Africa FICC - Soft Commodity Production in SSA

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Thursday, April 19, 2018 /09:48 AM / Ecobank Research

Sub-Saharan Africa is a leading producer of agricultural commodities for the global market, with a dominant position in the cocoa, coffee, cashew nut, and tea export markets. Exports of soft commodities totalled US$45.8bn in 2016, led by cocoa (US$11bn), nuts (US$6.6bn), vegetables (US$4.8bn), fish & meat (US$4.4bn), wood (US$3.3bn) and tobacco (US$3bn). South Africa & Côte d’Ivoire are the largest exporters by value (US$10.1bn & US$7.4bn, respectively), reflecting the volume & diversity of their soft commodity output.

West Africa is the production hub for tropical cash crops – notably cocoa, palm oil and natural rubber (NR) – while East and Southern Africa dominate the production of sugar, tea and coffee. South Africa and Nigeria are the largest soft commodity producers by volume, but owing to the high level of domestic demand they consume most of their output, requiring large imports of wheat, rice, sugar and maize. A handful of African countries are market movers, notably Côte d’Ivoire and Ghana which together account for 60% of world cocoa production, and Kenya, which accounted for 22% of world tea exports in 2016. But the majority of Sub-Saharan Africa’s soft commodity producers account for a small fraction of global production – African cotton accounts for just 5% of world output – limiting the region’s influence over the global market.

Sub-Saharan Africa’s agricultural sector is focused on the large-scale production of staple foods, notably cassava, yams, maize, rice and palm oil for domestic consumption. However, most regions run food deficits and require imports to satisfy domestic demand. Large volumes of local staples – notably cassava, maize, sorghum and millet – are traded informally and are not captured by official data. There is also significant production of cash crops for export to the global market, including cocoa, coffee, tea, cotton, natural rubber (NR) and nuts (groundnuts and cashew nuts). The region produces niche commodities for the global market, notably vanilla (over 80% of world supply comes from Madagascar), gum Arabic, sesame and Shea butter. In recent years horticultural goods – including edible nuts, fruit and vegetables, cut flowers and live plants – have grown in importance as exports, led by Kenya & Ethiopia, servicing markets in the EU, USA and Asia.

Despite the high and diversified level of soft commodity production, processing of these crops is weak; an estimated 75% of cocoa beans, 70% of cotton and 90% of cashew nuts are exported raw. As a result, concerted efforts are being made to extract more value from these commodities prior to export. Heavy investment to boost processing capacity, warehousing facilities and export infrastructure should help reduce the level of wastage, as 40%-50% of agricultural output rots before it gets to market. R&D is also focusing on boosting domestic consumption of cash crops, notably through the proliferation of coffee shops and fast food chains. The development of commodity exchanges could unlock the financing potential for the agricultural sector which suffers from low use of fertilisers and pesticides, poor irrigation and inefficient practices.


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Key Soft Commodities
 

Cocoa
 
West Africa dominates world cocoa production, accounting for around three quarters of global output. Côte d’Ivoire is the market leader, producing an estimated 2.01mn tonnes in 2016/17, followed by Ghana with 950,000 tonnes, and Nigeria & Cameroon with around 230,000 tonnes each. A number of other countries in West Africa, notably Sierra Leone, Togo & Guinea, produce small quantities of cocoa. Large volumes of cocoa are smuggled throughout West Africa, notably between Ghana and Côte d’Ivoire (the direction depending on local price), which periodically distorts production & export levels. 

The cocoa crop is heavily dependent on the weather, notably the seasonal Harmattan wind which blows across West Africa between December and March; this can severely impact the cocoa crop, as occurred during El Niño-affected 2015/16 season. Many cocoa-growing regions are also hampered by ageing and low-yielding trees, outbreaks of disease (notably Black Pod and Swollen Shoot) and a lack of marketing infrastructure.
 

Despite the fact that West Africa exports around 80% of its cocoa as raw beans, the region is a major grinding hub. Côte d’Ivoire is the world’s second largest grinder (just behind the Netherlands), producing an estimated 540,000 tonnes of cocoa products in 2016/17 (12.6% of the world total), while Ghana ground 220,000 tonnes (5.1%). Cocoa paste/liquor makes up over half of Africa’s cocoa product exports, with the balance comprising cocoa powder/cake and cocoa butter. Africa produces less than 2% of world chocolate output, reflecting the low level of domestic consumption.
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Coffee
 
East Africa dominates production of coffee, accounting for 3/4 of African output, led by Ethiopia (Arabica) and Uganda (Robusta). In 2016/17 Ethiopia produced an estimated 6.6mn 60-kg bags of coffee and Uganda 3.8mn bags, together accounting for 2/3 of African output. Kenya & Tanzania have a strong market share in the world speciality sector, together producing 1.6mn bags, while Rwanda and Burundi produced around 240,000 bags each. West Africa’s key coffee producer is Côte d’Ivoire, which produced 2mn bags in 2016/17, most of which was destined for niche markets in the Mediterranean. 

Given the high level of coffee consumption in Ethiopia, Uganda is Africa’s largest coffee exporter, accounting for 32.8% of exports in 2015. Kenya & Tanzania each maintain a market share of 6.5%, while Côte d’Ivoire accounts for 13% and is West Africa’s leading coffee exporter. Other exports from West & Central Africa are on a small scale. The growth of the world speciality coffee segment is driving investment in high-quality & traceable production, with East African countries (notably Ethiopia, Kenya & Tanzania) leading the field.
 

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Tea
 
Kenya is by far Sub-Saharan Africa’s largest tea producer, globally ranking third behind China and India with production of 474,808 tonnes in 2016, around 10% of world tea output. Other production in East & Southern Africa is on a smaller scale, led by Uganda (55,736 tonnes) & Malawi (43,127 tonnes). However, the severe drought affecting East Africa in 2016-17 has impacted tea output, with output dropping by over one third during the first half of 2017, which is likely to reduce production in 2017. 

Given the high level of domestic consumption of tea in China and India, Kenya is the world’s largest exporter of black tea, accounting for 22% of world exports in 2016. The UK has historically been the largest export market for Kenyan tea, but changing consumption habits (notably the rise of speciality coffee shops) and rising demand in other markets has led to Pakistan and Egypt displacing the UK as Kenya’s leading tea export markets.

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Cotton
Cotton production is concentrated in the CFA Franc Zone in West and Central Africa, accounting for 71% of Africa’s output. The leading producers are Burkina Faso, which produced 283,000 tonnes of cotton lint in 2016/17, Mali (266,000 tonnes), Benin and Côte d’Ivoire (both 150,000 tonnes). Southern Africa accounts for 11% of Africa’s cotton output, led by Zambia, Zimbabwe and Malawi, while East Africa accounts for 9.2%, led by Tanzania and Ethiopia. 

Despite the presence of large-scale ginners across West Africa, 70% of Africa’s cotton is exported as lint (raw cotton) to markets in Asia. However, a wave of investment by Asian companies across East Africa, notably in Ethiopia & Kenya, could drive a sharp expansion in Africa’s textile sector and exports to the USA under the duty-free AGOA trade deal.

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Sugar
Sugar cane is grown across Africa, with poles of production in Southern Africa (43.6% of total output in 2016/17) and Northern/Central Africa (31.1%). South Africa is Africa’s largest producer, although output has declined from a peak of 2.5mn tonnes of refined sugar in 2013/14 to an estimated 1.75mn tonnes in 2016/17, reflecting the impact of drought. Southern Africa’s other producers have been on a rising trajectory, led by Swaziland (700,000 tonnes), while Zimbabwe, Uganda, Mozambique, Zambia and Malawi each produce between 400,000 and 500,000 tonnes per year. East Africa’s leading producers are Kenya (625,000 tonnes), Ethiopia (600,000 tonnes) and Uganda (480,000 tonnes). Large volumes of sugar are traded formally and informally across Southern and East Africa, responding to changing regional surpluses and deficits. 

West Africa produces relatively little sugar (7.4% of the African total) and as a result the region is a major importer. Nigeria imports most of its sugar raw from Brazil to be refined, fortified and packaged in its refinery complex in Lagos.
 

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Cashew nuts
 
Cashew nut production is focused on West Africa and is led by Côte d’Ivoire. The region’s other key producers are Guinea-Bissau and Nigeria (each around 200,000 tonnes), Benin (110,000 tonnes) and Burkina Faso & Ghana (each around 80,000 tonnes). The only other significant producers in Sub-Saharan Africa are Tanzania (225,000 tonnes) and Mozambique (115,000 tonnes). 

Overall, Sub-Saharan Africa accounts for 56% of world production of RCN. However, domestic processing of cashews is poorly developed, with an estimated 90% of all production being exported raw to India, Vietnam and Brazil for processing.
 

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Maize
 
Sub-Saharan Africa is a major producer of maize, which is a domestic staple. South Africa is by far the region’s largest producer, but its output has fluctuated owing to periodic drought, slumping in 2013-15 before rebounding to a record 15.3mn tonnes in 2016, before falling to an estimated 12.5mn tonnes in 2017. Nigeria (6.9mn tonnes), Ethiopia (6.7mn tonnes) and Tanzania (5.9mn tonnes) are the sub-region’s other major producers, consuming most of their output, while Malawi (3.6mn tonnes) and Zambia (3.3mn tonnes) typically produce surpluses for export to neighbouring countries. 

Large volumes of maize are traded across Sub-Saharan Africa, redistributing stocks from surplus to deficit regions. The region imported an estimated 1.4bn tonnes of maize in 2016, led by South Africa (46.1% of the total), which was restocking after the previous season’s slump in output, and Zimbabwe (21.7%), reflecting the ongoing crisis in the country’s agricultural sector. Imports by the other major countries were relatively modest (40,000-60,000 tonnes each).

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Wheat
Sub-Saharan Africa produces small volumes of wheat, as the crop is not well suited to cultivation in tropical climates. Ethiopia is the region’s largest producer of wheat (along with its local variant, teff), with estimated output of 4.2mn tonnes in 2017. South Africa is the other major producer, with output of 1.9mn tonnes in 2017. Other significant producers include Kenya (450,000 tonnes), Zambia (215,000 tonnes) and Tanzania (100,000 tonnes). 

Rapid population growth and urbanisation (which is changing diets) are driving up consumption of wheat, requiring an estimated 3m tonnes of imports in 2016. Nigeria is by far Africa’s largest importer of wheat, totalling 860,540 tonnes in 2016 (28.4% of SSA’s total). South Africa (10.1%) and Kenya (8.3%) are also major importers, reflecting their roles as regional food processing hubs. SSA’s other large economies, including Cameroon, Tanzania, Côte d’Ivoire, Ghana, Senegal and Mozambique, each import 100,000-150,000 tonnes of wheat every year. SSA’s rising dependence on wheat imports is a risk to food security and efforts are underway to promote consumption of domestically-produced substitutes (for example, cassava flour in bread).
 

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Rice
 
Sub-Saharan Africa produced 12.8m tonnes of milled rice in 2017, led by West Africa (78.2% of the total). In West Africa the largest producers are Nigeria (2.7mn tonnes), Mali (1.7mn tonnes), Côte d’Ivoire and Guinea (both 1.4mn tonnes), and there is significant production in most other countries in the region. Tanzania is the largest producer in East Africa (1.8mn tonnes), but production elsewhere in SSA is on a small scale. 

Given the rising demand for rice, notably in the rapidly growing urban areas, SSA runs a large rice deficit, requiring an estimated 4.2mn tonnes of imports in 2016. Although Benin is officially Africa’s largest rice importer (18.6% of the total), most of its rice imports are destined for Nigeria, which is by far Africa’s largest consumer. In addition, a large proportion of the rice imported into South Africa (10.1%), Côte d’Ivoire (9.1%), Senegal (7.8%) and Cameroon (5.8%) is destined for neighbouring markets. Large volumes of imported rice are traded informally across Africa, especially from coastal regions to the landlocked interior.
 

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Palm oil
 
Palm oil production is focused on West Africa, where the oil palm is native. The sector is dominated by smallholders who supply local markets and processers. Sub-Saharan Africa produced an estimated 4.5mn tonnes of palm oil in 2017, led by Nigeria (980,000 tonnes), Ghana (560,000 tonnes), Côte d’Ivoire (450,000 tonnes), Cameroon (320,000 tonnes) & the DRC (215,000 tonnes). 

Given the high level of domestic consumption, and the lack of production in East Africa, Sub-Saharan Africa runs a large palm oil deficit. The region imported 3.2mn tonnes of palm oil in 2016, most of which went to East & Southern Africa. Ethiopia’s is Africa’s largest importer of palm oil, with imports of 523,000 tonnes in 2017 (16.6% of the total), followed by Tanzania (10.5%), South Africa (9.1%), Egypt (7.6%) and Kenya (6.5%). Despite being Africa’s largest producer, Nigeria imported 169,000 tonnes of palm oil in 2016 to meet its domestic deficit.

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Natural rubber (NR)
Natural rubber (NR) production is also focused on West Africa, which accounts for 85% of SSA’s output. Côte d’Ivoire is the largest producer, with output of around 300,000 tonnes, followed by Nigeria (150,000 tonnes), Liberia (75,000 tonnes) & Cameroon (56,000 tonnes). Gabon, Ghana and Guinea each produce around 20,000 tonnes per year. 

Given the low level of domestic consumption of NR, Côte d’Ivoire and Liberia export all of their rubber to Malaysia, the EU and North America. SSA’s exports of NR totalled 1.6mn tonnes in 2016, led by Côte d’Ivoire (44.5% of the total), South Africa (26.3%, acting as the region’s key re-export hub) and Liberia (6.5%). Nigeria’s exports of NR are modest, estimated at just 48,000 tonnes (1/3 of its production), indicating the high proportion of output that is consumed by the domestic industrial sector.
 

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Horticultural goods
 
In recent years horticultural goods have emerged as Sub-Saharan Africa’s leading soft commodity export. This sector includes edible fruit and nuts, vegetables (fresh & frozen), cut flowers and live plants. Exports totalled US$12.6bn in 2016, led by East & Southern Africa. South Africa dominates exports of edible fruit & nuts (US$2.9bn), while Ethiopia is the leading exporter of vegetables (US$897m). Both Ethiopia and Kenya lead exports of cut flowers and live plants, together worth US$1.5bn. 

The EU takes nearly half of Sub-Saharan Africa’s horticultural exports, using air freight to get perishable goods to market. The potential for Brexit to disrupt the commodity and finance flows between East Africa, the UK and the rest of the EU threatens the viability of this sector. Other important export markets include India (11.5% of the total), Russia and Saudi Arabia (both 4.9% each).

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Related Link(s)
1. Africa FICC -  Global and Regional Outlook
2. Africa FICC -  Middle Africa’s Total Banking Assets Declined Slightly by 1% YoY
3. Africa FICC – Africa Accounts for An Estimated 9% of World Oil Output in 2016
 

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