Special Merkato: Food retail in Addis is changing rapidly, says IFPRI study
A study published last year by researchers of the International Food Policy Research Institute (IFPRI) and Ethiopian Development Research Institute (EDRI) stresses the high variability in prices and quality in the food retail market in the Ethiopian capital. If Addis-Ababa is one of the emerging major cities in Sub-Saharan Africa, the strong presence of governmental policies impacts significantly the dynamics of the market for food.
A rapidly changing market
Supermarkets are now starting to be part of the landscape in Addis-Ababa, or at least in its wealthiest areas. The opening last year at Meganagna of the first “hypermarket” (of the local chain Shoa) was certainly an event for Addis dwellers. These are obviously targeting the upper class, not yet the average population. But one can feel a rising fascination for this new mode of consumption; in that hypermarket, you can see couples wandering in the alleys, hand-in-hand, not really buying anything but amazed by the profusion of supplies.
The arrival of supermarkets is, as pointed out by authors of the IFRPI study, associated with an increase in prices, as import products are marketed for the first time in the country and targeting the richest customers. However, as they emphasize, as stores are opening and their supply chains improving, larger volumes allow prices to drop. If these changes are accompanying the rise of a middle-class, such a development also has significant effects on the entire value chain for local food suppliers – a sensitive topic which remains hot even in developed countries.
One supermarket in Bole area: The length of the alleys are however not yet a synonym of variety
One major sector which, according to IFPRI researchers, has not been affected in Ethiopia by the arrival of supermarkets remains that of cereals. Flour is still sold by traditional mills, specific shops and cooperatives. This is also because we are not yet in a free market economy.
Which remains shaped by government action and policies
Anyone who knows Ethiopia is aware of the strong presence of the government on the economic arena. After years of high inflation, government intervention intends to heal anxieties about food prices.
As far as food retail is concerned, foreigners are forbidden any investment. As a consequence, in the current legal framework, no international chain of supermarkets could enter the Ethiopian market – mostly local brands are developing, under the model of well-established stores opening new branches in other areas of the city.
One step ahead in the supply chain, the government has gone even further: providing itself the wholesale supply to supermarkets. The 100% government-owned (and so far run by… Chicago-based consulting firm AT Kearney) wholesaler “Alle!”1 started operating in Spring 2014.
The government is also very present in the cereals sector, an ultimately sensitive one of course. Controlling closely the supply chain, the government imposes price caps, subsidizing imports as necessary. However, beyond their fiscal cost2, price controls pose a challenge to a satisfying supply of the three (mostly imported) products which are concerned by this policy: wheat, sugar and palm oil3.
As pointed out by the authors of the study, rationing is common because of a lack of supplies and the supply chain is distorted as price cannot be adjusted to the rising demand4. Authors argue in favor of a better self-targeted subsidy policy (i.e. one that ensures that the subsidies are really only benefitting to the poor) or its replacement by an urban safety net program. The latter being currently under development, one could expect changes in these markets in the coming future…
Finally, the study points at VAT – only imposed on businesses with more than ETB 500,000 (USD 25,000) of yearly turnover – as a factor discouraging the modernization and concentration of modern retail in the country.
For sure, policymakers are very concerned with the satisfaction of the growing urban population. And they are right to, Addis is only approaching an estimated 5 million inhabitants but in a country of 90 million which intends to industrialize, it could well grow as fast as what has been experienced by other African capitals. However, how could these instruments, so reliant on external food prices, be sustainable when demand is rising that quickly?
Read the full article on IFPRI’s website
Find more supermarkets in Africa with full-fledged database by Sagaci Research
“There is” in Amharic, one of the most useful words of the language, which one can use broadly to inquire about the stock of any sort of store (“Sugar alle?” – if you are not lucky you will not get “Alle” but “Yellem” as a reply). ↩︎
Authors quote an estimate of USD 137 million spent by the government on subsidies for these 3 items only on the last 8 months of 2011. ↩︎
Early 2011, price caps were announced for 18 products – lifted a few months later, given the shortages which rapidly followed for most of the items concerned, but for these 3. ↩︎
Which explains that you can oddly find all sorts of sugar (icing, light brown, dark brown…) anywhere in Addis, but barely a lump of white sugar: the only one for which prices are capped… ↩︎
