Development of the Sub-Saharan food and agriculture market

Development of the Sub-Saharan food and agriculture market

The food and beverage and agricultural industries are rapidly growing as can be seen with the increase in exports from 2011, valued at ZAR 295bn, to exports in 2012, valued at ZAR 330bn, and so increasing by 12%. While imports decreased by 2% from ZAR 614bn in 2011 to ZAR 601bn in 2012. However, Africa has continued to experience a negative trade balance between 2003 and 2012, confirming that Africa is a net importer of food and beverage products and therefore illustrating the opportunities in Africa.

The development in the agro food industry in Africa is a recent phenomenon, both in its magnitude and the rapidity in which it is occurring. While Africa possess 30% of the potential arable land in the world, the level of agro-processing, at a rural level in Africa, is in most of the cases inexistent or just very basic; and as a consequence of this low level of agro-processing capacity, Sub-Saharan countries face huge post-harvest losses, for instance; and for perishable agro-commodities such as fruits and vegetables, the post-harvest losses average 35-50% of total attainable production, meanwhile for grains this varies between 15 to 25%.

In line with this situation, the Agriculture and Agro-Industry Department of the African Development Bank has included Agro-Industrial Development within its operational priorities and started incorporating a more market and value chain approach in the design of new operations. Interventions in Agro Industry are designed to create the adequate environment and enhance the emergence of locally owned agro-processing industries, capable of creating jobs and increasing incomes in rural Africa. Another objective is to promote industrialisation and urban employment, break the ‘productivity gap’ of development, reduce food costs and supply uncertainties and improve the diet.

A major driving force behind agro food industry development in Sub-Saharan Africa is the influence of one of its most developed member countries, South Africa. This is partly due to several internal and external factors:

  • Firstly, the unanswered question of land redistribution has led to uncertainty, prompting big farmers to move their operations to other African territories like the DRC, Mozambique, Zambia and Malawi, where the risk of a land-grab is considered lower.
  • Secondly, South Africa is affected by the recent recession. Inflation is at a rate of 6% and has caused a drop in demand for food products as well as prompting more conservative buying from the consumer. Considering the concentration of the developed agro food industry in South Africa – SAB Miller controls 90% of the beer market, Distell is the main producer of wines, Pioneer Foods, Tiger Brands and Premier Foods control 60% of mills for white maize and 90% of mills for wheat, RCL & Astral farm 50% of all poultry – theses companies with little or no room for expansion in South Africa have looked to the rest of Sub-Saharan Africa for growth.
  • Along with these major companies, more and more companies want a piece of the African pie. Companies like Rainbow Chicken, Illovo Sugar, Tongaat-Hulletts and Oceania are selling South African goods on the continent and have made their “foodprint”. Equipment and packaging companies like Nampak and agricultural service companies like Afgri and Pannar have also established themselves.
  • Lastly, restaurants have started setting up shop, most notably are Famous Brands Group, Nando’s, Vida e Caffè and retail giant, Shoprite’s Hungry Lion fast food chain.

The five major retail giants; Pick n Pay, Shoprite, Woolworths, Massmart & SPAR, have all opened up shop on the continent:

  • Spar South Africa has bought a license to trade in Africa and have subsequently opened 150 stores outside of SA across Africa. They have just opened their first supermarket in Angola and have now partnered with African company Webcor, a retail manufacturer and distributor, to make it easier to enter the market.
  • Pick n Pay intends to open 100 new stores outside of SA in 2015, adding to their already strong 1,041 stores in 6 countries (South Africa included). Admittedly, Pick n Pay initiated their expansion into Africa later than their competitor Shoprite, and are now playing catch up.
  • Shoprite currently has 202 supermarkets in 16 countries (South Africa excluded).
  • Additionally, Massmart has also established itself in the African market with 30 supermarkets in 12 countries (South Africa excluded).