February, 1998

Addis Ababa

Table of Contents


1. Overview of Economic Policy
2. Background to the Agricultural Sector
3. Ethiopia's Agricultural Potential
3.1 Land Resource
3.2 Major Crops
3.3 Livestock and other Animal Resources
3.4 Water Resources and Irrigation Potential
4. Sector Policies and Strategies
5. Potential Areas of Investment
5.1 Cash Crops
5.2 Horticultural Development
5.3 Livestock Development
5.4 Fisheries
5.5 Apiculture
5.6 Commercial Forestry
5.7 Agri-Business




In mid-1991 the previous military regime ended, and a new government was installed. At that time, the economy was to a large extent under the dominance of the state which controlled both product and factor markets, and owned a large part of the modern sector of the economy. There were severe price distortions of foreign exchange and interest rates as well as of goods and services. Since then, the focus of economic policy has been to switch from a command to a market economy and progressively integrate Ethiopia into the world market.

The first task was to dismantle the legal restrictions on private investment and withdraw the state from controlling prices and markets. To this end, domestic and external trade were liberalised, state monopolies were abolished, and, at the same time, public enterprises were made autonomous in terms of management and finance, cut off from budgetary support, and made subject to eventual divestiture. Simultaneously, integration with the global market was initiated through reduction of import tariffs and devaluation of the birr (Ethiopia's currency). The maximum tariff rate was reduced from 230 to 80 per cent, while the birr was devalued by 142 per cent against the US dollar. These measures changed the course of the economy within a relatively short period of about two years, between mid-1991 and 1993, bringing into operation market forces and removing substantially price distortions.

In subsequent years, the establishment of a market economy and integration with the world market was further reinforced. The foreign exchange auction market for import of goods was fully deregulated, and the auction itself was held more frequently, changing from biweekly to weekly. Availability of foreign exchange for payments of invisibles, such as business travel and medical treatment abroad, was also increased. Import tariffs were further reduced from a maximum of 80 to 50 per cent; the average rate being presently 24.5 per cent. Price controls which remained on a few essential goods were lifted, thereby virtually completing the deregulation of prices of goods and services. In addition, petroleum prices were made periodically adjustable to reflect changes in world price. Pan-territorial pricing of fertilizer was terminated as was fertiliser subsidy. Tariffs of electricity and water were adjusted upwards, the former being scheduled to cover costs fully and allow a profit margin in the coming few years. Telecommunications, on the other hand, continues to be operated on profit basis.

Privatisation gathered momentum after an initial phase of preparation. Given the underdevelopment of the economy, there are only about 200 state-owned enterprises to be privatized including factories, state farms, hotels, construction firms, transport corporations, wholesale marketing firms, and small retail outlets and restaurants. State-owned marketing enterprises lost their monopoly with the removal of entry barriers for private firms, and shrank due to both deliberate down-sizing and competition, while insolvent enterprises that could not be resuscitated were allowed to go bankrupt. Retail shops, restaurants, a few factories and hotels have been privatised. Several other enterprises have also been offered for sale.

Currently, the main focus of the on-going economic reform is the widening of the scope of foreign investment to include telecommunications and electricity generation, complete the liberalization of the current account, and the deregulation of interest rates side by side with the creation of securities market. In keeping with the objective of progressively liberalising the foreign trade regime for goods and services, payments on invisible trade are expected to be deregulated fully by the end of 1990s. This will enable Ethiopia to attain current account convertibility. At the same time, the maximum tariff on imports will be reduced and the average rate lowered to 19.5 per cent.

To summarise, the transition from a command to a market economy has been made. There remain, of course, several scores of enterprises in the hands of the state, but essentially due to the process of undertaking privatisation itself, rather than lack of readiness to privatise. Perhaps more challenging is the elimination of price controls, removal of subsidies, commercialisation of telecommunications and electricity, and convertibility on the current account. In all these areas, the achievement in policy reforms has been remarkable, as Ethiopia has succeeded to establish a market economy, with minimal price distortions and successively decreasing tariff rates, on a sustainable footing.


Ethiopia is endowed with abundant agricultural resources. Having an altitude ranging from 180 meters below sea level to 4,620 meters above sea level, the country is characterized with diverse physical features that comprise 18 major agro-ecological zones and 62 sub-zones each having its own physical and biological potential. Due to these facts, the country possesses one of the largest and most diverse genetic resources in the world.

Although the country lies within the tropics, temperatures range from a mean annual of above 30c0 to a mean annual of below 10c0. In the lowlands, seasonal temperature variations are high, i.e., very cold in January and very hot in April/May. At higher altitudes with higher rainfall and greater variations in cloudiness, temperatures reach up to 250c during day time, and, in certain seasons in particular, drop to below 100c at nights.

There are two rainy seasons in Ethiopia. These are the short rainy season, Belg, during the mid-February to the end of April, and the main rainy season, Meher, covering the months of June to September. Rainfall distribution throughout the country varies depending on agro-ecological conditions of each specific area. Rainfall ranges from 2,200 mm in the south-west, decreasing to below 100 mm in all coastal plains.

Diverse soil types occur in the country. Combisols are predominant over much of the highlands while vertisols occur in large areas of the south-eastern highlands and in the south-western parts of the country. Regosols occupy much of the Somali plateau, Wollo and Tigray regions.

Agriculture is the mainstay of the Ethiopian economy. The sector accounts currently for 52 percent of the GDP, 90 percent of the total foreign exchange earning and 85 percent of employment. It also plays a crucial role in providing raw materials to the local industry. Ethiopia, with an area of 112.3 million hectares, is the ninth largest and third most populous country in Africa.

The Ethiopian agriculture is basically comprised of smallholder farming which accounts for more than 90% of the agricultural production and 95% of the total area under crop. 94% of crop and 98% of coffee is produced by smallholders. The remaining 6% of crop and 2% of coffee is generated from mechanized farms.

The major crops grown are cereals, pulses and oil seeds in order of their importance. Considering the 1992 smallholder farmers' production, cereals (teff, wheat, barely, maize and sorghum) accounted for 89% of the total crop production and 81% of the crop land. In the same year, pulses contributed about 10% of the total production, occupying 15% of the total land cultivated; while oil seeds production accounted for 1% of the total production occupying 4% of the total land under cultivation.

Agriculture is predominantly rainfed depending on two rainy seasons. These are the short rain season, Belg, from mid-February to the end of April that contributes 5% of the crop output, and the long rain season, Meher, covering the months of June to September which accounts for 95%. For many years, crop production showed a fluctuating trend with an average annual growth rate of 0.8%. It grew by 2% per annum during 1965-73, and at 0% - 3% during 1974-91. It reached its lowest point of 0.5% in 1991/92. In 1992/93 it showed an improvement by 6.2%. In 1993/94 it declined below zero by 4.5% due to severe droughts, pest outbreaks, etc. After many years of stagnation, food production started peaking recently with a record 8.7 million tonnes of cereal production in 1995/96 and about 10 million tonnes in 1996/97.

Presently, it is believed that there are two ways in which the productivity of the smallholder farmer can be improved in Ethiopia. One way is to use existing resources of land, labour and capital in better ways through improved technology, be it biological, chemical or mechanical. The former is viewed in terms of allocative efficiency and the latter in terms of technical efficiency within the same agro-ecological zone.

Over the last decades, the land/labour ratio has decreased quantitatively and qualitatively and so has the capital/labour ratio, though not to the same extent. At the farm family level, the land holding has shrunk, and the number of oxen available for farming has decreased. In other words, the mix of resources has changed. In this process of change, the allocation of resources of the smallholder has become progressively inefficient because of the increasing under utilization of labour in agriculture which at any rate was not compensated by off-farm engagement. As the size of land holding diminished, the labour input of the farm family decreased since the technique of production remained unchanged.

The government has initiated a five-year agricultural development programme with the objective of closing the country's food gap in the medium term by attaining a sustainable food production growth at a rate higher than the population growth. In the food-deficit areas which are moisture stressed, the government has developed and put to effect a "Sustainable Agricultural and Environmental Rehabilitation (SAER)" programme that focuses on the development of small-scale irrigation mainly through water harvesting.


3.1 Land Resource

Land is the basic agricultural resource on which the Ethiopian society presently depends for the production of food, clothing, energy and housing. Out of the 112.3 million hectares total land area, about 56 percent is regarded to be suitable for cultivation. However, only 14.8% of the total land is under cultivation presently for the production of annual and perennial crops.

Table I

Land Utilization Pattern in Ethiopia

Land use
Area in %
Grazing land 51.0
Cultivated with perennial and annual crops 14.8
Forest land 3.6
Bush-and-shrub land 8.1
Currently unproductive land 3.8
Total: 100.0

Source: MOA Department of Land Use Study and Administration, Land Use Systems and Soil Conditions of Ethiopia, Addis Ababa, June 1995

On the basis of altitude, temperature and rainfall, there are three main production zones in the country, namely, high potential cereal zone, low potential cereal zone and high potential perennial zone. The highlands comprise the high potential cereal and perennial zones that constitute 36.3 percent of the total land area and support 88 percent of the human and 70 percent of the livestock population.

The lowlands, which constitute about 63.7 percent of the total land area of the country, support 12 percent of the human and 30 percent of the livestock population. This portion of the country has immense potential for commercial agriculture, if utilized fully and efficiently.

Until recently, the development of irrigation schemes has been minimal. The combination of land degradation and lack of adequate rainfall in some years have often caused crop failures. In order to stabilize and boost agricultural production, it has become necessary to expand irrigated agriculture. The lowlands of the country, with their large flat and fertile land, hold great potential for the development of large scale irrigation schemes. The potential gross irrigable area is estimated to be 3.5 million hectares. To date, only 5 percent of the total potential is utilized.

3.2 Major Crops

a) Food Crops

Ethiopia has rich soil and diversified climatic regions suitable for the production of food crops. About 146 types of crops are grown. The major food crops grown in the country are cereals, pulses and oil seeds.The main cereal groups include teff, barely, wheat, maize and sorghum; and pulses comprise beans, peas, chickpeas, lentils, rough peas, fenugreek, soybeans and haricot beans. Oil seeds are grown in Ethiopia in several varieties. Among the major oil crops are sesame, niger seed, groundnut, rape and flax seeds. Sunflower and castor beans also have great potential.

Despite the country's high potential for agriculture, the production from this sector, except for 1996 crop year, could not be commensurate with the size and growth of the population. For as long as the rate of population growth remains high, increasing food production at a rate higher than the population growth becomes imperative. In line with this, an integrated agricultural extension programme has been launched throughout the country. By implementing the programme for the last two years, encouraging results have been registered in various regional states. To further strengthen this effort, the involvement of the private sector in large scale commercial farming and agro-industrial activities is vital.

b) Cash Crops

Coffee, cotton, tobacco, sugar tea spices and horticulture are the major commercial cash crops grown in Ethiopia. More will be said on these crops in a later section.

3.3 Livestock and other Animal Resources

The livestock population of Ethiopia is the largest in Africa and ranks 9th in the world. The country has about 31 million cattle, 23 million sheep, 18 million goats and 53 million poultry. The livestock subsector accounts for about 30 percent of the agricultural GDP and about 16 percent of the total GDP. Hides and skins are the second major foreign exchange earners, second to coffee. The livestock subsector provides per capita consumption of about 23.9 kg of milk, 10 kg of meat and 40 eggs.

3.4 Water Resources and Irrigation Potential

Ethiopia has abundant water resources that can be used for irrigated agriculture. There are nine major rivers (7,000 kms long) and a number of lakes (7,400 sq. km in area). Because of this, the country is often referred to as the "water tower" of Northeastern Africa. The country's total surface water availability is estimated at about 110 billion m3. On the other hand, the nine great river systems have an estimated total annual discharge of 102 billion m3.

Based on present indicative information, the total potential irrigable land in Ethiopia is about 3.5 million hectares. This figure could change as more reliable data emerge from more detailed studies currently underway. To date, only about 160,000 hectares have been developed, and yet more land has to come under irrigation to feed the fast growing population, provide raw materials for local industries, and combat recurring droughts. Table II below presents the potential irrigable area existing in the major river basins and the size of actually irrigated area.

Table II

Irrigation Potential


Potential Irrigable Area (ha)
Actual Irrigated Area


% Utilized
Abay (Blue Nile) 977,915 21,010 2.10
Rift Valley Lakes 122,300 12,270 10.00
Awash 204,400 69,900 34.20
Omo-Ghibe 450,120 27,310 6.10
Genale-Dawa 435,300 80 0.02
Wabi-Shebelle 204,000 20,290 9.90
Baro-Akobo 748,500 350 0.05
Tekeze 312,700 1,800 0.57
Afar 3,000- -
Mereb 37,560 8,00021.30


3,495,795 161,010 4.07

Source: MoPED, 1993


Within the overall policy framework of the agreement, Ethiopia's agricultural sector policy is to enhance the productivity of smallholder farming and at the same time promote commercial farms especially in the various river basins where the scope for irrigated agriculture is very wide. While the government does not foresee the share of agriculture in the total GDP to remain at its present level, the sector is placed at the core of the government's overall development strategy, more commonly known as Agriculture-Development-Led Industrialization (ADLI). More specifically, Ethiopia's agricultural sector policy may be summarized as follows:

By and large, the strategy of ADLI focuses primarily on agricultural development. This is to be attained through improvement of productivity in smallholdings, and expansion of large-scale farms particularly in the lowlands. ADLI foresees that agriculture would supply commodities for exports, domestic food supply and industrial output, and at the same provide market for domestic manufactures.

Agriculture is the foundation of the country's food production. The smallholder sub-sector is in particular the major source of staple food production. Food security can be achieved basically by promoting smallholder development in a sustainable manner.

In light of this, a special emphasis is placed on encouraging smallholder farmers to raise their productivity through various incentive packages (access to fertilizer, credits, etc.) and other supports. The development of the smallholder farming is envisaged to proceed in three stages, viz:

The first and the second stages are land augmenting in that more output would be obtained from the same unit of land. Output per farm-family would increase depending on the pace of productivity improvement. It is the firm belief of the government that sustainable agricultural development can only be ensured with the realization of Stage Three which is dependent on accelerated industrial development.

The agriculture sector strategy focuses on improvement of productivity of smallholder agriculture, whilst encouraging greatly the growth of both extensive mechanized farming and intensive commercial agriculture. The expansion and development of large-scale modern private farms would be promoted. To this effect, the policy is to:-


5.1 Cash Crops

Coffee, cotton, tea, sugar, spices, oil seeds and tobacco are among the major commercial crops in Ethiopia.

  1. Coffee

Ethiopia is the original home of coffee and the name "coffee" itself was derived from Kaffa, a region where coffee has been and still is a wild crop. The country produces one of the best coffee in the world. Coffee is also the single most important crop of Ethiopia as a provider of foreign exchange. Prior to the coming to power of the defunct military regime, coffee production, processing, and trading were in the hands of the private sector. During the military regime, private farms were nationalized and smallholder coffee producers were neglected. Private entry into coffee export got a high fillip after the declaration of a new economic policy by the Transitional Government of Ethiopia (TGE) in 1991. As a result, the number of private coffee exporters has been rapidly increasing and the volume of coffee export has significantly increased.

Coffee provides sustenance, directly or indirectly, to nearly a quarter of the population in production, processing and marketing activities. Thus, the need to encourage the private production, processing and marketing of high-value yielding coffee is of paramount importance to the government.

  1. Cotton

Cotton is an important fiber crop grown in Ethiopia. Large-scale production, under irrigation, is carried out in the Awash Valley where there is about 50,000 ha. under cotton. Small-scale farmers cultivate around 42,000 ha. of cotton annually. There is a huge potential for expansion of cotton cultivation specially in the Omo-Gibe, Wabi Shebelle, Baro-Akobo, Blue Nile and Tekeze river basins. There is also a good opportunity for exporting lint cotton.

  1. Tea

Tea was introduced to Ethiopia in the early 1920s with some trials in production. Since 1980, tea has been planted on commercial scale. Currently there are 1,300-1,500 ha. of land under tea. It is also foreseen that the habit of drinking tea in Ethiopia will further develop, while coffee remains the favorite.

  1. Sugarcane and Spices

A considerable opportunity exists for the production of sugar and spices for the domestic as well as for the export market. At present, there are three large-scale sugar estates in the country; two of them in the Awash Basin and one in the Blue Nile Basin. Spice bearing plants are cultivated in the southern and south-western parts of the country. Ethiopia exports significant quantities of spice extracts.

  1. Oil Seeds

Oil seeds serve as raw materials for the domestic edible oil industry. Some oil seeds, including sesame, are important export crops. Favorable agro-ecological conditions exist for introducing coconut for the production and processing of palm oil.

  1. Tobacco

Tobacco is presently grown at two different sites, i.e., Shoa Robit and Blatie. The farms are operated by Addis Ababa Cigarette Factory. The Shoa Robit farm is 80 ha. and the Blatie farm 250 ha. In addition, 350 ha. of land is cultivated by outgrowers who get extension service from the factory. The yield per hectare at both farms is estimated at 1,000 kg. The factory is not, however, self-sufficient in the supply of tobacco and accordingly imports about 600 tonnes per year.

5.2 Horticultural Development

The agro-climatic conditions of Ethiopia are suitable for the production of different kinds of horticultural crops (fruits, vegetables and shrubs). The involvement of the private sector is highly encouraged in the production of edible fruits and vegetables such as oranges, bananas, mangos, apple, peach, papaya, avocado, grapes, lemon, carrots, tomato, cabbage, etc.; in the production and marketing of flowers, horticultural seeds and other ornamental crops; and in the establishment of nurseries, storage and preservation facilities for fruits, vegetables and flowers.

5.3 Livestock Development

The country has fast weight-gaining cattle breeds, abundant area for ranch and good potential for export of live animals and livestock products. The economic benefits from the sector has not, however, been commensurate with its size. The major production constraints that have impaired the exploitation of such a large resource are undernutrition, malnutrition, disease and poor marketing system. To increase the benefits from the livestock subsector, the improvement of traditional animal management techniques and the utilization of more efficient and effective methods of livestock farming becomes indispensable.

Private investors are highly encouraged to participate in the areas of commercial breeding, production and processing of meat, milk, eggs and animal feed.

5.4 Fisheries

Ethiopia has enormous water bodies known for their abundant fish resources. The annual fresh water fish production potential is estimated to be about 45,000 tons of which only 20 percent is being exploited. This is equivalent to a consumption of about 175 grams per person per annum. Fish production and consumption has tremendous potential for increasing incomes of fish farmers, improving nutrition level of the population and earning foreign exchange through exports. The development of this sector is, however, constrained by lack of cold storage and transport facilities, poor fishing equipment, inadequate processing capacity, etc. The entry of private investment in the production, processing and preserving of fish and fish products and in aquaculture development is highly desired.

5.5 Apiculture

The flora of Ethiopia is very heterogeneous and has rich endemic element. It is estimated to contain between 6,500 and 7,000 species of higher plants of which about 12 percent are endemic. There are about 10 million bee colonies and over 800 identified honey source plants in the country. Although smallholder farmers use traditional bee hives, the annual honey and bee wax production are estimated at 24,700 tons and 3,200 tons, respectively, of which more than 90 percent of honey produced is used in the country for domestic consumption. Ethiopia is the first honey producing country in Africa, and the fourth bee wax producing country in the world after China, Mexico and Turkey. Present studies show that, under modern management, the traditional yield of 5 kgs of honey in one harvesting season can be improved to 15-20 kgs. Such a vast and untapped potential could be a favorable area of activity for investors.

5.6 Commercial Forestry

At the turn of this century, the forest cover of Ethiopia was over 40 percent. However, the forest resources are being depleted unabated at a very fast rate. The deforestation rate is estimated to be about 175,000 ha. per annum. The most recent estimations indicate that only 3.6 percent of Ethiopia's land area is now under forest cover. This awful situation has adverse effects on agriculture, energy and construction. An estimated three million hectares of natural forest presently remains in 58 areas designated as National Forest Priority Areas (NFPA). Out of these, 13 areas are administered under integrated management systems, with about 80,000 hectares of industrial forest having been established for limited sustainable exploitation. To reverse the dangerous trend of the current deforestation rate and at the same time maximize the use of the resource, undertaking a sound forest

development and utilization programme that includes private investors becomes imperative. In this regard, some of the investment opportunities in the subsector are:

5.7 Agri-Business

a) Fertilizers

Fertilizer is an input to which a relatively large number of farmers have access in the country. The consumption of fertilizers, where the food crop producing smallholder farmer is the major consumer, has reached a level of 251,000 tons in 1996. At present, the average fertilizer use is about 9 kg/ha and approximately 32% of cultivated area (2.8 million hectares) receive fertilizer. It is estimated that currently, only 20% of the farmers in the country use fertilizers.

On the other hand, much of the land and particularly the high potential cereal production area has been traditionally cultivated since time immemorial and, hence, has been exposed to severe loss of fertility. Intensification of the crop production systems in this and other potential areas necessitates, among other things, a greater and more efficient use of different types of fertilizers.

Ethiopia does not produce mineral fertilizers. However, some initiatives are being taken to produce these chemicals based on the country's natural resource endowments. To this effect, a techno-economic feasibility study for putting up a single super phosphate (SSP) plant, (20 percent P2 O5) and an identification study for a coal-phosphate fertilizer complex project have been conducted. The Calub Gas Project, currently in the pipeline for privatization, is expected to produce considerable amount of fertilizer. Thus, there is a vast area of investment opportunity for foreign investors to participate in the production of fertilizers.

b) Agrochemicals

Agricultural pests are always a serious threat to crop production in Ethiopia. Although no systematic loss assessment studies have been done, the annual pre-and post harvest losses are estimated to be at least 30% or equivalent to two million tons of grain.

At present, chemical application is one of the available pest control mechanism in the country. Pesticides required to control migratory pests like desert locust, quella birds, army worms, etc. are estimated at about 500,000 lts per year. The demand for pesticides to be used for non-migratory pests, for sprayers and other safety equipment such as goggles, gloves etc. is also high.

Hence, once again, potential investors are welcome to participate in the supply of different kinds of plant protection chemicals and equipment.

c) Agricultural Machineries and Farm Implements

The use of modern tractors, combine harvesters and related heavy machineries is still very limited in Ethiopia. The Nazareth Tractor Factory, with its limited capacity, is the only company that assembles tractors in the country. On the other hand, a rising trend in the import of tractors and harvesters is being observed as of recent years. Small-scale farmers on their part are looking more into the use of small mechanically-powered equipment both for crop production and post-harvest activities. Thus, great opportunities lie in the importation, assembly, manufacture and distribution of agricultural heavy machineries as well as of small-powered equipment such as irrigation pumps, sprayers, mowers, bailers, shellers, threshers, flour mills, powered fishing boats, etc.

Furthermore, agricultural hand tools and traditional ploughs still constitute the major means of agricultural production by Ethiopian farmers. Artisanal production, the main supplier of hand tools and implements, is showing a declining trend mainly due to shortage and rising cost of raw materials. The current industrial production of these implements is believed to be far below the present and future needs of farmers. Consequently, the manufacture, for instance, of improved agricultural tools and implements is very much encouraged.