MARKET INSIGHT

Chronic Hunger Still an Issue in Sub-SaharanAfrica despite increase in Crop Production

By Carolyn Krynauw, Senior Industry Analyst

Chemicals Materials and Food

Frost & Sullivan

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Frost & Sullivan’s Chemicals, Materials, and Food business unit in South Africa has identified five keyMega Trends that are expected to impact chemicals, materials, and food markets and companies in Africa.One of the five Mega Trends identified, the trend and impact of Water and Food Scarcity, specificallyhighlights the plight of millions of people in Africa.

Over the last ten years, African cereal crop production has increased by 26.0%reaching 167.1 milliontonnes in 2012, compared to the global average increase of 22.8%. Over this same time frame, the contribution of African cereal crop production to global figures has risen slightly from 6.3% to 6.5%.Despite this growth, and continued food imports, there are millions of people still suffering from chronichunger - especially in Sub-Saharan Africa (SSA).

One in Four People are Affected by Chronic Hunger in Sub-Saharan Africa

Globally, progress has been made over the past 20 yearsto decrease the number of people sufferingfrom chronic hungerfrom 1.02 billion people (1990-1992) to 842 million (2011-2013), according to theFood and Agriculture Organisation (FAO). However, SSA stands in stark contrast showing an increasein absolute numbers (173.1 million to 223 million) and contribution to the global number of under-nourished citizens (now 26.5% compared to 17.0% from 1990 to 1992). Progress has been much slowerthan in other regions of the world. Undernourishment in SSA now affects one in four people; whereasglobally the figure is one in eight.

Reduced Hunger Easier Said than Done

Various suggestions have been put forward to alleviate or mitigate this chronic hunger and food shortage.These include: increasing farmer education; avoiding the use of counterfeit crop protection products;using genetically modified (GM) seed to improve crop yield (although this is a controversial topic); increasing the use of irrigation, as opposed to rain-fed crop production; and improving agricultural policies and market access. The implementation of these suggestions, however, is easier said than done,especially when faced with droughts and floods, climate change, and fluctuating commodity prices (acrosscities, let alone countries). Some of these challenges can be seen in African maize production.

Quick Facts on Maize in Africa:

• Maize is the largest cereal crop in Africa.

• In the 2012/2013 marketing year, it contributed 41.3% to African cereal crop production withan estimated revenue of $22.60 billion.

• Africa contributed 7.9% to global maize production in the 2012/2013 marketing year.

• The top five maize-producing countries are South Africa, Nigeria, Egypt, Ethiopia, and Tanzania contributing 57.5% to the total crop in the 2012/2013 marketing year.

It is interesting to note the differences in maize yield between these top five maize-producing countries.The yield, which is measured in hectograms per hectare (hg/ha), takes into account production as wellas the area harvested. The yield achieved by Egypt (ranked third) is more than double that of South

...In sub-Saharan Africa,1 in 4 people suffer

from undernourishment; globally this is

1 in 8...

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Africa (ranked first in terms of total maize production and uses GM seed) and almost six times thatachieved in Tanzania (ranked fifth). Such variations are largely attributed to differences in farming inputsand technologies used. Smallholder farmers rely on rainfall for this staple crop, with traditional seed varieties incurring low yields. Adverse weather conditions further impact the yields of this type of farming.

Yet, it is not just a matter of growing sufficient food, but also preserving it along the rest of the supplychain. The concern of pre- and post-harvest losses is critical when considering the number of under-nourished people in SSA, let alone the African continent as a whole. It is estimated that $4 billion worthof food is lost in SSA annually. The exhibit below outlines where food is lost in the process betweenfarm and fork.

Certain types of produce are more prone to post-harvest losses in developing countries, such as fruitand vegetables (in the region of 50%), and roots and tubers (30% to 40%). Cassava, a tuber, is Africa’smost prolific crop both in terms of volume (149.1 million tonnes in 2012) and value ($15.55 billion in2012), according to FAO statistics. However, it needs to be processed within a few days after harvesting,otherwise it spoils. The lack of transportation or reliable transportation, and poor road infrastructurepose real obstacles and can render a farmer’s crop useless.

In light of this, recent research has focused on improving varieties of cassava to impart characteristicssuch as higher nutritional values, longer-lasting produce, disease resistance, and to endure high-densitygrowing environments. It can take 6 to 10 years to release a new cassava variety, but when available itwill provide farmers with the much needed nutritional improvements and hardier varietals to enhance

Food Wastage and Loss Occurs:In the Field• Premature harvesting/methods• Pests and diseases, climate change• Artificially high quality standards.

Processing & Packaging

• Lack of infrastructure, poor storage facilities and large distances to market• Farmers receive 10% - 20% of the price due to transportation costs and losses.

Post Harvest

• Lack of capacity to process and preserve farm produce in line with demand.

• Lack of suitable storage facilities, unsanitary and crowded markets, and lack of cooling equipment.

Retail & Consumption

Source: Frost & Sullivan

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the value of this cash crop. Benefits from successfully altered varieties include a 95% reduction in cropdamage from the cassava mealybug; a 50% reduction in crop damage from the cassava green mite; anda 50% increase in crop yield when compared to traditional varieties. The International Institute of Tropical Agriculture (IITA) along with various African research services were instrumental in achieving these results.

Even when crops finally make it to the market, price fluctuations can still jeopardise the profitability offarmers. This problem is heightened as an estimated 70% of incomes are derived from crop productionin Africa.

Price Volatility, the Need for Grain Storage, and the Impact of Subsidies

Price volatility in Africa is aptly illustrated by maize farming. There are various factors that impact thefinal price of domestic maize in various African countries. Generally, these include international prices(Chicago Board of Trade); local stock exchanges; input costs; transportation costs; fluctuating exchangerates; import tariffs; and intermittent import or export bans implemented on an ad-hoc basis.

In addition to the above there are country nuances. In Ethiopia and Tanzania, the government (via a foodagency) buys and sells maize at a set price, which can be pegged above or below the international price,depending on the state of food security in the respective country. Maize prices are lower in surplusmaize-producing regions within a particular country than in other areas that don’t produce maize orrun a consumption deficit. For example, the Ministry of Industry and Trade in Tanzania maintains a recordof maize wholesale prices in twenty two different markets, each charging a different maize price. Assuch, prices fluctuate within countriesdepending on the supply and demand for maize.

As a result of these differences, the average dollar price per tonne of maize in 2012/2013 marketingyear was $240 in South Africa, $377 in Nigeria, $472 in Egypt, and $295 in Ethiopia. For the 2013/2014marketing year, substantial price fluctuations are expected in certain countries, notably Nigeria ($420)and Ethiopia ($325). This is mostly due to a mismatch between supply and demand caused by droughts,floods, and similar issues affecting trading partners. Unfortunately, due to the limited amount of adequategrain storage, farmers sell their crops when there is a surplus, receiving lower prices than could beachieved later on in the season when supply wanes and demand rises.

Lastly, subsidies can create an uneven playing field in the international arena. The South African sugarcane industry provides an example of how subsidies negatively impact global prices. South Africa produces high quality sugar at one of the most cost-competitive rates, globally, yet it struggles to beprofitableon the open market. Large sugar-producing economies are encouraged to overproduce as aresult of sugar subsidies and this significantly reduces the global sugar price. In addition, preferentialtrade agreements and high import tariffs further reduce profitability. Less than 20% of exported sugarreaches the open market—the arena where South Africa mostly operates—and is sold at significantlyreduced prices compared to domestic prices in South Africa. To ensure industry fairness, the proceedsare redistributed amongst sugar cane growers and millers in accordance with the Sugar Act No 9 of1978 (as amended) and the Sugar Industry Agreement of 2000.

Africa is Abounding with Innovative Opportunity

Africa, especially SSA, faces numerous challenges regarding poverty, hunger, and infrastructure. But thereare many opportunities to be found despite the challenges.

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One example of a company that has identified a golden opportunity is Amiran Kenyan Limited. It beganoperating as an equipment manufacturer and supplier in the horticultural and floricultural sector in1963. The constant perseverance to enhance the lives of those involved in subsistence farming throughresearch resulted in an innovative product kit called Amiran Foundation Kit (AFK) packages. These packages are scaled down versions ofthe greenhouses and equipment used in large-scale farming. Thesekits also include seeds for high-value, short-season crops such as cucumbers, tomatoes, peppers, andsweet corn. Since the official launch of the AFK packages in 2009, a variety of alternative packages, suchas Amiran Acre Kit (AAK) have been designed. The AAK packages are intended for use on one acre ofland and include a 500m gravity-fed irrigation system, hybrid seeds, water soluble fertilizers, a watertank, pesticide sprayer, nursery set for seedling development, and pesticides. More comprehensive packages also include an 8m x 15m greenhouse.

However, the most successful kit by a significant margin, called a minimal pack, is a derivative of the AAKpackage, excluding the greenhouse. It has the essentials for a farming start-up including an instructionmanual on how to operate the various pieces of equipment and how to plant the seeds provided in thekit. The minimal pack kit costs USD $190 to $200 and isintended to cover approximately one eighth ofan acre and it includes seeds for easy-to-grow cropssuch as onions, carrots, and tomatoes.

Access to finance remains a challenge for small-scale farmers. In response, Amiran Kenyan Limited haspartnered with a variety of financial institutions including Chase Bank in December 2013, Equity Bank,and individual funding initiatives. This has enabled more farmers to purchase AFK packages thereby improving their livelihoods and those of the surrounding community.

Frost & Sullivan concludes that grassroots initiatives similar to the Amiran initiative elegantly demonstrate how simple ideas can have a long-lasting impact in many communities in sub-Saharan Africa.These initiatives gradually reduce poverty and hunger by assisting subsistence or small-scale farmers.Despite the highlighted challenges, innovative and entrepreneurial ideas can turn the concept that “Africais riddled with challenges” on its head. Africa is abounding with innovative opportunity.

Carolyn Krynauw is a Senior Industry Analyst for the Chemicals Materials and Food Business Unit at the Frost& Sullivan Africa Practice. Should you require more information, please contact:

Samantha JamesCorporate Communications – AfricaP: +27 21 680 3574F: +27 21 680 3296E: samantha.james@frost.comT: @FrostSullivanSAhttp://www.frost.com

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