Ethiopia: World Food Program to Sign Maize Forwards Contracts With 29 Farmer's Unions-Sidama Elto Farmers Cooperative Union, which signed a contract for 4000 MT of maize
Partners of the maize alliance including Bedelu Delgeba, , Khalid Bomba(middle left) CEO of the Agricultural transformation Agency, Abdou Dieng (Middle right), representative and country director of WFP and Dennis Weller , mission director of USAID gave a short briefing to the media.
The World Food Program (WFP) is buying 40,000tns of maize from 29 farmers' cooperatives' unions in a forward delivery contract. This contract will ensure that the farmers will not lose if prices go up at the time of delivery.
The WFP signed three agreements to that effect with the Agricultural Transformation Agency (ATA), the Commercial Bank of Ethiopia (CBE) and four of the 29 unions, at a ceremony held on Tuesday morning, August 27, 2013, at the Harmony Hotel. The unions that will supply the maize, to be used in local food aid and school feeding programs, will be from Amhara, Oromia, Tigray and the Southern regional states.
Ethiopia expects 62 million quintals of maize harvest this year. This is only slightly more than the previous year's harvest.
The WFP started forward delivery deals in Ethiopia in 2012/13, with contracts for the purchase of 26,700MT of maize with 16 smallholder farmers.
As with all forward contracts, the WFP's deal with the cooperatives offers a price now for the delivery of maize in the future, with price adjustments made in case of increase. The price is determined using a method called a centre moving average in different local markets near to the cooperative unions supplying the maize.
To the price offered in the contract, transportation costs and other expenses, as well as a five percent profit margin is added, according to Mesfin Tesfaye, Procurement & Partnership Officer at the WFP. The price and delivery date for the different cooperatives is thus different, because regional prices and transportation costs differ.
The prices this year range from 420 Br a quintal for maize from the Southern region to the 520 Br for maize from Amhara. These rates are both lower than the 533 Br and 645.75 Br, respectively, paid the previous year.
Such a deal is beneficial to farmers, say Mesfin, because it guarantees demand, makes loans easily accessible and renegotiations make sure that farmers do not get a bad bargain. The WFP will also get a guaranteed supply, as the contracts encourage farmers to plant maize and because local Maize prices are always cheaper than international prices.
The WFP's forward delivery contract with farmers was launched in 2012/13, under two co-related WFP programs - Purchase for Progress (P4P) and the Maize Alliance.
P4P was launched in 2010 and is a system whereby the WFP buys most of the foods it distributes to emergency areas and schools from local small holder farmers. Prior to 2010, most of the WFP's purchases were from large traders and suppliers. This was because smallholder farmers could not fulfil warehousing, transportation and bid-bond requirements. After the WFP received complaints that the tender process was not pro-smallholder, it launched the P4P program, in 2010, in 29 countries, according to Mesfin Tesfaye.
In 2012, it decided to conduct purchase using forward trading deals, which is one of the four modalities under which the WFP conducts commodity procurement. The UN organ also makes food purchases through direct procurement, pro-small holder competition (limited to smallholders only) and pro-small holder processing option (which includes grain processing and is not available in Ethiopia).
For this, the Maize Alliance - a partnership of 10 governmental, aid and non-for profit organisations - was set up. The CBE is also in the alliance as a loan provider for cooperatives and farmers, if they are supplying the WFP. The Ministry of Agriculture (MoA) and the Federal & Regional Cooperative Agencies help in the selection of cooperatives.
This year's increased plans were announced at Harmony Hotel, in the presence of all stakeholders. This included Abdou Dieng, the WFP's country director; Khalid Bomba, CEO of the Agricultural Transformation Agency; Denis Weller, Mission Director of USAID and representatives from the MoA and the Federal Cooperatives Agency.
"Since the beginning of the programme, in 2010, P4P has procured over 60,000tns of food locally from smallholder farmers. This represents an injection of over 340 million Br into the local economy, equivalent to 18 million dollars," Dieng said in a speech he made at the event.
Three documents were signed at the event. The first was an MoU of all Maize Alliance partners. The second was a financing umbrella deal between the ATA, CBE and WFP. The CBE plans to loan up to 200 million Br at a 7.5pc interest rate. It provided 40 million Br in loans the previous year, 94pc of which have been repaid.
The third was a signing between four of the 29 selected unions. The cooperatives, except for one, were top performers, in terms of delivery during the previous contracts. These included - Admas Multipurpose Farmers Cooperative Union, which had its volume of delivery upped from 2000 MT to 4000MT this year; Merkeb Cooperative Union, which signed for the delivery 4500MT of maize, 500 more than its previous contract, and Sidama Elto Farmers Cooperative Union, which signed a contract for 4000 MT of maize; 1500 more than it was contracted for.
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