Maize Value Chain in the SADC Region

This report synthesizes current available information for the Maize Value Chain in the Southern African Development Community (SADC). It identifies issues regarding the end consumer, supply and demand as well as trade issues. It also addresses issues regarding smallholder contributions to maize production in SADC. As South Africa is the largest producer of maize with the most developed market, the South African value chain information may serve as a benchmark for other countries in SADC.

Africa, and specifically SADC, has become more globalized and interdependent on the world economy. SADC is characterized by rising economic growth and income per capita and increasing levels of urbanization. This implies changes in consumer consumption patterns towards higher value foods. It is also tied into the global economy, which makes it sensitive to the market opportunities created by increasing global demand for maize as well as to the volatility of global prices.

Maize remains crucial for food security in Southern Africa, accounting for an average of 36% of all caloric intake in the region. The predominance of the crop in farming systems and diets implies that yield gains have the potential to jump-start a significant improvement in nutrition which can be compared to those experienced in Asia for rice and wheat.

A high level of volatility in annual production is due to climatic conditions that can vary from one season to the other. Maize is produced under rain fed conditions, making it an especially vulnerable crop. Overall, productivity in the region (excluding South Africa) has stagnated, depending on increased area under cultivation to lead to increases in production.

The policy environment regarding staple grains is highly unpredictable and creates uncertainty with value chain stakeholders, leading to problems with commitment from the private sector to develop agricultural markets and depriving smallholders of services and markets.

The trading environment is characterized by a lack of harmonization in cross-border trade, standards and significant non-tariff barriers such as domestic regulations. Administrative procedures imposed to ensure food security, product safety and address environmental issues are distorting the trade of goods, services and factors of production. This environment creates an uncertain investment climate, often creating a disincentive to private sector actors to make significant investments.

Driving change
In order to stimulate changes in maize productivity and increase benefits for small farmers, there must be an increase in the formalization of the marketing channels and a change in the structure of production. The common characteristics of primary maize production in the SADC region are small farm sizes, low yields, large post-harvest losses and fragmented marketing channels. The major opportunity for increasing productivity in commercialized maize will derive from a formalization of the marketing channels.

Improving the availability of accredited storage facilities and stimulating investment by lead firms in the region will improve logistics, access to inputs (hybrids, fertilizers and crop protection products) and use of good agricultural practices leading to increased productivity. Leading characteristics of a more formal commercial marketing system include:
1. Commodity exchanges, including futures and options markets, enabling farmers and marketing agents to reduce risks of current and future investments;
2. A network of integrated silos, millers and supermarket retailers, often with transnational firm ownership;
3. Market information accessible on a daily basis, some of which is public, and some of which is proprietary, providing asymmetric information advantages for those willing to pay;
4. Large transaction volumes, which enable transaction costs to be spread over greater quantities traded, hence reducing per unit marketing costs;
5. Well-defined grades and standards to allow for remote contracting by commodity specification rather than by visual inspection;
6. Legal systems to accommodate more sophisticated contracting arrangements and facilitation of contract disputes; and
7. Organized lobbies representing firms widely perceived as having a legitimate interest and voice in the determination of regulations governing agricultural markets.

Not all of these elements are within the Southern Africa Trade Hub's (SATH's) scope. However, the recommended point of intervention is to start with improved storage systems as the main point of leverage, which will reduce post-harvest losses, improve aggregation of product for larger transactions, act as a point for instituting improved grades and standards and provide access to finance through inventory credit schemes (including warehouse receipts). SATH's work in grain warehousing will not only impact the maize value chain, but will also be leveraged across other cash crops, such as soy, groundnuts, and cotton, for which storage, transportation and crop financing are needed.

The recommended approach for SATH is to work primarily with private sector associations and service providers to build the capacity of local service providers, create linkages between providers and seekers of services, improve access to the latest technologies, introduce private sector models to improve the management of the value chain, increase access to finance and seek opportunities to support outside foreign investment.

In policy advocacy work, we will focus primarily on empowering the private sector to advocate with national governments and the relevant regional economic communities (RECs) on those high priority constraints that will be realistically tractable over the life of the project. We will work with existing groups such as the Agricultural Business Chamber and Grain SA, and explore the development of a regional organization such as the Southern African Grain Council.

Recommended activities to drive formalization fall into three major categories:
1) Development of warehouse and storage networks
a) Facilitate the establishment of warehouse networks across the key maize-producing countries of Zambia, Malawi and Mozambique.
b) Assist implementation of a warehouse receipt system in those same three countries which will increase demand for warehouse storage, increase the liquidity of the farmers and build the basis for price risk management services.
c) Facilitate improvements in grain transportation and handling – especially bulk -- in the SADC region.
d) Encourage investment in commercial production, storage, transport and services.
e) Develop partnerships with both South African and U.S. firms, industry associations and government agencies involved in the maize value chain to help them extend trade, investment and other services into SADC.

2) Improved access to production, marketing, and trade finance
a) Develop better information on opportunities in maize value chain investment (e.g. inventory/analysis of grain storage options in SADC). Organize buyer/seller missions and participation at major trade shows (e.g. NAMPO) that will bring greater access to markets, technology and finance for producers.
b) Improve market price information services, and more price transparency, through support of commodity exchanges with a regional focus.
c) Promote development of yellow maize as commercial cash crop as a feedstock into animal feed.

3) Policy Advocacy
a) Work with both farmer groups and the Agricultural Business Council of South Africa to mobilize SADC-wide stakeholder support of policy measures to support trade and investment in maize production and marketing.
b) Encourage adoption of conventional and genetically modified (GM) certified maize seed.
c) Continued work on the cross border transport constraints that increase the cost of inputs and services into the region.