)in handling grain imports for relief purposes suggests that, if other tradecontinues at its present level, the maximum additional grain imports thatcould be handled at each port would be:

Port MT per Month MT per Year

Assab 9,000 - 10,000 100,000

Massawa 5,000 - 6,000 70,000

Djibouti 2,000 - 3,000 30,000

Considering the political disturbances which affect the utilization of bothAssab and Massawa and fluctuation in import requirements, the average totalimport capacity is unlikely to exceed 100,000 MT.

Security Reserves

7. The proposal of the 1974 study on food security 1/ to establish aminimum emergency grain reserve of 50,000 MT (4 months supply for 1 millionpeople) has been accepted by the Government, and AMC will administer thesereserves. Existing storage facilities would be fully utilized by AMCfor ordinary operations and for the establishment of the reserve. The Projecttherefore would provide for the construction of additional storage facilitiesat Dessie (10,000 MT), Makele (10,000 MT), Dire Dawa (10,000 MT), Shashamene(5,000 NT) and Addis Ababa (15,000 MT).

8. Estimated current grain import needs during the project period are,however, of such magnitude that it is hardly feasible to acquire the reservestocks from abroad (port capacity, strains on external assistance and thedomestic budget). In case of a good harvest, however, it will be possibleto establish a carry-over to next year. This carry-over may either beregarded as buffer stocks or set aside as security reserves.

9. In the latter case the Government would have to buy the stocks fromAMC (approx. Birr 12.5 million for 50,000 MT) and reimburse the Corporation

1/ FAO. A policy and action plan for strengthening national food securityin Ethiopia, 1974.

ANNEX 7Page 5

for the costs of maintaining these stocks (estimated at Birr 59 MT includinginterest (Annex 4) or Birr 3 million annually). No separate administration ofthe security reserves is visualized. AMC would simply be instructed not todraw down its stocks below 50,000 MT without explicit instruction from theGovernment.

10. Alternatively the reserves could be regarded as a buffer stock toreplace imports in a normal or below normal harvest year. The differencebetween the import parity price and the domestic wholesale price (lowerprice limit) must exceed Birr 131 per MT for buffer stocking to be feasibleif a good harvest occurs once in every 4 years (Annex 4, para. 25). Thepresent and forecast difference may be estimated at Birr 215 per MT.

11. Until self-sufficiency has been established in a normal year thesecurity reserve facilities will be used for buffer stock purposes. At thattime however, a security reserve would be established if possible with graindonated from abroad.

ANNEX 8Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

AGRICULTURAL MARKETING CORPORATION (AMC)

A. Objectives

1. In order to implement Government marketing policy as outlined inAnnex 3, the Agricultural Marketing Corporation (AMC) has been establishedto handle a progressively increasing volume in the marketing of cereals, oil-seeds and pulses, and the distribution of agiicultural inputs (mainly fertil-izers, seed and pesticides) in order to:

(a) closely relate the seasonal and geographical price variationsto cost and to stabilize prices between years;

(b) promote sound marketing practices including proper weighing,grading and stock management;

(c) assure timely and efficient supply of inputs to the ECODD mar-keting centers/cooperatives and State farms and to remove pro-duce in such a way as to avoid congestion and give good serviceto farmers:

(d) decrease the marketing margin between the producers and thewholesale level and thereby improve producer prices and incen-tives (in competition with private trade);

(e) assure proper food supply distribution. Although most of AMC'ssales would be on a wholesale basis, it will also take actionto reduce retail margins where they seem excessive; and

(f) cover its costs including depreciation and interest on capitalemployed. The rate of interest should be fixed at a level thattakes into account the risk factor and the opportunity cost ofcapital in Ethiopia.

2. Thus there is no simple criteria (e.g. profit) against which tomeasure the success or failure of the Corporation, apart from the fact thatwhere it is operating in competition with private trade (e.g. in buyingproduce through the ECODD alternative marketing channel and in purchasingoilseeds and pulses for export) a comparison of AMC's margins with those ofthe private trade provides a rough and ready yardstick of comparativeefficiency. In general, however, AMC's performance has to be judged againstthe extent to which it achieves the oblectives set out above. An internalevaluation for management guidance is thus essential. Ad hoc consultations

ANNEX 8Page 2

with advisory committees, to be established at branch level at the discretion

of the Executive Chairman, are intended to help assess and improve performance.

Market research studies to be conducted by EGA (Annex 10) will also help

determine the extent to which AMC fulfills the above objectives.

B. Functions

3. AMC buys grain, oilseeds and pulses through the ECODD channel

(Annex 5) from the State farms (Annex 6) and from abroad (Annex 7). The Cor-

poration also procures and distributes inputs (Annex 2) and arranges to

operate buffer stocks (Annex 7). In performing these tasks AMC is guided by

the pricing principles outlined in Annex 4. In produce buying a simple classi-

fication system would be devised to reflect variety, condition and cleanliness.

In the latter respect the following three grades would be introduced:

Grade 1 Less than 5% impurities by weightGrade 2 5 - 10% impurities by weightGrade 3 10 - 15% impurities by weight

Prices would be adjusted to reflect quality standards. AMC may buy from

private trade particularly if producer prices in a certain area seem

depressed when seen in relation to prices in adjacent deficit areas.

4. AMC sells through the following channels:

(a) flour mills (nationalized and private);

(b) oil mills;

(c) private wholesalers for distribution through private retailchannels;

(d) private retailers;

(e) institutional buyers (armed forces, hospitals, schools);

(f) private exporters, Export-Import Corporation or foreignbuyers.

AMC enters the field of retailing only when circumstances so demand, for

example, when private retailing capacity is inadequate.

ANNEX 8Page 3

5. The total volume of commercially marketed grain, oilseeds and

pulses is expected to increase from about 690,000 MT in 1975/76 to over1,100,000 MT in 1980/81 (Table 1). During the Project Period, the publicsector share rises in absolute terms from about 200,000 MT in 1976/77to some 500,000 in 1980/81 (Table 2). To arrive at AMC's storage needs tohandle these quantities, account has been taken of the seasonal pattern ofmarketing and consumption, the phasing of imports and the need to separatevarieties and grades and to allow for under-utilization of storage in somelocalities. On this basis, storage requirements have been estimated at 75%of total volume handled and would rise from 195,000 MT capacity in 1976/77to 375,000 MT capacity in 1979/80 (Table 3). 1/ Allowing for capacity to betransferred to AMC from EGC (33,000 MT), and for nationalized storage(100,000 MT), a new storage construction program for 242,000 MT would beneeded and would be spread evenly over the four years of the Project Period,as indicated below:

1976/77 1977/78 1978/79 1979/80 Total(in '000 MT)

New storage capacity to beconstructed 62 60 60 60 242

This would have the advantage of avoiding any overstraining of the capacityof the construction industry (Annex 16). Total projected AMC storagerequirements by function are detailed in Table 4.

6. Input requirements are estimated to increase from 62,000 MT in1975/76 to 137,000 MT in 1980/81. Inputs would be tendered for in July andbids accepted by September, received in the period November through Februaryand directly delivered to the marketing centers/cooperative societies (310)not engaged in marketing of produce. AMC would be paid at delivery to themarketing centers by AIDB. Maximum AMC inventory (for supplying the market-ing centers engaged in produce marketing and for restocking of other marketingcenters later in the season) is estimated at 50% of total volume i.e. 68,500MT in 1980/81. Storage facilities for 18,000 MT are available leaving 50,500MT to be constructed (Table 4).

7. Storage facilities for 50,000 MT of security reserves would beconstructed (Table 4).

1/ There is some indication that the marketing season will be extended afterland reform. If so, farm storage would substitute for warehouses andthe storage volume could be reduced below 75% of grain handled.

ANNEX 8Page 4

8. The Corporation would need transport capacity to remove a maximum400,000 MT of produce from the marketing centers/cooperative societies andthe State Farms in the period December-April, distribution of about 68,500MT of inputs in the same period and an equal amount in the period of April-June, and for imports and regional transfers of grain particularly in periodJune-November. The peak demand for transport will be in the period December-April and judging from CADU, EGC, AIMS and other experience it will be neces-sary for AMC to acquire some transport capacity in case private transportcannot be obtained (particularly over bad roads) or does not fulfill contractobligations. Although the majority of the transport requirements will betendered for, it is thus suggested that AMC should have a capacity to handle40% of peak produce movement or 120,000 MT by itself. Assuming a period of120 working days, one load per day of an average of 12 MT, AMC would need tooperate a fleet of about 80 trucks. 1/ These would be handled from a centralpool from Headquarters but be assigned to the branches on demand. During thelatter part of the calendar year the fleet would be fully used for inter-regional transfers and imports.

9. The AMC investments in vehicles, office and storage equipment bybranch office are indicated in Table 5 and summarized in Table 6. Operatingcost by branch is summarized in Table 8 and requirements of different cate-gories of staff are given in Table 9.

10. Total buying and handling costs are estimated in Table 10 and on thebasis of certain assumptions about the seasonal variations in inventories ofproduce and inputs, the peak requirements of working capital in 1980/81 wouldamount to Birr 135 million (Table 11). This figure is subject however to con-siderable uncertainty and possible Government subsidies are assumed to be paidat arrival of the grain and inputs in port.

Financing

11. On the basis of the pricing principles outlined in Annex 4 an AMCincome statement, cash flow and balance sheet (all in constant 1976 prices)are presented in Tables 12, 13 and 14 respectively.

12. The banking system will be able to handle 78% of AMC's peak workingcapital requirements while the remaining 22% will be provided as fixed capital.The Project will provide for the cost of seven internationally recruited staff 2/in the AMC organization and Birr 100,000 annually for staff training and short-term consultancy services. The build up of AMC's permanent capital is derivedin Table 15. The amount of AMC resources at the start of the Project periodis estimated at Birr 25.3 million (Table 12). A Government guaranteedoverdraft facility with the commercial banks needs to be established.

1/ of which 40 trucks have been already purchased and

15 trucks with 6 MT capacity (4 wheel drive)10 trucks with 10 MT capacity15 trucks with 20 MT capacitywould be procured under the Project

2/ SIDA has provided one staff-member.

ANNEX 8Page 5

Organization

13. AMC has been established by charter (Appendix 1) during 1976.Ministerial respo,.sibility for AMC rests with the Minister of Agriculture

and Settlement who:

(a) acts as the channel of communication between Government andthe Corporation;

(b) acts as chairman of the Board of AMC;

(c) receives its Annual Report and accounts.

14. The Board of Directors consists of:

- Minister of Agriculture and Settlement (Chairman)- Head of ECODD- General Manager EGB- Representative of National Bank

Representative of Ministry of Interior 1/- General Manager of AMC

15. The powers of the Board are defined as follows:

(a) the approval of AMC's budgets, annual reports and accounts;

(b) the approval of AMC's strategy at the opening of each seasonto implement Government's decisions on prices (tolerance limits),imports or buffer stocking, exports, as well as input supply anddistribution;

(c) the consideration and approval of management recommendations asto monthly adjustment of AMC's buying price structure;

(d) the approval of borrowing and major contracts;

(e) the delegation of full responsibility for AMC's day-to-dayoperations, for execution of policy decisions and for controlof staff to its,General Manager.

16. Ministerial Directives have been issued by the Minister of Agri-culture and Settlement to provide more guidance as to the objectives ofAMC (Appendix 2).

1/ As spokesman for the regional authorities.

ANNEX 8Page 6

17. AMC's internal organization is shown in Chart 1. The Corporationwould duriag the Project period operate through branches and subbranches.The General Manager will have full responsibility for the day-to-day operationsof the Corporation. In view of the size and complexities of the operationsthe positions of Deputy Manager, Deputy Director Commercial Department, SeniorAccountant or Financial Controller, Chief Cost Accounts Division, ChiefEngineer, Head of Transport Department and Chief Planning and ProgrammingSection have been filled by internationally recruited staff.

Accounting

18. In designing the AMC accounting system the following points wouldbe observed:

(a) The relations between established wholesale prices and AMCproducer and retail prices including seasonal and spatialvariations will be based on cost (Annex 4).

(b) If the Government decides to deviate from this pricing patternAMC would be compensated accordingly. Any service (e.g., secur-ity reserves) provided on Government request will be compensatedseparately.

(c) During the Project period ECODD will be compensated for itsservices on the basis of Birr 25 per MT handled. ECODD willestablish actual costs and request possible budgetary support(Annex 5).

(d) AMC's performance (margins) needs to be judged in relation tothat of private trade.

(e) To assure proper management control the viability of each branchand of the AMC transport services needs to be established.

19. AMC will thus require an elaborate cost accounting system whichallows identification of costs in different types of operations such as pro-duce buying, grain importing, seasonal storage, buffer stocking, procurementand distribution of inputs, which distinguishes different types of produceand inputs and which treats each branch as a separate cost center.

ANNEX 8Appendix 1Page 1

PROCLAMATION NO. 105 OF 1976A PROCLAMATION TO PROVIDE FOR THE

ESTABLISHMENT OF AN AGRICULTURAL MARKETING CORPORATIONMARKETING CORPORATION

"ETHIOPIA TIKDEM"

WHEREAS, it is necessary to integrate the organizations presentlyengaged in the procurement and distribution of inputs and grain marketing;

NOW, THEREFORE, in accordance with Article 6 of the Definitionsof powers of the Provisional Military Administrative Council and its Chairman,Proclamation No. 2/1974, it is proclaimed as follows:

1. Short Title

This Proclamation may be cited as the "Agricultural MarketingCorporation Establishment Proclamation No. 105 of 1976"

2. Definitions

In this proclamation unless the context otherwise requires;

1. "Agricultural Product" means any grain or by-product thereof.

2. "Grains means cereals, oilseeds, pulses or such other itemsas the Ethiopian Grain Board may designate.

3. "Inputs" means fertilizers, seed, pesticides, agriculturalimplements, equipment, tools or such other items as theMinister may designate.

4. "Minister" and "Ministry" mean the Minister and Ministry ofAgriculture and Forestry respectively.

3. Repeal

The Charter of the Ethiopian Grain Corporation, General NotcieNo. 267 of 1960 as amended, is hereby repealed and replaced bythis Proclamation.

4. Establishment

There is hereby established the Agricultural Marketing Corporation(Hereinafter referred to as the "Corporation") as an autonomouspublic enterprise having separate juridical personality.

ANNEX 8Appendix 1Page 2

5. Principal Office

The Corporation shall have its principal office in Addis Ababaand may have branch offices, elsewhere in Ethiopia and abroad.

6. Objective

The principal objective of the Corporation shall be to executethe Government's policy in the fields of grain marketing, procure-ment and distribution of inputs and maintaining national grainreserve.

7. Powers and duties of the Corporation

The corporation shall have all powers necessary for the achieve-ment of its objective. These include the power to:

1. purchase agricultural products;

2. export agricultural products or sell the same fordomestic consumption;

3. import agricultural products;

4. maintain a national emergency grain reserve;

5. purchase and sell inputs within Ethiopian or abroad;

6. purchase, process, manufacture, mill, transport, store, sellagricultural products and inputs whether for profit or otherwise;

7. cause to be constructed, to equip and maintain buildings, silos,storage facilities, grain elevators and other structures andmachinery; '

8. own, possess, mortgage, sell and exchange property for the pur-pose of attaining its objectives and the proper functioning ofits operation;

9. to charge appropriate fees for the services it renders;

10. enter into contracts and to borrow money;

11. sue and be sued in its own name; and

12. discharge such other necessary duties for the attainment ofits objectives.

ANNEX 8Appendix 1Page 3

8. Composition of the Corporation

The Corporation shall have:

1. a Board of management (hereinafter the "Board").

2. a General Manager and,

3. the necessary staff.

9. Composition of the Board

The Board shall be constituted by the following members:

1. The Minister of Agriculture and Forestry or hisrepresentative Chairman

2. A representative of the Ministry - Member

3. A representative of the Ministry ofCommerce and Industry

4. A representative of the Ministry of Interior "

5. A representative of the National Bank "

6. A representative of the Ministry of Finance "

7. The General Manager of the Corporation

10. Powers and duties of the Board

1. Subject to the other provisions of the Proclamation, allpowers and duties of the Corporations shall be vested in theBoard.

2. The principal functions of the Board shall be to:

(a) lay-down the policy guidelines of the Corporation,

(b) approve the budget, annual report and accounts,

(c) approve the corporation's strategy at the openingof each season for implementation of the Government'sdecision on prices, imports, bufferstock, exportsof agricultural products and input supply anddistributions,

ANNEX 8Appendix 1Page 4

(d) consider and approve management's recommendations withregard to monthly adjustment of the Corporation's buyingprice structure.

(e) supervise the operation and the activities of theCorporation.

3. The Board may delegate all or part of its powers and duties to

the General Manager.

11. Meetings of the Board

1. The Board shall meet as often as the operations of the Corporationrequire.

2. The Board shall be convened at the request of the Chairman, orin accordance with its rules of procedure.

3. Four members of the Board shall constitute a quorum.

4. Decisions for the Board shall be made by majority vote, and incase of a tie the chairman shall have a casting vote.

5. The Board shall determine its own rules of procedure.

12. The General Manager

1. The General Manager shall be appointed by the Government uponthe recommendation of the Minister.

2. The General Manager shall be the Chief Executive of theCorporation and shall, subject to the general directionof the Board, carryout the activities of the Corporation.

3. Without limiting the generality of the foregoing, the GeneralManager shall:

(a) organize the corporation, employ, administer and dismissits employees,

(b) submit a draft of the internal regulations of the corporationto the Board for approval,

(c) prepare and submit to the Board for approval the annualbudget and the work programs of the Corporation threemonths before the beginning of each fiscal year,

(d) delegate his authority to the officials of the Corporationfor the effective performance of the functions of theCorporation;

ANNEX 8Appendix 1Page 5

(e) performs such other duties as may be entrusted to him bythe Board.

13. Powers and Responsibilities of the Minister

The Powers and Responsibilities of the Minister shall be to:

1. encourage and promote the objectives of the Corporation;

2. assist the Corporation obtain all necessary Government support;

3. issue to the Corporation the Government's policy guidelinesconcerning the activities of the Corporation.

14. Finance

1. The authorized capital of the Corporation shall be onehundred million ($100,000,000) dollars.

The initial capital shall be twenty one million seventythousand ($21,070,000) dollars, paid up in cash and inkind.

2. Capital expenditures or funds necessary for the implementationof development projects shall be approved by the Board uponrecommendations of the General Manager.

3. The Corporation shall set aside ten (10) percent of all itsnet profits in order to establish and maintain a Reserve Funduntil such fund equals 25% (%) percent of the capital. Anyloss sustained by the Corporation in any particular year,shall be cohered from the Reserve Fund which shall be replenishedin subsequent years.

4. The remaining net profits shall be paid to the Ministry ofFinance.

15. Books of Accounts and Fiscal Year

1. The Corporation shall keep books of accounts with supportingdocuments. The audited financial statements of the Corporationshall be published within six months of the end of the fiscalyear.

2. The fiscal year of the Corporation shall begin on the 1st ofJanuary and end on the 30th of December.

A4NEX 8Appendix IPage 6

16. Auditors

The Books of accounts and all financial matters of the Corporationshall be audited at least once a year by the Auditor General orby an auditor designated, by him, and the result of the audit shallbe presented to the Board and through the latter to the Minister.

17. Transfer of Property

All assets and liabilities of the Ethiopian Grain Corporationare thereby transferred to the Corporation.

18. Power to issue Regulations

The Minister may, upon the recommendations of the Board, issueRegulations for the better carrying out of this Proclamations.

19. Effective Date

This Proclamation shall enter into force on the date of itspublication in the Negarit Gazeta.

Done at Addis Ababa this ........ dayof 1976.

The Provisional Military AdministrativeCouncil

ANNEX 8Appendix 2

MINISTERIAL DIRECTIVES TO AMC

Pursuant to the AMC establishment Proclamation No. 105 of 1976,the Grain Storage and Marketing Project is designed to assist in developingEthiopia's grain storage and marketing system and to be carried out, inpart, by the Agricultural Marketing Corporation (AMC), an autonomous publicenterprise, charged primarily with the procurement and wholesale distri-bution of agricultural produce and inputs, and with retail grain tradingwhere special circumstances require. The Minister of Agriculture andSettlement according to the powers vested in him by said Proclamationshall provide the necessary Ministerial Directives which will ensure theeffective coordination and cooperation among all agencies and entitiesconcerned with the implementation of the Project and/or may issue suchRegulations as may be required for the better carrying out of the purposesof the project. The said Ministerial Directives and/or Regulations shall,among other things, include:

(a) The close correlation of the seasonal and geographicalprice variations to cost and the stabilization ofprices between years;

(b) the assurance of timely and efficient supply of inputs tothe ECODD marketing centres/cooperatives and state farmsand the removal of produce in such a way as to avoidcongestion and bad service to farmers;

(c) the decrease of the marketing margin between the pro-ducers and the wholesale level and thereby improvingproducer prices;

(d) the assurance of proper produce supply distribution;

(e) the assurance that costs including depreciation andinterest on capital employed must be covered.

MINISTER OF AGRICULTURE AND SETTLEMENT

ETHIOPIAGRAIN STORAGE AND MARKETTNG PROJECT

Estimates of Non-Farm Consumptionand Exports of Grain, Oilseeds and

Pulses 1974/75 to 1980/81

Population Per Capita Population Non-Farm Consumption and Exports ('000 MT)1974/75 Consumption Growth 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81('000) (Kg) %

Non-Farm rural population 2.678 200 2.2 534 546 558 570 583 597 610

Nomadic population 2.110 40 1.0 85 86 87 88 89 90 91

Urban population 2.943 212 6.0 624 661 701 743 788 835 885

Subtotal - - - 1,243 1,293 1,346 1,401 1,460 1,522 1,586

Exportsl/ - - - 225 31 61 94 131 172 225

Total - _ - 1,468 1,324 1,407 1,495 1,591 1,694 1,811

Urban consumption plus exports(=wholesale trade) 849 692 762 837 919 1,007 1,110

1/ Exports of oilseeds and pulses is assumed to decrease from the 1974/75 level of 225,000 MTto allow domestic production of grain to fill the import gap (Annex 7, table 2). Alternativelythe non-farm per capita consumption would have to be reduced with the same effect on the totaland on wholesale trade.

n.x

February 3, 1977

ETHIOPIAGRAIN STORAGE AND MARKETINC PROJECT

Estimates of Wholesale Trade in Grain,Oilseeds and Pulses

('000 MT)

1975/76 1976/77 1977/7R 1978/79 1979/80 1980/81

Wholesale trade:

Public trade derived from ECODD 15 3C 54 77 121 161

State Farms 25 30 50 60 75 100

Imports 80 100 100 100 100 100

Other 60 40 56 103 124 139

Subtotal 180 200 260 340 420 500

Private trade 512 562 577 57n 5sr87 610

Total wholesale trade 692 762 837 919 1007 1110

Of which public (%) 26 26 31 37 42 45

January 21, 1977.

(D X

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

Storage Facilities for Wholesale Trade in Grain,Oilseeds and Pulses

('000 MT)

1975/76 1976/77 1977/78 1978/79 1979/80

Public trade

Available 33 133 195 915

Nationalized ino - -

Newly constructed - 62 60 60 0n

Subtotal 133 195 255 315 375

Private trade

Available 530 430 375 375 3751/

Less: Unsuitable - -55 -

Nationalized -400 -- -

430 375 375 37' 2_15

Total available grain storage 563 570 630 690 750

Total required storage 52) 570 630 690 750

l/ Introduction of licensing.

2/ 75% of wholesale trade.

ADr 1 1 1, 1 Q7A L.) x(

ANNEX 8Table 4

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

AMC Storage Construction (000 MT) 1/

1976/77 1977/78 1978/79 1979/80 Total

A. Grain 3torage (Table 3) 62 60 60 80 242

B. Input Storage

Required 2/ 39 47 57 69 -Available 18 39 47 57 -Constructed 21 8 10 12 51

C. Security Reserves - 18 17 15 5C

Total Construction 83 86 87 87 343

Total Cost 3/ 5,810 6,020 6,090 6,090 24,010(Birr '000)

F.E. Component 41 1,162 1,204 1,218 1,218 4,802(Birr '000)

1/ The location and volume of construction has been agreed between IDA andthe borrower.

2/ 50% of volume sold.

3/ Birr 70 per MT of storage space, at constant 1976 prices.

4/ 20%.

January 21,1977

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

AMC Tnvestment in VehLJeLs ,Office and Storage EquipmentBirr '000

Year 1 (1977/78) Year 2 (1978/79) Year 3 (1979i80) Year 4 (1980/81)Storage Office Storage Office Storage Office Storage Office

Branch Office Vehicles Equipment Equipment Vehicles Equipment Equipment Vehicles Equipment Equipment Vehicles Equipment Equipment

Soddo 3 3Asmara 55 72 27Combolcha 3 3 4Dessie 40 10 15 28Adowa 3 3 4Mekele 25 16 16Gondar 3 3 4Bahar Dar 3 1 3 2 1Debre Markos - 15 3 40 1 13Ghimbie 3 3 4Lekemptie 163 3 4JijigaMetu 3 3 3Dire Dawa 25 37 13 15Jimma 4o 16 13Addis Ababa 58 go 44 1 2 7 2Debre Zeit 25 5 10 1 1Shashamane 40 76 30 3 3Nazareth 43 81 34 4 4 3 1

Sub-total 346 398 212 40 4 15 68 92 39 18 13 7

Read Office 1,056 - 464 1,175 - - 1,175 - - - - -

Total 1,402 398 676 1,215 4 15 1,243 92 39 18 13 7

January 21, 1977

u, CO

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

AMC Summary of Investment Vehitles and Equipment(Birr 'OOO)

Year 1 Year 2 Year 3 Year 4 Foreign ForeignBranch Office (1977/78) (1978/79) (1979/80) (1980/81) Total Exchange Exchange

A % ~~~~~~~~~~~~Tortal

Soddo - - 10 10

Asmara 154 - - 154

Combolcha 10 - - _ 10

Dessie 65 - 28 - 93

Adowa 10 - - 10

Mekele 57 - - 57

Gondar 10 - - - 10

&&akr Dar 7 3 _ - 10

Debre Markos 18 54 - - 72

Ghimbie 10 - - - 10

Lekemptie - 69 - 69

Metu 9 _- - 9

Jijiga - - - 10 10

Dire Dawa - 75 15 9O

Jimma 69 - - - 69

Addis Ababa 192 - 3 9 204

Debre Zeit 4O 2 - - 42

Shashamane 146 - 6 _ 152

Nazareth 158 - __

Subtotal 955 59 199 38 1,251

Head Office 3 -52 _ 1.175 1.175 - 3870 _o__

Total 2,475 1,234 1,374 38 5,121 75 3,844

January 21, 1977

!iR

ANNEX 8Table 7

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

List of AMC Equipment

Unit Number TotalType of Equipment Cost 1977/78 1978/79 1979/80 1980/81 Cost

Birr '000 Birr '000

A. Veh-:cles

Trucks 6 ton 50 5 5 5 - 750

10 ton 75 5 10 10 - 1,875

Trailers 10 ton 35 5 5 5 - 525

Pick-up 25 8 1 2 - 275

Passenger Car 15 18 1 2 - 315

T:otor cycles 3 11 - 1 1 39

Bicycles 0.2 13 - 3 1 3.4

"obile workshop 100 1 100Total 3,882

B. Storage equipment

Platform scale 1 46 1 10 2 59

Quality contr. & 1.5 6 1 1 1 13.5fumigation

"I 6 4 - 2 - 36

6.5 4 - - - 26

Weigh bridge 24 4 - - - 96

Mechanical cleaner 5.4 3 - 1 - 21.6

24 4 - 2 - 144

Conveyor belts 1.8 12 - 1 3 2°.8

Sack carrier 0.3 33 - 10 8 15.3

Miscellaneous 71

Total 511

C. Office equipment Total 737

January 21, 1977

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

AMC Operating Costs (Birr '000)

Year 1, 1977/78) Year 2 (1978/79 Year 3 (1979/80) Year 4 (1980/81)Brsnch Office Salaries Other Total Salaries Other Total Salaries Other Total Salaries Other Total

Soddo - - - - - - 21 30 51 21 31 52Asmara 105 412 517 105 404 509 114 404 518 114 344 458Conbolcha 21 24 45 21 29 50 23 22 45 23 24 47Dessie 62 130 192 62 92 154 67 94 161 67 94 161Adowa 19 18 37 19 19 38 23 22 45 23 25 48Mekele 56 50 106 56 61 117 6o 64 124 60 67 327Gondar 21 51 72 21 50 71 23 50 73 23 31 54Bahar Dar 18 15 33 21 23 44 23 25 48 23 30 53Debre Marcos 15 18 33 62 71 133 63 72 135 67 75 142Ghizbie 21 24 45 21 24 45 23 24 47 23 24 47Lekepte - - - - - - 62 77 139 62 82 144Jijiga - - - - - - - - - 19 31 50Metu 13 12 25 13 12 25 15 32 27 15 12 27Dire Dawa - - - - - 62 83 145 62 89 151Jima. 62 76 138 62 79 141 67 88 155 67 91 157Addis Ababa 183 499 682 184 531 715 205 542 747 213 592 805Debre Zeit 53 103 154 59 107 166 63 .11 174 64 100 164Shashasane 117 301 418 117 336 453 139 334 473 139 354 493Nazareth 156 708 864 156 601 757 183 543 726 185 541 726Head Office 1,189 927 2,u16 1,189 903 2,090 1,276 765 2,041 1,276 769 2,045

Sub-total 2,111 3,366 5,477 2,168 3,340 5,508 2,512 3,362 5,874 2,546 3,406 5,952Technical Assistance: 7 key posts 728 - 728 728 - 728 728 - 728 728 _ 728Other 1/00 - 300 100 - 100 3.00 - 100 lO00 . . 100

Total 2,961 3,366 6,327 3,018 3,340 6,358 3,362 3,362 6,724 3,396 3,406 6,802

/ Training, coneUltancy for training, systems planning, etc.

January 21, 19977.

ANNEX 8Table 9

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

AMC Staff Requirements (1980/81)

High Level Middle Level Supporting Staff TotalStaff Staff

A. Branch Offices:

Soddo - 3 6 9Asmara 2 8 16 26Ccymbolcha - 2 6 8Dessie 1 5 8 14Adowa - 2 6 8Mekele 1 5 9 15Gondar - 2 6 8Bahar Dar - 2 6 8Debre Markos 1 5 10 16Ghimbie - 2 6 8Lekemptie 1 5 10 16Jij iga - 2 4 6Metu - 1 6 7Dire Dawa 1 5 10 16Jimma 1 5 10 16Addis Ababa 3 16 40 59Debre Zeit 1 5 12 18Shashamanne 2 12 20 34Nazareth 2 16 35 53

Subtotal 16 103 226 345

B. Head Office:

Management & Spec. Sections 6 13 7 26Administrative Dept. 3 4 8 15Technical Department 4 3 7 14Transport Department 3 4 85 92Commercial Department 6 5 16 27Accounts Department 4 6 42 52

Subtotal 26 35 165 2261/

Total Requirement 42 138 391 571

C. Transfers:

From: EGC 9 22 78 109AIMS 7 8 21 36ECODD 4 2 40 46

Subtotal 20 32 139 1911/

Total new recruitment 22 106 252 380

1/ Of which seven key posts are funded under the project.

January 21, 1977.

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

AMC Procurement and handling charges (after deduction of subsidies)

1977/718 197/79 19Y9/8u 1990/HiQuantity Value Quantity Value Quantity Value Quantity Value Rema.rksMT'OOO Birr '000 MTIGOO Birr OOO MT'OOO Birr'000 MT'OOO Birr'OO0

A. Procurement of produce

FrmECODD& AMC 110 0,300 180 41,400 245 56,350 300 69,000 Producer prices based on upper price limit Birr 230

State farms 50 12,750 60 15,300 75 19,125 100 25,500 '" " " Birr 255

Imports 100 21,100 100 21,100 100 21,100 100 21,100 Cif price B;rr 350 minus subsidy Birr 139.

B. Procuremert of inputs

Fertilizers 72 18,o0o 86 21,500 104 26,ooo 124 31,000 Cif price Birr 500 minus subsidy Birr 250.Other 6 5,123 9 7,152 10 9,427 13 11,150 80% of sales value Annex 2.

C. Handling Costs

Produce buying ECODD & AMC 110 7,150 180 11,700 245 15,925 300 19,500 Birr 65 Annex 4, Para. 20State farms 50 2,000 60 2,400 75 3,000 100 4,ooo Bir, *0 Annex 4, Para. 21

Imports 100 14,500 100 14,5QD 100 14,500 100 14,500 Birr 145 Annex 4, Para. 22

Retailing 74 1,628 79 1 738 88 1,936 93 2,o46 Birr 22 Annex 4, Para. 23Seasonal storage 88- 6,336 116 .. 8,352 143 10,296 170 12,240 Ama-S inventory 34% x Birr 72; Annex 4

- 1:70 - .. - ~~~~~~~~~~~~Para,, 24

Inputs 78 15,210 95 18,525 114 22,230 137 26,715 Birr 195 Annex 4, Para. 27

Total 129,097 163,667 199,889 236,751

Of which inputs 38,333 47,177 57,657 68,865

produce 90,764 116,490 142,232 167,886

Jenuary 21, 1977

ETHIOPIA ANNEX 8GRAIN STORAGE AND MARKETING PROJECT Table 11

AMC.Estimate of seasonal variation in valueof inventory (= working capital requirements)

1980/81

Inputs ProduceMonth % of total Birr % of total Birr Total

value 1/ Million value 2/ Million Birr Million

July 20 13.8 35 58.8 72.6

August 10 6.9 27 45.4 52.3

September 10 6.9 19 31.9 38.8

October 10 6.9 10 16.8 23.7

November 20 13.8 10 16.8 30.6

December 30 20.7 10 16.8 37.5

January 40 27.6 30 50.4 78.0

February 50 34.5 50 84.0 118.5

March 50 34.5 60 100.8 135.3

April 50 34.5 60 100.8 135.3

May 40 27.6 52 87.4 115.0

June 30 20.7 44 73.9 94.6

Average 30 20.7 34 57.1 77.8

1/ 69 million (Table 10).

2/ 166 million (Table 10).

December 15, 1976.

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

AMC INCOME STATEMENT PROJECTIONS IN CONSTANT PRICESrr 000 _ _1977/78 1978/79 1979/80 1980/81Quantity Value Quantity Value Quantity Value Quantity Value Remarks_______ _______ ('T 000; ) (MT 000's) (MT-000's) (MT 000's)

REVENUE

Sales of grain 254 81,026 332 105,908 41 131,747 491 156,629 Unit price Birr 319 per MT.Sales of fertilizers 67 29,748 81.8 36,319 98.6 43,778 118 52,392 Unit price Birr 444 per MT.Sales of other inputs 6 7,614 8.1 10,279 9.7 12X 300 12.1 15,354 Unit price Birr 1269 per MT.

Sub-total 118,388 152,506 187,825 224,375VARIABLE COSTS

Grains 254 76,844 332 99,460 413 122,560 491 144,728.ertilizer 67 26,398 81.8 32,229 98.6 38,848 118 46,492Other inputs __ 6_ 5,846 8.1 8,456 9.7 10,127 12.1 12,632Sub-total 109,088 140,145 171,535 203,852

Variable Margin 9,300 12,361 16,290 20,523(As percentage of revenue) 7.9 8.1 8.7 9.1

1ON-VARIABLE COSTS

Operating costs 6,327 6,358 6,724 6,802 Table 7.Depreciation 1,086 1,355 1,618 1,720 3% on civil works, 10% on equipment.

Less: recovery of, TA costs _850 850 850 850

Sub-total 6,563 6,863 7,392 7,672Operating Margins 2,737 5,948 8,698 12,851(As percentage of revenue) 2.3 3.9 4.6 5.7

1,934 2,754 3,758 4,782INTEREST

Net income 803 3,194 4,94a 8,069(As percentage of revenue) 0.7 2.1 2.6 3.6Transfer to Government 723 2,875 4,446 7,262 90%Transfer to reserve fund 80 319 494 807

00

N3o

ANNEX 8ETHIOPIA Table 13

GRAIN STORAGE AND MARKETING PROJECT

AMC Cash Flow Projection in Constant Prices(Birr 000's)

1977/78 1978/79 1979/80 1980/81

CASH INFLOW

Equity 26,474 8,339 8,213 6,470Revenue from operations 118,388 152,506 187,825 224,375Government subsidies: grain imports 13,900 13,900 13,900 13,900

Fertilizer imports 18,000 21,500 26,000 31,000Recovery of TA costs 850 850 850 850

Total cash inflow 177,612 197,095 236,798 276,595

CASH OUTFLOWT

Capital investments 9,474 8,339 8,213 6,470Furchase of grains - direct & ECODD 25,300 41,400 56,350 69,000

- state farms 12,750 15,300 19,125 25,500- import 35,000 35,000 35,000 35,000

Purchase of fertilizers 36,000 43,000 52,000 62,000Purchase of other inputs 5,400 8,100 9,000 11,700ECODD commission on grain purchase 2,750 4,500 6,125 7,500Handling costs: local grain 4,720 7,080 9,440 11,800

imported grain 12,400 12,400 12,400 12,400fertilizers 10,368 12,384 14,976 17,856other inputs 864 1,296 1,440 1,872

AIC Operating Costs 6,327 6,358 6,724 6,802Trar.sfer to Government 723 2,875 4,446 7,262Interest payments 1,934 2,754 3,758 4,762Loan repayment 6,000 - - -

Total cash outflow 170,010 200,786 238,997 279,924

SURPLUS/ (DEFICIT) 7,602 (3,691) (2,199) (3,329)

Opening cash balance 5,309 12,911 9,220 7,021

CUMULATIVE SURPLUS/(DEFICIT) 12,911 9,220 7,021 (3,692)

January 28th, 1977

ANNEX 8ETHIOPIA Table 14

GRAIN STORAGE AND MARKETING PROJECT

AMC Balance Sheet Projection in Constant Prices(Birr 000's)

1976/77 1977/78 1978/79 1979/80 1980/81

ASSETS

Fixed Assets 12,300 21,774 30,113 38,326 44,796less depreciation - 1,086 2,441 4,059 5,776

Sub-total 12,300 20,688 27,672 34,267 39,020

Current AssetsStocks

Grain 5,690 7,866 10,186 12,166 14,738Fertilizer 6,540 8,510 10,165 12,293 14,657

Other inputs 1,461 1,879 2,819 3,132 4,072

Sub-total 13,691 18,255 23,170 27,591 33,467

Bank and cash balance 5,309 12,911 9,220 7,021 (3,692)

Sub-total 19,000 31,166 32,390 34,612 37,159

less Transfers to Government - 723 2,875 4,446 7,262

less Short-term loans payable 6,000 - - - -

Net working capital 13,0oo 30,443 29,515 30,166 29,897

Net assets 25,300 51,131 57,187 64,433 68,917

NET WORTH

AMC Equity 25,300 50,951 56,868 63,939 68,110

Income from operations - 803 3,194 4,940 8,069

less Transfer to rovernment - (723) (2,875) (4,446) (7,262)

Sub-total - 80 319 494 807

Total Net Worth 25,300 51,131 57,187 64,433 68,917

January 21, 1977

ANNEX 8ETHIOPIA Table 15

GRAIN STORAGE AND MARKETING PROJECT

Projected Build-up of AMC Issued Equity in Current Prices(Birr 000's)

1976/77 1977/78 1978/79 1979/80 1980/81

A. Buildings

Balance 5,700 16,308 25,044 34,432Construction 6,135 6,345 6,090 6,090Physical Contingencies 1/ 614 635 609 609Price Contingencies 2/ 859 1,756 2,689 3,734

Carried forward 5,700 13,308 22,044 31,432 41,865

B. Equipment

Balance 6,600 9,573 11,164 13,067Procurement 2,477 1,235 1,376 37Physical Contingencies 1/ 248 124 138 4Price Contingencies 2/ 248 232 389 14

Carried forward 6,600 9,573 11,164 13,067 13,122

C. Permanent Trading Capital

Balance 13 000 30,000 30,000 30,000Increase 17 000 - - -

Carried forward 13 ,000 30 ,000 30 ,000 30 ,000 30,000

TOTAL EQUITY 23,300 5)2,881 63,208 74,499 84,932

1' Physical contingencies at 10%.

2/ Price contingencies (%) on both local and foreign costs

1976 -_977 _1978 1979 1980 1981

Civil Works 13 12 12 12 10 10

Equipment 9 8 8 8 7

January 21, 1977.

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

Agricultural Marketing Corporation - Functional Organization

Minister of Agriculture

Board of Directors:Chairman (Minister of Agriculture)Head of ECODDCHM, EGARepresentative of Ministry of InteriorRepresentative of NBEGeneral Manager AMC

General Manager AMCDeputy General Manager

PlanniAg and PrAgnrammintg eaeentional Depent: C Legal SectionD

Budget andAccounting,mfinanci ngCoronstruction,lnes m aintenac- anLAsebenrieanoratonOertineftrckfle

larly storage construction program, utilising back- Lease, purchase and sales contractsground material supplied by EGA'xs market intelligenceDepartment .Internal performPnce evaluation

Supervision of branches .qualAudit

Adm. and Accounts Departments: Technical Department: Comme Bcial Department: Transport Department:Budget aznd Accounting, financing Construction, maintenance and Assemble price information Operation of truck fleet(working cap. ) reBting of stores Pricing Assistance to branchesCashiers office Stock management (pest control, Sales strategy inTl. movemerit of Tendering for transportsPersonnel turn over,separation of grades stocks between brancbes and retailingA supervision.fProcurement and varieties ) Exports and imports Maintenance of vehiclesImport/Export documentation Procurement of domestic inputsShipping etc. (e.g. seed). Delivery plans forinputs and imports.Supervision of branches incl. qualityprescriptions and control.

Branch offices: Branch Advisory CommitteesBuying and selling/ Representative of producersTransport within region and consumers.

_ _ __________________________Annual review of Branch perfor-mance aLnd plans

DeT Te rar retail outlets |

December 15, 1976. n |mc

ANNEX 9Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

MARKETING REGULATION AND IMPROVEMENT

A. Changes in the Marketing Structure

1. An analysis of the existing marketing structure and its performancewas presented in Annex 1, and the grain marketing policy of the Ethiopian Gov-ernment was outlined in Annex 3. Commercially marketed production is expectedto increase from about 700,000 MT in 1975/76 to over 1.1 million MT in 1980/81.At the end of the Project period private trade would still handle over 50% ofthe commercially marketed grain production and outside the selected MPP areasit would provide the sole channel for the marketing of peasant production.It is thus of considerable importance to promote efficient performance inthe private sector. Under the Project a start would be made in this processby the strengthening of the regulation of the private trade and the progressiveimplementation of improved standards, together with the initiation of a programof market infrastructure improvement, as detailed in sections C and D below.It would also be necessary to ensure that private traders have access to longterm credit for investment in storage improvements and to bank credit forworking capital.

B. Wholesale Trade Regulation

2. Regulation of the wholesale trade is to ensure that the operationsof the private wholesaler conform to Government policy and complement theactivities of AMC. From the point of view of AMC, it would be essential forit to have regular and reliable information as to the operations of privatewholesalers at the major trading centers so as to plan its stock movementsand selling policy.

3. There will be a need for careful definition of the term "wholesaler"although those previously acting as major stockists on terminal markets arerelatively few and well-known. In general terms, a wholesaler may be definedas one whose trading operations involve stockholding for sale later in theseason and/or in another province, and whose resources and scale of operationsexceed limits prescribed by the licensing authority. Quantitative limits,which may well vary from one terminal market to another, will be necessaryin order to focus attention on major operators and to avoid overburdeningthe licensing authority, particularly in the early stages of operation of thesystem. As an indication, the minimum storage limit for a registered whole-saler is likely to be in the range 500 - 1,000 tons. AMC, cooperative socie-ties and development project marketing units (e.g., the marketing divisionof the Chilalo Agricultural Development Unit - CADU) would also be subjectto licensing.

ANNEX 9Page 2

4. This licensing of wholesalers would be the responsibility of theEthiopian Grain Agency (EGA) which already undertakes similar functions inrelation to private exporters. EGA would consult the relevant local authori-ties before deciding on applications. The main conditions applying to theissue of licenses to wholesalers would be: -

(a) that they possess the necessary resources (financing, storageand staff);

(b) that they undertake to maintain records of purchases, sales,movements and stocks of grain in a manner to be prescribed byEGA and to submit regular reports based on these records toEGA;

(c) that they utilize for their stockholding operations onlystores which have been licensed by EGA and in which specifiedminimum standards of storage hygiene and pest control areobserved. Each licensed store will be required to display itslicence and contain a store register of stocks and stockmovements (in a form prescribed by EGA); and

(d) that they permit authorized officers of EGA to inspect theirstores and store registers at any time.

It is considered that the fees to be charged for wholesalers and store licensesshould be fixed at a nominal level and that licences would need to be renewedannually.

C. Intermediate Trade

5. Elsewhere in the marketing chain, licensing by function appears tobe neither feasible nor fruitful, and the best approach would be to buildon and improve the existing local licensing system of local authorities(involving some 4-8,000 traders in urban markets: Annex 1) by:

(a) giving to EGA overall powers to regulate and supervise theactivities of these local authorities with respect tomarketing of grain, oilseeds and pulses:

(b) linking the implementation of these powers with the proposalsfor market infrastructure improvement (section D below);

(c) making the issue of a licence by a local authority conditionalon the maintenance of minimum rudimentary standards of storagehygiene and pest control, and subject to withdrawal ifmalpractice is proven. Here, EGA would act as a court ofappeal in cases where a local authority refused to issue orwithdrew a licence: and

ANNEX 9Page 3

(d) assisting local authorities in the provision and training oftheir enforcement officers.

6. Because of the variety of existing local quality and weight stand-ards (Annex 1) the best means for improvement lie not in any attempt toenforce prescribed standards throughout the country but in:

(a) the adoption of proper weights and rudimentary quality standardsbased on impurity content, both by the ECODD controlled alter-native marketing channel and by AMC in its operations; and

(b) the provision of weighing and cleaning facilities as part ofmarket infrastructure improvements. The efficacy of thisapproach has already been demonstrated at CADU.

7. According to past marketing studies, private traders outside theterminal markets had difficulty in gaining access to institutional credit tofinance both capital improvements (e.g., warehouses) and current operations.It has been agreed, therefore, that in the future the commercial banks (nownationalized) would give consideration to the reasonable credit needs oflicensed private traders also outside terminal markets. A trader obtaininga licence under the new system would have a prima facie mark of approval,and it is suggested that EGA should work out arrangements with the commercialbanks that would facilitate access to bank credit by licensed traders.

D. Market Infrastructure Improvement

8. The Ministry of Interior has adopted master plans for 80 of the210 municipalities and these plans provide for zoning and improvement ofurban markets. An interministerial committee, on which EGA is represented,exists to study the implementation of such market improvements but throughlack of funds, little progress has been made as yet. Some municipalauthorities however have attempted to improve market facilities (e.g., openstorage facilities are rented to traders for day-to-day operations at AddisAbaba).

9. The project would include provision for a "Market InfrastructureImprovement Fund" (MIIF) to be administered by the Market Improvement Section,of the new Internal Marketing Department of EGA. During the first phase,the main tasks of this section would be to:

(1) draw up a plan for utilizing the fund and determining prioritieswith reference to such factors as:

(a) present and likely future market throughputsz

(b) present condition of market facilities;

(c) other considerations, such as town plan imple-mentation operations.

ANNEX 9Page 4

(2) On the basis of this review, submit to the Board of Directorsof EGA proposals for selected markets, covering such items as:

(a) nature and cost of improvements, including:

(i) road access;

(ii) enclosing and paving of market area;

(iii) construction of stores for rent;

(iv) provision of general facilities, e.g., offices,shops, toilets, water, etc.

(v) provision of special facilities, e.g., scales,weighbridge, cleaners;

(vi) training of enforcement staff.

(b) financing arrangements, including participation by thelocal authority concerned and loan from the Market Infra-structure Improvement Fund.

(c) conditions attaching to the proposed MIIF contribution insuch matters as:

(i) market fees;

(ii) rents for stores;

(iii) loan repayment;

(iv) supervision of market operations;

(v) operation of public scales and cleaning facilities.

E. Institutional Considerations

10. EGA will have the primary responsibility for the implementation ofthe regulatory measures outlined in sections B and C above, as well as forthe market improvement program described in section D. To carry out thesetasks, a new "Internal Marketing Department" would be created within EGA.Details of the complete organizational, staffing, legal and financiai changesnecessary to enable EGA to implement the market regulation and improvementproposals, as well as the market intelligence and analysis operations (Annex10) for which it is to be responsible, are set out in Annex 12.

ANNEX 10Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

MARKET INTELLIGENCE AND ANALYSIS

A. Present Position (See also Annex 1)

(a) Production and Consumption

1. Ethiopia presently lacks a coordinated system for regularly esti-mating and reporting statistics on agricultural production 1/ and consumption.Both published and unpublished statistical information on food productionis largely based on calculated guesswork; and is likely to be of only limitedvalue to a national grain marketing organization. Updating of such informa-tion is rare and spasmodic. Where and when this has been done, it is usuallyin the form of projections, based largely on hypothetical, or assumed situa-tions. Consumption statistics are also unreliable. Food consumption surveysand nutritional case studies have been conducted, but the large variations inenvironmental conditions and dietary habits make it almost impossible toarrive at accurate, or even reasonably meaningful consumption aggregates.Again, updating of the sparse data available has been spasmodic and oftenbased on unverified assumptions.

(b) Price Statistics

2. Information on crop prices is being collected almost exclusivelyat the wholesale level and very little is known about actual producer andretail prices. 2/ Whatever price data are gathered are neither properlyanalysed nor disseminated. There is duplication of effort and no attempt ismade to resolve conflicting results. Some details of presently availabledata are presented below.

Producer Prices

3. Information on prices received by producers for grains, oilseedsand pulses is not being systematically collected. The major developmentprojects are monitoring some prices in their areas. CADU, for example, has

1/ The annual "Agricultural Sample Survey" of the Ministry ofAgriculture initiated in 1975 means an improvement in thisrespect, but the sample size needs to be expanded to allowdefinite conclusions.

2/ Most wholesale and retail prices are presently Government-controlled but the degree of enforcement of such prices isnot known.

ANNEX 10Page 2

kept records of its own purchasing and selling prices and, since 1969, hasbeen recording weekly market price quotations of traders in Chilalo. Specialsurveys or studies occasionally also include data on producer price. 1/ Butfor the vast majority of rural areas no statistics are being collected and,in most cases, not even "informed guesses" on farm gate prices and trader'smargins are possible.

Wholesale Prices

4. Three series of wholesale prices are compiled independently by theAgricultural Marketing Corporation (AMC), (and formerly by The EthiopianGrain Corporation, (EGC), the Ethiopian Grain Agency (EGA) and the NationalBank of Ethiopia (NBE). These price series are difficult to compare becauseof the two calendars used and usually differ on price quotations. 2/ Thedeviations in these prices are not consistent as to either direction ormagnitude and it is difficult to establish which of the series is the mostaccurate. Some of the reported price differentials are explained by thedifferent timing of census taking, i.e., time of day and day of month.While the data provide a fair indication of the overall level of wholesaleprices, they conceal frequent wide fluctuations within the reporting month.

Retail Prices

5. The only regular series on retail prices is compiled for Addis Abababy the Central Statistical Office. These prices are based on at least sixquotations from various parts of the town and are collected primarily forthe purpose of calculating the retail price index in Ethiopia. Selectedretail prices as well as index are published regularly. Retail prices inother markets are collected on an ad hoc basis only for purposes of specialstudies.

1/ Manig, Winfried, Marketing of Selected Agricultural Commodities in theBaco Area, Ethiopia, Cornel University, 1973.

Thodey, A.R., Marketing of Grain and Pulses in Ethiopia, Stanford ResearchInstitute, Report No. 16, 1969. Eubanks, Ken, Findings of a MarketStructure Survey and Analysis of those Grains that Provide the BasicSubsistence for the People of Ethiopia. Ministry of Agriculture, 1973.

2/ The following prices, for example, were reported for September, 1974:

Wholesale Prices, Addis AbabaEGC EGA NBE

(Birr per quintal)

White Teff 37.60 36.72 41.00White Wheat 26.17 30.40 26.75Barley 20.10 19.72 18.25Maize 17.19 18.80 17.87Sorghum 26.32 28.32 22.50Horse beans 23.19 23.68 23.00Chickpeas 27.52 28.42 27.50

ANNEX 10Page 3

Export - Import Prices

6. Price series on an f.o.b. basis do not exist. Averages may becalculated, however, from external, trade statistics published bq the CustomsOffice. The Ethiopian Grain Agencyalso has relevant information, as allexports of cereals, pulses and oilseeds are licensed and the licensing docu-ments specify contractual selling prices, but no summaries from these recordsare made. NBE produces separate series of prices of selected export andimport commodities, but these are Addis Ababa wholesale prices which areunadjusted for costs accruing inside Ethiopian borders.

7. To summarize, there exists at present unnecessary duplication inthe collection of wholesale prices, while at all other market levels informa-tion on prices is either highly inadequate or nonexistent. Whatever statis-tics on prices exist are unreliable, and not adequately analysed and publicized.Traders commonly distrust all sources indicated above and rely largely on theirown sources for information. For the trade, the reporting frequency alsois not sufficient, while for the producers terminal market prices are noteasily translatable into rural market or farm gate prices. Researchers findit difficult to establish price profiles by piecing together information fromvarious sources because of the many inconsistencies. As a result, the pricingperformance of the trade has never been sufficiently analysed and the pricestructure is not well known.

(c) Other Marketing Information

8. Statistics as to produce flows and inventories are presently lackingand "guesstimates" as to the extent to which provinces are surplus or deficitin each crop vary greatly. Lack of this basic information makes it difficultto plan market infrastructure improvement and storage investment. Informa-tion on transport costs on main highways is available in such organizationsas Ethiopian Highway Authority, National Transport Company, and the Ministryof Transport, but needs to be properly collated and supplemented by more detailas to transport costs on other roads, where information is presently lacking.A program for obtaining information on a continuing basis on costs for otherelements, such as storage losses, pest control, sacks, labor, interest rates,should also be instituted, so that trading margins at various stages in themarketing chain can be checked. The capacity, location and quality of storagefacilities are also inadequately known. 1/

B. Project Proposals

9. The proposals set out below have been designed with the followingmain aims in view: -

1/ See however Eubanks op. cit.

ANNEX 10Page 4

(i) to provide Government with a progressively improving factualbasis on which it can take major policy decisions, particularlyin such matters as price levels, imports, buffer stocking,subsidies (on both imported grain and fertilizers) as indicatedin Annex 4;

(ii) to give AMC the necessary information as to price movements,stocks and produce flows to enable it to plan its operations;

(iii) to provide AMC with necessary information to determine thelocation and size of new storage facilities;

(iv) to provide EGA with information on which to formulate aprogram for the utilization of the Market InfrastructureImprovement Fund (Annex 9);

(v) to permit long-term planning particularly in preparation forfollow up to the Project when the emphasis is likely to beon buffer stocking operations: and

(vi) to achieve these aims by avoiding duplication of effort, bydefining specific areas of responsibility for both data collec-tion and its coordination and analysis. In this way, monitoringand evaluation of the Project as a whole would be built-in.

10. The main responsibility for bringing together all marketing informa-tion and data and for analysing it will be vested in the Ethiopian Grain Agency(EGA). For this purpose, withinEGA a new "Market Intelligence Department"will be established and the principal functions of this Department and itsrelationship with agencies operating in the same field are outlined below.

(a) Data Collection

11. Crop Forecasting is a responsibility of the Ministry of Agricultureand Settleuent and ln Annex 11 are set out details of how under the Projectthe present service would be strengthened. The Marketing Intelligence Departs-ment would maintain close liaison with MOA's crop reporting service andreceive crop reports as soon as they are compiled and in advance of theirgeneral publication and distribution.

12. Wholesale Market Prices. AMC would be made responsible for thecompilation of the official wholesale price series at the main terminal markets(branches) as it needs this information as a basis for its day-to-day opera-tions. AMC would pass this information on to EGA's Market IntelligenceDepartment in an agreed form and at agreed intervals. EGA would cease itspresent compilation of wholesale price data.

13. At lesser wholesale markets where AMC is not represented, localauthorities would be encouraged by EGA to compile price statistics on a uni-form basis as to frequency and coverage, which EGA's Market IntelligenceDepartment would collate.

ANNEX 10Page 5

14. Producer Prices. As a first step towards the collection of producerprices on a continuing basis, ECODD will collect primary market pricedata and make these available to EGA. The experience gained at the ChilaloAgricultural Development Unit (CADU) in compiling such primary market priceseries will be utilized in developing an appropriate methodology.

150 Retail Prices. Responsibility for the collection of retail pricestatistics would continue to rest with the Central Statistical Office (CSO).EGA and CSO would consult to improve and extend the present coverage.

16. Export - Import Prices. EGA's Market Intelligence Department willcommence the compilation of f.o.b. or c,i.f. price series for export andimport commodities calculated on an average basis from external trade statis-tics published by the Customs Office, supplemented by information from AMCexperience and contract prices for exports of cereals, pulses and oilseedsobtained from EGA's licensing documents. World market price information andfreight statistics would also continue to be recorded by EGA. Internalmarketing costs for exports and imports would be collected to permit thecalculation of export and import parity prices.

17. Grain Trade. Returns made by major wholesalers licensed by EGA underthe market regulation and improvement measures set out in Annex 9 will servetwo major purposes, viz.

(a) They would provide information, at present lacking, on theamount of grain moving in commercial channels, the spatialdistribution of supply and demand and thus produce flows andavailable storage facilities. Such information will improvethe basis for planning new storage facilities.

(b) They would provide information about variations in purchasesand stocks at a particular location which together with priceinformation may alert AMC to the necessity of interregionaltransfers.

18. As the influence of EGA over local market authorities increases,uniform systems of reporting traders' activities in these markets would beinstituted and the Market Intelligence Department would collate such returnswhich would eventually supplement the information on stock movements inmajor centers (para. 17).

19. Other Marketing Information. The Marketing Intelligence Departmentwould be responsible for collating and supplementing information on transportcosts on a continuing basis. It would also institute a program for gatheringinformation at regular intervals on other marketing cost elements, such asstorage construction and operation, pest control, sacks, labor, interest rates,

etc., so that trading margins at various stages in the marketing chain eventual-ly can be monitored.

ANNEX 10Page 6

(b) Market Research

20. As a basis for longer term policy, it would be necessary to makesupply/demand analysis and projections. On the demand side, existing material 1/on such subjects as population growth, income distribution, the rate of urbani-zation, living standards, nutritional programs and consumption pattern changeswould need to be collated. As regards supply, production changes (particularlyin the immediate future those caused by the land reform measures); producerincentives, comparative advantage and response to demand/price changes wouldneed to be studied. 2/ It would also be necessary to take world market trendsinto account, especially through the calculation of parity analyses; and tomonitor, on a continuing basis, world commodity prices. There will have tobe proper liaison, wherever this research overlaps with similar studies beingundertaken in other institutions, such as the Planning Commission and theEconomic Commission for Africa.

21. The main aims of the market research would be to assist in generalwith longer-term planning of the marketing development programs, and, inparticular:

(a) to provide a basis for assessing priorities in theimplementation of the Market Infrastructure ImprovementFund (Annex 9);

(b) to make an economic evaluation of project performanceunder the Project. Key variables would be:

Mi) Seasonal price variation in producer, wholesale andretail prices,

(ii) Year to year price variation,

(iii) Producer incentives for use of recommended inputs,

(iv) Marketing margins in private and public trade,

(v) Volume of grain handled by AMC,

1/ Such basic material is unfortunately woefully deficient, but it wouldbe beyond the scope of the Project to remedy this (e.g. to conduct apopulation census); close cooperation on these aspects would have to besought from such organizations as the Central Statistical Office.

2/ Crop sampling surveys are instituted by CADU and ECODD offer the best meansof improving yield statistics, and will need to be supplemented by similarstudies to progressively improve production statistics (see "Crop Fore-casting" - Annex 11) and should be designed also to monitor changes incultivation patterns.

ANNEX 10Page 7

(vi) Marketing practices in public and private trade,

(vii) Availability of inputs at the right time and place,

(viii) AMC's economic results;

(c) to provide the economic background for the preparationof proposals for a follow-up Phase. Under the assump-tion that Ethiopia will have regained self-sufficiencyin grain production by 1985, a major objective of anysuch follow-up Phase is likely to be the operation ofa buffer stocking program to even out productionvariations, which would involve special storage needs;and

(d) to supply analyses of changing demand patterns, bothinternal and external, which can be utilized in theestablishment of agricultural production priorities.

(c) Market Analysis

22. For short term purposes, emphasis should be on the provision ofimproved and better analyzed factual material, on which Government marketingpolicy in each crop year can be based. Against the background of longer-termtrends as forecast by market research (see above) and improved crop forecasts,the data collected should be interpreted both before and during the crop year,to assess the need for imports (to meet a production deficit) or for exportsor buffer stocking (after a "good" harvest), and for the correction of regionalsupply/demand imbalances. In the case of pulses and oilseeds, the analysiswould also need to concentrate on overseas market prospects and price trends,since these are determining factors in internal price formation and thereforein the allocation of total production between domestic marketed productionand exports. In addition, there should be timely and frequent publication ofthe improved market information in forms designed to serve both traders andproducers.

C. Organizational Considerations

23. The combination of market intelligence functions in the institution(EGA) also responsible for market regulation and supervision has considerableadvantages. EGA's relation with market authorities (municipalities), super-vision of their licensing activities and the assistance to be given to themin making market infrastructure improvements (Annex 9), should facilitatedata collection. In turn, feed-back from the Market Research, Intelligenceand Analysis Department, would assist in the proper planning of disbursementsfrom the Market Infrastructure Improvement Fund.

ANNEX 10Page 8

24. To carry out the functions outlined above, a new "Marketing Intelli-gence Department" would be established within EGA. Details of the completeorganizational, staffing, legal and financial changes necessary to equip EGBto carry out these marketing intelligence functions, as well as its new res-ponsibilities for market regulation and improvement (Annex 9) are set out inAnnex 12.

ANNEX 11Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

CROP FORECASTING

Background

1. Crop forecasting, an essential prerequisite for the success of any

proposed Government market interve.ntion, has been attempted in the past by

a number of different agencies -- often resulting in considerable duplication

of effort. The results frequenLtly have been of doubtful validity, because

of the underlying difficulties facing crop forecasting in Ethiopia, which

include:

(a) the paucity of reliable basic data as to population, land

holdings, cropping components, production, etc.;

(b) the fact that produc:tion has been largely in the hands of

a very large number of small subsistence-type farmers;

(c) the weakness of the administrative machine, particularly

at field level; and

(d) the existence of viuTnerous microclimatic zones, so that

areas of localized cirop failure can occur when productionelsewhere is normal,, as happened during the recent

famine in Wollo End Tigre provinces.

2. Under Ethiopian conditions, the objectives o' any crop forecasting

syste_m should be:

(a) to provide rqltab le information on which Government can planits marketing pol icy before and during a crcop season9 e.g.,

to arrange for imtports if a crop deficit is forecast or to

make plans for bu ffer stockiTg in the case cf a bumper crop;and

(b) to act as an "earKty warning system" of localized crop failures,permitting relief. measures to be planned and implemented in time.

The Present PositiQn

3. Since 1971/72, th4 Agricultgral Statistics DivFision of the Planning

and Programming Department (-f the Ministry of Agriculture has attempted to

build up a crop report-ing s' ratem bgsed on the appointment of members of the

local administration staff i is Woreda (i.e., sub-district:) reporting officers.

ANNEX 11Page 2

With superv,sion from Addis Ababa, the survey covered about one third (131out of total of 431) of all woredas but these included the more importantproducing areas. Reports took the form of subjective judgements of totalcrop production expressed in such terms as: "above average", "average""below at/erage" and "substantially below average", where "average" remainedunquanti,fied.

4. In 1971/72 (E.C. 1964), reports were based on one preharvest visitby mobile teams sent from Addis Ababa. In 1972/73, reports were preparedat three stages, corresponding to the germination, maturity and harvestperic,ds. Rudimentary as this sytem was, it did identify critical areas inTigre and Wollo provinces, and in view of this, a special assessment of the197'3 "belg" or small rains crop was made, in which particular attention waspal-d to rainfall data as an indicator of crop performance, and this confirmedthe emergence of famine conditions.

5e. The following conclusion was reached in the report entitled "Apolicy and action plan for strengthening national food security in Ethiopia." 1/"It appears from the above information that although the embryo crop report-ing system was quite capable of providing timely varning of serious cropfailures, it had not been built into any officia:l:Ly recognized system forregularly assessing the country's state of food atnd agriculture. Action wasnot taken on the early warning provided by the crop report of adverse weatherconditions and indeed was delayed until the seriottsness of the situationbecame apparent by the appearance of starving people and dead animals."

6. Within the Relief and Rehabilitation Coiimission (RRC), a centrehas been set up for the collection and analysis of field reports from allother sources, together with available meteorologic&Ll data. Whenever thisexamination suggests that crop failure conditions are appearing, specialreconnaissance teams are t', be sent to investigate the situation in thearea(s) concerned.

7. As part of the internal evaluation of the programmes of theExtension and Cooperativ! Development Department (EUCODD) of the Ministry ofAgriculture and Settlemenit, crop sampling surveys hare been instituted inMinimum Package Programmet areas. In 1973/74, sampl es were collected from26 of these areas and 14 Demonstration Areas (i.e., virtually all of ECODDfield areas in 1973), by ECODD marketing assistants under a scheme preparedand supervised by ECODD Headquarters. Improvements in the methodology usedin these crop sampling sturveys and in the interpret.sLtion of their results arecurrently under examinationr at ECODD Headquarters flcir incorporation in future

surveys. Although primarily designed to show the Etffects of the use offertilizer, the results Df these surveys provide sw3me useful data on averageyields by crop and district which over time would ;allow more precise forecasts

1/ FAo Report ES C/FSIP/ETH, November 1974.

ANNEX 11Page 3

of production. With some training the survey staff could be utilized (seepara. 11C) to provide crop forecasts for the areas concerned, without prejudiceto their primary duties.

8. Rural Sample Surveys conducted by the Central Statistical Officesince 1963, have produced estimates of the areas under vaious crops, pri-marily in the small scale farming sector, in the provinces surveyed. Coupledwith yield estimates suggested by the Institute of Agricultural Research,these results have been used to supply the production figures used in thenational accounts. 1/

Future Needs

9. A technical working group, on which were represented the CivilAviation Administration (Meteorogological Service), the Ministry of Agri-culture and Settlement (ECODD and PPD), the Livestock and Meat Board, theCentral Statistical Office and Ministry of Education, prepared a report,dated June 2, 1975, on "Data Collection related to factors affecting foodproduction and human nutrition in Ethiopia". The report proposes the esta-blishment of a regular reporting system of major parameters affecting foodproduction with a view to predicting areas of food deficit and surplus. Aspart of this "Consolidated Food and Nutrition Information System (CFNIS)",the Ministry of Agriculture would extend the coverage of its present cropreporting service but, as of July, 1975, no additional budgetary resourceshad been allocated to implement this proposal.

10. Although the emphasis in these proposals is on information on whichrelief operations can be based, there is an equally urgent need to improveand strengthen the crop reporting system, thereby permitting the Governmentto make soundly based decisions on marketing policy (Annex 4) and assistingthe Agricultural Marketing Corporation (AMC) in executing that policy. Theproject proposals outlined below have been framed with both objectives inview.

Project Proposals

11. The project proposals may be summarized as follows:

(a) the existing unit within the Agricultural Statistics Divisionof the Ministry of Agriculture and Settlement which is atpresent responsible for crop reporting should be put on apermanent basis under the title of "Crop Information Unit". 2/

1/ In 1975 the Ministry of Agriculture initiated an annual "AgriculturalSample Survey" with yield estimates based on crop cuttings.

2/ Established in February 1976.

ANNEX 11Page 4

(b) this Crop Information Unit should cease to rely on mobile reportingteams and instead operate through trained local reporters asindicated in (c) and (d) below.

(c) In ECODD areas, staff responsible for crop sampling should,with additional training, be made responsible for makingregular crop reports which would be fed back to the CropInformation Unit.

(d) outside ECODD areas, reporters would be selected and trainedto make crop reports at specified intervals. These reportswould be summarized and transmitted as quickly as possibleto the Crop Information Unit at Addis Ababa by MoA provincialoffices.

(e) crop reports from both ECODD and non-ECODD areas should be ona uniform basis and should be made at specified intervals, notless than three times corresponding to sowing, germinationand maturing periods of the crops concerned.

(f) in addition to these crop reports, the Crop Information Unitwould collect relevant data (e.g., meteorological information)from other sources.

12. The main responsibilities of the Crop Information Unit will be:

(a) to collate these crop reports;

(b) to produce interim summaries as soon as possible and topass them to:

(i) the new Market Intelligence Department of EGA(Annex 10) so that they can be included in the reviewson which Government will make decisions on marketingpolicy;

(ii) AMC to assist it in planning its operations to implementGovernment's marketing policy; and

(iii) the Relief and Rehabilitation Commission to enable it toinvestigate further any indications of incipient cropfailure in particular areas.

(c) to publish eventually a series of crop reports.

ANNEX 11Page 5

13. To carry out these tasks the Crop Information Unit would need tobe strengthened by the provision of:

(a) an internationally recognized expert to act as head of the CropInformation Unit for three years. During this period he wouldbe required to:

(i) design and institute improved crop reporting procedures;

(ii) devise training schemes for crop reporters in both ECODDand non-ECODD areas and assist in their implementation;

(iii) establish appropriate transmission channels;

(iv) prepare and install proper collating and publicationprocedures at Crop Information Unit Headquarters; and

(v) train his Ethiopian deputy who could take over from him atthe end of his assignment;

(b) vehicles to supervise the data collection;

(c) additional office equipment and Headquarters for the summarizingand analysis of field reports;

(d) training facilities for all crop reporting field staff; and

(e) funds to employ local reporters in non-ECODD areas.

14. The Project would also fund a study to explore the possibilitiesof using remote sensing techniques utilizing earth satellite images forcrop forecasting in Ethiopia. Ten areas with varying agro-ecological condi-tions and with information about yields and area cultivated would be selec-ted. Satellite images for two different years (preharvest season) would beanalyzed for each area in order to determine the possibilities of distinguish-ing changes in area devoted to grain cultivation, changes in area of specificgrain crops and changes in yields due to weather fluctuation and/or improvedcultivation practices.

15. The costs for the Crop Information Unit are itemized in Table 1.

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

Crop Information Unit

re ~~Unit 7118/1 Total Fr rr

Grade Cit 19i7/78 1978/79 19780 190r1Exch. Fxch.- ~~~gfrlr 1Brr_________________________ ( To t-~:L

A. CAPITAL COSTS

4wheel drive vehbcles 19,000 (2)38,000 _ - 38,000 75 22500

Calculators 1,750 (3) 5,250 _ _ _ 5,250 80 4,2(c

Typewriter (English) 3,000 3,000 _ _ _ 3,000 80 4,203

.(Amharic) 3,000 (2) 6,ooo _ _ _ 6,ooo 3O| 4800

Office furniture 2,.800 2,800 . _ _ _ 28o00 40 1,120_

Total -= = 5%Qg0 75 1 00l

B. OPERATING COSTS

(a) Salarles & Wages:

Chief of Unit Expa- .triat 100,000 100,000 100,000 100,000 - 300,000 75 225,000

Local Counterpart PS3 9,480 9,480 10,020! 10,020 39,0001 _ _

Typist CF9 (2)9,480 9,480 10,080i 10,080 39,120 - -

.~~~~~~~_ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ ._ __ _ __ _ _ I-,

Sub-total(a) 118,960 118,960 120,100 20,100 378,120 60 j 225,000

(b) Miscellaneous:

Training costsincl. transport I(i) ECODD staff Birr 30 (3 days I tD

@10.-) (350)10,500 _ (350)10,500 _ 21.0001 -- _

(ii) Non-ECODD staff Birr 30 (3 days@ 10.-) (500)15,000 - (500)15,000. - 30,000 - I -

December 15, 1976. 1 1

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

Crop Information Unit,(Continfue

Unit Foreign ForeignGrade Cost 1977/78 1978/79 1979/80 1980/81 Total Exchange Exchange

% Total

Vehicle Operating Costs

25,000 km @ Birr 0.40 (2) 20,000 (2) 20,000 (2) 20,000 (2) 20,000 80,000 75 60,000

Subsistance 2,430 2,430 2,490 1,140 8,490 - -

Office Supplies 3,600 3,600 3,600 3,600 14,400 40 5,760

Part time payment to cropreporters in non-ECODD areas 240 (500)120,000 (500)120,000 (500)120,000 (500)120,000 480,000 - -

Utilities, rent, telephone 1/ - - - - -

Sub-total (b) 171,530 146,030 171,590 144,740 633,890 10 65,760

Total (a + b) 290.49o 264,990 291,69o 164,840 1,012,010 29 290,760

C. Remote Sensing 30,000 30,000 40,000 50,000 150,000 75 112,500

GRAND TOTAL (A,B,C) 375,540 294,990 331,690 214,840 1,217,060 35 444,280

Not provided since unit will be located in MoA.

December 15, 1976. I 3

ANNEX 12Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

ETHIOPIAN GRAIN AGENCX

1. Because the regulation of agricultural trade falls within the ambitof both the Ministry of Agriculture and the Ministry of Commerce, the EthiopianGrain Agency (EGA) was established as a separate agency on which both ministriesas well as other interests were represented. Although its activities wereformerly largely confined to the regulation and improvement of export trade(Annex 1)> EGA would be the most appropriate existing authority to assumeresponsibility for the regulation and improvement of domestic marketing(Annex 9) and for the market intelligence services (Annex 10) proposed underthe Project, and recent legislation has given EGA powers in these areas.

Board

2. Under the Project proposals, the main policy matters that the Boardof EGA would have to consider are:

(a) the control and supervision of private exporters (as at present);

(b) the institution and operation of the new licensing system forprivate wholesalers (minimum conditions, approval of applications,review of licences, etc.);

(c) the supervision of local authorities in the improvement oftheir market control;

(d) the operation of the Market Infrastructure 'mprovement Fund; and

(e) the submission of factual data (prepared by the Market IntelligenceDepartment) and recommendations to enable Government to makemarketing policy decisions in respect of upper and lower toleranceprice limits, imports of grain, the level of subsidies on grain andfertilizer imports and (in a bumper harvest year) buffer-stockingarrangements.

3. The Board of Directors of EGA includes representatives of Ministryof Commerce and Tourism (Chairman), the Ministry of Agriculture and Settlement,and the National Bank, together with the Executive Chairman of the AgriculturalMarketing Corporation (AMC) and the General Manager of EGA. The Board shouldestablish advisory committees of producers, consumers and private traders inconsultation with the Ministry of Agriculture, Ministry of Labor and SocialAffairs, and the Chamber of Commerce respectively, which it would consult onmajor policy matters.

ANNEX 12Page 2

4. Since EGA's major functions are in the field of trade regulationit is responsible to the Minister of Commerce and Tourism who appoints itsGeneral Manager. Recommendations to the Government on price policy, importsand subsidies however would be submitted jointly with the Minister ofAgriculture and Settlement to ensure that production considerations arefully taken into account. As at present, the Board would delegate responsibi-lity for the execution of its policy decisions, for day-to-day operations andfor control of staff, to the General Manager.

Reorganization of EGA Headquarters

5. The proposed new organization for ECK as a whole is shown in Chartl1. An outline of the main duties of the new Departments is given below.

(a) Market Intelligence Department

Under the Departmental Head, the work of this Department willbe carried out by two Sections, each with a Section head,deputy and two statisticians. The division of responsibilitiesbetween these two sections would be as indicated below:

(i) Data Section

with the main tasks of coordinating the improvement inthe quality and extension of the coverage of priceseries, of collating information on grain trade andof assembling other marketing information (Annex 10).

(ii) Market Analysis and Research Section

to be responsible for a continuing review of marketdevelopments primarily to provide a basis on whichGovernment can base its policy decisions before andduring each season and to disseminate market informationto traders and producers. This section would also beresponsible for carrying out the longer term planningtasks outlined in Annex 109 including providing a factualbasis for programming and operations of the MarketInfrastructure Improvement Fund (MIIF) and for monitor-ing and evaluating performance under the project.

During the initial phase, when work programs and pro-cedures are being established, the posts of Departmentand Section heads may be filled by internationallyrecruited staff who, in the remaining period of theircontract, would hand over executive responsibility

ANNEX 12Page 3

and act as advisers to the Ethiopian counterparts theywould have trained. Association with a suitableuniversity for the recruitment of these staff andcontinuing discussion of the research program shouldbe considered.

(b) Internal Marketing Department

It is visualized that this would consist of three sectionswhose responsibilities are outlined below:

(i) Licensing Section

The Licensing Section would handle the licensing ofwholesale traders, set regulations for storage standardsand record-keeping by licensed grain wholesalers andwork closely with the EGA Market Intelligence Depart-ment to improve private trade record keeping. Pre-scribed storage and grain handling standards would beenforced by frequent visits of licensing officers.The level of fines and the period of suspension forvarious violations will be codified in a publishedset of regulations.

(ii) Local Markets Section

The Local Markets Section would work with local authoritiesin setting up codes for storage hygiene, pest control andtrading conduct. The objective would be to have theauthorities monitor local traders and to enforce thestorage standard and trading conduct rules. The LocalMarkets Section would avoid the direct regulation oflocal markets and only provide advisory assistance andtechnical expertise to local authorities. Possible MIIFfinance should be an inducement for local authorities toestablish and enforce market codes.

(iii) Market Improvement Section

The operation of the proposed Market Infrastructure Improve-ment Fund (MIIF) would be the main concern of this section.Its first task would be to assess priorities and establisha program for MIIF, based on information supplied by theMarket Intelligence Department, and in consultation withthe interministerial committee (Annex 9) and local authorities.Because of the preparatory work involved, no major dis-bursements from the MIIF are likely to be made in the

ANNEX 12Page 4

first Project year. The Market Improvement Sectionwould provide engineering and technical support to localauthorities in the preparation of plans for marketimprovements and in the submission of applications forloans from the MIIF for consideration by the Board ofDirectors of EGB. Loans from the fund exceedingBirr 50,000 would be notified to IDA and anydisbursement from MIIF would be matched by at least anequal amount of finance from the local authority con-cerned. In the cost projections it is assumed that40 loans would be made in all during the threefinal years of the Project. During the first yearBirr 50,000 is expected to be used on a grant basis toestablish a weighing service at selected local marketswhich would enable farmers to check the offers made bytraders. The posts of Departmental Head and Head of theMarket Improvement Section may be filled initially byinternationally recruited staff who would be required aspart of their duties to train their Ethiopian deputiesto take over from them on the expiry of their contracts.

6. The establishment of the new Internal Marketing and Market IntelligenceDepartment would involve added work for EGA's Administration and FinanceDepartment, but it is considered that this can be handled by that Department'sexisting staff and facilities. With the provision of additional fumigationequipment, as detailed in the cost projections, EGA's existing Stored ProduceService should be able to extend its pest control operations to cover whole-sale stores to be licensed under the Project proposals.

Branch Organization

7. For its current activities, EGA already has branches at Addis Ababa,Asmara, Assab, Nazareth, Dire Dawa, Dessie, Massawa and Debre Berhan andintends to open additional offices at Djibouti and Humera. It is consideredthat this branch network, without any further additions, will suffice to servethe new Internal Marketing and Market Intelligence Departments.

Financial Projections

8. The provision of better market intelligence and the improvement andregulation of private trade are essential components of the Project and theincremental costs to EGA of carrying out these functions are included in totalProject costs. Projections of these incremental costs over the Project periodare detailed in Tables 1-2 and summarized below. Gradings and salary scalesfor Ethiopian staff are based on those in operation in EGA's current organ-ization and are in line with public service scales laid down by the CentralPersonnel Agency.

ANNEX 12Page 5

Year1977/78 1978/79 1979/80 1980/81 Total------------------------ Birr '000 -----------------------

Capital Costs 168 - - - 168

Operational Costs 914 913 936 887 3,650

MIIF 50 200 375 375 1,000

Subtotal 1,132 1,113 1,311 1,262 4,818

9. EGA's income, which comes mainly from ceases on exports totaledBirr 1,181,000 for the year ended July 7, 1974, and was nearly double itsoperating costs of Birr 664,000. However, EGA's future income is expected tobe at a lower level because of the decline in exports notably of oilseeds,while the cost of carrying out its existing functions is expected to rise.This and the additional operating costs envisaged under the Project is likelyto lead to.EGA incurring deficits under its present method of financing, asindicated below:

ANNEX 12Page 6

Year1977/78 1978/79 1979/80 1980/81- …… Birr '000 -------

Income /1 244 376 524 688

Operating Costsa) for current

operations /2 1,041 1,144 1,259 1,384

b) project /3 1,132 1,113 1,311 1,262

Totalexpenditure 2,173 2,257 2,570 2,646

Deficit 1,929 1,881 2,046 1,958

/1 Assuming that service taxes remain at present levels and that exportsare as projected in Annex 8, Table 1.

/2 Estimated to increase at 10 percent p.a.

/3 From para. 8. (excluding contingencies)

10. As shown above, EGA would thus face an annual financial deficit ofabout Birr 2 million on its operations over the Project period. It would notbe practicable to finance this deficit either by increasing the present ratesof service taxes on exports or by attempting to levy similar taxes on domestictrade transactions to meet the cost of EGA's activities in this field. There-fore, it would be necessary for.-EGA to seek appropriate budgetary allocationsto cover these deficits. One way of doing so would be to include the wholeof EGA's budget expenditure as a special item in the budget of the Ministryof Commerce and Tourism, in which case Government would retain the proceedsof service taxes on exports. Such an arrangement would mean that the financialconsequences of any fluctuations in revenue from service taxes would automa-tically be borne by Government.

Legislative Changes

11. EGA was established as the Ethiopian Grain Board under Proclama-tion No. 113 of 1950 and subsequent amending legislation. Considerable changeswere introduced in recent legislation, to allow EGA to assume the new functionsproposed under the Project and to effect the structural and organizationchanges set out in this annex. This legislation is reproduced in Appendix 1of this Annex.

ANNEX 12APPENDIX IPage 1

PROCLAMATION NO. 1977

A PROCLAMATION TO PROVIDE FOR THE ESTABLISHMENT OF

THE ETHIOPIAN GRAIN AGENCY

"ETHIOPIA TIKDEM"

WHEREAS the farmer Ethiopian Grain Board had limited purpose andpowers;

WHEREAS recent developments in Ethiopia necessitate that the Govern-ment should have greater responsibilities in the setting and controlling ofprices and improving the quality of produce, and improving facilities for thecollection, collation and interpretation of market information, and be able toinstitute market infrastructural improvements;

WHEREAS to achieve this it is necessary to create an institutioncharged with full powers and responsibilities;

NOW, THEREFORE in accordance with article of the

it is hereby proclaimed as follows:

1. Short Title

This Proclamation may be cited as "The Grain Agency Proclamation No - of1977"

2. Repeal

The Ethiopian Grain Board Proclamation No. 113 of 1950 and all amendmentsmade thereto and all regulations issued thereunder are hereby repealed.

3. Definitions

In this Proclamation unless the context otherwise requires:

(1) "Domestic Trade" shall mean trade within Ethiopia involvingthe transfer of produce from its point of production to itspoint of domestic consumption, or any part of such transferprocess.

(2) "Export" shall mean to take out produce for sale outsideEthiopia.

ANNEX 12APPENDIX 1Page 2

(3) "Import" shall mean to bring produce into Ethiopia.

(4) "Minister" shall mean the Minister of Commerce and Tourism.

(5) "Produce" shall mean any agricultural commodity, or produce

resulting from the primary processing of any such commodity

that may be included in the Schedule of this Proclamationany amendment thereto by regulations to be issued by the Board.

4. Establishment

There is hereby established a body to be known as the Ethiopian Grain

Agency (hereinafter referred to as the Agency) as an autonomous public

body having juridical personality.

5. Principal and Branch Offices

The Agency shall have its head office in Addis Ababa and may have branch

offices elsewhere in Ethiopia and abroad.

6. Scope of Application

This Proclamation shall apply to all produce from:

(1) the time it leaves the place where it is grown or produced until

it reaches its terminal point in the domestic trade or is ex-ported; or

(2) point of entry into Ethiopia until it reaches its terminal point

in the domestic trade.

7. Purposes of the Agency

The principal purposes of the Agency shall be to:

(1) Assist the promotion of export of produce in all possible ways;

(2) control and improve the quality and grading of all produce for

domestic consumption or export in accordance with EthiopianStandards, and monitor and control the quality and quantity ofproduce imported into the country;

(3) increase the efficiency of the domestic trade by regulationand by assisting in local market infrastructure improvements;

ANNEX 12APPENDIX 1Page 3

(4) improve the collection, analysis and dissemination of data andinformation relating to the domestic and export trades withregard to produce;

(5) recommend and implement approved prices.

8. Powers and Duties of the Agency

The Agency shall have all powers necessary for the attainment of itspurposes; these include the powers and duties to:

(1) issue, renew or cancel licenses in respect of exporters,importers, wholesalers, retailers, transit agents, shippingagents and cleaners dealing in produce; and flour millersproducing flour for export and - commercial bakeries andvegetable oil expressors who export their products;

(2) recommend and exercise control over prices in respect ofproduce in domestic trade;

(3) recommend policies with regard to imports, exports, bufferstocking and subsidies;

(4) regulate the supply and control the prices of export produce;

(5) issue export authorization certificate for all export produce;

(6) advise on and control pest control practices in respect of allproduce;

(7) enter, at any reasonable time, any building or place; stopany person, animal or vehicle carrying produce for the purposesof taking samples, for the inspection and determination ofquantity and quality of produce;

(8) seize and detain any produce which is suspected to have beenadulterated;

(9) declare the forfeiture of any produce whose owner is unknownor can not be found or is unwilling to be present when summoned;

(10) to destroy any produce which can not be cleaned or whose re-tention is likely to endanger the quality of any other producewith which it may come into contact;

(11) charge and collect fees.

ANNEX 12APPENDIX IPage 4

(12) own, possess and dispose of property;

(13) enter into contracts including the borrowing of money;

(14) sue and be sued in its own name;

(15) discharge such other necessary duties for the attainment ofits purposes.

9. Composition of the Agency

The Agency shall have:

(1) a Board of Management (hereinafter referred to as the Board)

(2) a General Manager and a Deputy General Manager; and

(3) the necessary staff.

10. The Board

(1) The Board shall consist of the Following members:

(a) The Minister of Commerce and Tourism - Chairman

(b) A representative of the Ministry ofAgriculture and Settlement - Member

(c) A representative of the National Bank -

(d) The General Manager of the AgriculturalMarketing Corporation

(e) The General Manager of the Grain Agency

(2) The Deputy General Manager of the Agency, or in his absence suchother employee of the Agency as the Board, on the advice of theGeneral Manager, shall appoint for this purpose shall carry outthe duties of Secretary to the Board.

(3) The quorum of any meeting of the Board shall be the presence ofthree (3) of its members.

(4) All questions proposed for decision at a meeting shall be deter-mined by a majority of the votes of the members present and thechairman shall have a casting vote in case of a tie.

(5) The Board shall establish its own rules of procedure.

ANNEX 12APPENDIX IPage 5

11. Powers of the Board

(1) Subject to the other provisions of this Proclamation all powersand duties of the Agency are vested in the Board.

(2) The Principal functions of the Board shall be to:

(a) consider and decide policy matters relating to thecarrying out of the Agency's responsibilities;

(b) make grants and loans;

(c) write off bad or unrecoverable debts.

12. The General Manager

(1) The General Manager and the Deputy General manager shall beappointed by the Government upon the recommendation of the Board.

(2) The General Manager shall be the chief executive officer ofthe Agency and shall, subject to the directives of the Board,be responsible for the proper administration of the overallactivities of the Agency.

(3) Without limiting the generality of the foregoing, the GeneralManager, shall:

(a) employ, transfer, promote or dismiss employees inaccordance with The Central Personnel Agency andPublic Service laws;

(b) prepare the work programmes and the budget of the Agencyand submit same to the Board for approval;

(c) draw up and submit for the Boards approval the internalrules of the Agency;

(d) settle disputes out of court;

(e) represent the Agency personally or by appointing anagent in all legal proceedings brought by or against it;

(f) delegate his authority to the officials of the agencyfor the effective performance of the functions of theAgency;

ANNEX 12APPENDIX IPage 6

(g) withdraw deposits from bank accounts;

(h) perform such other duties as may be entrusted to himby the Board.

13. Funds

1. The agency shall have funds collected from the following sources:

(a) fees collected by it;

(b) funds derived from property and investments;

(c) credits which may be made available by or throughGovernment;

(d) any other money accruing to the Agency as the result ofits operations;

(e) an annual Government subsidy based on an estimate pre-pared by the General Manager and approved by the Board;

2. The fund established under sub-article I of this article shall beexpended to give effect to the purposes of the Agency.

3. The surplus shall be paid to the Ministry of Finance.

14. Accounts, Audit and Fiscal Year

(1) The Agency shall keep books of accounts with supporting documents.

(2) The book of accounts and all matters concerning the finance ofthe Agency shall be audited at least once a year by the AuditorGeneral or by an auditor designated by him. The result of suchaudit shall be submitted to the Board.

(3) The fiscal year of the Agency shall begin on the first day ofHamle and end on the 30th day of Sene.

15. Annual Report

The Agency shall prepare an annual report concerning its activities,receipts and expenditure and shall submit such reports to the Governmentwithin five months after the end of each fiscal year. A copy of auditedaccounts of the Agency, with the auditors statement, shall be submittedto the Government with the annual report.

ANNEX 12APPENDIX 1Page 7

16. Power to Delegate Authority

The Agency may, for the better implementation of this Proclamation and

regulations issued hereunder, delegate all or part of its powers and

duties to public or mass organizations.

17. Authorization to Export

Customs officials are hereby authorized and directed to prohibit the

exportation of produce not accompanied by a valid Export Authorization

Certificate issued in accordance with this Proclamation or regulations

issued hereunder.

18. Transfer of Assets and Liabilities

All assets and liabilities of the Ethiopian Grain Board are hereby

transfered to the Agency.

19. Taxes

The Agency is exempted from all taxes.

20. Penalty

Any person who violates the provisions of this Proclamation or regula-

tions issued hereunder shall be punished in accordance with the Penal

Code.

21. Power to Issue Regulations

The Chairman may, upon the recommendation of the Board issue regulations

for the better carrying out of the provisions of this Proclamation.

22. Effective Date

This Proclamation shall enter into force on the date of its publication

in the Negarit Gezeta.

Done at Addis Ababa this day of 1977

Provisional Military Administrative Council

ANNEX 12APPENDIX 1Page 8

THE SCHEDULE

Produce to which the Proclamation applies:

(1) Whether for the domestic trade, export or import;

Barley Mustard seed

Castorseed Nigerseed (Neug)

Cottonseed Oats

Chickpeas Peas

Fenugreak Pumpkinseed

Haricot beans Pape (Colza)

Groundnuts Safflower

Horse beans Sesameseed

Lentils Sorghum

Linseed Soya beans

Maize Sunflower seed

Millet Teff

Wheat

(2) Flour, as derived from any produce specified in (1) above, when itis exported or imported.

(3) Animal feedingstuffs, being any produce specified in (1) above, orderived partly or wholly from any produce specified in (1) above,when it is exported or imported.

(4) Any product resulting from the primary processing of any producespecified in (1) above, when it is exported or imported.

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

EGA, Costs for Internal Marketing Department (Birr)

Total Foreign ForeignUnit Cost 1977/78 1978/79 1979/80 1980'81 Exchange Exchange

- % Total

A. CAPITAL COSTS

Standard vehicles (1) 10,500 - - - 10,500 75 7,875

4-wheel drive vehieles 19,000 (2) 38,000 - - - 38,000 75 28,500

Office furniture 11,724 - - - 11,724 40 4,690

Office equipment 20,250 - - - 20,250 52 10,530

Fumigation equipment 23,56C - - - 23,560 75 17,670

Survey equipment 5,000 - - - 5,000 75 3,750I/

Telephone installation 3,390 - - - 3,390 5G 1,695

Total 112,424 - - - 112,424 66 74,710

1/ Cost shared with Marketing Intelligence Dept. (60/40)

December 15, 1976.

ITHIOPIAGRAIN STORAGE AND MARKETING PROJECT

EGA, Costs fev Internal Marketing Department (Birr)

(Continued)Unit Total P. Ehcb. ForciL Ecch.

Gr.adc Coat 1977/78 1978/79 19i7980 1980/81 _% tot il

3. OPERATING COSTS

a) Salarics + Wagess

Departmont Chicf Expatriate 100,000 OO,OOO lOO,OOO lOO,OOO lOO,OOO 400oo,OOO 300,000Local Countcrp. rt P55 - - - 13,080 13,080 -

Deputy Chiof PS4 11,160 11,160 11,760 11,760 45,840 _Secretary CF9 4,740 4,740 5,040 5,040 19,560Driv^r 4S4 (3) 4,572(3j 4,572 () ,040 (3) 5,040 19,224 -

Messenger 40 O 576(2) 576 () 576 (2) 576 2,304 --

Guard j/ 40 2 576(2) 576 (2) 576 (2) 576 2,304 -

Office cleaner -' 25 180 180 180 180 720

Licensing Sotion:

Section Head ADB 11,160 11,160 11,760 11,760 45,840Senior Licensing Officer CF12 8,064 8,o64 8,520 8,520 33,168LiccnsinG Officer CF10 5,664 5,664 6,000 6,000 23,328 -

Administrative Assistant AD4 5,664 5,664 6,000 6,000 23,328Typist CF9 4,740 4,740 5,040 5,040 19,560 -

Local Markets Scotion:

Supervisor AD8 11,160 11,160 11,760 11,760 45t840Senior Ass. Supervisor CF12 8,064 8,064 8,520 8,520 33,168 -

Assistant Supervisor CF10 5,664 5,664 6,000 6,000 23,328Typist CF9 41740 4,740 5,040 5,040 19,560 -

M4arket Improvement Section:

Section Head Expatriate 100,000 100,000 100,000 100,000 4,0 75 3 ,Local Counterp.art PS4 - - - 11,160 11,160 -Dcputy P53 9,480 9,480 1O0C20 10,020 39,000 -_Engincvr pl4 11,160 11,160 11;760 11,760 45,840 _Drafts;.an SP9 4,740 4,740 5,040 5,040 19,560 _Adniniztrative Assistant ADq 56 6 6,000 6,000 23,328 -Typist (F9 3) 4.740° (3) 5 3040 3 _).40 _56 0

.Sub-total 322,508 3 329,672' 353,93 1,325,b00 - 6

4 Co8t gh.aeA -.4t)h Marketing Intelligence Dep (60/40)

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

EGA, Costs for Internal Marketing Department (Birr)(Continued)

Foreign Exchange Foreign Exchange1977/78 1978/79 1979/80 1980/81 Total total

b) Miscellaneous:

Air travel 9/ 6,ooo 6,ooo 6,ooo 6,ooo 24,000 75 18,000

Rent i/ 18,ooo 18,ooo 18,ooo 18,000 72,000 -

Telephone i/ 11,160 11,160 11,160 11,160 44,640

Utilities i 792 792 792 792 3,168 -

Vehicle operating / 26,250 26,250 26,250 26,250 105,000 75 78,750

Subsistence 9,135 9,135 9,555 11,265 39,090

Stationery 1/ 1,200 1,200 1,200 1,200 4,800 40 1,920

Drawing Materials 2,000 1,000 1,000 1,000 5,000 75 3,750

Training 56,ooo 56,ooo 56,ooo 56,ooo 224,ooo 50 112,000

Subtotal 130,537 129,537 129,957 131,667 521,698 41 214,420

Total (a*Fb) 453,045 452,045 459,629 485,579 1,850,298 814,420

C. Market Infrastructure Improvement Fund 50,000 200,000 375,000 375,000 1,000,000 40 400,000

GRAND TOTAL(A,B,C) 615,469 652,o45 834,629 860,579 2,962,722 44 1,289,130_= == =

i/ Cost shared with Marketing Intelligence Department (60/40). m/ Standard car - 25,000 km p.a . at Birr 0.25; 4 wheel drive - 25,000 km p.a. at Birr 0.40. Z

December 15, 1976.

ETHIOPIAGRAIN STORAGE AND M~RKETING PROJECT

EGA, Costs for Market Intelligence Department (Birr)

Unit F. Exch. Foreign ExA. CAPITAL COSTS Grade Cost 1977/78 1978/79 1979/80 1980/81 Total Total4 wheel drive vehicle 19,000 19,000 _ - - 19,000 75 14,250Office furniture 9,64B - - - 9,648 40 3,860Office equipment 25,000 - - - 25,125 52 13,062Telephone installation j 2,260 - - - 2,260 50 1,130

Total 56,028 - - -5,2 32,302

B. OPERATING COSTSa) Salaries & wages:

Department Chief Expatriate 100,000 100,000 100,000 100,000 100,000 400,000 75 300,000Local Counterpart PS5 - - - 13,080 13,080 - -Deputy Chief PS4 11,160 11,760 11,760 11,760 45,84o - -Secretary CF9 4,740 4,740 5,o40 5,o40 19,560 - -Driver SP4 1,524 1,524 1,524 1,524 6,o96 - -Messenger i/ 40 (2) 384 (2) 384 (2) 384 (2) 384 1,536 - -Guard j/ 40 (2) 384 (2) 384 (2) 384 (2) 384 1,536 - -Office cleaner i/ 25 120 120 120 120 480Data Section:Section Head Expatriate 100,000 100,000 100,000 100,000 300,000 75 225,000Local Counterpart PS4 -- 11,160 11,160 22,320 - -Deputy Section Head P53 9,480 9,480 10,020 10,020 39,000 - -Senior Statistician SPlO 5,664 5,664 6,ooo 6,ooo 23,328 - -Statisti cian SP9 4,740 4,740 5,o4o 5,o40 19,560 - -Typist CF9 (2) 9,480 (2) 9,480 (2) 10,080 (2) 10,080 39,120 - -Market Analysis & Research Sec.:Section Head Expatriate 100,000 100,000 10,000 100,000 100,000 1400,000 75 300,000Local Counterpart PS4 - - 11,160 11,160 -Deputy Section Head PS3 9,480 9,480 10,020 10,020 39,000 -Senior Statisti 3ian SPFO 5,664 5,664 6,ooo 6,ooo 23,328 -Statisti cian SP9 4,740 4,740 5,o4o 5,o40 19,560 -Typist CF9 4,740 4,7440 o4o 40o4o 19,560 - -

Sub Total (a) 372.300 372,300 387,612 311,852 1,444,064 57 825,000

Costs shared with Internal Marketing Department (40/60) (0 LbDecember 15, 1976.

ETBIOPIAGRAIN STORAGE AND MARKETING PROJECT

EGA, Costs for Market Intelligence Department (Birr)

(Continued)

F. Exch. Foreign Exch.1977/78 1978/79 1979/80 1980/81 Total total

b) Miscellaneous:

Air travel 4,ooo 4,ooo 4,ooo 4,oo 16,000 75 12,000

Rent i/ 12,000 12,000 12,000 12,000 o48,ooo -

Telephone j 7,440 7,440 7,440 7,440 29,760 -

Utilities / 528 528 528 528 2,112 - -

Vehicle Operating | 10,000 10,000 10,000 10,000 40,000 75 30,000

Subsistence 3,675 3,675 4,305 4,770 16,425 - -

Stationery j 800 800 800 800 3,200 40 1,280

Training 50,000 50,000 50,000 50,000 200,000 50 100,000

Subtotal 88,443 88,443 89,073 89,538 355,497 40 143,280

Total (a b) 460,743 460,743 476,685 401,390 1,799,561 54 968,780

GRAND TOTAL (A B) 516,771 460,743 476,685 401,390 1,855,589 54 1,001,082

Costs shared with Internal Marketing Department (40/60) m

| 25,000 km p.a. at Birr 0.40. PA

December 15, 1976.

ETHIOPTAGRAIN STORAGE AND MARKETING PROJECT

ETHIOPIAN GRAIN AGENCY

HEADQIJARTERS ORGANIZATION

Board of Directors

ExternalAuditors

General Manager

InternalAuditor Adviser

DeputyGeneral Manager

Information I

Export Crops Market Internal AdministrationQuality Control Intelligence Marketing and Finance& Licensing __ _

Data Market ;Market Adminis-

Collection Analysis Licensing Improvement tration Finance

Supervisionof Local Markets

Stored ProductsService

December 17, 1975. PerstDecember 17, 1975, Control Laboratory

ANNEX 13Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

ECONOMIC ANALYSIS

A. Benefits

Increased Production

1. The Project originates from a concern that peasant producers wouldlack sufficient incentives to adopt the new techniques promoted through thepackage programs. A fair and stable return to recommended inputs (mainlyfertilizers), i.e., a lower price limit would be assured through analternative outlet with wide geographical coverage and with a volume ofbusiness large enough to influence also pricing in the private sector. Thealternative outlet was originally planned to be almost exclusively centeredaround the ECODD marketing centers, but when through land reform State farmswere created in place of private large scale farms, this was seen as an oppor-tunity to expand the volume of public marketing and for AMC rapidly to assumea price-leadership role. It has not been possible to quantify the value ofan assured minimum return to key inputs in terms of increased production andfarm income, but the importance may be illustrated by the CADU experiencewhere a drop in grain prices in 1972 resulted in a two-year stagnation in theadoption of recommended inputs. Due to the forecast import situation therewill in any case need to be an upward pressure on the domstic price levelduring the next few years and the value of the project will only be felt inoccasional good years when AMC will attempt to avoid undue price falls throughbuffer stocking and in remote areas through a firmer integration with thenational marketing system.

Reduced Losses

2. The elimination of 55,000 MT of substandard private wholesalestorage through the newly created licensing system and the construction ofproperly designed incremental storage facilities would reduce storage lossesby about 5% or 2,750 MT annually, the value of which at import parity prices(Birr 495) would be Birr 1.4 million. Market infrastructure improvementsfinanced by the Project will also tend to reduce losses and spillage but thefunds allocated for this purpose under the Project are small.

Income Redistribution

3. Another major purpose of the Project is to reduce the margins inprivate trade and eliminate the alleged cheating in weighing, grading, andcalculations. The information on costs and profits in private trade arehowever very scanty (Annex 1) and the lack of stability has no doubt resultedin occasional large trading losses as well as profits. If managed efficientlyAMC could be expected to operate on lower margins in view of low storage lossesand proper location of warehouses (avoiding double transport), reduced risk

ANNEX 13Page 2

margins through the stabilization efforts and the expected large scale ofoperations including input supply which would allow low unit overhead costs.On the basis of whatever little information that is available about privatemargins and the --stimated AMC costs there is however no firm evidence of asignificant income distribution effect.

Incremental Wholesale Marketing

4. The public grain marketing effort would be based partly on a conti-nuation of EGC activities, (about 175,000 MT 1/ after the nationalization ofsome warehouses), partly on a replacement of private trade (75,000 MT) 2/ andpartly on the following expansion of public (and total) wholesale trade:

Incremental Total PublicPublic Trade Trade

(000 MT) (000 MT) 33/

1977/78 60 2601978/79 140 3401979/80 220 4201980/81 300 500

5. The incremental marketing capacity which is created by the construc-tion of additional storage over and above existing warehouse facilities(public and private) is valued on the basis of the estimated average marginsin private trade for taking the farm produce to the wholesale market and forseasonal storage.

(i) The traditional margin between producer wholesale pricesduring the buying season (same month) has been Birr 0.32 perMT and kilometer distance from the buying point to Addis Ababa.The average transport distance between the buying pointsand the AMC branch stores is estimated at 100 km. Inaddition, about half of the procured grain will be movedon average 200 km. to another AMC branch for sale there.A metric ton of grain procured will thus be moved about200 km. and the traditional margin for the buying--wholesalingservices would thus be Birr 64 per MT. This margin refersthe the period 1968-74. During the last year prices of labor,sacks and transport has increased by at least 10%. Theadjusted margin would thus be Birr 70 per MT. AMC's variablecosts for performing the same services are as follows (Birr perMT):

1/ Based on 133,000 MT of storage facilities.2/ Due to the elimination of 55,000 MT of substandard warehouses.3/ See Annex 8, Table 2.

ANNEX 13Page 3

ECODD

Bagging and stitching 2.50

Loading and unloading 3.00

Sacks 4.00

Buying through ECODD MC/Cooperatives(at optimal capacity 600 MT) 25.00

Interest on trading capital (1 month, 10%) 2.50

Transport 200 km. @ Birr 0.10/km. 20.00

Total 57.00

With a shadow price for labor of 50% of current rate,these costs will be reduced to Birr 54 per MT and thebenefits for AMC domestic buying are thus assumed to beBirr 16/MT.

(ii) The traditional margin for seasonal storage (March -September) was shown to average Birr 32 per MT duringthe period 1962 - 1974 (Annex 1, Table 8). Again,inflation has increased these costs by about 10%. Theresulting margin is thus Birr 36 or Birr 6 per MT andmonth. We need however, to deduct variable costs forinterest on stocks, loss in storage and handling (Annex 4)to arrive at net benefits from seasonal storage ofBirr 2.75 per MT and month. The average amount storedduring the year is 34% (Annex 8, Table 11). Ten percentof this however refers to year-to-year storage and out ofincremental marketing the amount stored one month thusincreases from 28,800 MT in 1977/78 to 720,000 MT in1980/81.

Buffer Stocking

6. A buffer stocking capacity of 50,000 MT would be available by 1980.Every fourth year starting 1981/82 is assumed to be a good year and stockswould be procured and stored an extra 12 months to a following normal orbelow normal year when these stocks would replace imports. The differencebetween the import parity price and the lower price limit at which thegrain is assumed to be bought is about Birr 214 per MT. The variable costswould thus be (Annex 4, Birr per MT):

ANNEX 13Page 4

Seasonal storage (6 months @ Birr 3) 18

Loading - unloading 3

Interest on stocks (12 months, 10%) 30

Insurance of stocks (3%) 1

Storage Loss (2%) 6

Fumigation 1

Total 59

The net benefits thus would become about Birr 155 per MT every fourth year,or with shadow pricing of labor Birr 157 per MT. This assumes that thesecurity storage facilities will be utilized for buffer stocking for the timebeing (Annex 7).

Consumer Protection

7. The construction of storage at the branch and sub-branch level andthe availability of buffer stock facilities will improve the possibilitiesto handle localized food shortages. The AMC retail-selling capacity will beused in areas where private margins appear excessive and/or services deficient.The imposition of an upper price limit combined with possible import sub-sidies would give further protection to the consumer. It has not been possibleto quantify these benefits.

Incremental Input Distribution

8. AMC's input distribution would expand from 60,000 MT to 137,000 MTduring the Project period and the Project would provide 50,500 MT of incremen-tal storage to supplement the facilities now available (18,000 MT). Thedistribution of an expanding volume of farm inputs at the right time and tothe right place is an important part of the agricultural development effort.However, it is not possible to isolate the benefits from this endeavor fromthose of extension, and costs will be excluded here since no matching benefitshave been claimed.

B. Costs

9. The quantifiable benefits only refer to reduced losses, incrementalwholesaling and to bufferstocking and Project costs have been adjustedaccordingly as follows:

ANNEX 13Page 5

(a) AMC Investment Costs. The cost of input storage has beendeducted.

(b) AMC Operating Costs

(i) Input distribution. The costs of insuring,guarding, and maintaining input stores have beendeducted. A proportion equal to the relative shareof inputs out of total AMC trading have been deductedfrom AMC operating costs.

(ii) Existing public marketing. AMC's present marketinghas been estimated at 175,000 MT. A proportion equalto the share of existing marketing out of total AMCgrain trading has been deducted from remaining AMCoperating costs.

(iii) Transport. Transport of grain would be undertakenpartly on contract and partly by AMC owned trucks.The cost of transport has been deducted in arrivingat net benefits (para. 5). AMC's transportdepartment is expected to break even and the costsof trucks and AMC transport department has been excluded.

(iv) The costs to the economy of operating the 55,000 MTof new storage facilities which are expected to replacean equal amount of substandard warehouses have been assumedto be unchanged and AMC's operating costs have been reducedby a proportion equal to the relative magnitude of thisreplacement operation out of AMC's total grain handlingoperations. The benefits of this replacement is thusexpressed in reduced storage losses (para. 2) and thecosts refer to the construction of new warehouses. Thisalso assumes that the owners of the replaced warehousescan find other gainful employment.

(c) Other Costs

(i) Market intelligence. Although of a research nature andutilized by other organizations the costs for marketintelligence and crop forecasting have been includedsince these activities are essential for the effectivemanagement of AMC.

(ii) Market improvement. Since no benefits are claimed thesecosts have been excluded.

(iii) Licensing. Since benefits in the form of reduced storagelosses from the elimination of substandard storage havebeen claimed the costs of EGA licensing have been included.

ANNEX 13Page 6

10. Although it is possible to determine the foreign exchange componentof the AMC investments and fixed operating costs (Project economic costs) thecorresponding component of the benefits (i.e., the fixed costs and profitsin private trade) is unknown but likely to be similar. No shadow pricing offoreign exchange has thus been undertaken. In arriving at net benefits thelabor component of variable costs (loading-unloading) was shadow-priced (50Z).AMC's salaries mainly refer to skilled staff and no shadow pricing has beenapplied.

C. Economic Rate of Return

11. On the above assumptions the economic rate of return of the Projectis estimated at 25X, including buffer stocking and at 18% excluding bufferstocking. Without shadow pricing these returns are reduced to 21% and 13%respectively. A sensitivity analysis gives the following results:

Rate of Rate ofReturn Including Return ExcludingBuffer Stocking Buffer StockingWith Without With WithoutShadow Shadow Shadow ShadowPricing Pricing Pricing Pricing

Volume of grain handled ormarketing margins reduced by 10% 21 17 14 10

Volume of grain handled ormarketing margins reduced by 20% 16 12 10 5

AMC costs increased by 10% 21 17 15 10

AMC costs increased by 20% 18 14 11 7

Volume of grain handled reduced by10% and AMC costs increased by 10% 17 13 11 6

Volume of grain handled reduced by20% and AMC costs increased by 20% 9 6 3 -1

12. The proportion of costs eliminated from the benefit-cost analysis(in accordance with para. 9) is 35% of the total costs during the Projectperiod (Table 2).

EThIOPIA

GRAIN STORAGE AND MARKETING PROJECT

Economic Benefits

Reduced Storage Incremental IncrementalLosses I/ Wholesale Trade 2/ Seasonal Storage 3/ Buffer Stocking 4/ Total

Year MT Birr '000 000 MT Birr '000 000 MT Birr '000 000 MT Birr '000 Birr '000

A. With Shadow pricing

1977/78 2,750 1,361 60 960 29 80 -- 2,401

1978/79 2,750 1,361 140 2,240 259 712 -- 4,313

1979/80 2,750 1,361 220 3,520 490 1,348 -- 6,229

1980/81 2,750 1,361 300 4,800 720 1,980 -- 8,1411981/82 2,750 1,361 300 4,800 720 1,980 -- 50 5/ 7,850 16,001

B. Without shadow pricing

1977/78 2,750 1,361 60 780 29 73 __ 2,214

1978/79 2,750 1,361 140 1,820 259 648 --- 3,829

1979/80 2,750 1,361 220 2,860 490 1,225 -- 5,446

1980/81 2,750 1,361 300 3,900 720 1,800 -- 7,0611981/82 and thereafter 2,750 1,361 300 3,900 720 1,800 -- 50 5/ 7,750 14,811

1/ Valued at an import parity price of Birr 495.

2/ Valued at a net margin of Birr 16.00 per MT with shadow pricing of unskilled labor.Birr 13.00 per MT without shadow pricing of unskilled labor.

3/ Valued at net margin of Birr 2.75 per MT with shadow pricing of unskilled labor.Birr 2.50 per MT without shadow pricing of unskilled labor.

4/ Valued at Birr 157 per MT with shadow pricing of unskilled labor.Birr 155 per MT without shadow pricing of unskilled labor.

5/ Every fourth year thereafter. L

ETHIOPIA

GRAIN STOEAGE AND MABING PBOJECT

Eonooooc Coot. (Birr '000)

Coat Ita 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 19%/95 1981/m -imam

A. AMC In-eatmeeDt Coat.

Storage 5,810 6,020 6,090 6,090 __ __ __ __ __ __ __ __ __ __ __ __HQ Building -- 325 325 -- -- -- -- -- - -Vahile. -- 6 603 40 69 18 603 40 69 18 603 40 69 18Eqipe..t __ 1,075 20 132 19 __ -- -- -- -- - 1,075 20 132 19 __ -_ __ _ Tmrcks- 800 17 1,175 -- 6- -6 3 % 69

S.btotal 8,613 7,580 7,466 6,127 603 40 69 18 603 40 1,144 38 735 59 69 18 603 40 69 16B. AMC Operating Coat,

8.1rie. -- 2,594 2,651 2,962 2,996 2,146Oher -- 3,054 3,173 3,338 3,518 3,518

Subtotal -- 5,648 5,824 6,300 6,514 5,664 5,664 5,664 5,664 5,664 5,664 5,664 5,664 5,664 5,664 5,664 5,664 5,664 5,664 5,664 5,664

C. EGA and CTU Coata

Market Intelligence -- 517 461 477 401 150Interal Marketing -- 615 657 835 861 230Cvop Foreraotiag -- 320 295 331 715 715

ftbtotal -- i,452 1,408 1,643 1,477 595 595 595 595 595 595 595 595 595 595 595 595 595 595 595 595Total A,B,C 15,713 14,812 15,409 14,118 6,862 6,299 6,328 6,277 6,862 6,299 7,403 6,297 6,994 6,318 6,328 6,277 6,862 6,299 6,3e8 6,27

D. less Adjostoanta for

Input Storage __ 1,470 560 700 840 __ __ __ __ __ _ Trorka BO 800 1,175 1,175 __ __ __ __ __ __ __ __Ir0t Operrt88g Coat. -- 1,145 1,134 1,182 1,256 1,049E.istitg Gran Trnde -- 1,400 1,400 1,400 1,400 1,400Reple.e.t 8ai. Trade -- 600 600 600 600 600Market Infraetr-otore -- 241 39i 568 579 100

Subtotal __ 5,656 5,260 5,625 4,675 3,149 3,149 3,149 3,149 3,149 3,149 3,149 3,149 3,149 3,149 3,*49 3,149 3,149 3,149 3,149 3,149

Proportion D out of ABC ($) 0 42 36 37 33

Total A,B,C,D, 10,057 9,552 9,784 9,443 3,713 3,150 3,179 3,128 3,713 3,150 4,254 3,148 3,845 3,169 3,179 3,128 3,713 3,150 3,179 3,128

E. Contini35 21ciea lil3 137t1e1

Phyalcal CootiageoOiea 806 955 978 944 371 315 318 313 371 315 475 315 385 317 318 313 371 315 373 313Doties Boildinag -299 -658 -634 -619 __ __EIqipmnt -523 -17 -55 -10 -166 -11 -19 -5 .166 _11 -315 -11 -702 _16 _19 -5 -166 -11 -19 -5

Total A,B,C,D,, 10,041 9,832 10,073 9,758 3,918 3,454 3,478 3,436 3,918 3,454 4,364 3,452 4,028 3,470 3,478 3,436 3,918 3,454 3,478 3,436

F. SuclOdiag NutCerotocliOO

Storage (includingconti.gngeni-3

=xoloding dotieo) _ 1,260 1,190 1,050 -- -- 3-5 -7 -3

Total A,B,C,D.E,F 10,041 8,572 8,883 8,728 3,918 3,454 3,478 3,436 3,918 3,454 4,364 3,452 4,028 3,470 3,478 3,436 3,918 3,454 3,478 3,436

- emalber 15, 1976.

ETHIOPIAGRAIN STORAGE AND MARKETING PROJECT

Implementation Schedule

A_t ivity Authority 1976/77 1977/78 1978/79 1979/8 0 1980/81Project Establishment J A S 0 N D J F M A M J J A S 0 ND J F M A M J J A S 0 9D JF MAMHJ J A S 0 N D J F M A M4 J J A S 0 N D J F M A M JNegotiationsBoard presentation --

EffectivenessAMC 7Appointment of key staff Board L........l-___Transfer AIMS, EGC resources MOA L____Deposit of trading capital MOA-+--Prepare warehouse cons truc- GM ----

tion program ..Review performance MOAReview AMC pricing Board ____ _____Work plan and budget Board-ABorrow working capital BoardPerformance Report BoardAssemble price statistics GM .... __ _____ ___________ ___________

Estimate input needs GM L _jLProcure inputs GM 6_____ _____-_____

Distribute inputs GMPurchase produceGM.....

Import produce GMExport produce GM L__________________Plan storage GMConstruct storage GM ~ -*~*

Procure equipment GM __ ________ ____Construct H.Q. ECODDEGA----

Legislative changes CAppoint new Board MCT _____________ ____Approve budget & work program MOTPrepare price policy BoardEstimate import/export Board _ __ _Decide on buffer stocks Board 1 ______________________________________

Review licencing Board ______

MI(F operations BoardAgree budget, work plan Board

IL____ _____Performance report Board C-Market intelligence GM -_ _ _ _ _ _ _ _ _ _ _ _ _ _Private trade supervision GMAppointment of staff BoardCr.o~,Information Unit Approve budget & program MOA I-4ILPrepare budget &work plan DHStaff training DHL..JCrop reports DR ___ __ ___ __ __

YCondition for effectiveness. 4

ANNEX 15

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECTESTIMATED SCHEDULE OF IDA DISBURSEMENTS

IDA Fiscal End of Disbursed Cumulative Balance ofYear Quarter during amount Credit

quarter disbursed

… ------------------ …(US $ 000) ---

1977/78 1 3,500 3,500 20,5002 1,674 5,174 18,8263 1,338 6,512 17,4884 1,338 7,850 16,150

1978/79 1 1,338 9,188 14,8122 1,338 10,526 13,4743 1,338 11,864 12,1364 1,339 13,203 10,797

1979/80 1 1,366 14,569 9,4312 1,366 15,935 8,0653 1,367 17,302 6,6984 1,367 18,669 5,331

1980/81 1 1,330 19,999 4,0012 1,330 21,329 2,6713 1,330 22,659 1,3414 1,341 24,000

February 18, 1977

ANNEX 16Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

STORAGE CONSTRUCTION

A. General

1. The Project would provide AMC with the following new storagefacilities:

Purpose Capacity (MT)

Grain Marketing Operations 242,000

Security food reserves 50,000

Input distribution 51,000

Total 343,000

The estimated cost of this storage construction is Birr 24 million (US$11.6million).

2. It would be possible to phase this new construction fairly evenlyas indicated below:

Project Year AMC Storage Construction(in MT capacity)

(1976/77) 83,000

(1977/78) 86,000

(1978/79) 87,000

(1979/80) 87,000

343,000

Such a program should avoid imposing peak strains on construction contractors.

3. Storage requirements have been carefully calculated to allow for theneed for separation of different types of produce. For both input distributionand grain marketing the months of February, March and April constitute the peakinventory period (Annex 8, Table 9), and this has been taken into account in

ANNEX 16Page 2

calculating storage needs. The new storage specifically for inputs would beconcentrated at Addis Ababa, Nazareth, Assab and Combolcha, and would representan addition to wholesale depot capacity from which distribution would be madeto MPP centers. However, these stores were designed in such a way that theycould be utilized for grain storage if needed.

4. Previous Ethiopian Grain Corporation (EGC) experience has shownthat in the present state of Ethiopian marketing development, bulk storageis inappropriate. EGC's silo capacity of 29,000 MT has remained largely un-utilized, and when used has involved re-bagging of deliveries because of theabsence of bulk handling and transport facilities at other points in themarketing chain.

5. Of the new operations to be handled by AMC, the marketing of theoutput of State farms and of imported grains would theoretically offer possi-bilities for bulk handling and storage. However, the uncertainties surround-ing the future operations of State farms and the temporary and variable cha-racter of imports do not justify the additional capital expenditure that theinstallation of further bulk storage facilities would involve. Moreover,EGC's existing silos have been transferred to AMC thus giving a nucleus ofbulk storage sufficient to cover any foreseeable special need (e.g. bufferstocking) during the Project period, and, as indicated in para 9, the designof flat stores has allowed for the possibility of their conversion to bulkstorage.

B. Warehouse Design

6. The warehouses would be of a standard design of 25 meters width and6 meters height to the eaves with their capacity varying according to thelength of the building. The basic size would be 60 meters long giving astorage cpacity of 5,000 - 6,000 m3 or 3,000 - 3,500 MT of grain (Appendix 1),but sizes could vary from 40 meters in length (capacity 2,000 MT) to 100meters (capacity 5,000 MT).

7. To deter rodents, the floor would be at least 0.6 meters above groundlevel and if it could be raised to 0.9 - 1.0 meters this would facilitateloading and unloading operations from lorries which should not be allowedaccess to the store. No permanent stairs would be constructed.

8. Foundations would have to be designed in accordance with the soilcondition of the site but could probably be standardized in a limited numberof types. Walls would be 3f either burned bricks or hollow concrete blockswith a height to the eaves of not less than 5.5 meters, and with windowscovered with wire mesh and shutters to close them during fumigation periods.Doors would be of the sliding type with a minimum space between walls anddoors, and a tightening device to be used during fumigation. Floors would be

ANNEX 16Page 3

of concrete with a reinforcement of wire mesh and would have moisture insula-tion of plastic sheet or similar material. Trusses would be of steel or wood;at the moment wood is cheaper than steel and there would be no problem inmaking the trusses with a free span of 25 meters. The roof would be of corru-gated asbestos sheet, which is made locally, cheaper than galvanized steeland better from an insultation point of view.

9. These stores would be designed primarily for the storage of producein bags, but they could be converted to bulk storage if needed by

(a) re-inforcing the walls to a height of 1.0 - 1.5 metersto withstand the pressure of bulk grain. If it werenecessary to go beyond this, a protective wall of bagswould have to be built inside the permanent wall.

(b) providing an elevator with an intake pit at one gableend, which lifted grain onto a chain conveyor runningbeneath the roof for the whole lenght of the building.

(c) adding augers and bagging machines for dischargeoperations.

If so uti'lized for bulk storage, the capacity would be reduced by a quarter.

C. Costs

10. From information supplied by the Ministry of Public Works, costsfor the type of store detailed above would vary between Birr 100 and Birr 140per square meter, according to accessibility of the site to a main or perma-nent road. Although most of the proposed AMC stores would be erected onreadily accessible sites, the higher estimate has been used. For the basicsize store the total cost would thus be 25 x 60 = 1,500 m2 at Birr 140/m2 =Birr 210,000. Taking the lowest capacity figure for such a store of 3,000 MT,a conservatively estimated cost of Birr 70 per MT of grain stored is arrivedat and this has been used in Project cost calculations.

D. Construction

11. The steps in the construction of these warehouses would be:

Selection of sites

Preparation of tender documents, containing detaileddrawings and specifications

ANNEX 16Page 4

Prequalification for contractors (bidders)

Invitation to tender

Examination of tenders

Signing of contracts

Construction and supervision

Contracts for the construction of storage would be awarded on the basisof ICB, with a 7-1/2% preference to domestic contractors. Where ICB is notpracticable for reasons such as the small size or scattered location of somefacilities, contracts not exceeding US$200,000 equivalent would be awardedon the basis of local bidding procedures which are satisfactory to IDA.The Ethiopian construction industry has been strengthened as a result oftechnical and financial assistance received under previous Bank loans andis considered at present to have sufficient capacity to meet Project needs.

ANNE) 16Appendix 1

Design of Regional Stores

Warehouse 1500m2

Storage caP:_ 3-:3500 MT of Wheat

or 5-6000W

=-.'

11 1 ' 7' "/',/, '' 1

.~~ ~~~ ~~~~~~~~~~~ _/ .

t .

- - - 7-

-~~/ .-i ,,1///

_ ._ ._ _, _ '_ _

,~~~ _ . _ . - _ -

_. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

Government Cash Flow (Birr '000)

1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89

A. Outflowl/

AMC (Annex 8) 2/ 28,431 11,177 12,141 11,283 -- -- -- -- -- -- -- --EGA (Annex 12) 1,289 1,335 1,656 1,712 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500

MOA 439 374 461 332 350 350 350 350 350 350 350 350

IDA Credit Service 94 163 247 331 372 372 372 372 372 372 369 365

IDA Credit Repayment -- -- -- -- -- -- -- -- -- -- 497 497

Total 29,403 12,199 13,655 12,808 2,222 2,222 2,222 2,222 2,222 2,222 2,716 2,712

B. Inflow 3/

IDA (Annex 15) 16,250 11,083 11,315 11,035 -- -- -- -- -- -- -- --Duties and Taxes (Annex 18) 1,577 1,292 1,452 1,095 -- -- -- -- -- -- -- --

Dividends AMC (Annex 8,Table 12) 723 2,875 4,446 7,262 7,262 7,262 7,262 7,262 7,262 7,262 7,262 7,262

Interest and Repayment ofMIIF -- -- 33 94 155 297 297 297 297 297 297 297

Total 18,550 15,250 17,246 19,486 7,417 7,559 7,559 7,559 7,559 7,559 7,559 7,559

Surplus Deficit (11,703) 2,201 2,741 5,828 5,195 5,337 5,337 5,337 5,337 5,337 4,843 4,847

Cumulative Surplus/Deficit (11,703) (9,502) (6,761) (933) 4,262 9,599 14,936 20,273 25,610 30,947 35,790 40,637

1/ Subsidies for fertilizer and grain imports are not included since these could be avoided if domestic prices for grain are allowed to increase to

an import parity level.

2/ Future replacements financed by accumulated depreciations.

3/ Turnover tax on inputs and produce not included since these amounts would be forthcoming even without project. Reimbursements of ECODD for

services performed by marketing centers will be reflected in ECODD's budget requests.

February 4, 1977

ANNEX 18

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

Customs Duties & Taxes (Birr '000)

Civil VehiclesWorks & Equipment Total

A. Total Project CostIncluding Contingencies

AMC 36,1651/ 6,522EGA + MOA 1,000- 268

Subtotal 37,165 6,790

B. Customs Duties & Taxes 10% 25%

C. Total Duties & Taxes 3,717 1,698 5,415

1/ MIIF

April 9, 1976

ANNEX 19Page 1

ETHIOPIA

GRAIN STORAGE AND MARKETING PROJECT

Monitoring Indices(Monthly data)

A. Volume of transactions

Volume of seed delivered to State farms" " " " " ECODD/Cooperative Societies

Volume of fertilizers delivered to State farmsIt t " " ECODD/Cooperative Societies

Volume of pesticides delivered to State farms" " " " " ECODD/Cooperative Societies

Volume of grain bought through ECODD/Cooperative Societies" " " " from State farms

if f to "Imported

Volume of grain sold to MillsWholesaleRetailOn export

Inventory of grain

it It inputs

Number of ECODD marketing centers/cooperative societies receiving inputsfrom AMC.

Number of ECODD marketing centers/cooperative societies engaged in grainmarketing on behalf of AMC.

B. Pricing (For specified grades)

Average Addis Ababa AMC wholesale price for wheatof it it it it it of barley

of if it if of of "i maizeit"of i it i IS " sorghum

teff

1/ Including oilseeds and pulses.

ANNEX 19Paae 2

Average Asella AMC producer price for wheat.

if it it of "1 "? barley.

it Jimma to " " maize.

teff.

AMC c.i.f. import price for wheat.

C. Facilities

Total average at hand

of which leased

of which input storage

Storage construction initiated

is "completed

AMC trucks operational

Number of MT/Km performed.

D. EGA

Total number of wholesalers registered.

Disbursements from MIIF NumberVolume.

IBRD 12045

COPAPR 190

ETHIOPIA

GRAIN SOAEAND

N R edo MARKETING PROJECT

- ~~~~~~~~~~~~~~~ \ ~ ~ ~ ~ ~ ~ ~ ~ 11 A--1

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