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Revamping East Africa's grain trade | 2020-02-14 – World Grain

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Demand for wheat, rice and maize in East Africa continues to surpass supply with governments in the region scaling up imports to plug the deficit while at the same time taking measures to support post-harvest grain value chains and catalyze intra-regional trade in these major commodities.

The region’s increasingly unpredictable weather patterns have contributed to low quantities of major grains produced in East Africa, leading to growth in grain trading, especially among Kenya, Tanzania, Uganda and Rwanda, that is at times constrained by the inadequate or lack of good road and rail networks to link farmers to markets.

Although the East Africa countries produce varied quantities of the major grains, production of wheat and rice has been below national targets and the two commodities remain atop the grain imports list for Kenya, Tanzania, Uganda and Rwanda.

Despite Kenya reporting an increase in wheat production in recent years that peaked at 239,000 tonnes in 2015, the figures dropped to 165,000 in 2017, forcing the country to increase imports of the commodity.

“In order to meet the deficit in production, wheat imports increased by 36.2% in 2017 from 1.362 million tonnes in 2016,” said Zachary Mwangi, director general of the Kenya National Bureau of Statistics (KNBS).

According to a report by the U.S. Department of Commerce, Kenya’s domestic wheat production can only meet less than a third of the demand, creating the need for importation for home and industrial baking.

“The bulk of the wheat imports are from the Black Sea region (Russia, Ukraine and Kazakhstan), Pakistan, Brazil, Argentina and Australia,” said the report on Kenya’s agriculture that was released in August 2019. “The pricing and cost of transportation are a major consideration in wheat import decisions.”

In neighboring Tanzania, consumption of wheat is estimated at 1 million tonnes annually against production of 100,000 tonnes, which means the country has to import more than 90% of its wheat requirements from markets such as Russia, Ukraine, Canada, Latvia and Argentina.

A similar deficit has been seen in East Africa’s rice market with Kenya’s production reported to have been on a steady decline since 2015, from 116,473 tonnes to 81,198 tonnes in 2017.

“Despite the increase in the area cropped and the increase in the number of plot holders, the volume of total paddy declined by 20% to 81,200 tonnes in 2017, resulting in a 22.5% decrease in gross value of output from all (rice) scheme areas to $42 million,” Mwangi said.

For Tanzania, rice production was estimated at 2.2 million tonnes in 2018 with the country importing about 11,600 tonnes in the first quarter of the year. Meanwhile, Uganda and Rwanda reported 15,000 tonnes and 113,000 tonnes against consumption demand of 244,000 tonnes and 123,000 tonnes, respectively.

But for maize production, Tanzania, Uganda and Rwanda continue to report a surplus that is mostly exported to Kenya to plug annual deficits caused by poor market structures and the inability of producers to access the right market at the right time.

For example, Tanzania reportedly produced 6.3 million tonnes of maize against a demand of 5.3 million tonnes in 2018, while Uganda produced an average of 2.7 million tonnes against a demand of 2.5 million tonnes with Rwanda’s supply estimated at 575,000 tonnes against a demand of 510,000 tonnes.

Unfortunately for Kenya, maize production declined by more than 6% between 2016 and 2017 from 3.4 million tonnes to 3.1 million, leading to an increase in imports of more than 800% to 1.328 million tonnes.

“Kenya is a corn-deficit country necessitating importation mainly from the East African Community (EAC) countries with a significant portion of the imports being contributed by informal cross-border trade,” USAID said.

Cereals and produce boards

Currently, grain producers in Tanzania work with the Cereals and Other Produce Board (CPB) in organizing transportation of cereals to major milling centers located in key towns such as Mwanza, Arusha, Dodoma, Iringa and Dar es Salaam.

The CPB provides services such as storage, cleaning, drying, weighing, crushing and milling of the grains alongside private sector millers and warehouses largely based in urban areas.

In Kenya, the farmers partner with the National Cereals and Produce Board (NCPB) that offers storage, drying and cleaning services for grains at a fee that includes the cost of transportation. In addition, the NCPB leases out excess storage facilities for millers and other grain sector stakeholders in addition to providing clearing and forwarding services for grain imports and related agricultural inputs.

Although current transport costs data were not immediately available, a previous analysis of the East African market by the Food and Agriculture Organization (FAO) puts the cost from the farm to the primary market at $6.4 per tonne while moving the commodity from the primary market to the secondary market was estimated at $27 per tonne with secondary to wholesale/retail market averaging $41.51 per tonne.

“Transport costs account for 60%, 78.7% and 91% of the costs of the first, second and third stages of marketing, respectively,” according to the FAO, quoting previous World Bank estimates. “Transport costs for farmers increase due to the informal fees farmers pay to avoid delays, overload charges, and other problems.”

Trade improvement efforts

To ease the challenges of transportation and support availability of quality grains for milling, governments in East Africa have launched interventions to facilitate trade in grains and grain byproducts by constructing storage, drying and processing facilities along with improving transport networks to access them.

In Rwanda, the government recently unveiled a program to construct modern post-harvest facilities and strategic grain reserves across the country alongside investing $24 million in feeder roads that farmers rely on to reach grain delivery points.

A similar initiative was announced in Uganda in June 2019 with the government approving development of storage facilities and linking farmers to agro-processing facilities to support agro-industrialization.

During the current financial year, the government will construct post-harvest facilities in the Bunyangabu, Kibuku, Kumi, Kyenjojo, Ntoroko and Nakaseke districts in addition to completing paving of 6,000 kilometers of national roads and ramping up connectivity of rural roads and low-cost sealing of district roads to enable movement of harvested crops to selling and collection centers.

Furthermore, Uganda Railways Corp. has approved the upgrading of its 1,266-kilometer gauge rail line, which is currently 50% operational and carries 585,200 tonnes of freight a year at a cost of $267 million.

Last year, Kenya completed a 609-kilometer standard gauge railway line linking the Port of Mombasa to the country’s capital, Nairobi, with two major terminals. Tariffs for transporting containers on the modern rail have been $500 and $700 for 20-foot and 40-foot containers, respectively.

And in Tanzania, the construction of the Central Railway line is ongoing with the first 300 kilometers between Dar es Salam and Morogoro being nearly 50% complete while the 422-kilometer section from Morogoro to Makutupora is 7% done.

High logistics costs

According to USAID, logistics is a major challenge when moving staple foods across the region.

“Traders struggle to identify logistics companies with haulage space for a specific route, with logistics costs constituting about one-third of the cost of a given grain shipment,” USAID said in June. “The cost is high due to the lack of smart logistics linking supply and demand, which often leads to backhaul truck space returning empty.”

Currently, USAID, through the USAID East Africa Trade and Investment Hub, has partnered with IBM Labs Africa and Alliance for a Green Revolution in Africa (AGRA) to develop “a modern technology-driven logistics platform that will link grain traders and transporters in Eastern Africa.”

The initiative is being spearheaded by AGRA with IBM and Kumwe Logistics, a post-harvest handling and logistics company that combines “lean operations with smart technology to drive efficiency and minimize losses in agricultural value chains,” having received a grant toward its implementation.

According to the Northern Corridor Transport Authority (NCCA), an intergovernmental body serving six countries in Eastern Africa for coordination of transport infrastructure improvement, “poor infrastructure, delays at weighbridges and non-compliance to weight limits by truck drivers and companies has affected productivity and efficiency along the Northern Corridor, thus impacting turnaround time at the port (of Mombasa) and movement of cargo along the corridor.”

This also affects wheat, rice and fertilizer imports through the ports of Mombasa and Dar es Salaam.

The corridor, which is made up of a transport network that connects to the Port of Mombasa, including road, rail, inland water and inland container depots in Kenya, Uganda, Rwanda, Burundi and South Sudan, forms the backbone of the grain trade in East Africa and facilitating of grain imports into the region.

Even though the six countries under the EAC agreed to have common tariffs and border clearance procedures, different countries still insist on charging different freight charges and subjecting goods across the borders to long processes.

For example, at Malaba, on the border of Kenya and Uganda, the NCCA said there “are delays that registered a median of six hours for clearing processes.”

Transporting containerized cargo by road from Mombasa to Kigali, the capital of Rwanda, costs around $2.23 a tonne per kilometer. The cost varies from $1.79 and $3 for Kampala in Uganda and Bujumbura in Burundi.

For grain producers in East Africa and the millers who buy from them, the preferred mode of transportation remains the road that the NCCA considers expensive, contributing to the current pricing of grain products.

South Sudan and parts of eastern Democratic Republic of Congo, which also rely on the Northern Corridor for their exports and imports, have the highest road user charges at an average of $350 and $500, respectively.

Tanzania, Rwanda and Burundi road user charges are approximately $152 while Kenya and Uganda charge an average of $10 per 100 kilometers.

With an efficient logistics system, East Africa would enhance not only the competitiveness of its grain trade but also make it possible to stabilize the price of milled grain products for better nutrition and food security.