Economists say Africa is emerging as next major grain market for the U.S.
Africa’s rapidly growing population, accelerating urbanization and rising demand for vegetable oils and animal protein are positioning the continent as one of the most promising new grain and oilseed markets for U.S. growers, according to two agricultural economists who are closely tracking global trends.
During a Jan. 6 episode of Kansas State University’s (KSU) Agriculture Today podcast, Peter Goldsmith, director and principal investigator of the University of Illinois’ Soybean Innovation Lab, and KSU IGP Institute Senior Economist Guy Allen highlight why Africa could become a key destination for U.S. soybeans and other grains in coming years.
Increased demand
To begin, Goldsmith notes interest in African markets dates back to 2012 when U.S. government officials and industry leaders began examining opportunities to develop soybean markets in sub-Saharan Africa, where demand at the time accounted for less than one percent of global consumption.
“Back then, demand was very weak, palm oil dominated the market and most countries outside of South Africa were closed to genetically-modified (GM) crops,” he says. “Things have advanced dramatically since then, in partnership with a lot of U.S. companies.”
“Sub-Saharan Africa in particular has seen a lot of high growth and opportunity, and they want to invest directly in soybean market development,” he adds.
Additionally, both economists mention Africa is expected to experience the fastest population growth in the world over the next several decades, and while much of the continent remains rural, urban populations are growing at more than twice the rate of rural ones.
Allen points out this shift has significant implications for food demand.
“As populations become more urban, disposable income grows and diets change,” Allen states.
He explains, while palm oil remains dominate in the region today, urban growth will likely fuel demand for soybean oil as a food ingredient, gaining market share as reliance on imports increases. He also believes demand for soybean meal as a feed component for poultry and egg production will increase as well.
Goldsmith agrees this shift will increase soybean imports into Africa, as the country’s domestic production is already having trouble keeping up with demand.
In fact, he says processors across the region are operating at roughly only 50 percent of capacity due to limited supplies.
“They’re trying to find every soybean they can, and the gap is being filled by imports,” Goldsmith says.
Key markets
To better understand market potential, Allen and Goldsmith mention they examined the comparative advantages of four African countries – Egypt, Ghana, Nigeria and Tanzania.
“Egypt is currently the largest importer of soy products in Africa,” Allen explains. “It is fairly evolved and sophisticated and what I would call a mature market.”
Ghana and Nigeria – both located in West Africa – offer U.S. exporters a transportation and logistical advantage, and Tanzania, while less developed, reflects conditions common in many emerging African markets.
Allen goes on to explain market access varies by country, with availability of hard currency, port infrastructure and trade institutions playing a critical role.
He says Ghana, Nigeria and Egypt generally have sufficient currency reserves and port capacity to handle bulk grain imports, while other countries face more constraints.
He also notes tariff structure differs across countries, as some impose higher tariffs on processed products such as soy oil and meal to encourage domestic processing while leaving whole soybeans generally untaxed.
Major obstacles
Despite the African market’s growth potential, challenges remain.
“Africa is unfamiliar. The general public doesn’t tend to travel there often, so there isn’t a lot of commercial trade,” Goldsmith says. “Commercial norms and practices are new and different, which is a hurdle, but it’s not one that is uncommon in trade and/or unique to Africa.”
A significant and unique challenge, however, is the country’s tight policy on GM crops. While South Africa allows GM products, many African countries historically have not.
Goldsmith says progress is being made in countries like Kenya, Ethiopia, Nigeria and Ghana, but broader acceptance is essential for large-scale commodity trade.
“For U.S. growers, the market has to be open to GM soybeans and corn,” he says. “Commodity markets don’t work well when products are differentiated and restricted.”
Technical knowledge is another barrier, according to Allen, who says training processors on how to efficiently use soybean oil and meal is critical to shifting the industrial standard away from palm oil.
He further notes organizations such as the U.S. Soybean Export Council and the Soybean Innovation Lab are working to provide this kind of education through programs like Soy 360.
Strategic importance
To wrap up, both economists emphasize the strategic importance of gaining access to Africa as the U.S. looks to diversify export markets amid reduced Chinese demand.
China currently accounts for more than 60 percent of global oilseed trade but has increasingly sourced soybeans from South America.
“The opportunity I see in Africa is we’re not competing over a portion of an existing pie,” Allen states. “Africa is new demand so the pie is getting bigger, and from a marketing point of view, when we’re in a growth situation like this, it’s a lot easier of an environment to establish a presence and be competitive than if we’re fighting over an existing or shrinking piece of the pie.”
Goldsmith adds Africa’s long-term potential could rival or exceed China’s market in the future, provided U.S. agriculture invests early in understanding and developing the market.
“This is a fast-growing import market where the U.S. has a comparative advantage,” he says. “The fundamentals are there, and they’re playing out in ways we’ve never seen before.”
Hannah Bugas is the managing editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.
