Access Capital pays highest price, 623 Br per hectare for 5,000ht land in Benishangul Regional State
In a bid to satisfy the local demand of cotton, the Ministry of Agriculture (MoA) has leased a total of 54,000ht, slightly bigger than the size of Addis Abeba, to eight private investors in the past seven months.
Most of the land which was leased to these companies is located in Benishangul Gumuz Regional State. It was leased to eight companies, including Access Capital and Tracon Trading, who have already paid the one year lease price. Access Capital leased 5,000ht paying the highest price of 623 Br per hectare.
The lease price of the land available for cotton farming was set through a research done by the Ethiopian Development Research Institute (EDRI), established in 1999. EDRI developed a standard lease price based on the type of land and its proximity to Addis Abeba.
Out of the available land, plots located 500km from the capital and easily irrigable were set at 992 Br per hectare while land located 700km from the capital was set at 111 Br per hectare, according to the pricing of the finding, based on the research.
Although the MoA has been leasing land for the cultivation of export commodity crops and seasonal crops, it has started leasing land only for industrial crops like cotton, sugarcane, rubber and soy beans, according to Brehanu Tesfaye, agricultural expert at MoA.
Cotton came to the forefront of the agriculture sector last year when local supply was not enough to meet demand from local textile and garment manufacturers. What little cotton was available was being exported as its price in the international market skyrocketed.
The Ethiopian government banned the export of raw cotton in October 2010 and allowed cotton growers to sell at international prices deducting freight and transport cost. Facilitated by different government institutions including the Ministry of Industry (MoI), MoA, Ministry of Trade (MoT) and the Ethiopian Textile Industry Institute (ETIDI), the price of a kilogramme of cotton was set at 42.78 Br for three months, in November 2010.
The international price continued to rise unabated reaching 73 Br per kilogramme, while the local set price, which was adjusted, stood at 57 Br per kilogramme. However, the international price for cotton drastically decreased in the past couple of months.
The price of a kilogramme reached a record low of 4.90 dollars in March 2011, and kept falling to less than 3.60 dollars in June, reaching 2.50 dollars in August, according to Cotlook Index, which indicates global cotton prices. The decline in price is due to a drop in demand from cotton spinners because of the high prices of raw materials and problems in credit access, according to the International Cotton Advisory Committee (ICAC).
Two weeks ago, the Ethiopian government lifted the price cap. However, the demand for cotton in Ethiopia is so high as to have increased from 57,000tn to 76,000tn in 2011, a 33pc increment from the previous year.
The supply is estimated to reach 193,146tn in 2014/15, according to the five year strategic plan of MoA. This may explain why cotton has received priority.
The MoA leases a minimum of 3,000ht of land and a maximum of 25,000ht for cotton growers. An investor is required to show a bank statement of one year which shows a balance of 30pc of the reinvestment and the audit report of the company and an environmental impact assessment study report along with the business plan. Foreign investors and people from the Diaspora are required to get a support letter from the Ethiopian Embassy located where they live.
To date, 93,985ht of land is covered with cotton, of which 26,377ht are held by private investors and the rest by local farmers.
“If cotton covered areas produce and demand is met, it might lead to lifting of the export ban,” Berhanu told Fortune.