“Governments are bad at doing commercial business.”

8 mins read

Joost Heij is Country Manager of Tradin Organic, a global supplier of organic ingredients with 13 global offices. Subsidiaries under the company’s Ethiopian operations include Selet Hulling PLC and Sunvado Manufacturing PLC. Joost has more than 25 years of working experience in finance, trade, and management, including 13 years as an entrepreneur.

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Globally experienced in Africa, the former Soviet Union, and Asia, he worked at Peja International BV and Africa Juice BV before becoming General Manager of the decades-old Upper Awash Agro-Industry Enterprise. He holds a bachelor’s degree in law from the University of Groningen and a master’s in international banking and management from INSEAD in Fontainebleau, France.

Currently, Joost heads Sunvado Organic Avocado Oil, a processor and exporter of premium cooking oil with operations 300 km from Addis Ababa in Yirgalem. Joost talked to EBR’s Addisu Deresse on agricultural exports and the challenges of the sector in general.

 


Tell us about Tradin Organic.
Tradin Organic is one of the largest organic food ingredient traders and distributors in the world. It is a Dutch company with headquarters in Amsterdam and they started at the end of the 1980s and beginning of the ‘90s. Tradin trades a very wide range of organic products, which we source from all over the world. Very big in cocoa, for instance, but also nuts, oilseeds, and fruit concentrates.

Lately also, we’re building up organic oils. We’re very big in the United States; we have a large office there because organic basically started in California. In Ethiopia, we have been here for over 10 years. We had organic sesame here, which is a bit of a problem now because we were sourcing from Humera. Much of that has basically stopped now and we’re developing other sources. We have a factory in Lege Tafu, where we clean organic sesame. Three or four years ago, we started looking at organic avocado oil. So, we have now been in it for this third season of production.

Northern Ethiopia, which is dealing with a security challenge, has been a major source of sesame. Where are you getting the product now?
Unfortunately, Humera cannot be the source for us anymore. Sesame is still coming out of Humera, but for organic you need to have an internal control system. You really have to have the extension workers and a lot of control on the ground. So that’s impossible for us now and we’re looking at other regions. We tried to develop the business in Gonder and Metema but it’s facing some problems thus far.

We are also looking at options in Bale which is a very interesting area as well as undertaking projects in the Omo valley, where we work with three investor-farmers to see whether we can develop growing organic sesame there. It’s an attention-grabbing area because there’s abundant land and water. The land is basically virgin, which is good for organic, and hasn’t been produced on for three years so we don’t have to wait until all the pesticides leave the soil.

We are also considering Somali areas and its vast available lands. But all these things unfortunately take time and a lot of patience. You know, it’s not as simple as everybody thinks it is. You need to have good farmers and a lot of the land is owned by investors that are not necessarily farmers. Sometimes these investors develop this romantic idea about having a business in the sector but they don’t really know what it is; farming is a 24 hours job. That is why the yields are really very low. There’s no real development, people have been growing sesame on the same piece of land for 20 years and yields are going down. And so, it’s good to look at other areas now and there are possibilities.

So now tell us about Sunvado.
Sunvado is owned by Tradin Organic. The idea was basically started about four years ago when we were considering other things that we could possibly do. There’s a lot of avocado in this country and we started investigating it to find that the indigenous avocado grown here is not suitable for export. It won’t be accepted in the Western markets because of its issues with shape, size, and thin skin which can lead to huge transportation losses.

So we analyzing if it could be suitable for oil. We then learned that a lot of the coffee cooperatives around Sidama are organically certified. The area is basically organic by default; farmers don’t have money for pesticides and fertilizers. And it’s an agroforestry area, which means they are all smallholders. Avocado trees are used just as shade for coffee plantations. We looked at the potential and the taste and whether it can be used for oil. But we made a mistake during our initial investment of overestimating the yields for which we have probably lost millions for. Still, we decided to invest in an avocado oil factory and commenced in January 2020.

So, Sunvado was ahead of current efforts by the government towards avocado exports?
We were not the first one. I think there were about three other investments before us. The funny thing is that I hear a lot about these initiatives to increase volumes and diversification of exports. But no one is talking to us, not even the government and I don’t know why. But they have very ambitious plans. I think Ethiopia could produce quite good amounts of avocado oil. But if the government is not careful, the whole industry could quickly be destroyed if you let too many people start this. Fresh avocado market prices will rocket from the competition among traders and processors for raw materials. We have seen the same thing in Kenya, where too many companies were competing for the same volume of natural resources.

Currently, many investments are coming into the area competing for the same pie of resources, thus inevitably inflating prices. The international market has a price ceiling so you cannot raise prices of the final product as much as you like. Profits will then diminish to the extent where operations are no longer feasible. I think the government really has to look at how much is available and monitor and regulate investments with due consideration for the sustainability of the venture and exports. They have to make sure there are enough avocadoes for the fresh markets as well as for processors and exporters with viable profits. Otherwise, it’s not going to work and will just be a temporary good time for the farmers.

People also seem to be very much optimistic about the yields. I’m not talking about the Hass variety, because that’s another story. But from the indigenous avocado, if you get an oil yield of 4 or 5Pct, you’re doing great. It can be much higher. Let’s say you pay ETB9 for a kilo of fresh avocado having a 5Pct yield. You’ll need 20 kilos of fresh fruit to make one kilo of oil, which is ETB280.
At current rates, a kilo of avocado costs USD3 to 3.50 per kilo and conventional avocado oil is sold between USD4 and 5. You then still have to consider your overhead costs. It’s not going to be a profitable business. The other problem is that most new investors come not for profitability but to access foreign exchange for readily-sellable import materials.

So these are things the government should consider and not license somebody that is clearly investing only to subsidize their import business. It should be a serious player that is really interested in developing the avocado business. In the long term, it can be a good business. But, we have seen how sesame exporters sold at losses to make 100Pct in profits on their subsequent imports. This is unsustainable.

If the government thinks the dollars are going to roll in immediately, they are mistaken. It’s a three, four-, or five-year development. There are two or three factors that are really important: raw material availability, price, and oil yields. It looks easy, but it’s never so; they never talked to me about it. Yet they have all these grand plans which I think is too early for. I think that in 10 years’ time, Ethiopia can be a major supplier of avocado oil as well as fresh avocado.

You have to develop a strategy of how to develop and not just think it is easy. Even our company made a huge mistake at the beginning by overestimating the yield from Sidama. We incurred huge losses but that is okay. The first three to four years are always where the learning curve lies. I did not have that experience and made mistakes. Also, if you really want to grow your export industry, you have to look at yields.

What challenges and achievements were encountered in your days as General Manager of Upper Awash Agro-Industry?
I think it’s one of the farms with the highest potential in the country; it’s in a very good area with water. I haven’t been following their ongoings lately but one of the things that I think they’re doing right is investing in orange orchards. I believe they have also refurbished their tomato processing plant. They were dealing with very serious mismanagement when I joined with people making a lot of money out of the company. With the help of Horizon Plantations, we stopped the stealing and looting. We started investing in extending and renewing the aging orange orchards as well as installing new production lines in the tomato processing factory which was basically antique and from the 1970s.

There is this new export scheme that connects farmers directly with exporters while abandoning the Ethiopian Commodity Exchange (ECX). What is your take on this?
As I do organic, I don’t have a lot of experience with ECX as it doesn’t trade organic produce. We use the exchange only as a price reference when we buy sesame. In principle, ECX is a good idea but I’m not sure that the execution has always been the way it should have been. I know there have been quality problems and other issues. Commodity exchanges work all over the world; it guarantees farmers get a fair price for their produce. But, if I order Grade A from ECX and they do not control the quality and I receive Grade B, that’s a problem. So it’s more of an execution thing but the idea is brilliant.

Selling directly could work but then again, it all depends on execution. The government has to be careful as at some point someone will try to fill in the gap between the farmers and the exporters.

How do you see governmental efforts to diversify exports with new agricultural items?
I think it is a really good effort and is necessary to diversify exports. But again, if they want to develop avocado oil, why don’t they talk to me? I am one of the few with decent experience in the area. I am ready to exchange my ideas. They don’t have to agree but let’s at least have that exchange. They need to talk to people already in the industry.

We should get away from the idea that the government has to do it by itself. It should set the conditions, rules, regulations, and infrastructure to let the private sector develop it. Usually, governments are bad at doing commercial business. The business itself should not be done by the government; that is a recipe for disaster. Perhaps the government is too much involved in agriculture and industry.

What do you think is holding Ethiopia back from attaining better yields commensurate to its natural potential?
What I find disappointing is that if you look at this country with all the different climates and different possibilities in a wide variety of produce, the level of agriculture and yields is just not good enough for a lot of people. For a long time, I thought bigger or commercial farms were required, or more mechanization. I don’t know if the country has tried it right or made the trials with the right people, but it is just not working.

I talked to another Dutch guy two weeks ago and he was really going for smallholders. I believe he is doing a small project here and has achieved quite good yields with these farmers of small plots. So, they could also be an answer. There’s also something in the culture that is not very open to change; it’s very traditional and very conservative. Once, we tried a mechanization project where farmers used tractors and planters on their lands; but it just didn’t happen. I like the pride of Ethiopians, but I am also afraid it might be too much. There is also the issue of land. Land ownership here has a challenge of its own.EBR


10th Year • Apr 2022 • No. 106

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