Mysterious Wheat Deals Complicate Hunger Fight in Ethiopia

(Bloomberg) -- Back in November, Ethiopia unveiled two deals to buy deeply discounted wheat from suppliers that seasoned traders had never heard of. A website named for one of the companies listed a German address that didn’t exist and appeared to use stock photos of models.

Two months on, it remains a mystery who was behind the deals or what their motivation was, especially as Ethiopia says it hasn’t lost any money. One thing is clear though: no wheat has been delivered. The government has now canceled the tenders and plans to start over.

It’s an embarrassing blunder that could have ramifications for a country in desperate need of food. Ethiopia relies on more than 1 million tons of wheat imports a year to feed its people; the two canceled tenders together represented 600,000 tons. Global wheat prices have risen since the deals were initially awarded, meaning it will probably have to pay more now.

Ethiopia’s grain-tender process has for years been dogged by cancellations and corruption allegations, as well as putting strain on much-needed foreign-exchange reserves. The nation had already postponed or canceled tenders over the course of last year. That’s especially a problem for a country where some 11 million people were seen in need of food aid by the end of last year.

Ethiopia’s farming industry last year suffered from the worst desert-locust infestations in decades as well as the Covid-19 pandemic. At the same time, conflict in parts of the country displaced tens of thousands of people, adding to widespread food shortages.

“There is no doubt that there is a major food security crisis,” said Tedd George, founder at Kleos Advisory, a U.K.-based adviser on African markets. “Ethiopia has lost a number of tenders beforehand. It may have been that they have had difficulty finding more established, more respected traders to provide wheat.”

A spokesperson for the Ministry of Finance this week said that while the two tenders were canceled, the nation has been able to meet its needs through other purchases and domestic supply, though couldn’t comment further.

Major grain merchants have largely shunned Ethiopia’s tenders due to unfavorable terms such as requiring offers to be valid for 30 days, exposing traders to losses should prices change. However, there are a handful of smaller suppliers that regularly participate in the tenders.

The two tenders awarded in November were for the purchase of 400,000 tons from Rosentreter Global Food Trading and 200,000 tons from Martina Mertens, at a combined value of about $117 million. However, the companies were unknown to nine experienced international grain traders surveyed by Bloomberg.

The Public Procurement and Property Disposal Service this month said it canceled the tenders because the companies didn’t follow through with the deals and plans to reissue them. Since the tenders were awarded in early November, benchmark futures have climbed about 10% to $6.72 a bushel in Chicago.

When asked about Rosentreter’s authenticity in November, PPPDS Director-General Tsewaye Muluneh said that while it was the first time the new company had participated in tenders, it had passed the PPPDS’s checks.

Two Companies

There are reasons to question the firms’ legitimacy. Rosentreter and Martina Mertens offered wheat much cheaper than other tender participants. The German address that was stated on a website for Rosentreter doesn’t exist, phone numbers wouldn’t connect, an email failed to deliver and personal biographies used what seems are stock photos of models.

Rosentreter’s website no longer works, and Bloomberg couldn’t identify one, or locate contact details, for Martina Mertens.

It’s not clear who would stand to benefit from the failed tenders. Tsewaye said Ethiopia hasn’t lost any money in the two tenders, with the companies even putting up a bond payment to participate. She wouldn’t elaborate further.

The Ministry of Finance didn’t respond to phone calls, emails and text messages over the past two months seeking comment on the authenticity of the companies involved and whether the awards were a blunder.

The government held a monopoly on wheat purchases until early last year when, as part of new state reforms, it started allowing some private companies to import as long as they use their own foreign currency. There’s no public list of who is eligible to import.

It seems the country still needs more food. The Catholic Relief Services said Ethiopia has asked it for assistance, with distribution already underway. The World Food Programme also confirmed it’s assisting the government in procuring wheat.

Ethiopia’s National Disaster Risk Management Commission said 11.1 million people needed food aid last year and that it’s working on figures for 2021. The country is currently buying about 700,000 tons of wheat and plans to purchase another 300,000 tons later this year, said Mitiku Kassa, head of the agency.

“It is inevitable they are going to need support from the World Food Programme,” Kleos Advisory’s George said. “At least this will be wheat, not a tender someone will cancel.”

©2021 Bloomberg L.P.