Utrecht University

Master Thesis

Responsible agribusiness
in Ethiopia.
The contribution of European entrepreneurs in
sustainable local development.
Ioannis Repapis

Student nr: 3734811

45 ECTS

Date: 25.09.2013

Supervisor: Dr. August van Westen

2nd reader: Prof. Dr. Annelies Zoomers

Table of Contents
1 Introduction ................................................................................................................................3
2 Research Design ..........................................................................................................................5
2.1 Objectives ....................................................................................................................5
2.2 Methodology ...............................................................................................................7
2.3 Data limitations ...........................................................................................................9
3 Regional Background.................................................................................................................12
3.1 Ethiopia .....................................................................................................................12
3.2 The Ethiopian agricultural sector ................................................................................16
3.3 Land grabbing and European investments in agriculture ............................................18
4 Theoretical foundation ..............................................................................................................20
4.1 Defining Development ...............................................................................................20
4.2 Responsible business & Corporate Social Responsibility .............................................22
4.3 Sustainable entrepreneurship ....................................................................................25
5 Results and findings ..................................................................................................................27
5.1 Characteristics of entrepreneurial activity .................................................................. 27
5.2 The dairy and poultry sector ......................................................................................30
5.3 The floricultural sector ...............................................................................................34
5.4 Agro-related companies.............................................................................................39
5.5 Production and processing of food crops ................................................................... 41
6 Analysis & Discussion ................................................................................................................44
6.1 Responsible business ................................................................................................. 44
6.2 Employment ..............................................................................................................45
6.3 Environmental impacts ..............................................................................................47
6.4 Technological learning ...............................................................................................48
6.5 Economic aspects.......................................................................................................48
6.6 Assessment of surveyed sectors .................................................................................49
6.7 Policy recommendations............................................................................................51
7 Conclusion ................................................................................................................................54
8 Bibliography ..............................................................................................................................56
9 Appendix................................................................................................................................... 60
9.1 List of companies interviewed....................................................................................60
9.2 List of interviewed stakeholders (organisations).........................................................61
9.3 Survey Questionnaire................................................................................................. 61

1
“The development of civilization and industry in general has always shown itself so
active in the destruction of forests that everything that has been done for their conservation
and production is completely insignificant in comparison.”

Karl Marx

2
1 Introduction

In the past two decades Ethiopia has engaged in a modernization process to achieve socio-
economic development. Possessing vast reserves of fertile agricultural land and water sources,
Ethiopia has become one of the top five destinations for commercial agriculture in sub-Saharan
Africa (Schoneveld, 2011). Its ambitious policies place agricultural development at the core of this
modernization process. Policies such as easy access to fertile land and tax benefits to all investors
willing to import new technologies and know-how are only a part of the strategies employed by the
government to create a favorable business climate. In this developmental path the private sector has
gained significant ground as a driver of development complementing government activities and
interventions. In the new paradigm of development that has emerged in the past two decades the
private sector through entrepreneurship is seen as one of the key drivers of economic progress,
poverty alleviation and environmental protection (Porter & Kramer, 2011; Dean, 2007). For
companies operating in a development context inclusive business and CSR strategies are expected to
stimulate employment, provide services and transfer technology while stimulating economic growth
(Visser, 2008).

The policies of the Ethiopian government succeeded in attracting the attention of the global
business community triggering a boom of foreign investments in the country. However this boom has
also attracted the attention of academics around the world who adopt a more critical stance to the
subject. In fact, Ethiopia has gained a considerable position in the academic debate when it comes to
the discussion on large scale land acquisitions (land grabbing), especially in the light of reports
accusing the government of massive human rights violations and forced displacement of indigenous
populations (Oakland Institute, 2013; Oxfam, 2011; Zoomers, 2010). As European investors have a
significant share in the foreign investments implemented in the Ethiopian agricultural sector in the
past years it becomes of vital importance to examine their activities and make an assessment of their
contribution to local development.

This study examines a sample of European companies that will be looked upon through the
theoretical framework of responsible business and sustainable entrepreneurship. This framework
presents an interesting insight into their activities and business models by highlighting key issues at
stake. Through the assessment of practices this paper reveals business practices and models that, if
encouraged and replicated, will lead Ethiopia to the path of sustainable development.

This paper starts by outlining the research methodology followed together with the necessary
background information that will introduce the reader into the Ethiopian context. Subsequently the
results and findings are presented followed by an analysis and discussion part where a critical

3
reflection of the findings is undertaken. By the end of this text the reader should have a clear picture
of European involvement in the Ethiopian agricultural sector as well as an understanding of the
different perspectives that exist to this process.

4
2 Research Design

2.1 Objectives

The overall objective of this research is to assess the impact of European entrepreneurs in the
Ethiopian agribusiness sector on sustainable local development though both empirical evidence and
theoretical reflection. More specific the acquisition of empirical data focuses on the activities and
practices of European entrepreneurs while the theoretical reflection draws upon the theory on
responsible business and sustainable entrepreneurship to examine the necessary conditions needed
to stimulate the creation of a sustainable economy. The central research question which guided the
research is:

Box 1: Main research question

What is the contribution of European companies in the Ethiopian agribusiness sector to
sustainable local development?

The research took into focus producers in the agricultural sector (vegetable, dairy, flowers) and
their practices in terms of responsible business but also supporting companies (logistics, agricultural
supplies, services) to examine their impact within the local communities they operate and the
Ethiopian economy as a whole.

The main research question is supported by the five sub-questions presented in Box 2 which
aim at refining the research objectives and guiding the methodology. The rationale and usefulness of
each of the research sub-questions is explained after the box.

Box 2: Research sub-questions

1. What are the main characteristics of European entrepreneurial activity in the

agribusiness sector?
2. What are the factors influencing European companies towards the adoption of
responsible business strategies within the value chain?
3. Do European entrepreneurs contribute to the adoption of better labor and
environmental standards by the Ethiopian market?
4. To what extent does technology transfer take place?
5. Can the European business models be replicated by local entrepreneurs?

5
1. What are the main characteristics of European entrepreneurial activity in the agribusiness
sector?

The first step in the research was to compile a list of European companies active in the agribusiness
sector and acquire sectorial information and data on their activities in general. This step was
important to create a profile of companies active in the agricultural sector that in order to select a
sample for the study.

2. What are the factors influencing European companies towards the adoption of
responsible business strategies within the value chain?

Examining the factors that influence the adoption of responsible business practices within the
agricultural value chains is necessary to understand the dynamics and driving forces of the sector.
This understanding facilitates policy recommendations for the Ethiopian government, international
donors and other actors engaged in promoting responsible business practises.

3. Do European entrepreneurs contribute to the adoption of better labor and environmental

standards by the Ethiopian market?

This question targets at understanding the extent to which European entrepreneurs have any kind of
influence linked to responsible business practices on their domestic or international competitors.

4. To what extent does technological learning take place?

Another important aspect to determine the influence on local development is to observe whether
European entrepreneurial activity contributes to technological learning. The import of new
technologies and practices in case of adoption by local companies can significantly influence local
development and improve the livelihoods of local populations.

5. Can the European business models be replicated by local entrepreneurs?

This question is very important in combination with sub-question 4 as it examines the circumstances
under which technological learning can materialize and lead to the creation of new new companies
by Ethiopian entrepreneurs. In this context government policy is analyzed as well as its effectiveness
in stimulating responsible investments and the creation of a sustainable economy. This questions
also opens the discussion on the applicability of the theories behind responsible business and
sustainable entrepreneurship in the Ethiopian context. The objective of this discussion is to examine
possible ways and strategies to maximize the developmental impact of European companies by
creating shared value for entrepreneurs and local communities. In this frame alternative business
models are examined that can present a viable alternative to business as usual, maximizing the
developmental impact of corporate activities.

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2.2 Methodology

In order to fulfill the objectives of this research both quantitative and qualitative data had to
be gathered. For the quantitative part a survey was conducted to gather the necessary data needed
to answer a part of the research questions. The more qualitative aspects of the research were
covered by in depth interviews of relevant stakeholders many of which stretched up to two hours of
duration.

The first part of the research required a thorough literature review on responsible business
and background information on Ethiopia’s development policies focusing mainly on the agricultural
sector. This served to construct the necessary analytical framework in order to put the activities of
European companies into context. This lead to an analytical framework based on three topics: The
Ethiopian context, the agricultural sector and sustainable local development through responsible
business and sustainable entrepreneurship.

After consolidating the analytical framework preparations were made to start the empirical
data collection. As both quantitative and qualitative data were needed to give a complete answer to
the research questions the mixed methods approach seemed most suitable for the purpose of this
research. Some of the aspects concerning agribusiness could easily be quantified within the
boundaries of a survey and other issues such as responsible business and the developmental impact
had to be assessed on a more qualitative basis. It has to be noted here the notion of development
and therefore also the assessment of the developmental impact are not value free and had to be
approached within a solid analytical framework.

The data collection can be split in two parts namely the sectorial data on agribusiness and the
data acquired through European companies in the field. The sectorial data consists of quantitative
background data that was acquired through institutions and relevant stakeholders with the main
source being the Ethiopian Investment Authority (EIA). Subsequently the collected data was
processed to compile an inventory of relevant companies to allow interviews and the collection of
data on company activities. Stakeholder interviews provided the research with relevant background
information and an in- depth understanding of the core issues at stake. By visiting relevant
institutions and stakeholders, listings of companies in the sector of interest were gathered in order to
compile the sample of the study. The listings from the various stakeholders were then cross-checked
and combined in an excel database in which the results of the survey were eventually coded.

After interviewing the relevant stakeholders and compiling the list of companies, the sample of
the study was interviewed to fill in a survey providing factual information on company activities but
also on issues of responsible business practices such as their involvement with local communities,

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labor relations etc. The information collected through the survey was coded in a Microsoft Excel
database which facilitated the analysis and data aggregation (where possible).

Finally a number of companies was selected based on their adherence to standards of

responsible business in order to examine more in detail the drivers, problems and success factors of
their activities judging by their developmental impact. This was done by examining employment
conditions, training and education of staff, but also the issue of technology transfer. These in depth
interviews gave a more detailed insight into the drivers and constraints of responsible business
practices and highlight future opportunities if adopted by a larger number of companies.

Table 1: Overview of empirical data collected

Data Details Research Sub-questions

Sectorial data

Background data Quantitative data 1

Aim: Acquire the necessary data to
compile an inventory of companies and
producers; data on overall investment
activity; support data acquisition from
companies and analysis.
Source: Institutional framework, value
chain stakeholders
Stakeholder interviews Qualitative data 1, 3, 5, 6
Aim: Get an overview of the sector,
prepare for data acquisition from
companies
Target group: Local NGO’s, agricultural
consulting companies, institutional
stakeholders
Company Data

Company survey Quantitative data 1, 2, 4

Aim: Acquire factual information on
company activities, characteristics and
responsible business practices.
Source: Farm management or owners
In-depth interviews Qualitative data 3, 4, 5, 6
Aim: Extract information beyond survey
boundaries with selected companies
concerning innovative business practices,
owner motivation, drivers and barriers to
their business.
Target group: Owners or shareholders

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The empirical data collected during the field work in Ethiopia can be split into two categories.
Table 1 presents an overview of the collected data in connection with the relevant research
objectives. Sectorial data was acquired from stakeholders within the institutional framework as well
as local NGO’s and agricultural consulting companies active in the area. The data collected from
these actors enabled the compilation of a list of European companies in the agricultural sector which
was necessary to prepare the sample and begin with the survey. Furthermore the interviews of the
stakeholders of this category provided the research with relevant background information on the
agricultural sector and its dynamics. Company data was collected mostly by visiting the different
farms and company offices through interviews with people at higher management positions (usually
general managers) or company owners or shareholders. The interviews started in the setting of a
semi structured interview to enable the completion of the survey and in some selected cases evolved
into an open ended discussion which went beyond the survey, covering issues of responsible
business practices, business models as well as opportunities and barriers of operating in the
Ethiopian setting.

After data collection was completed the survey findings were analyzed and combined with
the information collected from the stakeholder and in depth interviews. The analysis attempted to
give a complete answer to all research questions and highlight the different aspects of the European
involvement in the agribusiness sector in Ethiopia. The present research expands our understanding
on the way European companies influence local development by pursuing opportunities in the
Ethiopian agricultural sector.

2.3 Data limitations

This part examines the collected data as well as the sampling methodology in terms of
relevance and potential biases that have to be taken into consideration. The three types of data that
were collected will be examined individually. Overall sampling was influenced by the quality of data
(mainly contact details) provided by the relevant authorities and at the initial steps of the research
some snowballing occurred mainly among the Dutch community which was closely interconnected.
Furthermore the sample is dominated by Dutch companies and cannot be held representative for the
activities of other European companies. Also within the Dutch sample there is an over-representation
of floriculturists (7 out of 23 surveyed companies), which makes the sample biased against other
companies in the agricultural sector. The non-Dutch companies included in the sample were assessed
mainly on a qualitative basis to enable comparison with the Dutch sample.

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The data obtained from the Ethiopian Investment Authority (EIA) was incomplete as to the
contacts of companies mentioned in their investment inventory. Therefore the sampling had to rely
more on the lists provided by the Dutch embassy and the Ethiopian Horticulture Producers and
Exporters Association (EHPEA). The research was initially set up with a focus on Dutch companies but
later on it was decided to expand the scope of the study to other European companies as well to
enable comparisons. Unfortunately incomplete data together with the low interest of other
European firms contacted to participate in the research resulted in a sample dominated by Dutch (or
partly Dutch) companies which dominate the floricultural sector of the country. Therefore most of
the in-depth interviews were conducted with other firms outside the sector (ex.dairy-poultry, agro-
related) in order to obtain data on a more qualitative basis on the activities of European companies
in the wider agricultural sector of Ethiopia.

Table 2. Overview of conducted interviews

Stakeholders Company Survey In-Depth Total
interviews
6 23 10 29*
*In depth interviews were conducted parallel to the company survey.

The above table (2) presents the number of conducted interviews. It has to be noted here that
the total number of interviews was 29 as in many cases the survey was filled in during the in-depth
interviews. The different opinions collected during stakeholder interviews diverse as they maybe
cannot claim to be representative because of the limited number and background of the
respondents. As can be seen in table 3 the respondents of the stakeholder interviews are either from
an institutional or from an NGO/ consultancy context. Therefore the value of these interviews is
purely qualitative and was useful especially during the first stages of the research.

Table 3. Stakeholder interviews

Dutch Ethiopian Total
Institutions 2 1 3
NGO’S/ 3 3
consultancies
Total 5 1 6

The table below (4) provides a deeper insight into the companies of the sample. As mentioned
above the flower growers are over-represented in this sample and were analysed separately as this
specific sector is labor intensive by its nature and heavily infuences the statistics obtained by the
survey.

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Table 4. Surveyed companies by sector
Horticulture (- Dairy & Other agro-
Floriculture Consultancies Total
flowers) Poultry related
3 7 4 3 6 23

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3 Regional Background

3.1 Ethiopia

History and Geography

Ethiopia is a land locked country located in the Horn of Africa. It has around 86 Million
inhabitants (African Development Bank, 2013) and is bordered by Eritrea to the north, Djibouti and
Somalia to the east, Sudan and South Sudan to the west and Kenya to the South. It is the second
most populated country of Sub-Saharan Africa and is one of the world’s oldest civilizations. Its rich
history stretches back to the presence of early hominids and includes ancient civilizations and
kingdoms as well as a recent past full of tensions and conflicts with neighbouring countries. Its
history is unique among other African countries as it was never under colonial rule with the
exception of a short period of Italian occupation from 1936 to 1941. Ethiopia’s last emperor, Haile
Selassie, came in to power in 1930 and began a modernisation process in an attempt to steer the
country away from traditional and backward systems. In 1974 he was overthrown by the military
officers under the command of general Mengistu. The Derg regime’s military rule pursued a socialist
agenda by establishing a one party communist system. Under this regime the country went through
controversial reforms which eventually caused destabilization and uprisings. A series of famines in
the early 80’s led to the formation of the Ethiopian People’s Revolutionary Democratic Front (EPRDF)
which eventually resulted in the collapse of the Derg regime in 1991. Under its leader Meles Zenawi
the EPRDF initiated an ambitious reform program to enable the transition of the country to a
democratic rule with decentralized authority. Multi-party democracy was introduced and a
constitution was adopted in 1994. Ethiopia’s state structure has since changed from being highly
centralized to a federal and decentralized system. Many problems remain though as many of the
elections held since 1991 have been heavily contested featuring a weak opposition, claims of vote
rigging and post-election violence. Today Ethiopia has managed to resolve some of its past problems
and remains devoted to its modernisation process.

Ethiopia is the world’s 27th largest country with an area slightly over 1.1 million square
kilometres. Geographically the country presents a very diverse landscape with high plateaus ranging
from 1500 to 2000 meters as well as a great diversity in climatic patterns, soils and natural
vegetation. The country is divided by the northern part of the Great African Rift which is
characterized by numerous gorges and river valleys. The high plateaus are surrounded by lowlands
along the South Sudanese and Kenyan borders and to the East and North West, where one can
observe the Danakil depression situated 125m below sea level. The country is often referred to as

12
the “rooftop of Africa” or the “water tower of Africa” pointing out to its highlands and vast water
reserves. This geographic and climatic diversity in combination with fertile and mostly untouched
soils and make it suitable for the cultivation of a great variety of crops.

Economy

Although rich in natural resources of all kinds, Ethiopia is one of the poorest countries in the
world and is classed as a least developed country with a gross national income of 370$ per capita in
2011 (World Bank, 2013). The government with its ambitious modernisation plan aspires to reach
middle income status (current threshold: US$ 1,025) within the next decade as it currently lies
substantially below the regional average of US$ 1,257. The country’s economy benefited significantly
from the reforms implemented in the 1990s’ and 2000s’ and experienced strong and broad based
growth averaging 11% within the last nine years (MoFED, 2013). This growth mainly powered by the
service and agricultural sector made Ethiopia one of the fastest growing economies in the African
continent. The achieved growth of the past decade has brought in positive trends in poverty
reduction both in urban and rural areas with a reduction of almost 10% of people living below the
national poverty line of 0,6 USD per day from 2005 to 2010 (WB, 2012). Ethiopia’s Growth and
Transformation Plan (GTP) targets to further reduce poverty and also achieve the Millennium
Development Goals (MDGs) related to gender parity in education, child mortality, HIV and malaria.

The agricultural sector lies at the heart of the Ethiopian economy accounting for 46% of the
GDP and 85% of the workforce. The service sector representing around 40% of the GDP but only 10%
of the workforce and the industrial sector follows with 14% of the GDP and occupying only 5% of the
labour force. Ethiopia is seeking growth through a strategy of increasing exports in an attempt to
imitate the successful development experience of East Asian countries (World Bank, 2012).
Agricultural production has contributed significantly to the increase of exports with coffee,
vegetables, oil seeds and cut flowers being among the top 5 export products of the country. The
agricultural sector although suffering from the lack of technological input, knowledge and
infrastructure has largely benefited from government policies of the past decade which place
agriculture at the heart of the country’s modernization process. This process is being backed by
international donors and investors who engage in activities targeting food security and resilience
thus contributing to the country’s economic growth and poverty reduction plans.

Box 3: Principles guiding Ethiopia’s long term economic goals (source: MoFED, 2010, p.29)
Ethiopia’s long term vision:
“to become a country where democratic rule, good-governance and social justice reign, upon the
involvement and free will of its peoples, and once extricating itself from poverty to reach the level of
a middle-income economy as of 2020-2023”

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Box 4: Ethiopia’s vision for the economic sector:
“Building an economy which has a modern and productive agricultural sector with enhanced
technology and an industrial sector that plays a leading role in the economy, sustaining economic
development and securing social justice and increasing per capita income of the citizens so as to
reach the level of those in middle income countries.”

Society and Developmental challenges

Ethiopia is considered the 13th most populated country in the world with a population
estimated from 86 to 94 million depending on the source (African Development Bank, 2013; CIA
world Factbook, 2013). Despite its rapid urbanization rates being estimated close to 4% Ethiopia’s
population is predominantly rural at about 83%. As can be observed in the graph below Ethiopia has
a noticeably young population with almost
45% being under the age of 15 years. This can
be attributed to factors such as high fertility
rates, low life expectancy at birth and
declining infant mortality rates. As mentioned
earlier Ethiopia is an ethnically and culturally
diverse country with more than 70 spoken
languages in the different regions of Ethiopia.
Ethiopia’s Population Pyramid The Oromo (35%), the Amhara (27%), the Somalis (6%) and the
(Source: CIA World Factbook)
Tigrayans (6%) are the ethnic groups with the biggest representation
among the Ethiopian population. Smaller ethnic groups are scattered all over the country’s diverse
geographical formations. The region of Ethiopia was the first to adopt Christianity as a state religion
during the 4th century. According to the census carried out in 2007 the majority of the country’s
population remains Christian (63%) together with a substantial Muslim representation of about 34%
(CSA, 2007). Most Christians belong to the Orthodox denomination and co-exist with other religions
and traditional beliefs. The country’s official language is Amarigna (Amharic) and English. Amarigna
has prevailed over Oromigna which is a regional official language due to historical events and the
strong political influence of the Amhara.

Despite the remarkable economic growth of the past decade Ethiopia has still a long way to go
towards achieving the Millennium Development Goals of combating poverty, illiteracy and improving
the health and sanitation conditions of its citizens. The percentage of people living below the official
poverty line is still close to 30% despite the significant reduction of 10% which occurred over the past
decade. Its predominantly rural populations pose a number of challenges concerning infrastructures
and access to public services. Poverty alleviation lies high in the government’s agenda which devises
a large amount of its budget to investments and pro-poor programs in collaboration with

14
international donors. International help is often accompanied by conditionalities of good
governance, transparency, accountability and empowerment of local authorities. Expansion

of the road network linking together the

administrative regions (Woredas) but also rural List of main developmental challenges
• Poverty eradication (30% of population
areas is also within the government’s top below official poverty line)
priorities which targets to reduce the time • Improvement of health and sanitation
conditions
needed to reach an all-weather road to 1,4 • Reduce Child mortality
hours by 2015 (3.5 hours were needed in 2010) • Fight against malaria and HIV
(MoFED, 2013). This target seeks not only to improve the road services to citizens but to create the
necessary infrastructure to serve the increasing needs for transport and trade of agricultural
production which lies at the core of the developmental model followed by the country.

Governance and policy

Historically Ethiopia was governed for centuries by a monarchic centralized structure. After the
collapse of the Derg regime in 1991 a transitional charter was adopted, paving the way towards the
installation of a pluralist political system with an elected government. Under the constitution of 1994
Ethiopia was federalized into nine ethnically based administrative regions and two chartered cities.
The new constitution featured extensive devolution of power to regions, with the federal unity based
on equality of nations and nationalities. According to the federal constitution regional states are
assigned extensive powers to establish their own government and democracy. The nine regions were
divided into 68 zones and further into 550 woredas (districts). The decentralized power structure
directly influences foreign investments in the country and daily relations with government officials,
but national policies and guidelines exist and are being followed. It is worth mentioning at this point
that the recent national policies welcoming foreign investors and providing them with “unused” land
creates tensions between the national and the regional governments. The national policies currently
pursued are tending towards a more centralized power structure by superseding the power of
regional governments for the national interest.

One of the first duties of the new government formed in 1995 was to undertake structural
reforms aimed at stabilizing the country’s economy and transforming it into a market-oriented
model. After economic stabilization was achieved the government drafted long term strategies for
social and economic development (ADB, 2009). In 2002 the Sustainable Development and Poverty
Reduction Program (SDPRP) was adopted featuring poverty alleviation as one of the government’s
top priorities. Its main objective was to build a market oriented economy enabling rapid economic
development, extricating the country from food aid dependency, while ensuring that the poor would
15
be the main beneficiaries of achieved economic growth. The SDPRP was based on four pillars:
Agricultural Development Led Industrialization (ADLI), justice system and civil service reform,
decentralization & empowerment and capacity building (MoFED, 2002).

After 2005 and for the next five years the government put forward the Plan for Accelerated
and Sustained Development to End Poverty (PASDEP). This plan continues on the directions pursued
by the previous plan and becomes broader by giving emphasis on human development, rural
development, food security and capacity building. The main priorities set forward by this 5 year plan
were the commercialization of agriculture, enhancing private sector development, industry, urban
development and intensifying efforts to achieve the Millennium Development Goals (MoFED, 2006).

Currently the plan being implemented is called the Growth and Transformation Plan (GTP)
which covers the period from 2010 to 2015. The objectives of this plan are summarised in the table
below. All three plans put great emphasis on accelerated and sustained economic growth, with the
agricultural sector having a central position.
Table 6: GTP objectives & strategic pillars (Source: MoFED, 2010)
GTP Objectives Strategic pillars
• Maintain high growth (at least 11% • sustain rapid growth
average) • emphasize agriculture
• Achieve the MDGs in the social sector • promote industrialization
• Establish favourable conditions to • invest in infrastructure
build a stable democratic and • enhance social development
developmental state • strengthen governance
• Ensure sustainable growth within a • empower youth and
stable macroeconomic framework. • women

3.2 The Ethiopian agricultural sector

The development of Ethiopia’s agricultural sector lies at the heart of the country’s
modernization plans and accounts for a large part of the growth achieved during the past decade.
The sector is critically important both for the overall economic performance of the country but also
for poverty alleviation and food security especially in rural areas. Therefore Agricultural Development
Led Industrialization (ADLI) is a central pillar of economic policy visible both in the current growth
and transformation plan (2010-2015) but also in the Plan for Accelerated and Sustained
Development to End Poverty (PASDEP). This strategy pursued by the Ethiopian government is mainly
based on the argument that since 85% of the population depends primarily on agriculture,
development requires rapid agricultural growth (Lavers, 2012). Despite the strong performance of
the sector over the past decade it is still dominated by subsistence farming which is characterized by
low inputs/ outputs and is mainly rain fed (MoARD, 2010). This characteristic makes the entire sector

16
vulnerable to periodical droughts which can severely damage agricultural output resulting in
devastating effects on household food security and poverty levels.

Policy documents on agricultural development indicate that the country has a

comprehensive and consistent set of strategies and policies reflecting the importance of the
agricultural sector for the development of Ethiopia as a whole. However ambitious the policy
documents it is often noted that the institutional capacity for the implementation of these strategies
is limited (MoARD, 2010). Civil service reforms are being implemented but the institutional
weaknesses in combination with a lack of infrastructures supporting the agribusiness sector are
considered one of the main obstacles to the rapid development of the sector. Other sources are
highly critical of the strategies pursued. In the light of statistics on food insecurity Lavers (2012)
argues that the policy of ADLI has dramatically failed as it has not produced the expected results, and
is currently relies completely on foreign aid programs to keep going.

Box 5: Goal and Objectives of the Agricultural Policy and Investment Framework, (source MoARD
2010)

“Contribute to Ethiopia’s achievement of middle income status by 2020”

“Sustainably increase rural incomes and national food security”

One of the key elements in the agricultural sector and one of the government’s top priorities
is the increase of smallholder productivity. This issue acknowledges the importance of smallholder
agriculture and its connection to rural poverty and the large productivity gap. The enhancement of
productivity must be supported by efforts to encourage farmers to abandon the subsistence farming
model and turn to practicing farming as a business. This element together with the implementation
of sustainable natural resource management is expected to reduce environmental degradation and
meet the challenge of combating rural poverty and ensuring food security.

Another key issue to the subject is the ownership of land and the process of land acquisition
by domestic and foreign investors. The implementation of ADLI requires the state ownership of land
and a guarantee for smallholder rights. The current Ethiopian government has largely maintained the
land policies of the previous Derg regime which had nationalised all land and redistributed user rights
to smallholders. This line of policies where implemented by arguing that land privatization would
lead to distress sales and the displacement of the peasantry (Lavers, 2012). According to Lavers
(2012) the policies pursued resulted in the almost complete absence of capitalist agricultural
production in Ethiopia with smallholder production dominating the production of all crops and
accounting for 95% of the country’s agricultural output. This line of policies started changing only
recently with governmental policies promoting investment from local and foreign investors. This

17
change indicates an emerging dualism that can be observed in the Ethiopian agricultural sector. On
the one hand is the dominant and politically sensitive smallholder sector which is central to the
government’s development plans, and on the other is the rapidly expanding investment sector
(Lavers, 2012). Policy documents treat the two sectors as separate claiming that investors are given
“unused” land that could not have been used by smallholders due to the lack of resources, resulting
in an overall increase in production (MoFED, 2006; Lavers, 2011).
Table 7: Strategic objectives of the Agricultural sector. (source MoARD 2010)

I. To achieve a sustainable increase in agricultural productivity and production.

II. To accelerate agricultural commercialisation and agro-industrial development.

III. To reduce degradation and improve productivity of natural resources.

IV. To achieve universal food security and protect vulnerable households from natural
disasters.

3.3 Land grabbing and European investments in agriculture

In the aftermath of the food crisis of 2007-2008 much has been written on the subject of ever
increasing large scale land acquisitions or land grabbing. Literature of the past years puts emphasis
on analysing the drivers behind the recent trend in many developing regions around the world
(Grain, 2008; Cotula et Al., 2009; Zoomers, 2010). Within the global “land grab” debate Ethiopia is
one of the preferred destinations for large scale investments in Africa. According to the Oakland
institute (2013), between 2008 and 2011 3,619,509 ha – about the size of the Netherlands- were
transferred to domestic investors, state-owned enterprises, and foreign companies, including
European agro-enterprises (Oakland Institute, 2013). Another aspect worth mentioning is presented
by Lavers (2012) who examines the motivation of governments of developing countries which
facilitate the process of the on-going land acquisitions in order to accomplish agricultural
transformation and commercialization (Lavers, 2012).

In the context of Ethiopia’s ambitious policy targets, the country began to welcome European
among other foreign investors in an attempt to import the necessary technologies and knowledge to
achieve the commercialisation of Ethiopian agriculture (MoFED, 2006). The scale of European
investments cannot be compared to the scale of other foreign investors (ex. Indian, Chinese) but
their numbers have been steadily rising in the past years with many investors focusing on capital and
knowledge intensive production (ex. Dutch flower growers). This study takes in to scope mainly

18
Dutch agro-enterprises many of which aspire to serve as demonstration farms and contribute to the
intensification and commercialization of Ethiopian agriculture.

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4 Theoretical foundation

4.1 Defining Development

Since sustainable local development is the core element of this research it is of vital
importance to define development itself, as it is not value free and cannot be easily quantified. This
section provides some definitions to development originating from different schools of thought in an
effort to create a frame for assessing the developmental impact of European entrepreneurs in the
Ethiopian agribusiness sector.
The notion of development for most people is closely linked and often confused with
economic growth and its quantitative measurement in terms of GDP growth and other aggregated
statistical indicators. According to the Online Business Dictionary it usually refers to the adoption of
new technologies, transition from agricultural based to industry based economy, and general
improvement in living standards (Business Dictionary, 2013). This line of thinking can be traced back
to modernization theorists that regarded development as a process evolving along a fixed
predetermined path with a clear emphasis on economic and material aspects such as GDP growth,
industrialization levels, urbanization levels and mortality rates. According to modernization theorists,
underdeveloped countries have to follow the same path as countries that are already developed by
removing internal barriers to economic and social progress. Modernization theory has been very
popular during the post-World War II period and has remained influential ever since although many
of its assumptions remain controversial and seriously flawed. This theory is important for this paper
as it can account for a large part of Ethiopia’s growth seeking policies of the past two decades that
were mentioned above.

Moving away from modernization theory and the strict economic definition of development
it is worth mentioning the position of the United Nations Development Program that defines
development on a much broader basis. According to the first UNDP Human development report of
1990 the basic objective of development is “to create an enabling environment for people to enjoy
long, healthy and creative lives” (UNDP, 1990). This first report states that the primary objective of
development is to benefit people, an element which often tends to be overlooked under the gravity
of aggregated economic indicators. The philosophical foundation of this definition as quoted in the
report goes back to Aristotle and Kant but also to neoclassical political economists like Adam Smith,
David Ricardo, Robert Malthus, Karl Marx and John Stuart Mill. This foundation places human
wellbeing at the end of development. The above definition has been elaborated and redefined in
later reports and work outside the UN. The conceptual and analytic work of Nobel laureate Amartya

20
Sen and Martha Nussbaum among others has put the emphasis of human development as a
paradigm on broadening choices and enhancing capabilities (UN, 2009).

One of the most quoted definitions of sustainable development is that of the World
Commission on Environment and Development (also known as the Brundtland Commission) in 1987:
“development that meets the needs of the present without compromising the ability of future
generations to meet their own needs” (WCED, 1987). WCED’s definition vague as it may be puts into
frame the elements of environmental degradation and resource depletion and links them to the
notion of development. Sustainable development in this sense must include intergenerational equity
as far as the use of resources is concerned but must also foster poverty reduction, gender equity,
wealth redistribution and environmental conservation. The term “sustainable Development” has
been heavily (miss) used in the past decades and been adopted by diverse actors ranging from oil
companies to mainstream political parties. Depending on the context the term is used to express a
wide range of ideas from corporate sustainability and major reforms of our economic system, to
individual consumer behaviour. Sustainability cannot be seen as an end goal in itself as development
is not a linear process that will stop at some point in time. Therefore the concept of sustainable
development should be seen more as a way of developing, different from what we have been used
to till now, keeping in mind the environmental constraints of our finite planet and its scarce
resources.

The above three mentioned definitions of development depict different aspects and reflect
different positions of development thinking. Since this thesis seeks to assess different impacts of
European companies on sustainable local development we will have to refine the definition given by
the Brundtland commission in 1987 and make some further remarks. What should be clear by now is
that development concerns mainly people (Human wellbeing) but is also closely interlinked with
economic (growth) and environmental issues (degradation). Another way of presenting this notion of
development is through the catchy slogan of the three PPPs, which stand for People, Planet and
Profit. A suitable definition close to this notion can be found in the Online Business Dictionary which
defines development as: “The process of economic and social transformation that is based on
complex cultural and environmental factors and their interactions.”(Business Dictionary, 2013).

At this point we must make some clarifications as many of the definitions used are heavily
disputed. One of the main assumptions of classical economic thinking which has survived till today is
concept of eternal growth. The economic orthodoxy considers economic growth to be a panacea for
most problems of developing and developed countries. The Bruntland commission indicated in 1987
that economic growth has to take into consideration that our planets resources are finite and must
therefore be carefully managed. The commission expressed environmental concerns about the
growth model followed by most countries of the western hemisphere up to that time introducing the
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concept of sustainable development. The new concept promotes the idea of reforming and
expanding growth to account for the environmental degradation caused. The report does not analyse
the modes of production and market mechanisms leading to environmental degradation. It does not
question the economic orthodoxy and the dogma of eternal growth and affirms that we can keep
growing but in an environmentally sustainable way. Many critics of the concept state that sustainable
development is not enough to tackle the world’s pressing problems. Some even say that we should
move on to the concept of regenerative development by taking specific measures to regenerate soils,
forests and watercourses rather than allowing them to be sustained in an increasingly degraded
condition as we have done for many years (Girardet, 2013).

4.2 Responsible business & Corporate Social Responsibility

Over the past two decades the prevalence of neoliberal policies has led to a worldwide retreat
of the state as an agent of development. In this new paradigm of development private companies
complement but also replace in many cases the role of national governments and are seen as the
new drivers of economic progress, poverty alleviation and environmental protection (McDade, 2005;
Dean, 2007; UNEP, 2009; Porter, 2011; ). Lately a lot of attention is being directed towards
transparent business models that incorporate societal values and enable economic growth while
respecting social and environmental obligations. Within this context the concept of Corporate Social
Responsibility has gained significant recognition and has been adopted by multinational companies
all over the world. At the core of this concept lies the idea that companies should actively engage
with society and its problems instead of just complying with its minimum rules (Jamali, 2008).

The concept of CSR is not new and was originally formulated in 1953 as “the obligation of
businessmen to pursue those policies, to make those decisions, or to follow these lines of action
which are desirable in terms of the objectives and values of our society” (Choi, 2008, referencing
Bowen, 1953). The concept has undergone conceptual developments in the past decades before
reaching the level of widespread acceptance it has today. According to Choi & Gray (2008) the
concept has evolved historically in three phases going from profit maximization to stakeholder
inclusion (trusteeship) and finally societal integration. In the final phase of societal integration
companies have the responsibility to help solve or contribute to the improvement of social problems.

There are also other views on the evolution of CSR that suggest a classification into different
ages and stages in the development of the concept. This classification suggests a progressive
evolution towards a more pro-active and integrated practice of Corporate Social Responsibility
(Visser, 2011). On the same path Van Tulder (2006) distinguishes four stages in the practice of CSR:
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inactive, reactive, active and pro-active. An overview of the four stages can be seen in table 8. These
stages are used later on in this paper as an element of assessing the CSR performance of the
companies in the study sample.

Table 8. The four stages of CSR practice. (Source: Van Tulder, 2006)
Inactive Profit based and inward-turned
Reactive Responsible in reaction to law or necessity
Active Based on principles or philosophy (ex. Ethically based)
Pro-active Base on wide stakeholder interaction and long term thinking

Another important perspective to CSR is presented by stakeholder theory which places

businesses within a wide network of stakeholders who have interconnected interests with these
businesses (Jamali, 2008). The theory suggests that companies should exercise a duty of care towards
all stakeholders which extend beyond the boundaries of the company including shareholders,
employees, local communities as well as more abstract ones such as the environment.

The concept of CSR is still evolving and its theories are constantly debated leading at times to
broad and complex discussions concerning its applicability. The evolution of the concept is linked to
western theories with empirical evidence originating from the practices of European and American
businesses and multinationals. However the issues addressed by the context are heavily context and
culture specific, especially when it comes to application of its principles in developing countries.
Companies operating in this context face a wide range of challenges linked to social or environmental
crises. In many developing countries these crises are a result of the vast economic growth attained
within the context of globalization. Visser (2008) presents an overview of the application of CSR
theory in a developing context together with its driving forces. Within this country specific context
Visser identifies ten drivers in developing countries, which “build up a distinctive picture of how CSR
is conceived, incentivized and practiced in emerging economies” (Visser, 2008, p.480). These drivers
are categorized as internal and external and are linked to issues of governance, economic strategy
and development objectives. An overview of these drivers can be seen in table 9 below.

Table 9. Drivers of CSR in Developing country contexts (source: Visser, 2008)

Internal External
Cultural tradition International standardisation
Political reform Investment incentives
Socio-economic priorities Stakeholder activism
Governance Gaps Supply chain
Crisis response
Market access

At this point since the subject of the present paper concerns responsible investments in
agriculture it is useful to refer to a set of seven principles formulated by the FAO in cooperation with

23
IFAD, UNCTAD and the World Bank aiming at contributing to the global dialogue on the subject.
These principles were presented in the aftermath of the 2008 food crisis and the consequent trend
that emerged featuring large scale land acquisitions and investments in agriculture. The seven
principles presented in detail in Box 6 are particularly relevant for the Ethiopian context which has
been heavily influenced by recent trends in global agricultural investments.

Box 6. Key Principles for Responsible Agricultural Investment that Respects Rights, Livelihoods and
Resources (FAO, 2010)
Respecting land and resource rights
Principle 1: Existing rights to land and associated natural resources are recognized and respected
Ensuring food security
Principle 2: Investment do not jeopardize food security but rather strengthen it.
Ensuring transparency, good governance, and a proper enabling environment
Principle 3: Processes relating to investment in agriculture are transparent, monitored, and ensure
accountability by all stakeholders, within a proper business, legal, and regulatory environment.
Consultation and participation
Principle 4: All those materially affected are consulted, and agreements from consultations are recorded
and enforced.
Responsible Agro-Enterprise Investing
Principle 5: Investors ensure that projects respect the rule of law, reflect industry best practice, are viable
economically, and result in durable shared value.
Social Sustainability
Principle 6: Investments generate desirable social and distributional impacts and do not increase
vulnerability.
Environmental Sustainability
Principle 7: Environmental impacts of a project are quantified and measures taken to encourage
sustainable resource use, while minimizing the risk/magnitude of negative impacts and mitigating them.

The popularity of responsible business and CSR as presented above indicates a significant
societal relevance of these concepts. Nevertheless because of the mentioned context dependency,
different actors and stakeholders have developed a different conceptual understanding and various
definitions of the concepts leading to potential confusion. Box 7 below presents a definition of the
concept of responsible business which is relevant to the context of the present study. This definition
guides the analysis and discussion of the results of this study and is necessary to clarify the societal
relevance of business in a developing country context.

24
Box 7. Definition of CSR (source: Visser, 2008)
Corporate Social Responsibility can be seen as “the formal and informal ways in which a
business makes a contribution to improving the governance, social, ethical, labour and
environmental conditions of the developing countries in which they operate, while remaining
sensitive to prevailing religious, historical and cultural contexts”

4.3 Sustainable entrepreneurship

Within the context of responsible business presented above the concept of sustainable
entrepreneurship has emerged in the past years. Entrepreneurship and new ventures are
increasingly being held up as a panacea for many social and environmental concerns (Hall et al.,
2010). Inclusive business, shared value and corporate social responsibility are terms that have
become mainstream among the international business community, especially for western companies
operating in a developing context. These companies are expected to stimulate economic growth and
employment while providing services and transferring knowledge to local populations.
Within the academic discourse on sustainable development there is a recent attempt to
examine the contribution of entrepreneurship to sustainable development. The science of
Environmental economics suggests that environmental degradation results from failure of markets
that are inherent in our economic system (Dean et Al., 2007). The literature on the role of
entrepreneurship in sustainable development suggests that these market failures can be seen as
opportunities for entrepreneurs who will take action to resolve environmental issues, leading to the
creation of the concept of sustainable entrepreneurship (Hall et Al., 2010). This concept implies that
entrepreneurs and business in general will adapt to a new way of doing business and contribute to
the transition to sustainability. According to Dean, the synthesis of theories on entrepreneurship,
environmental and welfare economics leads us one step further to the concept of environmental
entrepreneurship in which entrepreneurial action resolves environmental challenges by lifting the
barriers that prevent the efficient functioning of markets for environmental resources (Dean, 2007).
The bottom line of the concepts of responsible business and sustainable entrepreneurship is that
companies are no longer seeking short term profits regardless of the social and environmental
consequences of their activities. Instead companies view themselves as part of society with rights but
also responsibilities towards the society and the natural environment in which they operate.
Exercising this responsibility is not only an image optimization but creates real strategic value and
advantage over competitors.

The concepts described above are useful for the subsequent analysis of the findings that will
follow in the next chapter. As this study is based on the concepts of responsible business and
25
corporate social responsibility, it tries to assess whether the companies participating in the study
comply with responsible business practices by looking at their social, economic and environmental
performance. Furthermore some companies with innovative business plans that can be put into the
category of sustainable entrepreneurship are presented. The findings indicate that they may present
a viable alternative to business as usual and therefore it is useful to analyse whether their activities
can be increased in magnitude and scale, while creating shared value for all stakeholders involved.
Taking these examples as a point of departure this study examines the feasibility and applicability of
ventures of that kind. The question to be answered within this framework would be: Is sustainable
entrepreneurship the way to go forward for achieving sustainable local development?

26
5 Results and findings

This chapter presents the findings of the study conducted in Ethiopia in March-April 2013
among Dutch and other European companies in the agribusiness sector. The part begins by
presenting an overview of the characteristics of European entrepreneurs operating within the
Ethiopian context by analysing their CSR performance and motivations behind it. The facts presented
below are based on the survey and in-depth interviews conducted during the period of the study.

5.1 Characteristics of entrepreneurial activity

Compared to other countries of sub-Saharan Africa Ethiopia has a significant presence of Dutch
companies operating in -or related to- the agribusiness sector. The total number of active companies
is close to 100, with most of them having appeared in the country within the past decade. This is
especially true for floriculture companies which came to the country only after 2005. Besides
horticulture there is also a significant presence in the dairy and poultry sector but also in supporting
services and supplies to the wider sector (e.g. Machinery supplies, consulting services, animal feed,
laboratory services).

The survey together with the in-depth interviews were conducted among company (co-
)owners or employees at higher management positions (usually general managers). This fact has a
positive influence on the quality of information provided both for the survey and especially for the
in-depth interviews. As can be observed from the table below 17 out of 23 (74%) respondents were
of Dutch origin and 5 (22%) were Ethiopians. In terms of positions versus nationality this is a strong
indication that Dutch firms encourage Ethiopians to take over upper management positions and in
some cases the general management of the company.

Table 5. Position of respondents vs nationality

Dutch Ethiopian Other Total
(Co-) Owners 5 - - 5
General Managers 4 2 1** 7
Upper 6 3 - 9
management
Other positions 2* - - 2
Total 17 5 1 23
*Two interviews were carried out with a consultant and an advisor of the company visited.
**One of the respondents was of South African origin.

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The 23 companies interviewed were of Dutch (or partly Dutch) origin. Other nationalities
included in the study population were German, Belgian, UK and USA most of which were in joint
ventures with Dutch or Ethiopian partners. More information on the ownership status of the firms
interviewed can be seen in table 1 of the appendix. Although the focus of this study concerns
agricultural investments in general, the floricultural sector is overrepresented in the study population
with 7 out of 23 companies. This overrepresentation may seem obscure but in reality the floricultural
sector lies at the heart of Dutch entrepreneurship activity in Ethiopia and is of great economic
importance to the country.

Besides floriculture the study population included 5 companies involved in the dairy and poultry
production and processing. These companies differ greatly to the flower sector in many aspects such
as size, economic importance and owner motivation. The differences between the two sectors will be
presented later on in this chapter. Companies being active in agro-related branches such as logistics,
consulting, agricultural supplies, soil analysis and animal feed were also an important part of the
population (9 out of 23). As this category contains companies with diverse fields of activities they will
be presented separately within the context of their operating industry. The last 2 companies of the
sample were involved in the production and processing of agricultural products namely: fruits and
sesame.

Table 8: Sector vs. Land use and job creation

Land use (Ha) Permanent Temporary + Perm. Total workers
workers casual workers Workers/ / Ha
Ha
Dairy & Poultry 232 457 350 1,9 3,4
Floriculture 167 3725 2200 22,3 35,4
Food crops 1600 315 3400 5 2,3
(production
and processing)
Total 1.999 4.497 5950

The graphs below illustrate best the contents of the above table and demonstrate the relation
between land use and employment creation for each of the sample categories. The 14 companies of
the sample in these three sectors use in total around 2.000 ha of land and create 4.500 permanent
and about 6.000 temporary or casual jobs.

28
In the following sections the results for three categories mentioned above will be presented in
detail focusing on the three aspects of corporate social responsibility, opportunities and barriers and
motivations behind their CSR programs.
29
5.2 The dairy and poultry sector

General information

The Dutch dairy and poultry sector in Ethiopia is an interesting object of analysis as it has
significant differences from the rest of the companies interviewed. The entrepreneurs interviewed
belonged to a cluster on the outskirts of the capital Addis Ababa with the first company arriving there
in 2005. This cluster is mainly dominated by Dutch companies which in some cases formed joint
ventures with local or international partners. The first companies that arrived in the area recognised
the potential of setting up a business there but were also partly driven by a religious motivation,
attracting through time more entrepreneurs to this area with similar motivations. These individuals
mentioned as their primary motive the intention to help and spread knowledge to surrounding
farmer communities. Profit was also an important part in their decision making process but certainly
not the deciding factor. Their size based on their land usage is relatively small in comparison to the
Ethiopian agricultural sector with a total of 230 Ha of cultivated area. The 5 companies combined
create 450 permanent jobs and 350 temporary (for seasonal harvests). The dairy and poultry sector is
oriented towards high productivity by using modern mechanized farming techniques. Some of the
farms visited wanted to serve as demonstration farms for intensive agriculture, encouraging local
farmers to adopt modern farming methods. Therefore the workers per Hectare ratio is comparatively
low at around 2 permanent workers per Ha.

Economic performance

These newly established sectors are very dynamic in terms of development and expansion. As
far economic issues are concerned the majority of the companies visited were very profitable with
their turnovers increasing at a very rapid pace. Some entrepreneurs even went into detail
mentioning that since their establishment they have witnessed a doubling of their turnover every
year. Three out of the five companies had an average turnover of over 5 Million Euros. This is mainly
due to the vast local and regional market that is able to absorb their entire production. The dairy and
poultry sector is developing rapidly together with the ever increasing demand for dairy products that
cannot be met by the current levels of production. The emerging Ethiopian middle class is in that
case the main consumer of the processed dairy products (milk, cheese etc.).

Besides the increases in turnover all companies indicated a significant expansion in terms of
locations, workers and client base. To demonstrate the intensity of the boom some of the
respondents made a comparison to previous experiences with agribusiness in Europe. They stated
that the profitability they experienced during their first years resulted in a payback period on their
investment in only five years whereas in Europe this time lies at about eight to ten years. An
30
important question that will be discussed in the next chapter concerns the issue of whether the
model of intensive agriculture demonstrated by some farms can be replicated by local
entrepreneurs. To answer this it is useful to look at the invested amounts which in most cases are
over one million euros. Another important element in this discussion is the fact that that 2 out of the
5 companies received over 500.000 Euros each in subsidies from the Dutch government in order to
set up these demonstration farms.

Graph 1: Dairy & Poultry Value chain

Animal supply Processing

company

Animal Feed Restaurants

supply

Dairy or Poultry
Farm Local farmers
Drugs/chemicals

Traders/ Retail
Various supplies

Social impact – Labour relations

As far as working conditions are concerned this cluster is characterized by good business
practices that put value on good worker relations and working conditions. The majority of these
companies pay salaries above the regional average and provide in many cases health insurance that
goes beyond the minimum requirements of the Ethiopian labour proclamation. This means that in
some cases workers enjoy full medical coverage, in others free first aid and seminars with emphasis
on preventive medicine. In all cases the labour proclamation was followed which guarantees the
workers with a medical insurance and provisions for medical leave and a newly established pension
fund. Workers also receive job specific trainings to increase their skills and take on more
responsibilities, thereby also increasing their salaries. The “model” farms even organized trainings for
farmers belonging to the local communities concerning theory and practice of modern farming
techniques. Some of these trainings were organized together with external consultants that would
help local farmers increase the quality and quantity of their output in order to be able to supply the
Dutch milk processing plant in the area.

The companies that did not pay higher salaries had provisions for the workers to have access
to groceries produced on the farm at very low prices. A very widespread practice that was observed
also in the other sectors was the heavy subsidizing of meals for the workers. The gender division of

31
the labour force was quite balanced with some companies employing more women than men and
others (especially those practicing intensive farming) having more men in their work force (~ 60%).
Another widespread practice that was observed at all the companies visited was the involvement
with community projects. This includes the funding of schools, clinics, water projects, charity to the
poorest members of the community and even micro credit schemes in combination with trainings to
encourage locals to start up small businesses (e.g. small chicken farms). Some of these projects were
set up with the support of church baked organizations that mobilized financial resources together
with volunteers who were more than happy to offer their work at a school or a clinic.

Environmental Impact

The environmental impact of the companies of the sector does not look as bright as their
social engagement. From the five interviewed companies only one had a system to monitor
emissions caused by the company’s activities. It must be noted that good intensions exist such as the
provision to install a biogas digester that would provide energy for milk processing and natural
fertilizer for the fields, but at the moment of visitation the plant was not operational. The person
interviewed from that same company stated that the use of fertilizers and pesticides was kept at low
levels to keep the production costs as low as possible as these materials are imported from abroad.
Some entrepreneurs interviewed admitted that some of their practices concerning waste disposal
have been banned in Europe since decades. The same people complained about the complex
government regulations existing in Europe concerning environmental issues and were happy to be in
a country where they could operate their enterprises with more freedoms. The fact is that the
environmental laws existing in the country are quite lax and have not yet adapted fully to the
intensive methods of production imported from Europe and elsewhere. Officially things look quite
differently as four out of five companies had to submit an environmental impact assessment study
prior to starting their operations. The reality is that this study was regarded more as a formality and
that it is quite easy for European companies to adhere to Ethiopian environmental standards. One
last issue concerns the water sourcing of these companies. All five companies had access to ground
water by drilling deep wells. As water is abundant in Ethiopia this does not create any problems in
the near future but it should be kept in mind as the agricultural sector is steadily moving towards
intensification and industrialization.

Supporting companies

Within this Dutch cluster there were also two companies directly connected to the above
sectors through their products which are important inputs to the production process. These
companies are closely linked to the dairy and poultry sector with business but also social relations.

32
The first company is one of the oldest companies in terms of Dutch presence in Ethiopia and is
focused on the production of animal feed. It produces enriched animal food of high quality by
combining local resources with imported vitamins and minerals. This company supplies all Dutch
owned farms in the area but also has many local customers due to the good relation between price
and quality. Working conditions in the company are according to government regulations and
salaries are close to the official minimum wage. Future plans include expansion to the production of
new products and improving the level of salaries.

The second one is a packaging company which arrived in the country in 2011 and produces
cups for dairy products. Their main customers are two milk processing plants in the area one Dutch
and one Ethiopian. Their business model is quite simple and the working conditions in the company
are acceptable even for European standards. Medical insurance for the workers is completely
covered by the company and salaries are above the regional average. The company is mindful of
many problems in the community in which they operate and have specific plans for the future which
include the organization of a fire brigade and a recycling centre for plastics.

Main problems – Future prospects

The entrepreneurs in this sector listed the access to foreign exchange and the erratic nature
of government regulations as their main problems. They mentioned that regulations change very
often and putting obstacles in their day to day activities or their expansion plans. Sometimes even
government officials were not up to date with the latest regulations resulting in misunderstandings
and bureaucratic hassle. Even though these companies they try to source most of their resources
from the local market they are still dependant to some degree on imports and access to foreign
exchange to complete their transactions. As the country is currently going through a period where
FOREX is scarce, the companies have to apply months in advance for it at a national bank. Because of
the scarcity the government has made a list of priority in favour of export oriented companies that
have FOREX generating capabilities. As all of the companies of this cluster are oriented towards
supplying the local market they are experiencing a great deal of difficulties when in need of
importing products. Furthermore many complained about the heavy taxation that currently exists on
all imported products and machines. Another problem mentioned by some entrepreneurs was the
mentality of the workers the majority of which do not work in a responsible way and could not be
trusted. Despite facing all these difficulties all companies had plans for expansion for the near future
that include upgrading their farm capabilities and generating some more added value to their
products through processing and packaging.

33
5.3 The floricultural sector

General information

The recent appearance of Floricultural companies in Ethiopia together with the important
position they managed to attain in less than a decade reveals that we are dealing with a very dynamic,
competitive and export oriented business sector. The Ethiopian highlands with their fertile soil coupled
with the favourable climatic conditions and the access to abundant water resources and cheap labour
costs were the deciding factors that led many European lower producing companies to establish a
branch in Ethiopia. In less than a decade the sector developed at such a rapid pace that it is today the
4th major income source of the country and has positioned flowers among the top five export products
of Ethiopia.

All companies interviewed in this sector arrived in started their operations in Ethiopia after
2004. These companies were looking forward to an environment where they could gain a competitive
advantage over their competitors due to the favourable conditions for floriculture both in terms of
weather but also in terms of investor friendly government policies that began around 2003. This
element already differentiates these entrepreneurs from the previous group as their primary objective is
profit. The average size of the flower farms is relatively small at around 24 ha but the sector is
characterized by high labour intensity. The seven farms visited cultivate a total area of 167 ha and
employ all together 3725 permanent and 2200 temporary and casual workers. The ratio of workers per
Ha is around 22 for the permanent workers. This number is ten times that of workers per ha needed by
the dairy and poultry sector. This is also one of the reasons why floriculture fits perfectly into the
government’s plans of agricultural industrialization. This issue will be discussed more extensively in
the next chapter. The investments in the sector peaked around 2006 and have been declining even
since for reasons that will be examined later on.

Graph 2: Floricultural Value Chain

Input of Production Growers /

Wholesale Retail
Chemicals of cuttings Propagators

Economic performance

Floriculture is an extremely profitable sector that can generate market value of up to 7.000€ per
ha in the production of cuttings. To put this number in to context the market value of teff, which is
used to create the most widespread staple food in Ethiopia, lies at around 300 € per ha. As mentioned
above the sector is of great economic importance for the Ethiopian government for two reasons. Firstly

34
it generates foreign exchange which is vital for the continuation of the current large scale investments
in infrastructure undertaken by the Ethiopian government. Secondly the sector perfectly embodies the
vision of the governments’ plans for agricultural industrialization by creating high value on small
pieces of land and providing jobs to thousands of people.

All companies interviewed expanded in the past five years in terms of turnover, number of
workers and clients. Six out of seven companies also mentioned expanding their activities to new
locations in the same area or region. Concerning their estimations for future development again six out
of seven companies have concrete plans for further expansion within the next years. Exception to this
is one company that mentioned that further expansion is not feasible due to the existing scale of their
operations and infrastructural constraints. In terms of turnover two out of seven companies were above
five Million Euros, two reported being somewhere between two and five Million Euros and the
remaining three were between one and two Million Euros. In contrast to the dairy and poultry sector
only one of the companies interviewed received a subsidy from the Dutch government.

The floriculturists are heavily dependent from imports and source the great majority of their
inputs from the international market. These include a variety of chemicals, greenhouse supplies,
pesticides and fertilizers, none of which are produced in Ethiopia. The most common inputs that were
locally sourced were carton boxes and packaging materials. According to the farms managers
interviewed the companies try to avoid sourcing their inputs locally due to inferior and instable quality
of the provided products. Some mentioned that even the packaging materials supplied locally were not
up to international standards and resulted often in partial damage of their extremely fragile products.

An important characteristic of this sector is the fact that the transportation costs account for 50%
or more in some cases of the total production cost. This element makes logistics and transportation
together with the necessary supporting infrastructure a crucial element of the flower value chain. In
comparison labour costs account for 6-8% of the total production cost. The first fact explains to an
extent why the Ethiopian government obliged all flower producers to use the Ethiopian Airlines air
cargo for the transportation of their products. In this way the government started an attempt to
maximize revenues from the sector after the companies enjoyed a period of tax holidays to establish
and solidify the newly established industry.

Social impact – Labour relations

Putting aside the economic aspects of this sector we move on to the equally (if not more)
important social impact of the floricultural activities. As mentioned before the sector creates a great
number of jobs especially for women. Among the seven interviewed companies 70% of the workers
are female. This is not without reason as the handling and care of flowers is a very delicate work that
requires careful attention. Also according to the people interviewed women are considered to be

35
more hard working and reliable than men and can generally be trusted in following precise
instructions or taking on more responsible positions. For these two reasons women are generally
preferred as employees by the flower companies. This element alone indicates that the flower sector
is transforming local societies in the regions where production takes place. The company
representatives mention the empowerment of women as one of the most positive influences of the
flower industry together with the creation of a large amount of jobs in rural areas where people were
mainly living on subsistence farming. The argument of empowerment goes even further with the
farm managers claiming that women that have a job tend to spend more money on their children’s
education. Unfortunately this claim cannot be verified by the present study but would be an
interesting topic for further research in the context of the societal transformation happening in the
areas affected by floriculture.

At this point it is useful to look at salaries and other labour issues. The floriculture is often
accused of employing people in sweetshop like conditions with very low salaries. Fact is that the
average salary in the floricultural sector lies below the threshold of 1 US$ per day. One of the
agricultural consultants interviewed mentioned that in many farms there were issues of exhaustion
of workers who fainted in greenhouses or at the end of their working day. However among the
European companies in the sample the situation looks somewhat different.

All companies reported paying their workers above the average pay in their area. One of them
even claimed paying among the highest salaries in the flower business with the lowest salary being at
750Bir (40 USD) per month. The lowest pay recorded in the sample was that of 22 Bir (1.17 USD) per
day for a casual worker. According to the results from the survey and interviews the European
entrepreneurs are among the highest paying employers of the sector with the lowest salaries being a
little over one USD per day for casual workers. For comparison consultants interviewed mentioned
that in many cases European companies pay twice as much as their Ethiopian or Indian counterparts
in the same sector. The salaries mentioned above increase with time and experience and also
through job related trainings offered by all companies of the sample.

Furthermore all companies comply with the national labour proclamation which received
many positive comments from many respondents of the survey. Following this proclamation all
workers must be health insured, have a right to holidays, medical and maternity leaves and since two
years now also to a pension. Three out of the seven companies go beyond these provisions and cover
all medical expenses of their employees either on clinics on site or outside. Three out of seven
companies invest in the training of their employees beyond the requirements of their job by
encouraging them to finish school or by conducting general educational seminars (i.e. healthcare
awareness). Also six out of seven companies had an organised trade union for the workers with two
of them reporting that they were inactive mainly due to low participation levels. Additionally almost
36
all companies offered their workers some kind of subsidized food (breakfast or lunch). One of the
companies had even set up a school for the workers’ children. Finally the majority of the companies
(5 out of 7) had a clinic on site with a doctor present.

The majority of the companies interviewed (6 out of 7) were also actively engaged with the
surrounding communities supporting a wide range of projects. Quite common as in the previous
sector is the sharing of water resources with four out of seven companies sharing their water with
the nearby communities. Providing funding for local schools and hospitals was also an important part
of community engagement for four of the companies interviewed.

Environmental Impact

From an environmental point of view flower farming cannot be presented as a sustainable

industry. The vast amount of chemicals and pesticides used together with the carbon footprint of its
transportation give enough input for heated discussions concerning the viability of the sector and its
connection to sustainable development in Ethiopia. As the sector is export oriented with customers
scattered all over the globe this study reveals a mounting pressure on producer companies from the
consumer side towards more sustainable production.

Looking at the use of fertilizers among the surveyed companies the values range from 6 to 13.5
t/ha/year. These values are approximate and do not account for the use of pesticides which are an
equally important input for the production of flowers. The peak in fertilizer use is observed among
companies producing cuttings which need larger quantities of fertilizers than cut-flower or rose
growers. Consultants interviewed reported that many brands of pesticides used in floriculture have
been banned in Europe and that government regulation on chemical fertilizers and toxic pesticides is
lax.

Despite these alarming values the interviews conducted with the European flowers growers
revealed a declining tendency in the use of chemical pesticides. This quite recent tendency has two
main causes. The first is connected to consumer pressure from the European market and the
consequent rise in EU standards for imported flowers. Some reported mounting pressure from
supermarkets that are gradually pushing regulations for residues in flowers to levels that are close to
these of vegetables and food products. The second reason is connected to new environmentally
friendly technologies that are becoming more and more available.

An example of this is the Integrated Pest Management system (IPM) which is a combination
of biological and chemical pesticides that reduce chemical use by 50 to 60% while also resulting in
increased yields. One of the companies interviewed declared being the pioneer in its use about three
years ago and that in the meantime this method is becoming standard in the sector. This claim is

37
confirmed a study conducted last year focusing entirely on floriculture in Ethiopia (Bardout, 2012)
according to which foreign flower companies made extensive use of IPM at about 75% of their
cultivated areas. The same percentage was significantly lower among domestic farms which used
IPM only on 30% of their cultivated areas. The present survey also confirms this declining tendency
with six out of seven companies taking initiatives towards the reduction of their pesticide usage.
More specifically, two companies of the sample were using IPM, another two mentioned on-going
reduction efforts, one referring to the term “responsible use of pesticides” and the last one avoiding
the usage of red label products and replacing them with organic substitutes where possible. The on-
going reduction efforts included the breading of pest resistant varieties that reduced the need for
spraying chemicals, thereby also reducing production costs.

Another issue that came up during this survey was the fact that the government in the
context of welcoming investors during the early development phase of the sector did not require
them to submit environmental impact assessment studies. This is no longer the case as controls have
tightened over the industry in the past years. Nevertheless two of the companies interviewed did not
submit impact assessment studies before starting their operations. One of them came to Ethiopia in
2004 during the early phase and the other was established in 2010. The manager of the first one
mentioned that the government has started pressing on this issue and that the company would was
preparing the studies and would submit them some time in the near future.

A final subject that needs to be addressed briefly in this section is that of soil degradation.
The intensive use of land creates soil degradation in the long run that poses a serious threat to the
viability of the sector. This issue did not come up through the survey but was indirectly addressed
during an interview with one of the companies offering supporting services to the flower sector.
According to this source some of the companies in one of the floricultural clusters are already
experiencing problems of soil degradation resulting from the intensive use of land during the past
decade. Soil degradation results in increased usage of chemical fertilizers creating a negative spiral
that in the long term renders the land useless for cultivation.

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An environmentally friendly alternative

An exception to the above mentioned environmental problems was found at one of the
surveyed firms, which is engaged in the production of flower cuttings. This company uses
hydroponic technology to produce cuttings and in contrast to its competitors or other flower farms
does not contaminate the environment with pesticides or chemical fertilizers. With this technology
the roots of the plant do not come in contact with the soil and all necessary nutrients are provided
to the plant through a closed loop water system that is constantly recycled. This way no chemicals
are released into the environment. The company also recycles all its waste by organising an auction
every year for companies interested in recycling or reusing waste materials.

5.4 Agro-related companies

The majority of agro related companies in the sample (six out of eight) is connected in some
way with the floricultural sector. All six companies arrived in the country after 2005 in the aftermath
of the investment boom that occurred after 2003. Most of them stated having followed their clients
from Europe. Half the companies of this category are rather knowledge intensive and employ mostly
foreign personnel. One of these companies specializing in biological pest control directly supplies its
clients from abroad, refusing to open a branch in the country out of fear of losing their competitive
advantage. Other examples of supporting companies are foreign consulting firms, agricultural
supplies, laboratory services, logistics and consulting. Also there is an example of a very innovative
firm offering environmental services that will be analysed in detail below.

All these firms offer services mainly to flower companies but among their clients are also local
farmers that now have access to services and supplies that were unthinkable about a decade ago.
The mere existence of these agro-related companies is a result of the policies that welcomed the
flower companies about a decade ago. A large part of the technology transfer has taken place
through these companies which have helped build up the dynamic floricultural sector in Ethiopia by
bringing into the country technologies, know-how and materials that can be used in developing and
intensifying the wider agricultural sector. The agro-related companies have also benefited
significantly from the support of the Dutch government with half of all companies in the sector
having received a PSI subsidy for setting up innovative businesses in Ethiopia.

Although these companies employ a limited number of people and don’t interact much with
local populations there are two exceptions. The first case offers laboratory together with consulting
services but also provides supplies for setting up farms. Their Ethiopian branch targets at supplying
farmers with the necessary input in terms of materials and knowledge in order to facilitate start-ups.
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The training of local farmers free of charge is part of the company’s business model as trained
farmers understand the applicability of their services (i.e. soil analysis) and can easily double or triple
their output by following the given advice. Company workers are skilled and besides receiving three
times the average salary they are trained on how to cultivate their own vegetables. The company is
also engaging with the local community by regularly supporting the local school as well as the local
police station.

A genuine case of Sustainable entrepreneurship

The second case involves an innovative company even for European standards which
specializes in composting, environmental services (carbon and water footprinting) and carbon
credit trade. The company will be fully operational in the next months and some flower farms
are already on the list of first customers to make use of soil improvement services. Due to its
industrial composting methods that prevent the emission of greenhouse gases the company
gets access to funding from the voluntary market on emissions which started after the Kyoto
protocol. The company aspires to become a showcase for organic farming and sustainable
technologies that will eventually spread throughout Ethiopia. The training of farmers on site on
composting techniques and wastewater treatment is part of the business plan. The long term
goals of the company are the promotion of organic farming and sustainable technologies as well
as supporting the Ethiopian government and its ambitious plan on becoming climate neutral.

Main problems – Future prospects

The flower growers interviewed stated as their number one problem the unclear and unstable
government regulations. Many also complained about interventions in favour of state monopolies
such as the Ethiopian Airlines and their monopoly on air cargo. Import difficulties and bureaucracy
were also high on the list of complaints and were accused for slowing down the development of the
sector. One of the companies also mentioned a lack of skilled labour in the area and pointed out to
an on-going competition existing between different companies in the sector that is leading to an
inflation of labour costs. Furthermore the in one case the lack of infrastructure (maximum grid
capacity reached) in combination with the lack of skilled labour are the main issues that prevent the
company from further expansion.

Besides this one case all other flower companies had plans for expansion for the near future
with one of them even planning to start industrial scale vegetable cultivation. The rationale for this
expansion to another sector was clearly to spread the risk and take up the production of products
destined for the local market. Also in terms of responsible business three companies had plans for
improving their social and environmental performance through more community engagement and
40
reduction of their environmental impact. The interviews indicate that all existing companies have
plans for future development though many mentioned that circumstances have deteriorated in
terms of investor friendliness from the side of the government. That gives existing companies an
advantage over newcomers in the sector which can also be confirmed by looking at the rapid decline
of new investments in the sector.

5.5 Production and processing of food crops

General information

The two companies of this category were established in the country in 2008 and they differ
from the other food related companies as they are mainly export oriented. One of them produces
and processes tropical fruits and the other is focused on the organic production of sesame. Another
major difference is that both of them make extensive use of outgrower models for supplying their
processing plants and also follow international certification schemas. These two factors have a great
influence on the companies’ social and environmental performance making their business cases an
example of responsible business in the agricultural sector creating shared value for shareholders and
local communities.

Economic performance

Both companies reported good economic figures during the first five years of their operation
with an expanding client base and significant gains in turnover. Currently the average annual
turnover of the companies lies between two and five million Euros. Economic activity is expected to
continue growing in the next years with the introduction of new products to the market that will
create more added value to the existing production of the companies. One of the companies got
access to funds from the Dutch subsidy program (PSI). This same company reported not being
profitable on paper yet with a slow return on investment, which is in line with the long term vision of
the company’s investor. The main shareholder considers this project to be a long term investment
and is not interested in making short term profit but rather puts emphasis on transparency and
product quality. The general manager interviewed was confident that the company would get into
the green figures within the next couple of years.

Social Impact – labour relations

The two companies of this category employ a total of 315 permanent workers, 1400
temporary and 2000 casual workers. These workers are paid up to 50% more than the regional
average and have medical insurance covered by the company (50% in one case and 100% in the
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second). In general, both companies offer significant benefits to their workers. The sesame
processing company even has an own pension fund set up for its workers. Subsidized food is also a
common practice for this sector with the fruit farm going one step further by providing housing for
its workers. As both companies use an outgrower model, training of workers and outgrowers is an
important part of the business plan as well as a crucial factor of success for the system to work
properly. Outgrowers receive extensive training together with benefits such as advances of payment
which are in practice interest free loans. Furthermore they are always paid on time when selling their
product to the company. If they choose to sell their product at the Ethiopian Commercial Exchange
they are mostly paid after three to six months. Labour issues together with working conditions are
subject to frequent audits as part of the companies’ obligations towards international certification
schemes. Community involvement is also a sector where both companies interviewed are quite
active in. Active communication with surrounding communities as well as support of community
schools and clinics are among their practices.

The outgrower system used by both companies has significant benefits for the local farmers as
they are organized into cooperatives and receive special training concerning cultivation methods
adapted to the needs of the crops. This form of organization protects the farmers from price volatility
and has many benefits for sharing knowledge and tackling production issues. Depending on the
agreement the farmers receive a support in terms of input for production but also financial benefits.
In sesame production the contract with the cooperatives is not binding leaving the farmers free to
choose where to sell their production. Relations with the company are built on mutual trust and
respect and not on a basis of exploitation. The outgrower system presents many challenges for
companies as it requires a proactive and flexible management structure. The management is in many
cases the deciding factor that determines the success or failure of such a project.

Environmental impact

The environmental impact of the two companies in this category is minimal and presents a
great contrast to the activities of other companies within this sample. A fact worth mentioning here
is that these two companies are the only ones in the entire survey population that possess a system
to monitor greenhouse gas emissions. As the two companies have a different philosophy concerning
environmental issues they will be presented separately.

The sesame producing company is dedicated to the practices dictated by organic farming. This
means that during the entire process of production no chemical fertilizers or pesticides are used. To
ensure this a sample from each lot that enters the processing plant is taken and checked for residues
at an independent laboratory in Europe. Crop rotation is done once in every four years where an
alternative crop is cultivated that gives the soil the time to regenerate. The outgrowers that produce

42
the majority of the company’s sesame do not use irrigation which makes the water footprint of the
company minimal. A small quantity of water is used by the company for the processing of sesame.
The processing itself uses electric heating to clear the sesame in order to avoid contamination from
exhaust fumes. The sesame processing does not create any waste only by-products which are sold as
input for animal feed production. Transportation is the only sector that contributes to the end
products’ carbon footprint as it has to be driven 1000 Km to the processing site and another 850 Km
to the port of Djibouti where it is shipped all over the globe.

The other company of this category is also environmentally conscious but at a different level
than the one analysed before. The fruit production is done with conventional methods but due to
obligations arising from international certification schemes the use of chemical fertilizers and
pesticides is monitored and subject to restrictions. The farm uses 300 kg of fertilizer per Hectare and
year. This number is very low if compared to the amount of fertilizer used by floriculture which is ten
to forty times as much. The company has also an afforestation plan and produces almost no waste.
The waste from the processing of fruits is collected from local communities and used as animal feed
or sometimes sold to bigger animal farms.

Main problems – Future plans

In this category the import problems were only a minor issue as both companies are export
oriented and have excellent relations with government officials. An important issue that came up is
that of unfair competition from bodies in charge of international certification in the country. It was
mentioned that some competitors got certified without fulfilling the necessary criteria and that there
is a lack of control. In some cases EU regulations are not properly enforced and that should be a point
for future improvement.

The future plans of the companies are quite ambitious with plans for scaling up production and
adding some more steps in their production process thereby creating more added value that will
increase their profitability. Improvements in terms of responsible business are also planned
throughout the value chain as well as negotiation with the government for tax benefits in exchange
for more intensive production that will increase productivity and boost exports.

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6 Analysis & Discussion

Assessing the contribution of European firms on local development is a delicate issue. Some of
the results presented above speak for themselves; others can be explained in many ways largely
depending on one’s own perspective. This analysis and discussion part guides the reader through
different perspectives on the subject in an attempt to shed some light to the recent developments of
this dynamic sector.

The European companies interviewed presented in general a responsible business profile in

terms of abiding with government regulations concerning environmental and labour issues. As the
study results reveals new technologies have entered the country and an impressive amount of jobs
has been created in the past decade. Looking at the level of salaries and the environmental impact of
many companies many questions arise while attempting to get to clear conclusions. For this reason
the issues at hand will be discussed separately.

6.1 Responsible business

Fifteen out of the twenty three (65%) companies surveyed reported being involved in some
way with the local communities in their area of operation. The motives behind these activities differ
among the sectors ranging from philanthropy to pragmatism. Going back to Van Tulder’s (2006) four
stages of CSR, most companies fall into the first two categories namely inactive and reactive with a
limited number lying in the active category. Only two to three companies of the sample can be
classified as proactive according to this scheme.

Within the dairy and poultry sector community projects were religiously motivated and seen as
an intrinsic part of doing business in a developing context (“Active”). Responsible business practices
were a prerequisite for the companies that applied for Dutch government subsidies (PSI) in order to
get access to funds (“Reactive”). It should also be mentioned though that some of these projects
were supported or funded by other church backed organisations. Of high importance for the
organisation of training programs were also links with universities in The Netherlands specialized in
agricultural research. These points are not to say that what these companies are doing in terms of
responsible business is wrong or harmful in any way. But is there any possibility of this model being
adopted by locals who have neither connections of that kind not the necessary resources to set up
CSR strategies of that kind? Would these extensive CSR programs be economically viable without
government subsidies, charity and other organisations providing funding and volunteers for schools
and clinics? Looking at the collected data the answer is probably no.

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The flower sector is quite different in that sense. The high added value created by flower farms
together with the high productivity make the implementation of large CSR programs not only
economically viable but also a necessity in many cases (“Reactive”). These programs add to the
image of the companies and when it comes to luxury products such as flowers, image is very
important. Customer satisfaction and values rank among the highest priorities in this business. This is
also one of the reasons why some of the flower farms turn to international certification schemas that
guarantee fair conditions of production (Fair Flower etc.). On the other hand the results of the
present survey indicate that customers are successfully pushing towards the adoption of higher
standards in the industry concerning CSR performance. This does not apply to companies oriented
towards the domestic market where certification does not play a role in customer or supplier
relations. The demand for agricultural products in the vast Ethiopian market exceeds supply in many
cases and therefore there are not many choices for consumers most of which are satisfied with the
mere existence of some products on supermarket shelves.

A different perspective on the importance of community relations was given by some of the
Ethiopian managers interviewed. According to them relations with the local communities are
extremely important not only for the company’s image but also for security reasons, as insurance in
times of political instability. Local communities are an important part of the environment in which
the companies operate and relations should be built on mutual trust and respect. This is an
interesting perspective as the political stability is not taken for granted and many entrepreneurs
cannot expect their companies to be protected by the police especially when those lie in remote
areas. Good relations and open communication with the community is thus considered to guarantee
in some way the mutual benefit of the parties involved.

6.2 Employment

Employment creation is considered from the side of entrepreneurs to be one of the most
important contributions to the country. Fact is that alone the 23 companies interviewed employ a
total of 4.675 permanent workers, 2.094 temporary and 4.100 casual workers and that includes some
one man consultancies. These numbers are quite remarkable at first sight but on a closer look they
are poorly paid positions with the majority of them lying slightly above the one dollar per day
threshold. Working conditions are generally fair as all companies of the sample abide to national
employment rules and regulations which have provisions job security, medical insurance, annual and
sick leave, maternity leave as well as a newly established pension scheme.

The floricultural sector accounts for the majority of the created jobs in the study sample with
around 3.700 permanent workers and another 2.200 of temporary or casual labour. These jobs were

45
created in areas where little or no jobs where available in the past with most people living from
subsistence farming. The average income lies at about 18 Bir (1$) per day, with salaries increasing
with experience, training and productivity. Competition among companies residing in the same areas
also results in inflation of salaries, as workers can easily quit and work for a neighbouring farm. This is
especially the case in regions where labour is scarce. Skilled and experienced labour is rare and
therefore there are also clear limits to the increases of salaries. Although salaries represent only a
small fraction of the total production cost, it is one of the deciding factors for flower companies to
come to Ethiopia and gain an advantage over international competitors.

Another interesting fact in the flower sector is that 70% of its employees are women. This is
because women are considered more reliable in general and are favoured over men when it comes
to delicate jobs as the handling of flowers. According to the farm managers interviewed this fact is
among the most positive contributions of the sector, namely: the empowerment of women.
According to the same people women used to stay at home in the past raising children and taking
care of household matters. There are also claims that women more often spend a fair amount of
their income for the education of their children. These claims are interesting as they cannot be
verified by the present study. The fact is that this practice of employing women completely changes
the social structures in the area but it is probably too soon to assess whether this is a positive or
negative change. This subject will probably concern anthropologists or human geographers in the
decades to come.

Moving on to the dairy and poultry sector the situation looks somewhat different. As some of
these companies try to become a showcase for intensive agriculture labour is substituted by
expensive equipment. This sector uses an average of 2-3 workers per cultivated Hectare which
means that it is almost insignificant in terms of employment creation especially when compared to
the labour intensive floriculture. In one of the visited farms employees were trained to be able to
undertake multiple tasks and as a result the farm had fewer employees than five years ago. Salaries
in this case are higher due to the increased productivity. From the employment perspective it is
questionable whether this model of capital intensive production can be scaled so as to become the
rule in Ethiopia’s agriculture. This would lead the country on a path of adopting the model of western
agriculture where the sector employs between 2 and 5 per cent of the country population.

As far as the production and processing of food crops is concerned the business models of
the companies interviewed create a significant number of jobs both within the farms and processing
plants but also through their outgrower system. Under the influence and pressure from international
certification schemes these jobs have a guaranteed minimum wages and fair standards of
employment conditions. This example shows to an extent the positive effect of international
certification schemas which have strict regulations “forcing” the adoption of responsible business
46
practices. The companies benefit from these schemas by improving the value of their product and
gaining access to different markets, thereby getting into better market positions than their
competitors.

The agro-related companies on the other side score poor on direct employment creation as
the majority of them can be characterized as knowledge intensive. The sample includes some foreign
consultantancies that operate with minimum personnel. Salaries though in this sector are mostly well
above the regional average. There are of course exceptions in this diversified sample making it
difficult to draw general conclusions.

At this point it should be mentioned that the general employment conditions in combination
with some of the CSR projects such as full medical coverage constitute conditions that are
comparable if not better than those of many countries of Eastern or Southern Europe where recent
scandals have revealed slave like working conditions. This argument is not to say that these
conditions are the rule for FDI in Ethiopia but rather exceptions occurring more frequently among the
European business community. These working conditions are far from perfect taking into
consideration the low salaries but can be considered as a good point of departure. This point can
serve as an example for other investors to follow and as a point of reference for the government to
encourage.

6.3 Environmental impacts

The environmental impacts presented above differ to a great extent from sector to sector but
the overall picture does not look very bright for most of the cases. Extensive use of dangerous
chemicals, farming practices long banned in Europe and soil degradation are some of the negative
outcomes of the survey. In some cases it seemed as if European entrepreneurs trying to avoid
environmental regulations in their home countries were escaping to Ethiopia. The fact that they
perform better in comparison to their Chinese or Indian competitors does not change the fact that a
significant part of their activities causes long term damage to the environment.

On the other hand there are also significant signs of improvement. The declining use of
dangerous pesticides in the flower sector together with the awareness of many entrepreneurs of the
long term damaging effects are a step towards the right direction. The identified tendency in the
flower sector has to do with new technologies becoming available (IPM) but also with external
drivers such as consumer pressure (Visser, 2008). The latter factor should by no means be overrated
but in the case of luxury goods such as flowers may be just what is needed to go towards a different
direction. New technologies present also zero impact solutions as one of the companies
demonstrated. Unfortunately at this point this is still the exception but with proper regulations and
47
an effective incentive structure it could become the rule. A few companies also got involved in
natural conservation projects either voluntarily or at the request of the government. This gesture
demonstrates to an extent the existing awareness of the damage caused and a certain will to
compensate for this. A very encouraging finding was also the business model of the company
specialising in environmental services and composting which not only has not negative impacts on
the environment but is also engages in soil improvement and has plans of spreading sustainable
farming practices to local communities.

6.4 Technological learning

One of the main reasons why the government created favourable conditions for European
investors about a decade ago was the import of technology in order to modernise Ethiopia’s
agricultural system. From this perspective the presence of European entrepreneurs has triggered
many positive developments in the country. The flower sector can be seen as a success story in terms
of technology spillover with Ethiopians picking up intensive flower farming after the first years of
European presence in the sector. Another positive aspect is the investments in infrastructure that
occurred following the boom of floriculture together will all agro-related companies that arrived
during the same period. New services were introduced to the Ethiopian markets that are now
accessible to producers in diverse sectors (logistics, consulting and supplies). Many of these
companies arrived following their customers from Europe but soon realized the potential lying in
Ethiopia’s untapped market. By integrating the training of local farmers into their business plans they
virtually educate farmers to using their products and services.

The capital intensive dairy sector also aspires to spread the European model by giving
trainings to local farmers and demonstrating cutting edge technologies. Though it must be said this
model is more likely to attract local businessmen that want to invest in this highly lucrative sector
than peasants that possess few cows. Interviewing a local businessman who was about to start up his
own dairy farm he confirmed that the European milk processing plants were more than happy to
share with him with knowledge and expertise by putting at his disposal company consultants to help
him in his first steps. Whether the dairy sector will follow the pattern of floriculture is yet to be seen.

6.5 Economic aspects

The economic aspects of European investment activity in Ethiopia appear to be straight

forward from the governmental perspective. All foreign investments are welcomed and joint
ventures between Ethiopian and foreign investors are especially encouraged. As revealed in the

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results there is a strong favouritism from the side of the government towards companies with export
oriented activities mainly due to the lack of foreign exchange in the country. The activities of these
companies are facilitated in any way so as not to disturb their production process. As the following
part discusses a concern raised by some consultants as to the economic net benefits of exporting
companies to the country.

Looking closer at the success story of the flower sector one has to notice that from a
macroeconomic perspective, things are not a bright as presented in terms of benefits for the country.
We are dealing with an industry in which over 75% of its inputs are imported. That includes
pesticides, chemicals, fertilizers and other materials. About 50% of the total production cost is linked
to the transportation of the products to the international market. During the first years of the sectors
existence air cargo was undertaken by non-Ethiopian air cargo companies. Taking into consideration
that all companies had a 5 to 7 years tax holiday after starting their operations, this left only a small
fraction of generated value in the country which was mainly the low worker salaries together with
the low value of some locally sourced inputs (ex. carton boxes). If we take into account the costs of
infrastructures undertaken in order to meet the needs of the sector plus the cost of the
environmental degradation caused by the extensive use of toxic chemicals and pesticides then what
first appeared as a success story becomes a net loss for the country at least in the short term. The
government in an attempt to keep more of the value created in the country obliged the flower
companies to use the national air cargo by banning international competition. This movement was
not very successful as apart from receiving many negative comments from the business community it
did not really improve the country’s position as cargo planes and kerosene are also imported
products. Currently with the floricultural sector having reached maturity, the government tries to
reap the benefits from this dynamic sector by increasing taxation and enforcing stricter regulations.
These actions are viewed with great concern from many entrepreneurs and probably account for the
stagnating investments in the sector.

6.6 Assessment of surveyed sectors

At this point after having discussed the various aspects of European entrepreneurial activity in
the agricultural sector it is time to categorize the surveyed companies according to their
sustainability performance. This assessment takes into considerations the FAO (2010) principles of
responsible investments in agriculture as well as Van Tulder’s (2006) four stages of CSR practice.
More specifically each sector will be graded for every aspect of sustainability on a scale from -1 to 1
with -1 representing “poor performance”, 0 “fair performance” and +1 “good performance”. In
almost each sector there were some exceptions of companies that could serve as sustainability

49
models or others that are moving towards that right direction. The business models will be given
some further attention as to their contribution to sustainable local development guiding towards the
section of policy recommendations.

Table 8: Sustainability assessment vs. Sector

Environment Social Economic Total
Floriculture - 0 + 0
Dairy & Poultry - 0 0 -
Agro-related 0 0 + +
Prod & Process + + + +++
*The arrow in the environmental grade of floriculture represents an improving tendency

As can be seen in the table above the European companies in the sample scored weak in
environmental issues, mostly fair in social aspects and good in the economic sector. The dairy and
poultry sector was graded with “fair” in economic issues due to heavy external reliance to set up and
run their business (subsidies, links with universities & church organizations). In the social aspects of
this research it was notable that 15 out of 23 companies surveyed were involved in some way with
the local community in which they operated. As demonstrated earlier the motivations for this
involvement vary from sector to sector, with some entrepreneurs considering it an intrinsic part of
their business. As far as environmental issues are concerned the negative impact of most companies
cannot be neglected. The awareness exists among the European business community but pressure
towards improvement exists mainly for export oriented companies which are bound to certification
standards and customer specifications. Exceptions in terms of environmental performance exist with
some companies having a minimal or zero impact but there are no real incentives to promote these
business models.

Based on the results of the survey and the analysis so far we can put the companies into two
big categories. The first category includes companies that represent economic development in the
traditional sense. Their CSR practices can be characterized as “inactive” using Van Tulder’s (2006)
scale. Their appearance in the country was a result of the government’s open door policies pursuing
modernization and economic through FDI, new technological input and job creation. Sustainable
development is mentioned as a target in various policy papers but in the process of attracting foreign
investors the environmental impact of these investments was not really taken into consideration.
This is clearly demonstrated in the findings on impact assessment studies which indicate a certain
neglect of environmental issues at least during the first year of the boom. The great majority of
companies in the floricultural sector as well as the dairy and poultry sector fit into this category
together with some of their supporting companies. It’s the “business as usual” scenario that has
brought about the present ecological crisis and is for sure not going to lead the way towards
achieving sustainable development. The “improvements” in environmental performance were in

50
many cases only motivated by increased yields and profit maximization and mostly a response to
external driving forces (“Reactive”). Even on from the economic perspective the overall benefits for
the country are disputed and an object of debate.

In the second category we find companies that are on the right track in terms of sustainable
development (“Active”). Only one of the companies from the flower sector can be put in this
category because of its zero impact on the environment. From the other sectors the companies in
the production and processing of food crops were in the right direction with the company focused on
organic production having a business model that fully incorporates the philosophy of sustainability
namely: long term thinking with respect to farmer communities and the natural environment. These
two companies can be categorized as “pro-active” (Van Tulder, 2006) as they feature a wide
stakeholder interaction and consultation. From the agro related sector the company offering
environmental services does not only fulfil the criteria to be characterized as a sustainable company
but goes even further towards the direction of regenerative development by recycling organic waste
and using it for soil improvement purposes. Another positive aspect of this company is that the
training of local communities on composting methods and integrated organic farming methods is an
intrinsic part of their business plan. The spreading of this knowledge to local communities in Ethiopia
can significantly improve agricultural output in rural areas and contribute to long term food security.

6.7 Policy recommendations

In light of the data presented above it seems that the Ethiopian government has undertaken a
difficult task by trying to combine two almost opposing elements on the road to sustainable
development. These two elements are: The industrialization of the agricultural sector through
foreign investments, the development and reform of the dominant smallholder sector. As Lavers
(2012) mentions in many cases the large scale land acquisitions in many cases do not purchase
“unused land” but rather land previously used by local communities who have no opportunity to
object to the government’s decisions. The difficulty of this task lies in the bridging of these two
elements within a frame of environmental, social and economic sustainability.

If development continues following the present model it is very likely that it will not be viable
in the long run. Let’s assume for a moment that the point raised by Lavers is correct. In this scenario
foreign investors expropriate a large part of land used by locals for subsistence reasons and use it for
export crops of all kinds. Floriculture is an exception in this case as it requires relatively small
amounts of land. As a consequence the internal food production in many areas will need to abandon
the current subsistence model and shift to a model of centralized and intensive production. As the
latter model is capital- but not labour-intensive it will generate immense inequalities within the

51
Ethiopian society as only a relatively small part of the society will be able to purchase the produced
products. To bridge that gap in society the government would have to move towards an
industrialized and service economy in order to create more employment. This model does not seem
very likely as it would require a significant transformation of the Ethiopian society. This constitutes a
centralized model of production as was demonstrated in the survey sample by the dairy and poultry
sector. This model will create food products for a wealthy middle and upper class but will not feed
the masses.

For the first part of the equation, namely the industrial export oriented agriculture, flower
farms could serve as a solid basis under the necessary condition of minimizing their environmental
impact. Attracting high tech clean flower farms is not an easy job but not an impossible one either.
As demonstrated by one company of the sample, technology has made zero impact flower cultivation
possible, resulting in higher yields and minimum environmental impact. The existing companies of
the sector should be given proper financial motives such as tax cuts to upgrade their farm capabilities
and move to cleaner production methods. Another option would be to link environmental
performance with the level of taxation.

Stricter environmental regulations are also another prerequisite not only for the flower
sector but also for other types of crops or farms. The rising demand for dairy products is a fact in
Ethiopia’s society but there is certainly no need to repeat the mistakes made in Europe and other
countries by importing farming practices long banned. After all, somebody will have to cover this
demand but it does not have to be linked to environmental destruction. Environmentally friendly
waste disposal should become compulsory for all agricultural companies together with stricter
controls on chemicals and pesticides imported in the country. Sustainable business models from the
agro related sector dealing with organic waste and environmental services could also play an
important part in the amelioration of policies and the spreading of sustainable farming methods.

Organic agriculture on a larger scale as demonstrated by one of the companies in the sample
should also be seriously considered by domestic or international investors active in the country. By
using organic agricultural methods, the value created in the country increases and at the same time
the dependency on fertilizer and pesticide imports decreases. Furthermore the environmental
impact of these practices is close to zero and the benefits for farmers, outgrowers and local
communities are maximized. Finally if business models based on organic agriculture invest further in
vertical integration through the value chain by taking up processing of food crops, the added value
created will increase significantly creating even more value for all stakeholders involved.

Having covered the export oriented companies that are becoming Ethiopia’s “heavy” industry
it’s time to look at the agricultural production which focuses on the local market. As mentioned
earlier the intensification of agriculture for the needs of local populations is not really a viable option
52
and it also opposes an on-going tradition that goes back thousands of years. Most of Ethiopia’s rural
areas have been self-sufficient throughout the centuries even though their cultivation methods were
extremely primitive. By taking an hourly ride outside the country’s capital one can witness that very
little has changed in agricultural methods over the centuries. The knowledge we possess today on
organic agriculture is sufficient to significantly increase output in the rural areas of Ethiopia and
enable the farmers to move away from subsistence farming towards a semi-commercial model of
production as is envisioned by the current government. If modern knowledge is combined with
traditional farming methods it would be possible to create a decentralized agricultural system based
on organic production that will be more than enough to richly feed Ethiopia’s rising population. In
contrast to the capital intensive model of intensified agriculture the model described already exists
to an extent based only on traditional knowledge. By giving training to local communities on
integrated farming methods and organizing cooperatives that will serve as knowledge hubs this
system can become a reality.

The two systems described above may seem an obscure combination in the beginning but if
considered more carefully it is possible to combine them and make them complementary. The
infrastructure created in the past years together with the imported knowledge can serve this dual
purpose and help create a sustainable agricultural system that will contribute to the sustainable
development of Ethiopia by presenting a new paradigm of development that respects its rich
tradition and cultural heritage.

53
7 Conclusion

Within the past decade Ethiopia in its ambitious quest for sustainable and equitable
development has made a great effort in attracting foreign investors in the agricultural sector. A
lot of European entrepreneurs responded positively to the government incentives and started
setting up their businesses. After almost a decade of soaring investments and an annual GDP
growth of over 10%, questions arise as to whether the country is really profiting from foreign
investment activity and whether the model pursued leads to the target of sustainable
development.

This paper took into focus European companies in an attempt to create a profile of their
activities and assess their performance in terms of responsible business and contribution to
sustainable local development. The results presented in this study enable the reader to have a
deeper understanding of the European investment activity in the Ethiopian agricultural sector
as well as the most important issues at stake. As a part of this activity is heavily disputed
concerning its developmental impact, different perspectives were analysed and reflected upon.

At a first glance the results present a relatively positive image of European

entrepreneurship in the country. Europeans are in general responsible businessmen who play
by the rules and in many cases adopt voluntarily higher standards than their competitors. On a
closer look though, keeping in mind the three pillars of sustainable development, significant
shortcomings were identified. Especially environmental issues were more likely to be neglected
in favour of other social or economic benefits. Although worker salaries were only slightly
above the threshold of one dollar per day, social performance in general was fair featuring
extensive job creation, numerous cases of community involvement and CSR activities benefiting
the workers. The economic side was the least problematic with most companies being
profitable businesses. Unfortunately many of the business models observed were reliant on
subsidies and external support making them not viable for implementing on a local or national
level.

Exceptions to the “business as usual” scenario exist within the sample of companies
interviewed, characterized by innovative thinking, new technologies and visionary long term
planning. Out of the 24 companies interviewed only 4 meet the criteria to be characterized as
sustainable and present a different model of dealing with people and the environment. Taking
these exceptions as point of departure, the policies of the Ethiopian government and other
international donors should focus on attracting more companies of that kind by creating the
necessary investor-friendly conditions. Furthermore the standards of existing companies should

54
be raised by giving incentives to the existing ones, to improve their standards towards a
sustainable direction. This study reveals that the vertical integration of companies can increase
the added value created within the country through the processing of agricultural products
generating more shared value for all local stakeholders involved. Vertical integration presents
significant benefits for the country on a macro level but also for the company which gets a
better positioning in the value chain thereby increasing its shareholder value. A part of this
extra value created is subsequently shared with the local communities by exercising responsible
business practices. On a national level an integrated decentralised organic production can be
promoted through education and will significantly increase current yields and contribute to the
food security of the country.

These recommendations may represent only a fraction of possible decisions and

outcomes within the vast Ethiopian agricultural sector but their target is to clarify the direction
to be followed according to the principles of sustainable development. After all development in
itself is not an end goal but a continuous process which has to be adapted to the cultural
traditions and social context of each region. There is a lot to be done and many obstacles on the
way, but now more than ever we possess the knowledge and the means to make the right
decisions to solve humanities most pressing problems.

55
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9 Appendix

9.1 List of companies interviewed

Ownership Main activity Sector Year founded #Employees

1 Dutch (100%) Agricultural supplies Floriculture 2007
2 Dutch (35%) Organic sesame Food crops 2008 100
Ethiopian (65%) production &
processing
3 Dutch (50%) Packaging Dairy supplies 2011 25
Ethiopian (50%)
4 Ethiopian (51%) Animal feed production Agricultural 1995 80
Dutch (49%) supplies
5 Dutch (40%) Poultry & Dairy Agricultural 2010 70
Ethiopian (60%) production
6 Dutch (100%) Dairy products Agricultural 2008 36
production
7 Dutch (100%) Soil analysis Horticulture 2008 45
8 Dutch (100%) Biological pest control Horticulture - -
9 Dutch (100%) Consulting services Horticulture 2005 5
10 Dutch (51%) Dairy products Dairy 2001 86
Ethiopian (49%) production
11 Dutch (33%) Dairy, vegetables, Agricultural 2005 250
US (33%) poultry production
Ethiopian (34%)
12 Dutch (100%) Rose farming Horticulture 2006 1200
13 Dutch (100%) Consulting services Horticulture 2011 1
14 Dutch (75%) Dairy products Dairy 2007 65
Ethiopian (25%) production
15 Dutch (86%) Fruit production & Agricultural 2008 125
Ethiopian (14%) processing production
16 Dutch (100%) Rose farming Horticulture 2006 250
17 Belgian (99%) Cuttings Horticulture 2006 700
Dutch (1%)
18 British (90%) Cut flowers Horticulture 2004 250
Dutch (5%)
Ethiopian (5%)
19 Dutch (50%) Cut flowers Horticulture 2007 250
Ethiopian (50%)
20 German (100%) Flower cuttings Horticulture 2003 1450
21 Dutch (50%) Flowers Horticulture 2005 325
Ecuadorian (50%)
22 Dutch (50%) Composting, Horticulture 2010 200
Ethiopian (50%) environmental services
23 Dutch (50%) Logistics, flower Transport 2005 50
Ethiopian (50%) storage

60
9.2 List of interviewed stakeholders (organisations)

• Agri Pro-Focus Ethiopia

• SNV Ethiopia
• Ethiopian Horticulture Producers and Exporters Association (EHPEA)
• Netherlands Embassy, Addis Ababa
• Royal Tropical Institute

9.3 Survey Questionnaire

Survey No………..
Nr. Survey: Date:

Name enterprise:

Survey of European entrepreneurs in Africa

1. Owner/manager
A. Nationality, age & C. Residence & background D. Background
gender
What nationality(ies) do Since when do you live in this What is your professional background?
you have? country?

1. ………………
2. ………………

What is your educational Owner only:

In what year were you background? Why did you decide to start this enterprise in this
born? country?

Sex:

0 Male
0 Female

2. Characteristics of enterprise (part I)

A. Products & Services B. Sector C. Value Chain
What are your main products or In which branch of the agro-sector is In what activities is the enterprise
services? the enterprise active? involved?

Please specify: 0 Poultry 0 Machinery/Engineering

0 Food crops (fruits, vegetables, 0 Fertilizers/pesticides
grains, nuts) 0 Seeds
0 Non Foods 0 Services/Consultancy
0 Floriculture 0 Other supplies
0 Dairy 0 Research and Development
0 Other: 0 Farming
0 Storage
0 Processing and Manufacturing
0 Packaging
0 Retail
61
0 Transport
0 Trading and Exporting
0 Other:…………..

3. Characteristics of enterprise (part II)

A. Status B. Ownership
What is the status of the firm with Who are the owners of the firm (people/legal entities) and what
respect to others? nationality do they have?
Name Equity share Nationality Country of residence
0 Single establishment firm 1.
0 Parent company 2.
0 Local establishment of parent company 3.
0 Joint venture, partnership 4.
0 Other:………………….

4. Enterprise dynamics
A. Start B. Past development C. Future development
What year was the firm Has the enterprise expanded (+), remained Do you expect the firm to expand (+),
founded? constant (0) or declined (-) over the past 5 stay constant (0) or decrease (--) in the
Year: years in terms of: (please circle) next 5 years?

Turnover + 0 – Turnover + 0 –
What year did the firm No. of workers + 0 – No. of employees + 0 –
start its operations in this No. of locations + 0 – No. of locations + 0 –
country? No. of clients + 0 – No. of clients + 0 –
Year: Labour costs + 0 – Labour costs + 0 –
New product(s) + 0 – New product(s) + 0 –

Why? Why?

5. Financial situation
A. . Public investment B. Turnover
From which public channels does the enterprise What has been the average annual turnover of the
receive external funding? enterprise in the last year?

0 Not Applicable 0 Less than 125.000 BIR

0 Subsidy home country 0 125.000 – 500.000 BIR
0 Subsidy host country 0 500.000 – 1.250.000 BIR
0 Grants 0 1.250.000 – 2.500.000 BIR
0 None 0 2.500.000 – 6.250.000 BIR
0 6.250.000 – 25.000.000 BIR
And what is the name of each subsidy/grant? 0 25.000.000 – 50.000.000 BIR
Please specify: 0 50.000.000 – 125.000.000 BIR
0 More than 125.000.000 BIR

6. Market Relations – Suppliers and Customers

A. Who are your main suppliers? What is their name, size, location and what do they supply?
Size Name supplier Item supplied Location
62
1234
1234
1234
1234
1234
1 = Micro Enterprise
2 = Small to Medium Enterprise
3 = Large Enterprise
4 = Multinational
How much of your supplies are sourced from which market?

Local: % - what product in particular?

Domestic: % - what product in particular?
Other African: % - what product in particular?
European: % - what product in particular?
Other International: % - what product in particular?

B. Who are your main customers? What is their name, size, location and what do they buy?
Size Name client Item bought Location
1234
1234
1234
1234
1234
1 = Micro Enterprise
2 = Small to Medium Enterprise
3 = Large Enterprise
4 = Multinational
How much of your products are sold to which market?

Local: % - what product in particular?

Domestic: % - what product in particular?
Other African: % - what product in particular?
European: % - what product in particular?
Other International: % - what product in particular?

63
C. Value chain map

7. Characteristics of Market Relations

A. SUPPLIERS
What is the nature of your relations with suppliers?

Purchasing relations with main suppliers:

0 Arm’s length (individual transactions, no company-to-company relationship)

0 Contract basis (periodical delivery, longer-term relationship)
0 Contract basis including product specifications (same, including exchanges on product design)

Other relations with suppliers:

0 Technology transfer on products, production process

0 Training in skills and knowledge
0 Technical cooperation, joint product development and production
0 Staff placement
0 Financial support (credit, loans)

Is compliance with standards and certification schemes a factor in your selection of suppliers of goods and services?

Yes – somewhat – not really – no

If so, which ones?

To what extent do you agree with the following statements on the firm’s activities?
1 = not at all 2 = not really 3 = undecided 4 = Somewhat 5 = Very much
How do you deal with….? 1 2 3 4 5
Our procedures are such that all suppliers and contractors are routinely paid in
accordance with agreed terms.
Our firm supports its suppliers in improving their environmental, social and
economic performance
Our firm has standard procedures to determine the needs of its stakeholders
(complaint books, feedback mechanism)

C. CUSTOMERS
What is the nature of your relations with customers?

Sales relations with main customers:

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0 Arm’s length (individual transactions, no company-to-company relationship)
0 Contract basis (periodical delivery, longer-term relationship)
0 Contract basis including product specifications (same, including exchanges on product design)

Other relations with customers:

0 Technology transfer on products, production process

0 Training in skills and knowledge
0 Technical cooperation, joint product development and production
0 Staff placement
0 Financial support (credit, loans)

Is compliance with standards and certification schemes a consideration in securing deals with your customers?

0 Yes 0 somewhat 0 not really 0 no

If so, which ones?

To what extent do you agree with the following statements on the firm’s activities:
1 = not at all 2 = not really 3 = undecided 4 = Somewhat 5 = Very much
How do you deal with….? 1 2 3 4 5
The firm has a formal procedure to respond to client demands or complaints
The firm takes the needs of the poor as customers into account when
developing new products and/or services.
Product/service specifications are made clear, including quality, total cost, delivery
charges and time schedule

8. Use of local resources (Part I)

A. Labour

How many people does the firm (this establishment) How does pay of workers compare to average pay in the
employ in all? area? (in percentage + or -)

# Permanent: Has this changed over time?

# Temporary:
# Casual:
What are the normal daily working hours?
What is the gender division of staff?
Male:
Female: How many holidays/ free days do the employees receive?

What share of staff is local? (or use count)

Local: % How many employees are member of a Trade Union?
Other domestic: %
Foreign: %
What are the arrangements for medical leave?
Details on foreign staff:

From what country? What function? What are the arrangements for medical insurance?
1.
2.
3. What are the arrangements for maternity leave?
4.

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What percentage of the employees is male and
female? What are arrangements for social security?
M: - Old age
F: - Unemployment
- Disability

B. WORKER RELATIONS
Does the firm take specific initiatives for the well-being of its workers?
Please specify:

Does the firm invest/promote training/education for its workers?

Please specify:

To what extent do you agree with the following statements on the firm’s activities?
1 = not at all 2 = not really 3 = undecided 4 = Somewhat 5 = Very much
1 2 3 4 5
Health and safety regulations on the workplace are always enforced
There is a procedure to monitor compliance with relevant
employment laws and regulations.
There is a procedure to ensure that no forms of harassment, bullying
or discrimination are tolerated.
There is a procedure to ensure open communication with workers
(handling complaints, employee rights).

9. Use of local resources (Part II)

A. Land, Water, Energy and Pollution
How many hectares of land does the enterprise have in Does the firm share this source with the surrounding
total? community?

What is the tenure status of the land?

0 Privately Owned ha: How many months a year does the enterprise use irrigation?
0 State Owned ha:
0 Leased ha: years:
0 Community/customary ha: What is your main use of electricity?
0 processing, production
How was the land acquired? 0 office-type consumption
0 Private purchase/lease
0 Through government How much electricity does the enterprise use each year
0 Through local dignitaries (chiefs etc.) (KWh)?
0 Through local partner
0 Other:……………. What is the main source of energy?
0 public supply system
What is your main use of water? 0 private supply system
0 Irrigation
0 Production, processing Is there a procedure in place to monitor pollution/emissions
0 Household/office type consumption by the firm?
Please specify:

In case of irrigation and production water use, how Does the enterprise keep records of pesticides and
much water does the enterprise use each year? chemicals used?

How much fertilizer does the enterprise use (kg/ha)?

What is your main source of water?
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0 Rainfall
0 Rain harvesting system Does the enterprise have a functioning waste management
0 Surface water (canals, rivers and streams, ponds & and pollution prevention programme in place?
lakes)
0 Ground water (boreholes, springs)
0 Tap water Is there a negotiated compensation to the surrounding
0 Other…………………………….. community for the use of infrastructure and resources?

B. ENVIRONMENT
What assessments have been conducted before starting operations?

0 Environmental impact
0 Social impact
0 Soil/fertility impact

What does the firm do to limit its impact on the environment?

Please specify:

To what extent do you agree with the following statements on the firm’s activities?
1 = not at all 2 = not really 3 = undecided 4 = Somewhat 5 = Very much
1 2 3 4 5
The enterprise makes careful use of land
The enterprise is increasing its water efficiency
The enterprise is increasing its energy efficiency
The enterprise takes initiatives to reduce its greenhouse emissions
There is a procedure to monitor compliance with environmental rules
There is a procedure within the value chain to encourage
environmentally responsible use/disposal of products

10. Community relations

COMMUNITY
In what way is the enterprise involved with surrounding communities?
Please specify:

Please indicate to what extent you agree with the following statements with reference to the activities of the
enterprise:
1 = not at all 2 = not really 3 = undecided 4 = Somewhat 5 = Very much
1 2 3 4 5
The firm actively support community projects and activities
The firm is involved in improving social infrastructure and living conditions
in the area
Where activities have a potentially significant impact on the community, the
enterprise has procedures to minimize the negative impacts.
The enterprise engages in meaningful dialogue with the community where there
are concerns about its products, services or operations.
The enterprise is engaging in local development because this has a positive
effect on profit.

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11. Responsibility
A. Stakeholder influence
Which stakeholders are most important in determining how responsible a business is?
1=Extremely 2=Slightly 3=Neither 4=Slightly 5= Extremely
Negative positive
1 2 3 4 5
Investors/financiers
Government
Local Groups and Organizations
Clients and Customers
Community
Employees
Suppliers
Environmental changes

B. Responsibility, standards
Are there any international standards or certification How responsible do you consider your own business to be,
labels implemented by the firm? on a scale of 1-10 where 10 is highest.
0 No
0 Yes:................ 1 2 3 4 5 6 7 8 9 10

Please explain:

What are the main guidelines or directives from

government being implemented by the enterprise?

0 Yes: environmental: ...........

0 Yes: social: …….

What changes have taken place in terms of responsible
business?

What are the main bottlenecks, problems, your firm

faces?

What plans, possibilities do you have?

What can be done to solve them?

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Thank you for your cooperation!
If you are willing to participate further in the research please fill in your email address here:
If you have any further comments regarding the research please write them here:

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