Addis Ababa Abattoirs Enterprise, Ethiopia Feasibility Study Modern Slaughterhouse in Addis Ababa THIRD REVISION -Phase One: Scenarios Identification and Justification PDF

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Addis Ababa Abattoirs Enterprise, Ethiopia Feasibility Study Modern Slaughterhouse in Addis Ababa (ET-PSE/CGAA-AAAE/ICB/19/2012) Report Two THIRD REVISION - Phase One: Scenarios Identification and Justification November 24 2014 Meateng Africa cc: Reg. No. 2008/001359/07 Postal Address: P.O. Box 1305...

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Addis Ababa Abattoirs Enterprise, Ethiopia Feasibility Study Modern Slaughterhouse in Addis Ababa (ET-PSE/CGAA-AAAE/ICB/19/2012)

Report Two

THIRD REVISION - Phase One: Scenarios Identification and Justification

November 24 2014

Meateng Africa cc: Reg. No. 2008/001359/07 Postal Address: P.O. Box 130540, Bryanston, 2074, South Africa. Tel: +27 (0)11 463 9013 Fax: +27 (0)86 589 6545 E-Mail: [email protected]

Executive Summary The report concludes Phase One of a feasibility study into a new public sector abattoir facility for Addis Ababa, Ethiopia to replace the existing plant which is operated by the Addis Ababa Abattoirs Enterprise (AAAE). The report comprises a market analysis; projected throughputs by species for the period 2021-2033; an environmental impact assessment and mitigation plan; and a range of concept drawings for the plant operating under three different scenarios. The scenarios themselves are based on the criteria set out in the project’s Terms of Reference. Preliminary financial analysis is also provided for the three scenarios and covers the operating period 2021-2033 to take into account the two-stage capital cost program which is common to all three scenarios. Addis Ababa, like many other African cities, is growing rapidly, the current abattoir site is built-out and the facilities are in poor condition, so expansion or upgrade is no longer realistically possible. Relocating operations to a new facility on a new site within the city limits will have an environmental and social impact which is assessed through appropriate frameworks and presented in Appendix 2. (The final sections of this particular report component are in suspension as AAAE awaits confirmation of the new site from relevant authorities: nevertheless, the Appendix contains the main framework documents for environmental management, site remediation and resettlement action.) AAAE operates as a service facility and currently its primary mission is a social good through the provision of safe, hygienic and efficient livestock slaughter for meat production. Apart from slaughter fees, the Enterprise derives income from by-products resulting from the slaughter activities, skins and hides handling, and other endeavours. At this stage there is perhaps limited scope to increase revenue through higher service fees without diverting more livestock to the informal slaughter sector. However, the real nature and extent of the illegal slaughter sector in the city is not well understood. The extent of illegal slaughtering in Addis Ababa is not documented and, since it takes place under clandestine circumstances, is difficult to quantify. Currently there is no verifiable basis for the various estimates which have been put forward for the volume of illegal slaughter. As it is outside this project’s Terms of Reference, the report does not attempt to quantify the total contribution of meat supplied to the Addis Ababa market through illegal slaughter, but relies primarily on the known and verifiable data from AAAE and the official population statistics to make projections about future meat requirements. The majority of the city’s population is Christian Orthodox with a growing Muslim component. The distinct meat consumption requirements and patterns of the two main groups are explored in the report and it can be seen that these requirements necessitate the construction of two abattoirs on the one site, with some shared services and facilities. It is generally not straightforward to average out the daily throughput rates of the two facilities, as the city’s meat requirements are in part determined by the number and frequency of religious feasts and fasts (whereby production can fluctuate

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greatly) and also by the virtually universal consumer preference that meat be supplied to the butcher fresh and unrefrigerated. Results from market surveys of AAAE’s customer base - retail butchers, supermarkets and other stakeholders - highlighted a price-sensitive sector which is attuned to consumer sentiment. Retail meat prices have risen over the past five years and some retailers fear further increases in service kill fees. The surveys highlighted the strong traditional base of customers, who prefer to purchase meat that is at room temperature. It is usual to consume meat raw or uncooked. Beef is generally preferred over sheepmeat, and sheepmeat is preferred over goatmeat. Since refrigeration is still shunned by many butchers, their principal demand of AAAE is the prompt daily delivery of freshly slaughtered beef, sheepmeat and goat meat, necessitating that slaughter take place at the abattoir seven days a week. (There is also a small but thriving trade in camel meat for the Somali customer base found in the city.) This requirement, along with the numerous fasting days observed by the Christian Orthodox faith, places considerable pressure on the abattoir’s capacity utilisation level and there are considerable peaks and troughs evident in slaughter levels weekly and throughout the year. By contrast, the Halal hall experiences fairly smooth throughput levels which could, under the right circumstances, become a stable base for an export processing business in the future. Survey results also revealed the growth in supermarket meat purchases as well as the number of cafes, restaurants, hotels and other foodservice customers. Many of these businesses buy their meat through local butchers and wholesalers but have also indicated interest in receiving deboned and/or pre-packed products, a potential valueadded business opportunity for AAAE or another party. How this market develops will partly depend on the wider economic outlook for Ethiopia, the growth of the tourism, conference, construction and manufacturing sectors, as well as the willingness of Addis Ababa’s consumers to alter their meat purchasing behaviour, which up till now has been based around the traditional butcher trade. The three scenarios presented in the report all have as their main focus the meat requirements of the growing city of Addis Ababa moving towards 2033. Projected slaughter levels for the next 20 years are based on population modelling from the Addis Ababa and Surrounding Oromiya Development Plan (AAODP) and are supplemented by demographic data in the 2007 Census results of Ethiopia’s Central Statistical Agency (CSA). The projections also assume there will be longer term recovery, or clawback of market share, from illegal slaughter of 1.0 percent for cattle and 0.5 percent for smallstock annually. The TOR require consideration of three separate scenarios which this report complies with. The TOR indicate that the AAAE and its stakeholders will consider these scenarios against a range of criteria and that the scenarios should relate to available data on demand, supply, outlook and potential. For this reason, the report provides a very thorough situation analysis on all these factors to provide context and perspective. Above all, the report’s aim is to provide the project team’s assessment of the plant

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concept which seems to fit best with the current and anticipated meat requirements of the city of Addis Ababa - whether solely as a service facility or extending into full commercial participation in the export environment. All three scenarios use the same forecasts for local demand of beef, sheep and goat meat, camel. Scenarios Two and Three anticipate the need for higher production levels to take advantage of other opportunities that may develop. Summary of Scenarios Scenario 1 considers the most straightforward interpretation of the city’s livestock slaughter and meat requirements. Here, AAAE’s customer base is unchanged: they are wholesalers and retail butchers who sell meat to consumers in all quarters of the city. Production is predominantly focused on supply of freshly slaughtered and unrefrigerated product, although carcass chillers are included in the plant design. The design is modular and easily extended as requirements change. AAAE’s role is also unchanged as the provider of slaughtering services at a new, modern facility and this fresh venture will be underpinned by a simple marketing strategy that helps to shore up market share and to encourage more businesses to use the city’s abattoir. It builds on some of the findings of the market surveys conducted during the study and addresses retail butchers’ requirements. This scenario is predicated on projected growth occurring in the city’s meat requirements and the pro-active promotion of AAAE’s core business. A concept plan and impact discussion for a satellite abattoir (or abattoirs) is presented as requested, which the AAAE believes may recover market share from illegal slaughtering and also contribute to improving the environmental management of slaughtering in city environs. Due to the indeterminate nature of illegal and informal slaughter in the city, the projected financial performance of the satellite abattoir concept can only be conjectural, and therefore investment in this area could be regarded as high risk. Scenario 2 was developed to address a more dynamic environment emerging in Addis Ababa. At the present moment, the meat supply situation is largely traditional: most consumers purchase meat through their neighbourhood butcheries as unrefrigerated beef and sheepmeat. But if the city market evolves over the next decade or two, as economic growth improves and consumer behaviour adapts to modern trends, supermarkets and the foodservice sector will become increasingly important suppliers of meat and they will have a different set of product and service needs. Supermarkets in Addis at this time rely on in-store cutting and packaging of carcasses brought from AAAE or elsewhere, however, this is a costly and inefficient use of valuable retail space. There is no facility providing this emerging market which was identified in the market study through the growth of institutional and food service sector customers. A centrally-located deboning and packaging plant, export-approved in order to comply with the likely accreditation and food safety requirements of the major users, could source beef and sheep carcasss from the AAAE abattoir for deboning and packaging at their own facilities offsite. This scenario sees AAAE act a service slaughter firm and negates the need for third parties to invest in slaughter and processing capacity

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elsewhere. The scenario is predicated on positive growth in the local market, particularly in the number of supermarkets and foodservice/institutional users of beef and sheepmeat, with AAAE continuing to provide slaughter services for new and emerging customers in a range of market channels. Users could include individual supermarkets or supermarket chains with their own meat marketing and promotion strategies. Furthermore, since these types of outlets already use the refrigeration cold chain in their businesses, they will be keen to source product which has been refrigerated after slaughter. This could enable AAAE to better manage utilisation rates through off-peak slaughter. Increased use of carcass chillers may enable AAAE to smooth out demand more than is possible currently due to customer resistance. Scenario 3 envisages for AAAE to purchase livestock on its own account for slaughter, deboning, packing and export, processing up to 400 beef carcasses and 3,000 sheep and goat carcasss per day as Halal product. These numbers represent the average daily ‘gap’ between built capacity and local demand, which is made possible through the use of refrigeration (chillers). If as projected local demand rises in the 2020’s and spare capacity dwindles, fewer carcasses/quarters will be available for export until the facility undergoes a planned expansion phase in 2026-2027. This represents a departure from AAAE’s present mission into commercial operations, which naturally brings many risks into play in terms of export marketing, managing livestock supply, compliance with veterinary protocols and product specifications, managing exchange rates, documentation, labelling requirements, product rejection and significant working capital costs for livestock. A preliminary marketing strategy is presented for Scenario 3, using nominal Gulf and regional countries as target markets. These markets could even be neighbouring countries that do not require Halal slaughtered meat (Angola, as an example), if payment prospects are favourable. The main point here is that under this scenario AAAE faces all the risks that its would-be competitors currently face in addition to borrowing costs and myriad operational issues in running a large export plant. Astute management of livestock purchasing costs, transport, labour and other operating costs will be crucial, along with obtaining payment for consignments. The challenge identified in the supply study section of the report is the underdeveloped nature of the commercial livestock industry such that cattle are more properly used for ploughing than for beef production. In addition, there are a number of hurdles to be overcome in terms of Ethiopian livestock health, transport logistics and market access which will likely act as a brake on exports for some years to come. Nonetheless the scenario responds to the requests presented by AAAE in regard to export capacity. In all the scenarios examined in this report, by-product production and sales (meat meal, tallow, offals, hides etc) are an intrinsic part of the revenue stream but the meat revenue will remain more important to the bottom line. Similarly, environmental management is competently addressed in all scenarios through best practice provisions of waste treatment, as well as superior measures for hygiene, worker safety, logistics, by-products and waste handling which will contribute to a more efficient facility, with demonstrable long term sustainability.

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Investment parameters The anticipated capital investment requirements for the three different scenarios ranges from EB 1,687.5 million (€ 62.5 million) up to EB 1,890.0 million (€ 70 million) at current values spread over a 12-year period. Each scenario includes the same capital cost provision of € 3.5 million for wastewater management (which could be reduced if the approved site is shown to have adequate land for conventional\wastewater treatment through the use of treatment ponds). Convenient disposal of the treated effluent for use in the irrigation of crops will require the availability of a substantial area of agricultural land. The capital investment estimate excludes cost of land; government taxes and duties; mains services and connections to the site; hides and skins treatment facilities; and several other important provisions listed at section 12 in the report. Analysis is presented for each scenario in terms of constant pricing. The following table summarises the investment parameters for the three scenarios presented. Scenario Summary Financial Performance Item Investment Revenue 2022 Revenue 2033 Cash cost 2022 Cash cost 2033 Gross profit 2022 Gross Profit 2033 Operating cost 2022 Operating cost 2033 First year of profit Years to clear operating debt Average Return on Investment Internal Rate of Return Payback period Net present value of funds employed @ 9%

Scenario 1

Scenario 2

Scenario 3

EB 1,688 million EB 200 million EB 370 million EB 172 million EB 246 million EB 29 million EB 123 million EB 292 million EB 395 million Never n.a.

EB 1,755 million EB 334 million EB 553 million EB 208 million EB 293 million EB 126 million EB 260 million EB 450 million EB 433 million 2033 2

EB 1,890 million EB 1,800 million EB 3,004 million EB 1,573 million EB 2,584 million EB 278 million EB 419 million EB 2,746 million EB 2,868 million 2022 1

Negative

1.61%

12.4%

Negative

7%

13.1%

Never EB 734 million

18 years EB 202.6 million

14 years EB 582 million

The extensive conceptual design drawings and commentary provided in the report survey show how the AAAE facility would look and function in 2027 and beyond. A major and important feature of the designs is the modular approach taken by the consultants. Additional lairages, slaughter lines, carcass chillers, offal processing and

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welfare amenities can be added at any time or stage to both the Muslim and Christian abattoirs with nil or minimal interruption to ongoing operations. This feature allows AAAE to make expansion plans at the very last moment with the latest available data. Ultimately, AAAE’s role is to provide an important public service for the local market in the growing city of Addis Ababa. There are only limited licensed slaughter facilities in the city apart from AAAE and these do not have the capacity to satisfy the city’s total meat needs. It is conceivable that the informal slaughter sector could subside over time as regulations are enforced, urbanisation occurs, hygiene and convenience become more important to shoppers and general economic conditions improve. For the time being, however, the results of preliminary financial modelling highlight the gap between a basic level of slaughter fees and the projected cost of a modern, 21st century facility designed to meet the city’s future meat needs. Only one of the three scenarios presents an early financial ‘breakeven’ period due to the complex requirements of the design brief which includes the need to replicate several integral procedures and features, provide for high volume and unusually high variations in daily throughput and far greater environmental controls than previously observed. The existing facility has minimal debt, a low maintenance requirement due to minimal mechanisation, no depreciation schedule and incurs little or no environmental impact mitigation costs, so a significant adjustment period can be anticipated. Lowering the capital cost budget through the use of basic design and construction standards in a high volume setting such as this (cattle slaughter forecast to be in excess of 250,000 head per annum by 2025, and almost 500,000 head of sheep and goats in the same timeframe), could well lead to mechanical breakdowns, chronic hygiene lapses and environmental damage, all of which would have serious repercussions throughout the community. The underlying challenge for Phase Two of the Study is to confirm the design of a sustainable and affordable slaughter facility which incorporates appropriate processes and procedures, uses superior finishes and equipment, which is also responsive to the unique requirements of the consumer in the city of Addis Ababa.

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Table of Contents EXECUTIVE SUMMARY ............................................................................................................... I 1

BACKGROUND .................................................................................................................... 6

2

MARKET OUTLOOK .......................................................................................................... 15

3

MEAT DEMAND IN ADDIS ABABA ................................................................................... 72

4

SCENARIO IDENTIFICATION ............................................................................................ 85

5

ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENTS........................................... 95

6

SATELLITE ABATTOIRS ......