Assessing the loop and loopholes of the wheat market

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The highest price ever has been put on offer in the latest safety net wheat international tender that is facilitated by the Public Procurement and Property Disposal Service (PPPDS), while experts in the sector express that the volume offered on the bid that was opened on Tuesday April 20 morning is lesser than the rate in the global market.
On the 30,000 metric tons of wheat procurement process PPPDS manages on behalf of the Food Security Coordination Directorate of the Ministry of Agriculture, two companies have offered their price in two lots. However, about seven companies had bought the bid document.
Promising International, which is not new for such tenders, has given similar USD 325.75 per ton for the two lots that have 15,000 metric tons each and transported to Adama and Kombolcha warehouses under CIP, which is a scheme supplier which manages the whole process to transporting the grain from the loading port to buyer’s warehouse.
According to the offer of Promising it has added additional USD 697,500 for the consignment to the first lot, which is delivered to Adama and USD 592, 500 to Kombolcha. It means Promising offered additional USD 46.5 per ton for the first lot that makes the total price USD 372.25, and for Kombolcha, the second lot, an additional USD 39.5 per ton that hikes the total cost to USD 365.25 per ton.
The other bidder Falcon Bridge Resources, a UAE company, offered USD 360 per ton for the first lot for the grain to be transported to Adama and USD 353.5 per ton to Kombolcha warehouse.
Totally, Promising offer was USD 11.06 million for the supply of the wheat that would be from the port of origin of countries at Black Sea, UAE or India, while Falcon’s total offer was USD 10.7 million and the port of origin is Black Sea countries and UAE.
On such kind of wheat bid, the offer from Promising is the highest ever for the country, according to experts on the sector, while they argued that it is not big compared with the latest global market.
“The offer is lower compared with the international price that is skyrocketing since the global pandemic, COVID 19 occurred. I feel that the bidders may think to compromise on the quality, which would not be acceptable if it is against the bid quality specification,” one of the sector experts who closely follow the case told Capital.
The other sector actor who did not participated on the current bid said that the price at the global market is reaching up to USD 400 and in comparison, the current offer is lower, “I fear the bidders may retreat like the experience we see in the past almost two years.”
Both of them, who declined to be identified, blamed the government for involving on such huge unnecessary expenditure. The current bid that is conducted through international competitive bidding under the procedures specified in the World Bank’s Guidelines and financed by the World Bank and its partners will be distributed under safety net program via Ministry of Agriculture. It is recalled that about 319 woredas in the country are regularly included on the wheat safety net package.
By reminding the annulled bids in the past, experts argued on the ability of government or partners to cover the cost with regards to the country buying products before such price hikes occur globally.
Recently, it has been reported that to fill the gap of the grain demand and supply, the government has been engaged on direct procurement that costs about USD 450 per ton for the import of half a million metric tons of wheat.
Regarding, the food security following the pandemic occurrence, countries have shown high demand to procure food items like wheat, boosting the demand of the grain.
Black Sea countries that are major producers and exporters of the grain and other producers have put in-place a quota revising prices every time, which contributed to the hike of the price.
“The delay to buy the product last year is making us pay the price now that there is a spike in cost of wheat and its products. The country will continue paying the cost since the trend shows that the price will continue hiking rather than reducing,” experts argued.
They added that the default of companies on the 600,000 metric tons procurement late last year is also the other constrain for such challenge. “I believe such kind of defaults is sabotages to pressure the country rendering us to pay unnecessary prices,” one of the sector actors who were involved in similar bids explained.
Experts also explained that the reason that there was a narrowing to only two bidders (the third bidder Grain Export (late bidder)) from seven bid document buyers is because of the bid scheme that the country follows.
“The interest of well-known global players to participate on the country wheat bid has shrunk since the bid system demands the bid validity to stay for a month until the award is given,” experts said.
They said the government may not understand the global commodity trade trend, which is highly volatile and fluctuating not for a month but in hours, “on this circumstance bidders would not have interest to validate the price for a month.”
The global experience on such procurement is finalized within 48 hours in maximum but mostly the process is finalized within 24 hours and given the award, while when it comes to Ethiopia the process takes weeks to evaluate the bid and to likewise give the award.
“We had recommended the government to improve its process,” one of the sector expert says, adding, “The government had stated that it has revised the procurement directive, while the latest bid for wheat has not shown that.”
“Besides discouraging prominent bidders, such kind of lengthy process forced other to hold additional buffer or additional amount for possible price increment in the validation, which costs the country additional foreign currency,” they added.
They recommended that at least the government should finalize the evaluation and award within 72 hours by settling over time paying for the bid committee than paying millions of dollars for protection imposed by bidders on the bid price.
They also advised the government to be alert on the sector sabotage that may come from international players or countries.
Meanwhile, Rosentreter Global Food Trading and Marthina Mertens Sampl Lebensmittel Handel (Food Trading), that were awarded the procurement of 400,000 metric tons and 200,000 metric tons respectively had disappeared and failed to come up with the product. The procurement of similar amounts of wheat that was conducted mid last year has also failed because of the same reason and experts have said it was purposely done to affect the country which then makes it unable to deliver the basic commodity for the public.
On the bid that was opened in October the two companies FOB offer was less than USD 200 per ton. The lowest bid security has also been stated since everybody wants to be involved on the wheat procurement that the country allocates USD one billion per annum.
Recently Eyob Tekalign, State Minister of Finance, who is also the board of director of PPPDS, accepted the gap on the bidding process to which he said, the procurement directive is in revision.