EthioChicken: Ethiopia’s well-hatched idea
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Six months ago Abdurazak Tariku hadn’t heard of EthioChicken. The 24-year-old civil engineering student had expected his career path to involve bridges and roads rather than poultry vaccines and animal feed.
“I’d never really thought about chickens before,” he says. “But a friend explained how [he was] making decent money from rearing and selling chickens, and I could see the birds in my neighbourhood. They were bigger and looked healthier than ordinary chickens.”
Abdurazak convinced his parents to let him take over a shed they owned in Fikadu, a village 160km south-west of the Ethiopian capital Addis Ababa, and become an EthioChicken agent. He is rearing his first batch of 1,500 chicks bought from EthioChicken and is busy looking for customers while continuing his studies at the nearby Wolkite University.
“I’m planning to go full-time after I graduate,” he says. “I shall employ some people when I get busier. Three or four friends are already saying they want to do it too.”
Abdurazak’s story sounds like suspiciously positive corporate public relations — the poster boy with well-rehearsed lines brought out to impress foreign visitors. But after random stops at homesteads where EthioChicken poultry can be seen pecking at the dusty ground, his tale and the seven-year story of the company’s evolution from aid worker’s dream to multinational enterprise becomes completely credible.
Taye Merisa, a construction labourer in the town of Woliso, 100km south-west of Addis Ababa, has five chickens ranging freely. He says he first bought EthioChicken birds two years ago after seeing a friend’s success and has now bought and sold about 320.
His income in that time has risen almost 60 per cent, thanks to his new business selling eggs and chickens for meat. “Chickens are really profitable, but it’s a matter of money,” he says. “If I can get it, I’ll shift to chicken farming.”
EthioChicken was the brainchild of David Ellis, an American working for a non-governmental organisation in Uganda who decided multinational aid agencies would not drive economic transformation in Africa. “The credit will go to business and the private sector, and I wanted to be part of that transformation,” he says. “I had a friend at Addis Ababa University and he introduced me to the Ethiopian market.”
Ethiopia’s attractions were its large population (105m and expected to grow to 188m by 2050), steady economic growth of more than 8 per cent a year over the past decade, the lack of competition, and the absence of corruption.
Growing up in the suburban US, Ellis had rarely seen a live chicken, let alone owned one, but in 2010 he and two friends took over a failing poultry farm in Ethiopia. The farm, near Mekelle in the country’s northern Tigray region, had 35 employees and was producing 10,000 chickens a year. “We obtained a lease for 20 years and in return the government would receive 20 per cent of the profits of that facility,” says Ellis, who is now chief executive.
Their aim was “to meet the demands among smallholder farmers for higher-quality chickens”, he explains. “There are 15m smallholder farmers in Ethiopia who are using nondescript breeds that don’t produce enough eggs.”
EthioChicken’s business model is simple — in theory: breed day-old chicks and sell them to agents who rear them for about 45 days before selling them on. In practice, the venture was, initially, much trickier. Like many start-ups, particularly in a country run by a government with Marxist roots and traditionally suspicious of the private sector, EthioChicken almost went bankrupt several times in its first few years.
Problems ranged from finding the right breed of chicken and recruiting suitable managers to navigating Ethiopia’s labyrinthine, slow-moving bureaucracy and training the agents.
The agents’ role is crucial. They carry the “last mile” risk, which many foreign investors have failed to crack, of selling the product to the end consumer. By rearing the chickens and vaccinating them for almost seven weeks, agents reduce the mortality rate from the 80 per cent in operations run by smallholders who breed their own stock to well under 5 per cent.
EthioChicken’s fortunes improved significantly after the Sasso chicken, a French hybrid, was introduced in 2014. Compared with Ethiopia’s traditional Habesha breed, the Sasso produces four times as many eggs per year, while those reared for meat take a quarter of the time (about 90 days) to reach market weight. Today, about 80 per cent of the company’s chickens are Sasso.
Financing, which initially came from the founders’ savings, has been raised through several rounds of funding. The majority shareholder is Flow Equity, a company Ellis set up with a former business partner that now includes his current partner, Joseph Shields, and some 10 angel investors as its shareholders.
Arabica Investments, a Dubai-based Africa-focused investment company, took a large minority stake in 2012. Acumen, a patient capital investor, is among those that have injected debt financing and several development finance institutions and organisations such as the Bill & Melinda Gates Foundation have provided support. Total investment has been “multimillions”, says Ellis, while annual revenue is now in a similar ballpark.
Shields says many investors have been attracted by EthioChicken’s vision of not only making money but improving nutrition and enhancing rural livelihoods. “Our social impact is a fundamental part of our business model,” he says. “It helps recruit and retain staff, it is a key part of the crucial government relations and it attracts investors interested in the overall growth story.”
The government in Tigray has cited EthioChicken as one reason why stunted growth among children in the region has fallen from 51 to 38 per cent since the company began operating.
Ellis says a tangible sign of the company’s success came in 2014 when the government offered EthioChicken the chance to take over two more failing farms. These were taken on for fixed annual payments rather than a profit-sharing arrangement.
The company has five farms across Ethiopia where eggs are laid, two hatcheries and a feed mill. The Mekelle farm’s capacity has expanded from 10,000 chicks a year to 10,000 a day. Nationally, production last year was about 10m, up more than 30 per cent on 2016; the growth target this year is 50 per cent. Staff numbers have risen to 950, while the company has more than 2,000 agents, with up to 50 being recruited every week.
EthioChicken staff say the three years of anti-government protests that have disrupted large swaths of Ethiopia have not affected the business. “We haven’t seen any impact on day-to-day operations,” says Fseha Tesfu, the company’s national sales manager. “Protesters let the chicken trucks go through when they discover what they are and that the chickens are for the general public.”
The business took a leap forward in November 2016, when the Rwandan government selected EthioChicken to run one of its hatcheries. “The government of Rwanda was very interested in our business model because it is inclusive of SMEs and smallholders,” says Shields, who has become executive director of Uzima Chicken, the Rwandan company.
Operations in Rwanda started last November and the plan is to use Uzima as a base for exports to other countries in the region. “Our vision is to achieve one chicken per family per year by 2020 and one chicken per person per year by 2025 in this region of more than 75m people,” Uzima’s website says. EthioChicken has a similar target for Ethiopia.
If the targets seem ambitious, stories from rural Ethiopia show how sales are snowballing for a company that Shields says “has barely done our first advert” and faces little competition.
Shambal Muleta became an agent in Tulo Bolo, a town 75km south-west of Addis Ababa, 18 months ago and now employs four people. He says the sector is “just developing”, even though he rears more than 4,000 chicks at a time and wants to expand to 7,000. “Demand is massive,” he says. “Traders buy up to 1,500 at a time and I have so many repeat customers. I will be able to keep growing my business for years.”
Poultry consumption statistics show the potential. According to US government data, annual per capita chicken consumption in Ethiopia is about 600g, compared with an average of 2.3kg for sub-Saharan Africa. In the region’s most developed market, South Africa, it is almost 40kg.
Shambal says he first heard about EthioChicken from a local official, who recommended the company as a way to break into the poultry industry. This points to another reason for the company’s success: its investment in government relations.
“The culture here is so different: you’ve got to discuss with officials at all levels a lot of your decisions that in normal corporate circles you wouldn’t discuss with government,” explains Ulric Daniel, EthioChicken’s managing director. “With many investors there’s a lot of arrogance. They don’t realise that in Ethiopia one official can shut down your whole business. If you include them you’re going to be successful; if you don’t you’ll fail.”
The company’s success is also down to its recruitment policy. “Because the private sector is so small, there’s not a deep pool of professionals with functional experience,” Ellis says. “You have to be prepared to hire graduates, train them and build capacity.”
Tedros Thige is one such example. He joined EthioChicken six years ago as a field veterinarian in Mekelle. After stints in various departments, he served as site manager for the Gibre breeding farm and hatchery just south of Fikadu for two and a half years. He has just moved to head office to be the national veterinary services manager.
“People can see the promotion path in the company and that’s great,” he says, as we tour the hatchery. “I plan to keep working for EthioChicken for probably another four years until I’m ready to start my own poultry farm.”
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