Demand for staple food commodities such as cereal grains is likely to increase in Africa, a huge market comprising 54 countries with an estimated population of nearly 1.3 billion people, when the recently signed Africa Continental Free Trade Area (ACFTA), said to be the world’s largest trade area, is fully implemented.
A legal framework for ACFTA, which was signed by 49 countries in March 2018 as part of the Africa Union’s Agenda 2063, is building on the achievements of the eight regional economic communities (RECs) which, though encumbered by several regional trade constraints such as inadequate trade data, import tariffs, export taxes and subsidies, are impacting intra-Africa commerce in cereal grains and other agricultural commodities.
But even before the founding of the ACFTA, the African countries have been negotiating among themselves on how to improve existing free trade agreements and fine-tune trade policies of existing regional economic communities to enhance the region’s production and trade in grains and animal feeds among other agricultural products.
Africa’s current RECs include Economic Community of West African States (ECOWAS), the East African Community (EAC), Southern African Development Community (SADC), Arab Maghreb Union (AMU) and the Community of Sahel-Saharan States (CEN-SAD) but which have little data on intra-Africa trade except for EAC and SADC members that have made progress in building reliable national trade statistics.
But cutting across these RECs are regional economic blocs such as the 21-member Common Market for Eastern and Southern Africa (COMESA), which stretches from Tunisia in North Africa to Eswatini (Swaziland) in Southern Africa and which in 1994 replaced the Preferential Trade Area for Eastern and Southern Africa.
One of the drivers for the increasing interest in creating a seamless market territory is the geographical diversity of African countries that have triggered varied weather patterns responsible for surplus agricultural production in one sub-region and a huge deficit and high food insecure situation in other sub-regions.
However, in an endeavor to strike a food supply balance between the surplus and deficit areas through creation of RECs, Africa still faces the challenges of inefficient transport, delays in commodity movement at inter-country borders, inadequate or absence of cross-border policy coordination, numerous non-tariff barriers and ad-hoc imposition of export/import taxes.
“Despite a strong regional consensus about the importance of food staples and the objective of regional integration, regional trade in food staples remains underdeveloped, undermined by trade distorting national policies such as unpredictable and biased rules, lack of implementation of regional commitments, road blocks and high transport costs, lack of appropriate standards and quality policies,” the World Bank said in its report, “Connecting Food Staples and Input Markets in West Africa: A Regional Trade Agenda for ECOWAS Countries.” “In the absence of effective and efficient social safety net programs, governments are under pressure to secure high prices for producers but low prices for consumers.”
The World Bank added, “This mismatch of objectives, combined with the difficulty of pursuing win-win options such as improvements in trade facilitation, transport, and logistics, leads countries to pursue policies like export and import bans, which undermine the ECOWAS regional market in food staples.”
Moreover, Gerald Masila, executive director of the Eastern Africa Grain Council, said proper policy decision making is hindered by “lack of reliable data and information.”
He gave the example of Eastern and Southern Africa that “has suffered from ad-hoc and misinformed policy directives, which has created uncertainties in regional staple food markets.”
In West Africa, the top cereal grain producers — the majority of which are members of the ECOWAS regional economic community — produced an average 63.6 million tonnes of the commodities in 2018, up from the 65.8 million in 2017 but slightly higher than the five-year average of 60.1 million tonnes, according to the Food and Agriculture (FAO) December 2018 Quarterly Global Report “Crop Prospects and Food Situation.” The report attributes the performance to “favorable weather conditions and widespread support by national governments and partners for agricultural inputs and equipment.”
Elsewhere, countries within the six-member EAC trading bloc, despite raging conflict in Democratic Republic of Congo (DRC), produced 53.3 million tonnes of coarse grains and rice (paddy), a 4% increase from the 51.2 million tonnes in 2017, which was above the five-year average of 51 million tonnes in the sub-region, according to the FAO report.
Similar cereals production performance was observed in the SADC region where 33.2 million tonnes of wheat, rice and coarse grains was realized in 2018, though below the 39.6 million tonnes in 2017. This production excludes South Africa, which on its own had an output of 17.3 million tonnes, down from the 20 million tonnes during a similar period in 2017.
In North Africa, where countries have been trying to improve the operations and policy of the AMU regional economic bloc, Morocco and Algeria led the region’s production, which had an estimated 40.2 million tonnes of coarse grain and rice, according to the FAO. This was 5% more than the output of 2017 supported by “good harvests in Morocco and Algeria.”
Egypt and Tunisia, which reported output of 1.45 million and 22 million tonnes, a 10% and 5% decline, respectively, led the pack of markets that failed to achieve production targets such as war-ravaged, Libya, which managed below-average output of 219,000 tonnes.
Similar below-target performance was reported in the ECCAS economic community, which had an average production of 4.8 million tonnes of cereals, slightly below the five-year average of 4.9 million tonnes.
Despite this progress in production, 37 African countries in 2018 imported more than 35 million tonnes of wheat, coarse grains and rice. The highest import volumes were in West Africa at nearly 19 million tonnes while East Africa, South Africa and Central Africa are expected to import 11 million, 3.8 million and 2.3 million of cereals, respectively, in 2018-19, according to FAO projections.
Transportation and logistics obstacles
But for both the domestically produced and imported cereals to be accessed in markets with deficits and better prices, the economic blocs are now focusing on how to improve transportation and logistics networks to bring down the overall cost of doing business and the actual price of the commodities.
Good transport and logistics integrate suppliers and consumers, especially in economic blocs where non-tariff barriers have been removed or substantially reduced.
The South African Institute of International Affairs previously gave the example that transporting a tonne of corn from Zambia to Johannesburg, a distance of 1,800 kilometers, costs $100 per a tonne, which it said “is around half of the price of a tonne of corn in South Africa in most years, and such a large price wedge undermines wider regional markets.”
However, some progress has been reported in the COMESA economic bloc where member countries have agreed to reduce the non-tariffs that could lead to a fair-trading system that benefits traders and consumers across borders in addition to improving infrastructure to enhance connectivity and enhancing their policy coordination.
One of the initiatives is the decision by COMESA member-states in which each of them agreed to recognize as valid a grain quality certificate issued by the other respective national standards agencies within the bloc.
The countries signed the Mutual Recognition Agreement last year, paving the way for removal of any restrictions that hamper movement of corn across the COMESA market area, especially because the cereal is the main staple food in the region.
“The COMESA members will accept each others’ conformity assessment and grading system to avoid subjecting corn products to unnecessary and overlapping conformity assessment and grading procedures,” said Thierry Kalonji, director of agriculture and industry at COMESA. “Without mutual recognition of standards and certificates of analysis, regulatory barriers persist, causing an unpredictable regulatory environment that comes at a high cost to traders and contributes to the growing informal trade, now estimated at over 80% in some countries.”
Although the challenge within COMESA has been how to enforce standards for intra-regional trade commodities without appearing to be restricting commerce within the larger market, Rwanda took the lead recently when it introduced testing of commodities using the rapid test kits for aflatoxins at border crossing. The initiative has enabled the country, importers and exporters to fast-track inspection of grains at the border because confirmation of the commodity’s grading, testing for aflatoxin and sampling protocol is done at the border crossing point.
Although sub-Saharan Africa has potential key drivers for the growth in demand in cereal grains, such as being home to 13% of the world’s working age population, a rapid urban population growth at 3.5% annually and increasing consumer spending that surpassed the $1.4 trillion mark in 2015, the economic blocs in the region still face the challenges of completely eliminating import bans, protective tariffs and trade-distorting subsidies.
Uganda and Rwanda, for example, have imposed a 75% import duty and value-added tax on all rice imports from Tanzania. This is because Tanzania, which produces 80% of East Africa’s rice, receives duty free importation of rice from Asia, which then is re-exported to other EAC countries
Despite the hiccups faced by Africa’s RECs, major steps have been made toward improving access to regional markets and more is expected in ensuring adequate infrastructure to boost connectivity and intra-Africa policy coordination that could, in the long term, lead to better grain trade on the continent.