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The Ethiopian sugar exporting sector is set to consolidate its share of the European sugar market following the revision of its quota to the market under a new initiative that encourages the increased importation of non-war materials from developing countries (LDCs).
Ethiopia is to export 24,000 tonnes of raw sugar, duty free this month (January, 2009) to the European Markets under the "Everything but Arms" (EbA) Initiative, a special arrangement the European Union (EU) has granted to (LDCs).
The EU had given Ethiopia a quota to export sugar duty free since 2001. As of 2009/2010, Ethiopia will export raw sugar duty free but without any quota. However, the price of raw sugar has declined by 48 Euros this year from the 496 Euros per tonne last year.
"In 2009, Ethiopia will be able to sell its sugar in EU markets through negotations with buyers rather than at a fixed price." , a source at the Ethiopian Sugar Development Agency told Fortune. The price may further decline to 335 Euros, the source disclosed.
EU member countries have an annual total sugar demand of 16.7 million tonnes. The countries combined production capacity is 13 million tonnes annually. The gap between the demand and local supply is filled through imports.
"Ethiopia can benefit a lot from this market," the source told Fortune.
In February 2001, the EU's council adopted regulation (EC) 416/2001, termed 'Everything but Arms' (EbA). The regulation granted duty free access to imports of all products from least developed countries without any restrictions on quantity. Bananas, sugar and rice, however, were exempted. The EbA prohibits the countries from exporting arms and munitions.
Ethiopia has been exporting sugar since 2001 and its quota has increased over the years. In 2001 the amount it exported was 14,000 tonnes and the figure increased to 21,700 by 2007/2008.
Ethiopia exports sugar to EU while its production capacity, which stands at 280,000 tonnes a year, is much below the yearly 460,000 tonnes local demand.
Wenji-Shoa Sugar Factory produces 80,000 tonnes of sugar per annum while the other two state owned factories, Metehara and Fincha, produce the remaining 200,000 tonnes. The gap in demand is covered with imported sugar. In contrast, wenji-shoa produces the consignment for EU markets.
This situation has led to the natural question why Ethiopia needs to export sugar while it imports part of its annual sugar consumption.
"Ethiopia exports sugar through a special privilege," the source told Fortune. A quintal of sugar is exported to EU for 78 dollars and Ethiopia imports the same amount for 50 dollars, according to the source.
The government has already set out on ambitious plans and expects a lot from the sugar industry.
It is working to establish one additional factory in Tendaho area of the Afar Regional State and is at the same time expanding the production capacities of the existing ones. These projects in aggregate consume 15 billion Br.
India funds about 640 million dollars for the establishment of the Tendaho Sugar Factory. The rest of the fund for the projects is covered by the Ethiopian government.
The finalization of these projects would raise the production capacity to 600,000 tonnes of which 200,000 tonnes will be for export.