Nairobi, 15th July, 2014. Presentation by Joseph Lamon Rutten (CTA) on Day 1 of the Fin4Ag conference.

1. Opportunities for value chain
finance in Africa’s
intra-regional food trade
Lamon Rutten
CTA Revolutionising finance for
agri-value chains
Nairobi, 14-18 July 2014

2. Overview
• Overview of Africa’s food production,
consumption & trade flows
• Value chain financing in Africa’s
agricultural & food sector
• Recommendations to boost
financing of Africa’s food value chain
Based on a report done for AFRACA and CTA
by

3. Overview of Africa’s food production,
consumption & trade flows
Sub-Saharan Africa is a major food producer
Leading producers of grains, roots & tubers, 000s MT, 2012

4. 0
1,000
2,000
3,000
4,000
5,000
6,000
Sugar Nuts Cocoa Palm oil Coffee & tea Cotton
Côte d'Ivoire South Africa Nigeria Kenya Ghana Cameroon
Ethiopia Mozambique Zimbabwe Zambia Uganda Tanzania
Leading producers of cash crops, 000s MT, 2012

5. But there has been under-investment in
African agriculture
Source: Deutsche Bank, Agricultural
value chains in Sub-Saharan Africa,
14 April 2014

6. The potential of African agriculture is
huge

7. Food dominates rural and urban
household budgets
71%
0%
5%
12%
5%
1%2%1%3%
Food & non-alcoholic beverages
Alcoholic beverages & tobacco
Clothing & footwear
Utilities
Furnishing & household
equipment
Health
Transport
Recreation & education
Miscellaneous (incl. telecoms)
Rural versus urban food consumption in Nigeria, 2012
54%
0%5%
22%
4%
1%
5%
1%
8%
Rural households buy on average 30% of what
they consume.

8. Africa is heavily dependent on food imports
• In 2011, SSA imported US$ 43 bn worth of
agricultural commodities while exporting US$D 34
bn worth
• The value of agricultural exports from Thailand is
greater than that of the whole of SSA
• Imports of key staples – rice, fish, wheat, sugar,
flour, palm oil, dairy products & maize – was US$
25.2bn in 2012 (60% of SSA wheat & flour
consumption & 40% of its rice consumption)
• Fish imports: US$ 3.9 bn, as Africa allows others
to empty its seas.

9. There is a thriving intra-regional food trade,
but most of it is off the radar
• Vast quantities of rice, sugar, flour and cooking
oil are imported and then re-exported into
neighbouring markets, many of these flows
passing through illicit smuggling networks
• Informal flows are critical to Africa’s food security,
and they are likely to be at least as large as
official flows, and in the case of East Africa could
be several times larger
• Numerous policy obstacles prevent this trade
from becoming legal – import duties out of synch,
physical trade blockages.

10. Urban food markets are set
to quadruple and the food
and beverage markets to
reach US$ 1 trillion by
2030. The region’s biofuel
market is also growing.
Surging urban markets drive food
demand
In countries like Côte d’Ivoire or
Mali, the size of the local food
market is already more than double
the size of agricultural exports.

11. Per capita food consumption levels are
bound to rise
Consumption of sugar & palm oil, kg per capita, 2012
Sources: World Bank, ISO, FAOSTAT, Ecobank Research.

12. • McKinsey: Africa’s middle class (US$1,000-5,000 per
year) will surge from 39% of the population in 2005 to
55% in 2015
• BAML: expenditure on food in Accra, Lagos and
Nairobi will rise from US$ 2bn in 2012 to US$ 6.7bn in
2022
• Demand is shifting towards meat, dairy, and fruit and
vegetables, most of which are now imported into
Africa; as well as fast foods, increasing dependence
on imports of wheat and sugar. Rice demand will
remain high.

13. Value chain financing in Africa’s
agricultural & food sector
Finance is least available at the beginning of the chain

14. Most banks start financing once
commodities are in a warehouse
So a network of warehouses would be the logical entry
point for regional food trade financing…
Unfortunately, warehouse systems, regulatory regimes
for the issuance of warehouse receipts and collateral
management services are poorly developed.
Pre-production finance requires good records of
production in past years.
Trading houses are becoming shadow banks.

15. The benefits of an
ectronically-linked
warehousing network
• links the financial and
commodity sectors, at all
levels (from farmer to
enduser/exporter)
• permits large efficiency
gains
• strengthens the
bargaining position towards
further-up parts of the value
chain.

16. Recommendations to boost financing
of Africa’s food value chain
• Build value chain financing;
• Facilitate mobile payments;
• Promote new trade corridors; and,
• Create commodity exchanges (which include
warehousing infrastructure)
• Warehouse receipt finance and collateral
management

17. Source: KPMG, based on Calvin Miller, FAO.
Business models for inclusive
agricultural value chain financing

18. Developing mobile money
• Greatly reduces theft and embezzlement.
• Reduces transaction costs
• Permits new and innovative food financing
structures along the value chain

19. Develop new trade corridors
• The flow of agricultural goods from surplus to deficit
regions has to be facilitated
• Improve infrastructure, and remove obstacles to the
movement of goods.
Proposed regional &
coastal trade corridors

20. Commodity exchanges
The creation of commodity exchanges could bring huge
benefits to Africa’s agricultural value chain and facilitate
intra-regional food flows:
•catalyst for engaging smallholders and integrating them
into the value chain
•Improve agricultural prices and reduce wastage (ie,
reduce food prices for consumers)
•By building a warehouse receipt system, links farming to
finance
•Trusted backbone for long-distance trade.

21. Warehouse receipt finance and collateral
management
•
Warehouse receipt finance and collateral management:
• Help reduces losses of agricultural produce
• Allow farmers and traders to secure financing, including
for inputs
• Facilitate food trade.
But warehouse receipt and collateral management
systems are weak in Africa. Is the creation of a pan-
African collateral management companies, owned by
African banks (as per Latin American model) a solution?

22. Questions?
www.fin4ag.org
Thank you for joining
us in Nairobi!