eBusiness Weekly
Moneyweb
African countries face great challenges in adapting to climate change to meet growing demand for food. The current drought in East Africa is the latest manifestation of changing weather patterns.
But countries such as Zambia, where there is good land and water, have major opportunities to meet food demand by growing agriculture exports and processing their produce. Zambian farmers can earn substantial returns from increased production. Their production can also alleviate the pressures in countries such as Kenya.
To realise these opportunities, Zambian products have to reach export markets at good prices. For this, Zambia needs competitive cross-border markets and efficient transport and logistics services. However, regional grain and oilseeds trade is not working for producers in Zambia or for buyers in East Africa, with huge variances in agricultural commodity prices in Kenya and in Zambia.
Our reality check on the workings of cross-border markets points to regional integration being the key to unlocking massive potential for Zambia to anchor sustainable agricultural growth in Africa. But effective regional integration remains a dream, undermining Zambia’s potential.
How are markets really working for Zambia?
Zambian agriculture has been a growth story with expanding net exports in important products such as soybeans. However, this performance is very short of where it should be. Zambia should be the grain basket for the whole region. Malawi has shown what is possible in soybeans. It almost doubled production in 2019/2020, to 421,000 tonnes, more than Zambia in that year.
A major issue is how cross-border markets are working, or not working. Zambian suppliers report having substantial volumes of soybeans which can meet the huge regional demand.
Market prices for maize in Nairobi climbed to over US$500/Mt in June 2022, reaching similar levels in Kampala, Uganda (Figure 1). In early July, prices were reported to have climbed well above US$750/Mt in Kenya. Meanwhile prices in Zambia were around US$220/Mt or 3,700 kwacha/Mt.
Though lower than Kenya’s, Zambian maize prices are still substantially higher than last year’s. This is in line with global trends. With higher input costs, farmers need higher output prices to incentivise production.
The gap between prices in Zambia and those in Nairobi and Kampala is close to US$300/Mt. This is double what would be explained by the efficient cost of transporting maize from Zambia to these countries. Efficient transport costs take account of reasonable trucking, logistics and border costs.
Even with the higher fuel costs, grain should cost around US$150/Mt to be transported from Lusaka to Kampala and Nairobi. Of course, quoted transport rates may be much higher, but this reflects the many problems in cross-border transport which need to be addressed.
The situation is even more extreme in soybeans, which are a much higher value commodity. Zambia’s bumper soybean harvest in 2022 was being sold at prices around US$550/Mt in June, with prices even being quoted as low as US$439/Mt at the end of the month. Prices in East Africa were well over US$1,000/Mt, some US$500-700/Mt above those in Zambia. This is three to four times the transport costs.
