Sesame Supply Rises, Market Falls

Standing in the hallways around the opulent Lalibella Ballroom at the Sheraton Addis, in smartly fitted navy suits, or fancy beige blazers, exporters of pulses, oilseeds, and spices are shaking hands, smiling, reacquainting with old friends and making new ones while nibbling on hors d’oeuvres. They look like they are having a wonderful time. But Ethiopia’s International Conference on Pulses, Oilseeds, & Spices, was not in celebration of a good year in business.

One exporter, Adugna Alem, general manager of Chweani Import & Export Plc who was at this conference, has a warehouse full of unsold sesame, despite offering a rate of 1,100 dollars per tonne at a loss, he claims.

“Prices were going down,” he said. “When they hit 1,700 Br per quintal, we thought they couldn’t go lower, so we bought a lot of stock.”

Ten months ago he had no trouble selling to his Israeli and Chinese business partners at 1,700 dollars a tonne.

Oilseeds, of which sesame comprises the biggest part, brought half a billion dollars into the Ethiopian economy in the last fiscal year alone. But issues surrounding the trade of sesame were raised in the discussions. The conference  was held on November 18 and 19, 2015, at the Sheraton Addis Hotel. The annual conference, held for the fifth time this year, included guests from 200 local, and 100 international companies, with a guest list including President Mulatu Teshome (PhD), and Ayana Zewdie, state minister for Trade.

Many in the business incurred serious losses or made limited profits. Data compiled by the Ministry of Trade (MoT) show that despite a five per cent increase in exports to 315,000tn in the previous fiscal year, revenue had decreased by 22pc. This was due to a larger increase in supply than demand.

“Right now world production stands higher than demand,” said Hakan Bahceci, founder and group CEO of Hakan Agro, a Dubai-based international food trader, and chairman of the Global Pulse Confederation.

Hakan Agro has 26 overseas facilities that currently export 54 different food products from 52 countries of origin to 82 destinations.  In the past year alone, Hakan Agro  supplied 130 million dollars worth of wheat.

In the summer of 2014, Humera, an area in Northwest Ethiopia renowned for its high quality sesame production, received too much rain, enough to ruin the year’s production of the country’s second biggest cash crop, sesame. About 70pc of the produce in Humera was designated as class four and five, the lowest possible grades, said Atakhelti Amare, Ethiopian Commodity Exchange’s (ECX) branch manger at Humera. By November of that year, ECX data show local trading prices on a downhill trajectory.

This trend was mirrored in the international prices of sesame.

World sesame production has increased to over five million tonnes, according to Food & Agriculture Organisation (FAO)  data, two million of which were produced in Africa. But Ethiopia has not been able to compete despite exporting 90pc of its production. In 2010 the country produced more than the whole of North Africa put together, almost 330,000tn and eight per cent of the world’s total production, the data say. By 2013, it was outdone by Sudan and Tanzania, bringing its international share to four per cent.

Sudan now offers the same variety of the oilseed for which the world had previously favoured Ethiopia; Humera sesame.

“We used to be price setters,” said Mulugeta Kidanemariam, manager of K. Mikedem General Import & Export, “now we are price followers.”

Still Hakan believes Ethiopian farmers are getting good revenue for their yields, expressing the view that ECX has brought a transparency that has altered the market for the benefit of the producer.

Since since its establishment, ECX has provided a platform that connects smallholder farmers with large-scale exporters, thereby enabling access to a dependable supply of selected commodities. The Exchange, a public private partnership, is the only legal form of trading in sesame locally, said Tewodros Assefa, corporate communications senior manager. Sesame is collected from seven different sites located mostly in the northern half of the country.

In an effort to raise the value of various crops, EXC is about to introduce a traceability programme, said Tewodros. This is a tagging system, designed to track the footprints of a product from its origin to destination. It helps end users know exactly where the product is from, and what to expect.

Other issues surround the way the export of sesame to Ethiopia’s largest buyer, China, is managed. Only the state owned Commercial Bank of Ethiopia (CBE) is involved in this market, and exporters are not allowed to use the dollars they generate. One exporter who prefers not to be named, told Fortune that this was why he had reduced his sesame exports to China from 85pc to 25pc.

During the first Growth & Transformation Plan, the Agricultural Transformation Agency (ATA) cultivated 22,000ha covered by new technologies aimed at increasing productivity and quality. However, ATA’s progress report for GTP I, said a whopping 95pc of sesame exports were in raw form, thereby accessing only lower value markets, and basically not realising potential value added earnings.

The Ethiopian Association of Pulses, Oilseeds, & Spices Processors & Exporters Association (EPOSPEA), too, has had its members travelling to visit processing plants in Turkey, Israel, China, and Japan. Four such field visits were made in the last fiscal year alone, Haile Berhe, President of EPOSPEA told Fortune, the most recent one, comprising 24 exporters took place in August, 2015. None of those trips has resulted in any company that processes sesame.

The annual conference also consisted of companies which manufacture and supply seed processing machinery, exhibiting their products through videos and catalogues.

In contrast to last year’s disappointing outcome, sesame is one of the few crops benefitting from this year’s drought and managers at ECX’s warehouses expect quality to rise.

“I have seen a radical turnaround,” said Atakhelti. The Exchange grades the commodities that come to its doorstep before it puts them up for auction. Ninety-six per cent of the seeds they received in the past month, were issued quality certifications of grades 2 and 3. He further explained that the crop’s quality, and consequently grade, decreases significantly, especially if precipitation occurs close to harvest time. That was what happened last year, he told Fortune, but this year, as the conditions seem favourable, he expects a much better outcome.

Exporters, however, are still wary of the market. Ethiopia is, now, the 10th largest exporter of sesame in the world. Surplus production in the international context has caused an accelerated devaluation of the crop, bringing the price down from its comfortable perch at 2,500 dollars for every metric tonne, to 1,300 dollars.

Different companies are dealing with the lowered prices in different ways.

One older, more established exporter, lamented that the current market is really disappointing.

“We are operating at a loss,” said the manager, who asked not be named. He explained that after buying sesame from ECX at Friday’s price of 2,030 Br a quintal, or 20,300 Br a tonne, the company meets the costs of cleaning, certification, re-bagging, forwarding, port handling, and associated labour and transportation costs. These take 160 to 180 dollars per tonne.

Total cost then, according CBE’s buying rate on the same day, amounts to 1,127 dollars. But buyers are not buying at this rate. They were forced into the import business, despite their reluctance to do so, in order to recover some of that loss.

That company harnessed some of the foreign exchange it had earned, to import commodities for sale in the Ethiopian market. Chweani Import & Export Plc, on the other hand, faced a liquidity problem related to unsold stock of sesame, which made it unable to import bags and children’s clothing, another business in which it is involved.

Exporters suffer from an operation that is not scientific, remarked Bereket Gebremedhin of Al Impex, a firm that trades internationally.

“It looks like the kind of trading that is done in local farmers’ markets, only relative to the previous day’s conditions”, Bereket said, “despite ECX’s claims that it trains traders.” He further explained that when prices go down, some buy more, because they assume that the prices will increase again and they can turn a profit on the sale. When prices go up, they also buy more so they can have more in stock before prices spike further. If they see their competitors buying or even inquiring about prices, they buy even more because they assume they must know something. All this buying is based on speculation.

His company does not sell at a loss to recover the profit elsewhere. He said that his import export divisions are strictly separated, and do not even bank in the same institutions. Their survival can be attributed to very careful practices, he explained: careful buying and never keeping stock.

Exporters that deal in Humera sesame have also been complaining about the closing of a hundred plus kilometres of road that they relied on to get their goods to Sudan before shipping from there. The road has been closed for four months, and they now use a route that is three times longer, or go all the way to the Djibouti Port; adding 40 dollars per tonne to the cost.

The minutiae behind successful trading go much further. In addition to the balance between demand and supply, fluctuations in currency, price decreases, economic crises, wars or unrest, whether conditions, trader mentality, consumption patterns, and stock in destinations all affect trading, Haile told Fortune. He claimed to have turned a profit in the past year.

Though aimed at creating new liaisons between international buyers and local exporters, the Conference according to most accounts, only served to reaffirm relationships between old friends and existing business partners.






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