For example, most business sectors in African countries are relatively small and companies have established purchasing systems that differ from one sector to another. There are relatively few agents who serve a particular industry on an exclusive basis. Instead although they may be well established within one sector, they might also deal in many other sectors. For instance, a reputed fertiliser importer in Uganda may also be a major importer of cosmetics. Such behaviour may be counter-intuitive to the specialist traders of the West.
Moreover, Africa is not only different from the rest of the world, it is different within itself.
- Differences.
Whilst markets may be open and relaxed in one country, the next may be completely the opposite.
As mentioned in part 1 of this blog, Tanzania has recently removed taxation on a wide range of agrochemicals, and yet simultaneously, the Kenya National Treasury has introduced a 16% import tax on imported agrochemicals.
This is expected to dramatically reduce the volumes imported, as the tax will raise prices by a total of $11.5 million dollars, which is expected to be absorbed by farmers. A pointed noted by Agrochemical Association of Kenya chairman, Kuria Gatonye who states that, “The import bill of agrochemicals is about $92 million and imposing a 16% tax will see farmers absorb [this cost] from our members.”
To take the fertiliser sector as an example, a study by IFDC researchers Julio Henao and Carlos Baanante showed that over 60% of Africa’s fertiliser is consumed in just five countries (Ethiopia, Kenya, South Africa, Zimbabwe and Nigeria), primarily in the commercial and export markets. They also note that, “Fertilizer use in Africa is less than a tenth of the world average of 100 kilogrammes [per hectare].”
So clearly, different countries have different needs and require different apporaches. In turn, global policies and events affect different African countries differently. A point supported by Peter Gibbon and Stefano Ponte in their book,’Trading Down; Africa, Value Chains and the Global Economy’, when they write, “Changes in global business strategies and trade rules do not affect all African countries in the same way. Local-level outcomes are markedly different due to different paths of domestic market liberalization.”
Clearly, being aware of these regional differences is vital, as a recent KPMG report called, ‘African Chemical Industry: A hidden Opportunity?‘ advises, “Developing a continental strategy is difficult; infrastructure and education are a long way short of minimum global standards; legal, political and regulatory regimes remain complex and business practices in many instances are not transparent. It is therefore wise to take a country-by-country and segment-by-segment approach to understand the market opportunity.”
- Counterfeit Products
Another challenge facing agrochemical traders in Africa, is the large amount of counterfeit products that are on the market. Whilst some of these replica products do still offer some value, others are worthless, and have no positive affect on crops. Others even cause damage.
This is not an insignificant problem of a few rogue salesmen, but is a widespread occurrence. For example in Tanzania, a few years ago, as much as 40% of the products available on the agrochemicals market were believed to be counterfeit.
To combat this problem, the Tanzanian government has been encouraging legitimate traders and importers to supply sufficient, genuine products to limit the counterfeiters powers. Whilst this does impact the nation’s balance of trade, the benefits of having quality agrochemicals are thought to outweigh other economic disadvantages. As Christopher Kajoro Chiza, Minister for Agriculture, Food Security and Cooperatives states, “It is important to boost access to inputs [of overseas agrochemicals] to achieve sufficient agricultural production and growth to meet economic development, poverty reduction and food security and nutrition goals.”
The counterfeit problem is further impacted by the fact that Tanzania has eight land borders with other countries. This according to Africa Stockpiles Program Chair Dr. Vera Ngowi, “makes it difficult to control illegal trade in agrochemicals.”
The problem is so common, that many farmers and agrochemicals dealers hold on to expired genuine products, as they believe them more effective than counterfeit products, and can never be sure when a pest outbreak, such as a swarm of locusts, will arise.
Alongside a crackdown on counterfeiters by law enforcement, the obvious solution is to give farmers and local traders the equipment and the knowledge in how to recognise counterfeit products. Wilfred Thembo, Executive Secretary at UNADA (the Uganda National Agro-Input Dealers Association) agrees, but sees this information as only part of a wider range of resources that agrochemical dealers in the region need, stating, “Dealers need skills to detect fake inputs, but also to market new products, [as well as] handle and maintain their clients especially when prices are skyrocketing.”
Similar work is being done in Tanzania, by TANADA (the Tanzania’s National Agro-Dealer Association. As well as helping farmers become more commercially aware, and training them in how to test products, the association is developing a position of responsibilty and quality control in the supply chain. As Shem Oirere of FCI reports, “The dealers are trained on accessing financial services, how to output marketing, processing, value-adding services and policy advocacy through association development.“
This support is not unique, as another program, called TASP (Tanzania Agro-dealer Strengthening Program) which is being funded by the Alliance for a Green Revolution in Africa, is systematically training local agrodealers in how to test for counterfeit products, and has been doing so since 2007.
This training is greatly needed, as the lack of skilled traders has a serious impact on market performance. One recent study of the Ugandan agrochemical industry, acknowledged that the country has more than 2,500 agrodealers, but noted that of them only 50 were registered as chemical dealers. The government has been working hard to try and increase this number to 120 by the end of the year.
- Logistics
Another problem that a prospective trader should be wary of in dealing with Africa are the problems with logistics. This is particularly true for chemicals traders as the chemicals industry is so international, and the volumes and distances involved significant. As a result the standard of logistics can often be the difference between making a profit or a loss.
This means that traders should be very careful not to make a loss in Africa. As LEADUG, the Livelihoods and Enterprises for Agricultural Development Uganda agency makes clear, “Domestic supply chain inefficiencies, poor infrastructure and the high cost of transport are the main causes of the above-world-market price Ugandans pay for agro-inputs.”
And the problems only increase as the further the product has to travel, often at a prohibitive cost, as Michael Fleshman, a self-proclaimed Independent Farming Professional from Sacramento, California, notes. He says that, “Heavy reliance on imported fertilizers, combined with high transportation costs and the absence of suppliers in the countryside, has meant that African farmers pay between two and six times the average world price for fertilizer — when they can find it at all. An IFDC study estimated that it costs more to move a kilogramme of fertilizer from an African port to a farm 100 kilometres inland than it costs to move it from a factory in the US to the port. With millions of African family farmers surviving on less than a dollar a day, imported fertilizer is simply unaffordable.”
LEADUG concurs that the costs caused by logistics prevent an increase in agrichemical use, noting that, “In addition to low penetration of agrodealers in rural Uganda, input use is stymied by the high cost to farmers.”
This is a situation that numerous private initiatives and government agencies are trying to aleviate. For example, the Uganda National Agro-lnput Dealers Association (UNADA), a national organization for agrodealers, is working hard to streamline supply chains (as well as assisting in educating farmers and traders in detecting fake products).
Other problems are outlined in a recent report, by Aggrey Atuhaire of the PHE (Pesticide Use, Health and Environment) Uganda Project sponsored by Uganda National Association of Community which states that, “Pesticides are increasingly sold through informal networks of small distributors and hawkers, many of whom have no technical knowledge of pesticide hazards or safe handling,”
Meanwhile, in Kenya, the Minister for Agriculture, Food Security and Cooperatives Christopher Kajoro Chiza admits that the situation is difficult. He knows the importance of agrochemicals to a healthy economy and a healthy populations, but also concedes that his ministry is limited by “weak quality control mechanism for inputs, weak input procurement and distribution system, low utilization of modern inputs in agricultural production and underdeveloped input manufacturing industry.”
Whilst H.P. Ngowi of the South African Institute of International Affairs, also comments on the many problems that the chemicals market has in Africa. He told a recent Tanzanian newspaper that, “The Tanzania pesticide market also faces a myriad of challenges such as the government’s central procurement system for agrochemicals, inadequate storage and proper stock management, uncoordinated roles by donors of agrochemicals and the absence of effective legislation on pesticides or inability to enforce the existing laws.”
All of which may make even a confident trader wonder if the profit of business there is worth the headaches. But if you do decide to find invest in the African chemicals market, is there any advice worth listening to?