Ethiopia’s pulses and oilseeds export sector, the country’s second-largest source of foreign exchange after coffee, is facing “unprecedented uncertainty” due to a new government directive.
Exporters and industry leaders are concerned that the government may require them to re-export products purchased through the Ethiopian Commodity Exchange (ECX), which poses a significant risk to the sector and creates an “obligation to buy twice.”
These industry leaders warn that the government’s sudden decision to revert all transactions to the ECX will reduce liquidity, encourage smuggling, and render Ethiopian products uncompetitive in the international market.
Edao Abdi, President of the Ethiopian Pulses, Oilseeds, and Spices Processors-Exporters Association (EPOSPEA), expressed to Capital Newspaper his fears that the new regulatory environment could lead to a decline in export volumes this year.
For years, exporters have sought alternatives due to the volatile quality and high transaction costs associated with the ECX. In response, the government had previously allowed “vertical integration” and “contract farming,” enabling exporters to trade directly with manufacturers, thereby ensuring product quality and source verification.
However, a recent directive from the Ministry of Trade and Regional Integration (MoTRI) has reversed these advancements. The new directive mandates that all transactions be processed through the payment system of the product market.
“Exporters are being told to return products they purchased from private farms to the commodity market system,” Edao explained to Capital. “How can you buy your own property twice? This reverts traders back to brokers and entangles them in unnecessary bureaucratic chains.”
This announcement comes at a time when there is a severe credit shortage in the Ethiopian banking sector. With banks withholding loans, exporters are struggling to provide the necessary cash for the product market’s T+1 payment system, which requires payments to be made within one day.
Under the previous contract farming model, exporters had the option to trade on credit with suppliers or farmers. However, the current cash-only requirement has excluded many traders from the market.
“If you have 200 million birr, you can only purchase a limited amount of sesame seeds before running out of money,” Edao stated. “Without loans, operations come to a halt. However, a credit system previously allowed for significant production movement.”
The gap left by legal exporters is now being filled by illicit traders. Reports indicate that pulses are being smuggled to neighboring countries via Moyale, even using public transport vehicles. “Because the legal route is expensive and cash-strapped, people are turning to contraband,” he warned.
Directive No. 1115/2025 issued by the MoTRI introduces fundamental changes to the payment system for exporting pulses and oilseeds.
This directive was mandated for implementation two months ago in a letter sent to the ECX on October 31, 2025, and again on December 3, 2025, which stated that the transaction payment process for crops cultivated under contract and investment agriculture must go through the ECX starting December 10, 2025.
The main objective of this directive, issued by MoTRI under Kassahun Gofe, is to enhance transparency in the sector and prevent illegal practices.
The new directive, reported by Capital Newspaper, prohibits direct bank transfers between exporters and suppliers in Ethiopia. Payments must now be made exclusively through a pay-in account managed by the Ethiopian Commodity Exchange (ECX).
Under this new system, exporters are required to deposit the full payment for their products into the product market’s account.
Kassahun stated, “This directive was issued to address the significant gaps identified in the previous direct marketing system.” The aim is to prevent tax evasion, curb smuggling, and eliminate inaccurate trade reports, thereby ensuring the country secures the foreign currency it needs from this sector.
MoTRI remarked that “this makes contract farming easier to monitor in accordance with the National Transaction Control System.”
According to the minister, exporters seeking an export permit must provide proof from the product market to obtain the necessary authorization.
However, the sector faces an additional challenge: a 3 percent withholding tax imposed on ECX trading. While the government asserts that there is no tax for export incentives, the withholding tax at the time of purchase raises product prices.
Edao noted, “You can’t compete globally if product prices are inflated due to taxes that remain within the country.” He pointed out that countries like Argentina, Egypt, and the United States offer their products at lower prices, causing Ethiopia to lose its competitive edge.
Data from the 2024/25 fiscal year indicates a 27% decrease in pulse exports, and experts forecast even poorer performance in 2025/26 if current policies persist.
In response, MoTRI recently met with EPOSPEA leaders and issued an urgent warning to Ethiopian pulse and oilseed exporters, calling for an immediate inspection of the sector’s participants following a previous decline in wheat product exports.
The government has decided to reduce project costs, and the Ministry of Trade and Regional Integration has warned that significant stockpiles in warehouses must be addressed. If exporters do not promptly export their products, the government may resort to measures including confiscating the goods and selling them through the product market.
In light of this strict government directive, the association has urgently warned its members. “On December 26, 2025, the government urged our members to withdraw their products quickly, stating they would confiscate the goods and seize the warehouses,” the association reported.
In a swift message to its members, the association advised them to act quickly to prevent government intervention.
The members’ response to this notice, due by January 8, 2026, was, “We could not produce any product,” as they have already purchased and reported it to the Ministry of Trade and ECX.
EPOSPEA is now calling for urgent dialogue with the government. The association acknowledges the government’s intent to promote transparency and tax collection but argues that the current “one-size-fits-all” approach is detrimental to the sector. Edao emphasized, “We must all recognize that the government cannot succeed without the support of the people.”
