Draft Proclamation Eyes Major Overhaul of Ethiopia’s Smallholder Farming System

Would Link Farmers’ Voting Power to Production Capacity

A draft proclamation under review by the Ethiopian Agricultural Transformation Institute proposes a sweeping restructuring of Ethiopia’s smallholder agricultural sector through the creation of legally recognized “Agricultural Business Companies” intended to commercialize production and integrate rural producers into market-oriented value chains.

The draft, titled “Agricultural Business Company Proclamation,” describes agriculture as the foundation of Ethiopia’s economic growth, industrialization and employment generation, but argues that the sector remains largely “traditional” and requires a transition to a “modern, competitive and market-oriented system.”

The document, obtained by The Reporter, states that existing laws do not provide clear legal frameworks for organizing smallholder farmers into company structures or for converting land-use rights and labor contributions into capital shares.

Its preamble states that the proposed framework is intended to improve productivity, strengthen food security and support broad-based economic growth.

The draft further argues that the new system would improve producers’ bargaining power by enabling “aggregation of production, value addition and market negotiation capacity,” while helping farmers transition toward middle-income economic status.

Under the proposal, an Agricultural Business Company would be defined as a legal entity established to aggregate smallholder production, strengthen market bargaining capacity, process agricultural products and increase rural incomes.

The draft law introduces strict formation requirements for the proposed farmer-owned companies, including minimum membership and capital thresholds.

Article 6(2) states that Agricultural Business Companies engaged in crop production would require at least 300 founding members, while companies focused on horticulture, fruit production, livestock breeding or animal husbandry would require a minimum of 150 members.

The proclamation also sets the minimum value of a single share at 1,000 birr and establishes a minimum paid-up capital requirement of 1.5 million birr for each company.

The draft also seeks to limit concentration of ownership within the companies. It states that no member may own more than 15 percent of the company’s total shares approved for sale by the general assembly.

Another provision requires members to fully pay the minimum required shares at the time of establishment and to pay at least one-quarter of any additional pledged shares, with the remaining balance to be completed within two years.

The draft proclamation also contains provisions that could significantly reshape governance structures within rural producer organizations by linking voting rights to productive capacity rather than equal membership alone.

Article 12 states that founding documents must specify each member’s voting power in company decision-making, with voting influence determined by the amount of registered production land and production volume contributed by members.

The provision introduces a weighted decision-making structure based on production capacity.

The draft law also grants broad oversight powers to the Ministry of Agriculture and regional government institutions over the formation, registration and operation of the proposed companies.

Its provisions state that organizing committees responsible for establishing Agricultural Business Companies must receive recognition from “the Ministry or the appropriate authority.”

Under the provision, organizing committees must consist of no fewer than five and no more than 13 members. Committee members may be drawn from smallholder producers, private-sector actors linked to the company’s objectives, or a combination of both.

Meanwhile, Article 13 requires all Agricultural Business Companies to register with the Ministry of Agriculture or designated regional authorities before commencing operations.

The registration process would require companies to submit a range of documents, including founding agreements, names and signatures of board members, detailed business plans covering three to five years, and proof of deposited startup capital.

Several operational issues are left to future ministerial directives. The draft states that methods for valuing in-kind contributions will be determined through directives issued by the ministry. Compensation for organizing committees would also be set through future directives.