TITLE: Private Investment in Commercial Agriculturein Ethiopia: Opportunities and Constraints

By: Tadesse Kuma

Publication Date: May 15-16, 2003


A key to the development of Ethiopian lies in the transformation of the rural sector in general and agricultural sector in particular. This is so since the agricultural sector contributes more than half of the national output, provides employment for more than 80 percent of the labor force and generates more than 90 percent of the foreign exchange earnings of the country. The movement of entire economy is highly dependent on what is happening in the agricultural sector. Any change in the sector directly or indirectly affects welfare of the bulk of the opulation. The growth rate of the agricultural sector determines the overall growth rate of the economy.In this regard, much has been done to raise the productivity of agricultural sector, despite the hindrances emanating from use of traditional farming methods, minimal utilization modern productivity enhancing inputs and high dependency on rain. Yields for peasant farmers are, on average, around 1.2 tons/ha for grains, but vary considerably from year to year in  ponse to rain fall pattern. As a result, the country remained far from ensuring food self-sufficiency for the last three decades. It is now widely recognized that the main path to alleviate poverty, attain food security, and bring about transformation of entire economy lies in the increased productivity of agricultural sector.However, increase in production of peasant farmers alone does not guarantee agricultural transformation unless it is linked up with domestic and international agricultural markets. Peasant farmers have fragmented land, lack capital to invest on their farm and are far from market information. Here the importance of commercial farmers with relatively better capital, access to market information and with modern agricultural knowledge is indispensable and can contribute directly by serving as a bridge for agricultural product markets and might have positive spillover effect on the traditional agriculture through dissemination of improved technologies and new agricultural practices. According to Seckler (1993), transformation of agriculture occurs when a substantial number of rural households have income exceeding the poverty level, produce for market (selling a substantial proportion of their output), specialize in production at farm level, invest more on their farms, use purchased inputs including hired labor in significant quantities, and adopt improved technologies on regular basis when productivity of land and labor increase. At this point dynamic growth process takes place, with the agricultural sector modernizing,continuing to supply food cheaply and releasing labor to non-agricultural sector.In the last three decades, the different regimes have been adopting different economic policies to transform the sector. The agricultural policy of in the pre-975 period heavily favored the expansion of large-scale commercial farms and export crop production and gave priority to industrialization and sow the contribution of the agricultural sector only in terms of raw materials to expanding industrial sector-neglected peasant agriculture and crop production. In the military regime, emphasis has been given for the development of state farms and cooperatives; smallholder farmers who contribute lion share of agricultural output disregarded. The role of the private sector in the development of national economy deliberately suppressed without considering global and national economic environment that severely disadvantaged the much-desired socio-economic development of the country resulting in widespread poverty among majority of the population and leaving backlogs of development.The current government, since 1992 has adopted a market-oriented economic policy with the aim of rehabilitating and revitalizing national economy thereby creating favorable conditions for rapid socio-economic development. Accordingly, the economy has opened up for wider and active participation of private investors, both foreign and local. The role of the state in the economy has been limited only to the drafting and implementation of macroeconomic policies and the development of basic infrastructure, thus laying the basic 2 foundation for attracting foreign capital to the country and encouraging local private capital to play its proper role in the socio-economic development of the country. In light of this, Pro.15, 1992, Pro. 37/1996, Pro.116/1998, Reg. 36/1998 and Reg. 84/2003 were adopted to promote private investment The government has clearly emphsised that for agriculture to continue serving as an engine of growth in the coming years through the domestic economy and international trade,it has to progress in terms of commercialization, with more intensive farming increasing proportion of marketable surplus providing raw materials for industries. Despite all the efforts, when the facts on the ground are seen closely, the agricultural sector performance as well as private sector participation remained weak. The poor performance of the sector over the past three decades, coupled with periodic draught problems put lives of millions of rural households under critical food shortage, depletion of capital and assets and increasing dependency on food aid. The number of needy people in the current draught has been approached to 14 million, which is the highest in the history of the country. Ethiopia has not able to be food self-sufficient in the last two to three decades. It has commonly been reported that Ethiopia ranks among the poorest countries in the world. Given the foregoings in Ethiopia, ensuring food security and tansformation of agriculture are intimately linked. Food insecurity is ultimately a manifestation of poverty. The transformation from subsistence, agriculture to more commercialized system based on specialization and exchange, which in turn calls for active participation of private commercial farmers through adopting more attractive and flexible policy environment.In light of this, the paper tries to analyze the current status of the private sector participation in commercial agriculture, the policy environment towards promoting the private sector draw lessons learned else where regarding the role of the private sector.



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