The widening gap between increasing demand and insufficient domestic supply will lead to rising wheat imports in Eastern sub-Saharan Africa (ESSA) in the coming years, and the region’s flour milling sector also is expected to grow during that time, according to a recently published report from Rabobank.
The study, which was authored by Vito Martielli and Al Griffin, members of RaboResearch’s Food & Agribusiness Global Grains and Oilseeds sector team, examines potential long-term challenges and opportunities for the region’s grain and milling sectors.
“Despite the low utilization of capacity in some segments, we expect the milling capacity of white corn, wheat and rice to expand in the next decade,” the Rabobank authors said. “This will also lead to new strategic options for current players and newcomers, like consolidation in some countries, geographical expansion in multiple countries, and diversification into adjacent businesses. The small but fast-growing demand for feed will open opportunities to diversify into feed milling.”
Expanding milling industry
The milling industry in ESSA is highly diversified due to the different consumption patterns and commodities available in the region, the study noted. Corn is the most processed grain in ESSA, accounting for approximately 47% of milling, followed by wheat (23%), cassava (19%) and rice (12%).
Feed grain outlets are still limited and responsible for only around 8%, but Rabobank sees the feed milling industry in ESSA expanding in the coming years.
“By 2035, we expected feed grain demand to grow from its current 6 million tonnes to 9 million, assuming it maintains the historical growth,” the authors of the study said. “This trend will trigger an expansion in oilseed crushing, with the potential for synergies with feed millers.”
Rabobank said small, fast-growing poultry markets are gradually driving demand for feed grains, which will trigger millers to diversify and expand into feed.
Ethiopia has the largest milling industry among ESSA countries, processing around 17.5 million tonnes of corn, wheat and rice, according to the Rabobank study. Unlike corn, wheat milling is not industrially developed, comprising around 600 players.
The study noted the wheat milling sector in Ethiopia is very fragmented and has a capacity utilization of less than 50%.
“The Ethiopian government’s 10-year development plan (from 2020 to 2030) aims to improve the share of locally grown products and to stimulate the industry’s competitiveness,” the authors said.
Kenya and Tanzania have the next largest and most developed milling industries, processing 10 million and 6 million tonnes of grain, respectively. Malawi, Uganda, Mozambique, and Zambia are in the next tier of countries, each processing between 2 million and 4 million tonnes, according to the study.
The study found the region’s millers are often part of highly diversified conglomerates that are active in food and agribusiness. They can be vertically integrated or not active in value-added consumers businesses.
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Rabobank’s prediction for the industry over the next decade is that milling capacity will expand, led by local players active at the national and regional level, as well as newcomers in selected markets. It also foresees greater consolidation, mainly led by the regional millers.
“Strategies aimed at geographical expansion, diversification, and/or consolidation will trigger demand for mergers and acquisitions,” the authors noted.
They added: “We foresee more millers diversifying into multiple sectors like wheat, corn and rice milling or a combination of the three. Diversification into feed milling is also an option.”
Wheat import potential
ESSA has a population of 520 million, which is the largest among Africa’s regions and makes up 7% of the world population, and its people are demanding more wheat-based products in their diets. Although its rate of annual population growth is projected to decline in the coming years from its current 2.56%, the region’s population is expected to reach 705 million by 2035, which would be more than double the current population in the United States, the world’s third largest country.
The study noted that while per capita consumption of wheat is still very low compared to that of developed markets like the United States and the European Union, significant growth in demand is anticipated over the next 10 years.
“Traditionally, wheat is used locally for chapati and home baking, but it is becoming increasingly popular, particularly in urban areas and among the growing middle class, due to changing diets,” the authors said.
Rabobank said that in a very conservative scenario it expects an additional 2 million to 3 million tonnes of wheat imports in the region’s eight largest economies by 2035.
“This growth will vary among the different countries and depend on the local production outlook,” the authors said.
Several countries will continue to have low yields and remain strong net importers, while other countries, like Zimbabwe and Zambia, can produce up to 7 tonnes per hectare, which is the same national average as France, a significant wheat producer in Western Europe, the study noted.
These two countries have the potential to become net exporters in the coming years.
“Similarly, Ethiopia, the largest wheat consumer and producer (in the region), has potential to further improve production, as it did in the last decade,” the authors said. “But we do not expect it to become self-sufficient by 2035.”
The projected increase in demand for wheat imports will trigger trade opportunities for several global wheat exporting countries, the study said, noting that the European Union and Black Sea region (depending on the resolution of the war in Ukraine) will benefit due to their strategic proximity to ESSA.
However, Rabobank said trade strategies will need to consider the differences between the region’s producing and non-producing countries, as well as landlocked versus coastal countries.
“We expect this will require investments in (grain) storage capacity and improvements in infrastructure in the major ports of Kenya, Mozambique, and Tanzania,” the authors noted.
Irrigation, GM could boost corn
Although wheat consumption is on the rise in ESSA, white corn will remain the primary staple. Kenya, the largest white corn importer in the region, is working to improve its self-sufficiency in corn, Rabobank said.
“The new government is trying to open production and imports to genetically modified commodities, a potential game changer in the region, and simultaneously improve several farms’ access to irrigation with the construction of dams in the eastern part of the country,” the authors said.
The new project aims to boost corn production by expanding irrigation to as much as 400,000 hectares in the next two years. But perhaps the biggest development, in the medium term, would be allowing GM corn to be produced domestically and imported, Rabobank said.
“The country may decide to import GM yellow corn for the feed market to free up some of the current production area for food,” the authors said. “Currently, there is an ongoing lawsuit regarding the cultivation and import of GM commodities, but the outcome is not expected in the next 12 months.”
Even if Kenya successfully implements the dams project and boost yields to improve its self-sufficiency, it will remain a net importer, the Rabobank study said.
Corn yields in ESSA are also low compared to other countries, like the United States, where most production is genetically modified, and the European Union, where production systems use high volumes of farm inputs, the report said.
“Corn farming in ESSA is fragmented across several countries, and almost all families grow corn for personal consumption in their backyards,” the authors said.
Logistics upgrades needed
The study noted that if the region is to increase its wheat supply, investments are needed to expand and improve the quality of logistics and storage infrastructure in key port hubs. Also, inland investments are needed to improve post-harvest storage infrastructure to benefit from years with good climatic conditions and yields, he said. The study found that inland transportation costs are high, accounting for 20% of the landed price of wheat in Zambia and 41% of the landed price of white corn from landlocked countries in Kenya.
Rabobank pointed to several examples of the high cost of inland grain transport. In the last four years, wheat from the Black Sea region was delivered at $390 per tonne in Beira, Mozambique, but an additional $100 per tonne in transport costs were needed to move it inland to Zambia. Also during that timeframe, Zambia and Malawi produced white corn at $220 per tonne, but they needed an additional $155 per tonne in transport costs to move it to Kenya, the largest net importer in ESSA.
“Improvements in transport infrastructure are key to facilitating the movement of grains in ESSA and improving access to farm inputs and fertilizers, in which the region is not self-sufficient,” the authors said.
