EATH_Staple_Foods_Final_Report__rebranded_July_2013_(1).pdf

September 30, 2010 (Revised)

This publication was produced for review by the United States Agency for International Development. It was prepared by Chemonics International Inc.

A REGIONAL TOOLKIT

FOR THE STAPLE

FOODS VALUE CHAIN

IN EASTERN AFRICA

A PRACTICAL APPROACH TO IMPROVING STAPLE FOODS

COMPETITIVENESS AND FOOD SECURITY

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

A REGIONAL TOOLKIT

FOR THE STAPLE

FOODS VALUE CHAIN

IN EASTERN AFRICA

A PRACTICAL APPROACH TO IMPROVING STAPLE FOODS

COMPETITIVENESS AND FOOD SECURITY

Contract No. EEM-I-05-07-00008-00

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

CONTENTS

Acronyms ……………………………………………………………………………. i

Section I. Background to the Regional Strategy and Toolkit

A. Positioning the Strategy within Existing Global and Regional Initiatives ..1

B. Defining Regional Strategy Subsection

Section II. Current Situation Overview

A. Regional Value Chain Analysis

A1. Understanding the Problem

A2. National Staple Foods Value-Chain Highlights

A3. Regional Value-Chain Survey

B. Getting to a Manageable Set of Regional Priorities

C. Addressing the Issue of Finance and Transport

Section III. Regional Staple Foods Strategy

A. Structured Trade

A1. Warehouse Receipts Systems

A2. Regional Commodities Exchange

A3. Regional Marketing Infrastructure

A4. Collateral Management

A5. Contracts Enforcement and Dispute Resolution

B. Market Information Systems

B1. Leverage Existing National Systems and Develop Integrated

Regional MIS Platform

B2. Ensure Data Integrity and Quality

B3. Ensure Effective Data Dissemination

B4. Drive Use of Market Information

C. Policy and Standards

C1. Intra-Regional Tariffs

C2. Marketing and Price Controls/Export and Import Restrictions

C3. Regional Food Balance Sheet

C4. Staple Foods Quality Standards

C5. Sanitary and Phytosanitary Standards

C6. Non-tariff Charges

C7. Regional Food Security and Nutrition Policy

REGIONAL STAPLE FOODS TOOLIKIT AND IMPLEMENTATION PLAN

Section IV. Staple Foods Strategy Implementation Plans

A. Structured Trade

A1. Warehouse Receipts Systems

A2. Regional Commodities Exchange

A3. Regional Marketing Infrastructure

A4. Collateral Management

A5. Contracts Enforcement and Dispute Resolution

B. Market Information Systems

B1. Leverage Existing National Systems and Develop Integrated

Regional MIS Platform

B2. Provide Relevant and Timely Data and Ensure Data Integrity and Quality

B3. Effective Data Dissemination

B4. Drive Use of Market Information

C. Policy and Standards

C1. Intra-Regional Staple Foods Tariffs

C2. Marketing and Price Controls/Export and Import Restrictions

C3. Regional Food Balance Sheet

C4. Staple Foods Quality Standards

C5. Sanitary and Phytosanitary Standards

C6. Non-Tariff Charges

C7. Regional Food Security and Nutrition Policy

C8. Regional Trade Policy Awareness

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

EXHIBITS

Exhibit 1: Positioning the Regional Strategy within the Context of Key Regional

Initiatives

Exhibit 2: Understanding Regional Strategies

Exhibit 3: Distinguishing Regional and National Issues

Exhibit 4: Regional Maize Balance Sheet (as of September 2009)

Exhibit 5: Regional Import Value Data with Extra-Regional Import Detail

Exhibit 6: A Detailed Look at Import Values by Commodity (in Millions of USD)

Exhibit 7: 2004-2008 Production Volumes for Seven Countries

Exhibit 8: East Africa’s Relative Yield of Key Staple Commodities

Exhibit 9: Ethiopia’s Maize Output

Exhibit 10: Production of Beans and Pulses

Exhibit 11: Kenya’s Staple Foods Supply Shortfall

Exhibit 12: Malawi’s AISP Has Helped Improve Yields of Key Staples

Exhibit 13: Rwanda’s “Smart” Rice Production — Making Great Strides

Exhibit 14: Tanzania: A Mixed Bag in Terms of Surplus and Deficit

Exhibit 15: Strong Production Growth in Rice but Decreasing Productivity Gains

Exhibit 16: Consumption and Production: Little Margin for Error

Exhibit 17: Regional Look at the Most Important Issues

Exhibit 18: Regional Look at the Areas of Weakest Performance

Exhibit 19: Delivery Gap: Quantifying the Gap between Performance and Importance

Exhibit 20: Identifying Strategic Themes within the Ratings of Importance and Performance

Exhibit 22: Summary of Regional Strategic Priorities

Exhibit 22: Regional Strategy Detail with Objectives

Exhibit 23: Commodities Subject to EAC Regional Harmonization Process

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN i

ACRONYMS

ACOS Agricultural Commodity Supplies

ACTESA Alliance for Commodity Trade in Eastern Southern Africa

AISP Agricultural Input Subsidy Program

COMESA Common Market for Eastern and Southern Africa

COMPETE Competitiveness and Trade Expansion Program

EAC East African Community

EAGC Eastern Africa Grain Council

EIAR Ethiopian Institute of Agricultural Research

ESE Ethiopian Seed Enterprise

FBO Farmer-based organization

FTA Free-Trade Area

GATT General Agreement on Tariffs and Trade

MIS Marketing information system

NGO Nongovernmental organization

RATIN Regional Agricultural Trade Intelligence Network

REC Regional Economic Communities

RFBS Regional Food Balance Sheet

SPS Sanitary and phytosanitary

WRS Warehouse Receipts System

WTO World Trade Organization

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN 1

I. BACKGROUND TO THE REGIONAL STRATEGY AND

TOOLKIT

Competitiveness is generally defined as the ability to efficiently produce goods and services for which there is high demand that leads to higher standards of living that are sustainable in the future. Strategy is about choice — choosing what to do to build competitiveness from a long list of viable options. This process requires making difficult decisions around what not to do as much as it entails choosing what to do.

The Regional Staple Foods Competitiveness Strategy that follows reflects the choices made as a result of extensive analysis of the sector’s key constraints and a dialogue with key regional stakeholders in 2010. It also details the interventions and initiatives required to drive progress against key priorities.

A. Positioning the Strategy within Existing Global and Regional Initiatives

The time is right for a regional staple foods strategy to focus and augment existing efforts. The USAID East Africa Trade Hub (EATH) has been tasked with developing a five-year regional strategy for the staple foods value chain in Eastern Africa in collaboration with its regional trade association partner, the Eastern Africa Grain

Council (EAGC). Development of this strategy is timely, as there has been a big push under the United Nation’s Millennium Development Goals, the New Partnership for

Africa’s Development’s Comprehensive Africa Agricultural Development Program, and the U.S. government’s Feed the Future initiative to raise agricultural productivity, integrate smallholders into commercial markets, develop dynamic regional and sub-regional agricultural markets, and achieve food security. The East African

Community (EAC) is also developing a Regional Food Security and Nutrition Plan that should help support regional staple foods value-chain development. The strategy

USAID EATH has developed, in collaboration with the regional value chain contributes to and complements all of these initiatives. It also helps push the broader regional integration agenda, which is so critical to the issue of food security. Exhibit 1 below shows how the regional staple foods strategy fits in the context of the

Millennium Development Goals, the Comprehensive Africa Agricultural

Development Program, and Feed the Future.

2 REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

Exhibit 1. Positioning the Regional Strategy within the Context of Key Regional Initiatives

The strategy is already being used as a tool to shape the regional staple foods agenda.

Following the validation of the regional strategy and implementation plan by a group of stakeholders at a meeting held in Entebbe on November 8, 2010, USAID EATH has held multiple meetings with donors and other implementing partners that are all eager to align their strategies and design their programs to fit within the regional strategy. The EAGC has developed its work plan to lead and drive forward key initiatives from the strategy. The Common Market for Eastern and Southern Africa’s

(COMESA) Alliance for Commodity Trade in Eastern Southern Africa (ACTESA), which is leading the regional effort to promote agricultural trade and will be instrumental in the integration of regional agricultural value chains, has indicated that it would like to adopt the regional strategy as its own institutional strategy and assume ownership of the strategy.

B. Defining Regional Strategy

Moving away from the traditional approach to competitiveness. Developing a regional value-chain strategy is a novel undertaking in the field of competitiveness.

Historically, value-chain competitiveness strategies have been developed at the national level where the players (private and public sector) are known to and familiar with each other, where constraints/challenges and priorities are well understood and where interests, which may initially be divergent, can be aligned provided the facts are well articulated, strategic alternatives/objectives are easily understood, and a strong case is made for the benefits of collaboration. This familiarity within national

Improved Agricultural Market

Linkages

Invest in Market- Related

Inf rastructure (small and large scale)

Expand Trade in Domestic and

Regional Markets

Expand Market Information and

Innovative Access

Improve Access to Inputs

Support National Research

Strengthen Early Warning Systems

Financial Services Sector Development for Agriculture

Develop Quality Management and

Certif ication Services

Improve Access to BDS and Financial

Services

Expand Extension Services

Strengthen Property Rights

Improve Diet Quality and Diversity

Promote Stable Monetary and Fiscal

Policy Regimes

Modernize Regional Trading Systems

Improve Post- Harvest Market Inf rastructure

Sound Natural Resources

Management

Strengthen Producer

Associations

Identify PPPs to Improve Value

Chain Competitiveness

Eliminate Administrative and Regulatory Barriers

Reduce Time and Cost of Moving

Goods

CAADP

• Pillar II: Improve Rural

Infrastructure and Market Access

•Pillar III: Increase Food Supply, Reduce Hunger and improve emergency response

Feed the Future

• Objective 1: Accelerate Inclusive

Agricultural Sector Growth

• Objective 2: Improve Nutritional

Status dfjdjakljdkljfkl;ajskljkl;adsjfk;ldsjfkl;j

CAADP

• Pillar II: Improve Rural

Infrastructure and Market Access

• Pillar III: Increase Food Supply, Reduce Hunger and Improve

Emergency Response

Regional

Staple

Foods

Strategy

MDG 1: Eradicate

Extreme Poverty and

Hunger

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN 3

value chains makes it easier to get people moving in the same direction, to agree to a unique strategic positioning, and to design public and private sector interventions to deliver on the strategic vision.

Looking at value-chain competitiveness through a regional lens required USAID

EATH to rethink the traditional, national competitiveness strategy archetype and develop a new approach that differentiates between issues that are national in nature and those that are best addressed from a regional perspective. Exhibit 2 below details

USAID EATH’s approach to regional strategies and how it addresses national issues.

Exhibit 2. Understanding Regional Strategies

This regional recasting of the strategy methodology allowed USAID EATH to keep the process manageable and to focus on areas of convergence and those key drivers of regional competitiveness that cut across countries. USAID EATH used a simple filter as the first step in identifying national issues and to help narrow down the universe of potential regional priorities. Issues that either facilitate or impede the flow of products

(inputs, raw commodities, processed goods, etc.) cross-border were labeled regional.

Whereas issues that are fixed within a country’s borders or are governed solely by national policies or regulations were considered national. Certain issues such as finance and transit that impact all sectors in a similar way and that could be difficult to address solely within the context of a regional staple foods strategy were considered outside the scope of the regional strategy; however, where specific finance and transit issues touch or are central to key value-chain priorities, they feature prominently.

Exhibit 3 below identifies some potential regional and national issues. It is, however, important to note that this list is not completely mutually exclusive and that there will be some natural cross pollination between regional and national issues, particularly as the on-the-ground national implementation of many regional initiatives will rest with

A regional strategy is… A regional strategy is not…

National

Strategy

National

Strategy

National

Strategy

National

Strategy

National

Strategy

National

Strategy

Regional Strategy

National Strategy

National

Strategy

Regional

Strategy

National Strategy

Dispelling Myths

• It does not contain all of the same elements of a national strategy.

• It cannot address or attempt to resolve all country-level issues.

• Certain issues are wholly national, including rural road infrastructure, farmer training, production, extension, marketing infrastructure and government investment /support to the sector. These are elements of national strategies.

Accepting Realities

• Strategy is about making choices and tradeoffs. Given the practical challenges of implementing a regional strategy, it is important to identify a manageable set of cross-cutting issues.

• The issues addressed in a regional strategy complement those addressed at the national level.

• There are certain issues that constrain the flow of commodities cross border (from areas of surplus to areas of deficit) that can be more effectively addressed at the regional level.

…an aggregation of national strategies …an opportunity to focus on a key set of common issues

4 REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

national organizations. Successful implementation will require close collaboration and coordination between regional and national entities.

Exhibit 3. Distinguishing Regional and National Issues

Potential Regional Issues

Trade policy

Knowledge (e.g., sector/market information, research and development

— management

Marketing infrastructure (commercial warehousing)

Commodities exchanges

Transit

Finance

Quality assurance (grades, standards, and certifications)

Regional links and networks

National Issues

Production/improved productivity

Extension services and farmer training

Government support to sector (budget commitments, investment incentives, input supply system support)

National infrastructure (road/rail network, electricity)

Product diversification/expansion

Marketing infrastructure (on-farm storage, aggregation facilities)

Building local research and development capacity (training and funding)

Land tenure systems/property rights

USAID EATH also adapted the strategy process to account for the added complexities that arise when more than one country is involved in the process. USAID EATH engaged value-chain stakeholders at the national level to discuss and prioritize national level issues/constraints, the results of which were aggregated into a regional prioritization of issues that informed the development of detailed implementation plans and timelines. Although the national-level strategy process is not simple by any means, the factors listed below, which complicate the regional strategy development process, are not present at the national level:

Divergent national/government interests

Balancing regional v. national interests (accounting for the highly political nature of staple foods)

Conflicting trade policies, regulatory regimes, standards policies, etc., such as varying degrees of government intervention in agricultural markets

Inconsistent regional economic community membership

Varying stages of national/value-chain development

Limited cross-border value-chain links and regional value-chain players

Addressing issues of national sovereignty and managing work with multiple countries’ ministries, regulatory bodies, customs agencies, bureaus of standards and private sectors

Disparities in market dynamics and marketing infrastructure

Although these issues make developing a regional strategy challenging, they further complicate the difficult task of coordinating and implementing strategic initiatives.

USAID EATH therefore determined that detailed implementation plans that provide activity/task-level detail and clearly present the logical flow of implementation activities from regional to national implementation (and vice versa) would be critical for the strategy to achieve its goals. These detailed plans can be found in Section IV.

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN 5

II. CURRENT SITUATION OVERVIEW

A. Regional Value Chain Analysis

A1. Understanding the Problem

East and Southern Africa is a region that should be able to feed itself but isn’t. A quick look at the maize food balance sheet (see Exhibit 4 below) for six countries across the region as of September 2009 reveals that despite deficits in certain countries such as Kenya, Tanzania, and Ethiopia, the region as a whole had sufficient production volumes to satisfy its own maize requirements. Analysis from other years and for other key staples commodities such as beans and pulses also show a regional surplus, while rice and wheat show a regional deficit. It is generally accepted that for many staples products, the region can, in most years, produce sufficient volumes to feed itself. The question that the regional strategy attempts to answer and subsequent implementation plans are designed to resolve is this: if the region could feed itself, what is constraining the movement of commodities from areas of surplus to areas of deficit and why does the region rely so heavily on imports from outside the region?

Exhibit 4. Regional Maize Balance Sheet (as of September 2009)

The region is almost entirely dependent on extra-regional imports to supplement national production and meet food needs. An analysis of trade data for the following basket of five staple commodities — maize, beans, pulses, rice, and wheat, which represent 92 percent of all imports into the region — reveals a worrying trend. As the chart on the left in Exhibit 5 below illustrates, the COMESA region (plus Tanzania) is increasingly reliant on imports from outside the region to meet its food requirements.

For the 2004-2008, intra-regional imports represented an average of ~4 percent of all non-locally sourced commodities. Add to that the fact that extra-regional imports for the basket of five staple foods grew at an average annual rate of 31 percent, significantly faster than the 11.7 percent for intra-regional trade, and the trend becomes even more worrying.

-2,000

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

K e n y a

T a n za n ia

E th io p ia

U g a n d a

R w a n d a

M a la w i

T o ta lV o lu m e in t h o u s a n d s o f M

T

Requirements

Availability

Def icit/Surplus

6 REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

Exhibit 5. Regional Import Value Data with Extra-Regional Import Detail

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2004 2005 2006 2007 2008

M il li o n s o f

U S

D

Intra-Regional Imports

Extra Regional Imports

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2004 2005 2006 2007 2008

M il li o n s o f

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D

Wheat

Rice

Pulses

Beans

Maize

Source: COMESA COMSTAT Database, International Trade Center Trade map (for wheat import data)

As the chart on the right above shows, extra-regional wheat imports, which were fairly static from 2004-2007, exploded in 2008. This clearly skewed the annual growth rate for the period. However, when USAID EATH removed wheat from the basket, the annual extra-regional growth rate for the new basket (maize, beans, pulses, and rice) was still 20.6 percent compared to 13.5 percent for intra-regional trade. It is clear that extra-regional imports are becoming a more important piece of the region’s food security equation, and as a result, the region will be increasingly at risk to global price volatility and food supply shocks. The challenge for the region now is how to reverse this trend. It must determine how to tap and distribute regional surpluses and where to invest its limited resources to drive its own food security.

Looking at the five-year average (2004-2008) composition of extra-regional trade value data also raises interesting questions. For example, if there often exists a surplus of maize at the broader regional level, why does maize represent ~44 percent of the average extra-regional import basket with an annual average value of $1.76 billion and why has that number grown at an average annual rate of 22.7 percent (see Exhibit

1 below) from 2004-2008? One possible answer: given maize’s importance in national food baskets, it is highly politicized and is therefore often the focus of export bans and other market interventions that limit regional supply and impinge on the competitiveness of regionally produced maize. Consequently, countries within the region have to rely on exports from outside the region to meet national demand despite the fact that there might be a surplus just across the border. Other possible answers: there is limited knowledge of what is available within the region and/or moving commodities from one part of the region to another is not cost effective. One thing that is clear from discussions with the value chain is that it is not just one factor that limits intra-regional trade.

Exhibit 6 (next page) provides more detail on intra- and extra-regional import values for the five key staples commodities for 2004-2008. It is important to note that these data represent only formal trade flows as captured by COMESA and the International

Trade Center. Given that a significant portion of intra-regional trade in staples is informal, the data below likely understates the real value of intra-regional flows;

however, it is difficult to imagine that it could approach the extra-regional numbers given increased demand for all commodities and the limited and variable nature of local production.

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN 7

Exhibit 6. A Detailed Look at Import Values by Commodity (in Millions of USD)

Source: COMESA COMSTAT Database, International Trade Center Trade Map (for Wheat Import Data)

Stagnant production coupled with significant demand growth. The issues that limit the region’s ability to feed itself are well known. One factor is stagnant production, which is further exacerbated by rapid population growth, increased urbanization, and rising incomes. Not only is demand increasing across the region but the composition of that demand is changing as a result of economic growth and urbanization. The increased demand for imported rice and wheat is a good example of this. Exhibit 7 below depicts aggregate production volumes for the following seven countries in the region:

Ethiopia, Kenya, Malawi, Rwanda, Tanzania, Uganda, and Zambia (which USAID

EATH used as a proxy for the rest of the region). A quick look at the chart below shows flat production growth for 2004-2008 across all five commodities. Annual production growth in key staples such as maize and beans has been a meager 1.9 percent and 0.3 percent respectively. The average annual growth in production for

2004-2008 for the entire staples basket was 2.2 percent. If this low rate of production growth continues and the population in that same group of countries grows at the projected annual rate of 2.5 percent , it will become increasingly difficult for the region to break its dependence on imports from outside the region and food aid.

Population Reference Bureau, http://www.pbr.org; USAID EATH analysis

Commodity 2004 2005 2006 2007 2008

Five Year

CAGR

Maize

Extra Regional Imports 975 1,659 1,619 2,212 2,214 22.7%

Intra-Regional Imports 30 7 2 122 49 13.4%

Beans

Extra Regional Imports 119 117 142 122 212 15.6%

Intra-Regional Imports 11 8 20 31 19 15.5%

Pulses

Extra Regional Imports 119 177 161 144 184 11.6%

Intra-Regional Imports 6 40 2 6 3 -17.9%

Rice

Extra Regional Imports 240 266 233 270 466 18.0%

Intra-Regional Imports 30 77 65 109 57 17.0%

Wheat

Extra Regional Imports 982 1,081 998 1,067 4,087 42.8%

Intra-Regional Imports 7 9 1 1 3 -21.6%

8 REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

Exhibit 7. 2004-2008 Production Volumes for Seven Countries

Source: FAOSTAT and USAID EATH Analysis

Poor productivity/yields and limited improvement for key staples. USAID EATH derived yields of key staples in the region (again using Ethiopia, Kenya, Malawi, Rwanda, Tanzania, Uganda, and Zambia as a proxy) for 2004-2008 from Food and

Agriculture Organization data on production (MT) and area under production (ha).

The region’s yields relative to the global average for each commodity is a good indicator of the region’s competitiveness at the individual commodity level. Not surprisingly, relative yields were well below the global averages with the exception of pulses and beans, whose yields were slightly closer to global averages. Exhibit 8 below illustrates that relative yields of maize, rice, and wheat — the three fastest-growing commodities in terms of extra-regional imports — were less than 60 percent of the global average. The regional average yield for maize, the most important staple commodity across the region, was only 30 percent of the global average.

Exhibit 8. East Africa's Relative Yield of Key Staple Commodities

Source: FAOSTAT and USAID EATH Analysis

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2004 2005 2006 2007 2008

P ro d u c ti o n

(i

T h o u s a n d s o f

M T

Maize

Beans

Pulses

Rice

Wheat

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008

Maize

Beans

Pulses

Rice

Wheat

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN 9

The above exhibit underscores a significant and well-known fact: (East) African farmers are producing far below what is technologically possible. Annual yield growth in the five commodities for 2004-2008 was: maize, 0.7 percent; beans, 1 percent; wheat, 2.1 percent; rice, 2.3 percent; and pulses, 2.3 percent (maize) and 2.3 percent (pulses). With average annual yield growth for 2004-2008 effectively flat, the limited production gains are probably the result of increased area under production.

Looking at this within the context of the global food production, it is clear that the increases in production that helped alleviate the global food crisis of 2007 occurred outside of Africa. In fact, much of the increase came from rich countries, which increased their 2008 harvests by 11 percent, while developing countries only increased their production by 1 percent . Production in the regional proxy group across the basket of five commodities actually decreased 2 percent from 2007 to

. Consequently, Africa’s food security is as tenuous as it was before the crisis.

Its producers’ inability to react quickly in an environment of increased demand and high prices would seem to indicate that the opportunity to capture value from growing demand in the region and globally will be seized by more nimble producers outside the region.

A2. National Staple Foods Value-Chain Highlights

USAID EATH commissioned a series of national value-chain studies across the region to assess the realities in a number of staple commodity chains including:

maize, beans, pulses, rice, sorghum, millet, wheat, groundnuts, and cassava. The studies evaluated individual commodity value chains and provided critical data related to extension, production, producer organizations, input supply and usage, consumption, market structure, key players, and government/trade policy. These data, combined with the key constraints that were identified, helped USAID EATH formulate its initial strategic hypotheses, which it then tested and validated with both national and regional stakeholders. What facilitated this process was the recognition that the constraints affecting a specific value chain were not unique to that commodity but cut across a number of others. And because the value-chain participants (outside the producers) were often the same from commodity to commodity, it became clear that a well-designed regional strategy could focus on those areas of regional convergence and commonality that were having the greatest impact on value-chain competitiveness.

Below is a brief summary of the staple foods situation in the following seven countries: Ethiopia, Kenya, Malawi, Rwanda, Tanzania, Uganda, and Zambia.

A2a. Ethiopia5

Agriculture in Ethiopia employs ~80 percent of the labor force and accounts for 47.5 percent of gross domestic product. Although coffee has been the primary export earner, accounting for 40 percent of total export revenue, export values for staple commodities grew ~69 percent annually for the period 2004-2008 and have benefited

FAOSTAT and USAID EATH Analysis

The Economist; “Whatever Happened to the Food Crisis?”; June 2009.

FAOSTAT and USAID EATH Analysis

EATH; Market Assessment and Baseline Study of Staple Foods in Ethiopia; 2010

COMSTAT Database

10 REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

Exhibit 9. Ethiopia’s Maize Output

2004 2005 2006 2007 2008

M il li o n s o f

M T

CAGR

12% from the recently launched Agricultural Development Led Industrialization strategy, which focuses on addressing key national constraints such as access to inputs, access to credit, and investment in irrigation. Use of improved technologies in Ethiopia is incredibly low, with fertilizer used on only 15 percent of the cultivated land and improved seed varieties on only 4 percent. This is despite the efforts of the Ethiopian

Institute of Agricultural Research (EIAR) and the Ethiopian Seed Enterprise (ESE) to try to bring new technologies into the country. Even with these low numbers, Ethiopia has experienced significant yield increases across most staple commodities for the

2004-2008 period: maize yields increased at an average annual rate of 6.8 percent, beans at 8.3 percent, pulses at 7.7 percent, rice (a marginal crop where production numbers remain insignificant and yet meet 40 percent of local demand) at 19.5 percent, and wheat at 3.1 percent. These increases combined with increased area under production have bolstered output of Ethiopia’s major staple commodities;

however, it is still dependent on food aid for roughly 10 percent of its requirements.

Maize. Maize is Ethiopia’s largest crop in terms of production although it is second to teff in terms of area under production. As Exhibit 9 indicates, maize output increased

12 percent/year for the period 2004-2008. According to Food and Agriculture

Organizationproduction data, Ethiopia was the region’s (as represented by the seven countries in the proxy group) leading maize producer for three of those five years. Unfortunately, little of that is tradable surplus, as

Ethiopia is typically just able to satisfy its domestic demand. It achieves this significant feat despite the fact that certified seeds are used on only 10 percent of land under maize, due mainly to use of F1 hybrids.

Beans and Pulses — incredible upside potential. Production of haricot beans in Ethiopia has grown significantly over the past several years (see Exhibit 10) and Ethiopia exports a significant amount — roughly 25 percent of that production (the equivalent of 50 percent of the tradable surplus) to the region (particularly Kenya) and beyond (e.g., to Italy through companies like ACOS). There are also considerable exports of Fava beans from

Western Ethiopia into Eastern Sudan. Chickpeas and lentils are also widely consumed and fit in well with the teff rotation.

Exhibit 10. Production of Beans and Pulses

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2004 2005 2006 2007 2008

Y ie ld

M T

/h a

O u tp u t (i n t h o u s a n d s o f

M T

Steady Rise in Haricot Production

1,000

1,500

2,000

2004 2005 2006 2008 2009

O u tp u t (i n m il li o n s o f

M T

Solid Growth in Pulses

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN 11

Exhibit 11: Kenya’s Staple Foods Shortfall

0%

20%

40%

60%

80%

100%

Maize Rice Beans Pulses

Production as a percentage of consumption (2004-2008 average)

Deficit

Unlike many other countries in the region, pulses form an important part of the

Ethiopian diet and serve as a key source of protein. Production has increased 14 percent/year over the past several years and is approaching 1.5 million metric tons;

however, because local demand is so high, only 1/3 of that makes it downstream in the domestic value chain, where retailers manage 60 percent of the traded volume.

Exports of pulses account for 5 percent of total production. Ethiopia is well positioned to capture some of the growth in regional and global (specifically Indian) demand for both beans and pulses as its yields for both crops are significantly higher than global and regional averages. Its five-year average yield for beans is ~18 percent higher than the global average and ~50 percent higher than the regional average. For pulses, the five-year average yield is 35 percent above the global average and 54 percent above the regional average. Also, when one considers the benefits to soil fertility from leguminous crops, a proper rotation could significantly help yields of other staples and increase regional availability.

A2b. Kenya7

Kenya continually faces food security issues and has to rely on imports from both its neighbors and key global trading partners to meet national requirements, and although production has increased in recent years, it has not kept pace with the growth in demand. Exhibit 11 below shows average annual production for 2004-2008 as a percent of average annual consumption for four key staple commodities and the production shortfall in each.

Although it must be pointed out that 2004-2008 includes a period of post-election violence, when instability and internal displacement in the Rift Valley disrupted production and hurt output, it is clear that food deficits across the spectrum of staples are a constant challenge that will likely increase as Kenya’s urban population grows and the composition of national consumption changes. Smallholder production accounts for nearly 70 percent of total agricultural output, which already creates significant inefficiencies in the value chain.

Add to that the fact that the average smallholder farm size is falling to uneconomic levels as families subdivide, and it is difficult to see where the production gains needed to meet growing demand will come.

Maize is king, but challenges abound. Maize is Kenya’s most important staple crop and up until the 1990s it produced a surplus, but production growth has not kept pace with population growth, resulting in a perennial deficit. Production over the period

2004-2008 was up and down but for the first four years grew at a respectable annual rate of 4 percent before falling ~20 percent in 2008 as a result of the post-election violence. Subsequent drought further hurt production and strained the strategic grain

EATH; “Staple Foods Value Chain Analysis and Market Assessment (Kenya)”; 2010.

12 REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

reserves. Fertilizer usage among maize farmers has increased, but cost remains a barrier to uptake at the smallholder level. Yields relative to the regional average are not terrible — Kenya’s five-year average yield of 1.7 MT/ha was almost 10 percent higher than the regional average — but relative to the global average and what is technologically possible they are incredibly low at 35 percent. With diminishing farm sizes, the prevalence of a maize monoculture and suboptimal fertilizer/input use, it is difficult to see how the situation will improve. The maize value chain is long, making it difficult to build formal links along the chain, and inefficient. On the processing end of the value chain there are 20 millers that account for roughly 85-90 percent of the market who rely almost exclusively on an extensive network of large, medium, and small traders to source from smallholders. The market has also been subject to unpredictable government pricing policies and allegations of corruption within the

National Cereals and Produce Board.

Everything else. In looking at the massive production shortfall in rice, it is clear that rice consumption is growing fast. Rice production in Kenya is 80 percent irrigated and is centered primarily in the Mwea Region. There is a significant yield differential between smallholders (4.7 MT/ha) and large producers (8.6-10 MT/ha). Production of beans increased 3 percent/year from 2004 to 2008; however, Kenya still relies heavily on Uganda to make up the shortfall. The beans value chain, unlike that of Ethiopia, which is formal and includes the country’s larger grain traders, is highly fragmented, with many small scale traders and aggregators, which limits opportunities for greater smallholder value capture. Pulses production in Kenya declined 1.5 percent over the five year period and its yields are significantly lower than both the regional and global averages; however, because the crop, which is primarily grown in the marginal soils of Kenya’s arid northern and eastern provinces, is harvested just ahead of India’s (the leading global market), good opportunities exist.

A2c. Malawi8

Maize production in Malawi has been the focus of recent international attention. Since the government of Malawi launched the Agricultural Input Subsidy Program (AISP) in 2005 the country has shifted from a maize deficit of 500,000 MT in 2004/2005 to a surplus of more than 1 million

MT in 2008/2009, which is helping to satisfy its neighbors’ food requirements. From the

2007/2008 season to the

2008/2009 season alone, maize production increased 43 percent from 2.63 million MT to 3.77 million MT and total production across the entire basket of staple foods (maize, beans, pulses, rice, wheat, sorghum, millet, groundnuts, and cassava) increased 31 percent from 4.4 million MT to 5.84 million MT. Exhibit 12 below highlights the significant

EATH; Staple Food Value Chain Analysis: Malawi Country Report, 2010.

Figure 12: Malawi's AISP has Helped Improve Yields of Key Staples

0.5

1.5

2.5

2004 2005 2006 2007 2008

Y ie ld

M T

/h a

Maize

Rice

Beans

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN 13

improvement in yields experienced for maize and rice since the introduction of the

AISP, although it must be noted that favorable weather over this period also contributed to those increases.

Despite the apparent success of the AISP, it should be asked how long the government of Malawi can sustain the costs, which in 2008/2009 amounted to 5.6 percent of gross domestic product. There is additionally a growing resentment among those farmers who do not “qualify” to participate in the AISP program, which reaches only a small percentage of farmers across the country. The rapid increase in production has also uncovered another glaring deficiency in the national staple foods value chain — insufficient or under-used storage capacity. Within the government’s support to the maize sector, only 0.2 percent of resources are committed to developing/improving storage capacity. Government intervention in the maize sector has also discouraged private sector investment in maize; however the government has made an effort to include private sector in policy discussions with establishment of the Grain Marketing

Advisory Council.

Other commodities. Beans and pulses, which are often intercropped with maize, also experienced strong production gains over the same period, increasing 37 percent and

20 percent respectively. Malawi is the second largest pigeon pea producer in eastern and southern Africa; pigeon peas accounted for 85 percent of the country’s total pulse production or 184,156 MT. However, yields, which average 0.9 MT/ha, are 50 percent of potential.

A look at cross-cutting issues. The study highlighted a number of cross-cutting issues, which will come as no surprise to anyone. They include: limited productivity arising from a low input-low output production system, fragmented production units, limited value addition opportunities for smallholders, no incentives for quality, and lack of harmonized standards resulting in poorer and poorer quality, high costs due to poor infrastructure, insufficient storage, insufficient hard assets among producers/traders limiting access to finance, informal/transactional nature of value chains resulting in higher costs, lack of information and inaccessibility of government agencies, and red tape making import/export difficult.

The issue of transport in Malawi is made even more difficult during the tobacco marketing season when demand for transport is higher than usual and therefore much more expensive, driving up the costs across all staples. This situation can last anywhere from 5 to 7 months, depending on the size of the crop.

Under the government of Malawi’s Food and Nutrition Security Policy (June 2005), the main focus was improved access to domestic, regional and international markets.

The policy also emphasized operational market information and the creation of transparent agricultural markets. This same focus was captured at the broader regional level in the African Union’s Arusha Declaration and plan of action on African

Commodities (November 2005) where the critical role of commodities exchanges was emphasized. Establishment of the Agricultural Commodities Exchange for Africa, a regional exchange platform, in 2006 helped deliver critical services that addressed these needs.

14 REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

A2d. Rwanda9

A challenging food security situation. Rwanda already has the highest population density in Africa, which means limited opportunities to expand the area under production. Combine that with a population that is growing at an annual rate of 2.9 percent and it is clear that food security is an issue that will continue to plague

Rwanda in the future. As it stands now, Rwanda is already heavily dependent on food aid, a trend that seems likely to continue. The government of Rwanda is actively addressing these challenges through the Plan for the

Strategic Transformation of

Agriculture II, which has as its lead objective the intensification and development of sustainable production systems.

Government programs led to a significant increase in maize production for the period 2007-

2008 as output increased from

80,000 MT to 170,000 MT;

however, even with the gains, Rwanda is still unable to meet its maize requirements.

Low production levels have meant that there is limited milling capacity. The large millers in Kigali process 61,000 MT each year, which is far short of the five-year

(2004-2008) average output of 110,000 MT and considerably short of 2008’s bumper harvest of 170,000 MT. Government efforts to address the staples deficit have also had an impact on rice production. Although the majority of rice consumed in Rwanda is imported, Rwanda is making use of valley land to increase its production. Between

2004-2008. the total area under rice production increased more than 50 percent;

meanwhile, total production has increased faster still (33 percent/year) as a result of yields that grew at an average 5 percent/year. The comparison of cumulative percentage increases in production and area under production contained in Exhibit 13 below indicate that Rwanda has made substantial productivity gains in rice.

Cross-cutting constraints highlighted in the study include: limited land availability, uneconomical smallholder farm sizes, limited market access (including rural road infrastructure), inadequately trained extension officers, and variable/unreliable rainfall.

A2e. Tanzania10

Tanzania’s staple foods sector suffers from under-investment in a variety of areas.

Expensive fertilizers lead to utilization rates that are less than half the average for

Sub-Saharan Africa. Additionally, less than 25 percent of farmers have access to extension services and of those with access, fewer than 50 percent attempted to implement the technical advice, which means that appropriate technologies and updated agronomic practices are either not reaching farmers or falling on deaf ears.

EATH; “Study on the Value Chain Analysis for Staple Foods in Rwanda, 2004-2008”; 2010.

EATH; “Tanzania Value Chain Analysis,” 2010.

Figure 13: Rwanda's “Smart” Rice Production

— Making Great Strides

10%

20%

30%

40%

50%

60%

70%

2004-05 2005-06 2006-07 2007-08

Cumulative Percentage Increase in Area under Rice and Rice Produced (2004-2008)

Cultivation

Production

Productivity-driven gains

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN 15

Both situations are equally discouraging. Outside of rice and wheat, production figures across key staple commodities fell from 2004-2008: maize production fell 5.8 percent, beans fell 6.4 percent, and pulses fell 7.3 percent. Production did manage to rebound between

2009 and 2010, and

Tanzania managed a fairly healthy surplus of rice and beans but was deficit in maize (see Exhibit 14 below).

Storage capacity is a serious issue in Tanzania, where the current warehouse receipt system (WRS) has between 300,000 to 400,000 MT of capacity. Consequently, smallholder post-harvest losses are substantial, and smallholders are often forced to sell soon after harvest, at rock bottom prices, to a virtual oligopoly of two to six price-making traders.

Key constraints at the sector level include: weak extension services with limited reach, limited village-level storage infrastructure, unrealized potential for the warehouse receipt system, and lack of information and transparency across the entire value chain.

A2f. Uganda

Uganda has a favorable climate with two cropping season and extensive and productive agricultural land. From 2000-2007, Uganda experienced a marked increase in food production although this was achieved mainly through increases in area under production and not yield improvements, which raises doubts about the sustainability of production growth rates.

Unlike Kenya and

Tanzania, maize is not

Uganda’s primary staple and is therefore grown primarily as an income earner. As a result, there is typically a significant surplus. Consumption accounts for only 32 percent of local production, which is usually exported to neighboring Kenya, although Southern

Sudan is becoming an increasingly important export destination. Estimates put

EATH; “Market Assessment and Baseline Study of Staple Foods: Uganda,” 2010.

Figure 14: Tanzania: A Mixed Bag in Terms of Surplus and Deficit

50%

100%

150%

200%

Maize Rice Beans

C o n s u m p ti o n a s a P e rc e n ta g e o f P ro d u c ti o

Deficit

Surplus

Figure 15: Strong Production Growth in Rice but Decreasing Productivity Gains

5%

10%

15%

20%

25%

30%

35%

40%

2004-05 2005-06 2006-07 2007-08

Cumulative Percentage Increase in Area under Rice and Rice Produced

Cultivation

Production

16 REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN

Uganda’s annual maize export potential at between 200,000-250,000 MT; however, its performance generally falls well short of this, as supply is unreliable and quality issues — particularly moisture content — constrain regional demand. As with other staples, maize production is characterized by low yields (Uganda lags the regional average and has been static for five years), which drive up unit costs and hurt farmer returns.

Rice production in Uganda increased dramatically in the period 2004-2008, primarily as a result of the rapid adoption of rain-fed “upland rice” varieties. Production increased at an average annual rate of 9 percent for the period 2004-2008, while area under production grew at a slightly lower rate of 8.3 percent, indicating marginal yield increases. However, as Exhibit 15 below reveals, productivity gains, which were significant early in the period, are slowly shrinking.

A2g. Zambia 12

Maize is Zambia’s main staple commodity and as a result is very political.

Throughout the 1980s, Zambia, due in large part to producer subsidies, produced an average of 2 million MT a year, which was generally sufficient to meet domestic demand and provide a surplus. Total production has fallen of late and, as Exhibit 16 below reveals, is fairly volatile and occasionally falls short of domestic requirements.

For the period 2004-2008, Zambia averaged a modest deficit of 3,800 MT. What is particularly interesting about the chart below is the tightness between production and consumption. This is often attributed to the government of Zambia’s maize export ban, which is a disincentive to production and investment in the sector, as there is a price penalty for producing a surplus, which is inevitably borne by farmers. Although the government of Zambia’s position may be suppressing production and placing undue pressure on the country’s food security, it is at least understandable, given the huge demand for maize from neighboring Zimbabwe and the potential for production to move cross-border and increase deficits.

Exhibit 16. Consumption and Production: Little Margin for Error

EATH; “Staple Food Value Chain Analysis: Zambia Country Report,” 2010.

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2004-05 2005-06 2006-07 2007-08 2008-09

M il li o n s o f

M T s

Production

Consumption

Surplus / Deficit

REGIONAL STAPLE FOODS TOOLKIT AND IMPLEMENTATION PLAN 17

Despite strong growth in demand for rice (20 percent/year for 2004-2008), it is still a marginal crop that is mainly consumed in months when maize stocks are low.

Production has kept pace with growth, but Zambia still imports an average of 11,000

MT/year, indicating there is sufficient runway for production growth.

A3. Regional Value Chain Survey

Directly engaging the value chain to better understand the critical issues. To complement its assessment of national value chains and further test its strategic priority hypotheses, EATH surveyed 154 value-chain participants in the following six countries: Kenya, Uganda, Rwanda, Malawi, Zambia, and Tanzania. The surveys asked respondents to evaluate 41 critical issues/constraints across two criteria, importance (from their perspective in the value chain) and performance (from a national sector perspective).

Th…