CTA
Small fontsize
Medium fontsize
Big fontsize
English |
Switch to English
Français
Switch to French
Filter by Agriculture topics
Commodities
Regions
Publication Type
Filter by date

Corporate alliances target soft commodity trade in southern Africa

04 December 2011

In October, a joint venture was announced between Bunge, one of the top five global soft commodity trading companies, and the South African group Senwes, South Africa’s ‘second largest diversified agricultural group’. The aim of the joint venture is to strengthen collaboration in ‘the procurement and marketing of grain and oil-seed operations in South Africa and other countries on the continent’. The joint venture ‘to develop grain and oil-seed operations in South Africa was approved by the Competition Commission in September [2011]’.

This venture forms part of a trend in South Africa towards the local consolidation of agribusiness companies, enabling them ‘to compete and stay relevant in the world food value chain’. Senwes is planning further local consolidation as well as a geographical expansion of its operations, beyond its current presence in Malawi, Zambia and the northern region of Mozambique, to include Zimbabwe and even, ‘very carefully and cautiously’, parts of East Africa. François Strydom, Managing Director of Senwes, said the group expects ‘the growth of primary production of soft commodities to continue moving north to more efficient areas of production, given that the political and legal frameworks in these regions allow for commercial transactions.’

The production implications of the growing corporate focus on developing effective soft commodity supply chains can be illustrated by a recent IRIN report on Zimbabwe, which highlights how smallholder farmers are now favouring tobacco over maize because of the better payment arrangement for tobacco, compared to the state-run Grain Marketing Board’s payment performance and the contractual arrangements being set in place linked to the supply of necessary inputs by the tobacco purchasing companies.

This needs to be seen against a background of moves over towards ‘contract farming’, similar to those initiated with Olam in the cotton sector. According to MD Ramesh, president and regional head of South and East African operations, ‘ultimate success for the agricultural sector [lies] in partnerships between and among the public and private sectors’.

Further north in the region, smallholder farmers in Tanzania are complaining about the basis for price formation, which often leaves them with low prices that  scarcely cover production costs. This situation has been compounded in recent years by rapidly rising input costs (fertiliser prices have risen by between 74% and 132% since 2008, compared to only a 58% increase in maize prices). At a national workshop organised by Mviwata, a small farmers’ network, calls were made for government to support the establishment of effective marketing arrangements for smallholder farmers, including better market information systems and some level of ‘price protection’. 

Editorial comment

Moves towards contract farming and the consolidation and expansion of the activities of South African-based agribusiness giants are likely to increase the need for an effective regional competition policy across Eastern and Southern Africa. However progress in this area remains slow, given limited national capacities.

This trend is also likely to increase the need for the elaboration of policies and policy tools to strengthen the functioning of supply chains, in the context of an acute imbalance of power within agricultural supply chains. While in some countries limited initiatives are under way to use various policy tools to rebalance power relationships, more generally this is likely to prove a difficult area for the elaboration of operationally effective policies.

In the short term, this is likely to leave governments making use of traditional trade policy tools, which sit uneasily with regional trade policy commitments. In some countries it may give rise to the arbitrary and non-transparent application of policy tools. This suggests a need for a regional dialogue on strengthening the transparency and predictability of the use of these policy tools.

Comment

Terms and conditions