So, sow soy
Soybean, a member of the pea family that was first domesticated over 2,000 years ago in China, has incredible nutritional qualities. It boasts high potassium, fiber, and iron content, and consists of about 30% carbohydrates and 36% protein. Its protein content is particularly impressive, as this 36% figure means that soybeans have 40% more protein by weight than beef. About 20% of the weight of a soybean is oil, which is extracted and used widely throughout the world.
Soy’s ecological and agricultural qualities are as impressive as its nutritional ones. Soybeans have the ability to source nitrogen from the atmosphere through a process known as nitrogen fixation. This reduces their agricultural impact on Africa’s degraded soils and the need for nitrogen fertilizers, which are often out of reach for many African farmers, due to short supply or high prices.
Furthermore, soybeans have been shown to help in the fight against the striga weed. Striga has infested more than 50 million hectares of sub-Saharan African land, causing annual losses of $1 billion. Striga particularly devastates corn, millet and sorghum—staple food crops whose production is absolutely essential to countries across the continent. When soybeans are grown in rotation with corn, they are very good at preventing or controlling the parasitic weed. Studies have estimated that corn grown following a soybean crop can experience a yield increase of 0.4 to 3.5 tonnes/hectare, or 40-350%.
Soybean demand has been on a steady rise for more than a decade, and currently demand is estimated to exceed supply by over 40 million tonnes. This gap has naturally meant that prices have been on the rise. Since 2000, the global average price for soybeans has increased by more than 90%. Much of this market growth has been due to growing demand for animal feed. Roughly 70% of all protein animal feed comes from soybean meal. As rising global incomes push up the demand for meat, the demand for animal feeds like soymeal is also increasing.
The opportunity is ripe, and largely untapped, for soy in Africa. The continent dedicates less than 2 million hectares to growing soybeans—less than half the amount of land used for growing sesame seed. Further, most of sub-Saharan Africa’s soybean farmers are achieving yields that are just 30% of the crop’s potential. The opportunity is therefore ripe for Africa to fill the global supply gap. Not only will producing more soybeans be a revenue generator, but it will also save sub-Saharan Africa a significant amount of money, as the region spends about $1.5 billion annually on imported soy products (bean oil and soymeal).
Africa’s soybean position
Countries across Africa have begun to exploit this opportunity, as all major regional producers have increased production in the past decade. The most significant players in Africa are: South Africa, 785,000 tonnes produced in 2013; Nigeria, 600,000 tonnes; Zambia, 261,000 tonnes; Uganda, 190,000 tonnes; and Malawi, 112,000 tonnes. Since 2000, Africa’s soybean production, 87% of which is from the 5 aforementioned countries, has increased by 135%—nearly double the global average of 71%.
The rate of growth amongst these countries has not been uniform. Of the current top 5 producers on the continent, Nigeria and Uganda have undergone relatively slow growth, registering 40% and 48% respectively; while Malawi, South Africa, and Zambia have seen explosive growth of 138%, 411%, and 822%, respectively.
The majority of this growth has come from a massive expansion in the area dedicated to soybean cultivation. Malawi, South Africa, and Zambia expanded acreage by 117%, 451%, and 652%, respectively, while Nigeria has only 16% more soybean farmland today than it did in 2000.
Another important difference amongst these top producers is yield. Of these 5 countries, only Zambia and South Africa have ever been able to achieve yields of 2 tonnes/hectare in a good year—their yields since 2000 tend to have averaged around 1.6 tonnes/hectare (Brazilian yields, by contrast, averaged 2.5 tonnes/hectare over the same period). Nigeria, Africa’s largest producer until 2009, has only managed to achieve average yields of .9 tonnes/ hectare over the same period.
By comparing the soybean markets in Nigeria, Zambia, and South Africa, it becomes apparent what is necessary for farmers in the continent to better respond to market demands and achieve success.
In Nigeria, the average soybean farm is 1.64 hectares. These small-scale farms typically rotate soy with other food crops, and generally achieve low yields.
The growth in Nigerian soy demand has been driven by the poultry and vegetable oil sectors. This has especially been the case since 2006, when the government, in an effort to encourage domestic industries, banned the importation of both refined vegetable oil and poultry. Consequently, the demand for domestically produced soybean oil shot up, as did the demand for soybean meal and feed products. To a lesser extent, demand grew as the consequence of naturally increasing consumption. Nigeria is somewhat unusual in the regard that human soybean consumption takes a number of forms: not only is it consumed in the form of oil, but it is consumed as a type of tofu, or soy cheese known as “wara,” and it can also be mixed into the traditional food, gari to increase its protein content.
However, soy production in the past decade has not risen with demand. In fact, it was stagnant for several years before dropping in 2010, and only in 2013 was it at a similar level to that of 2006. Nigerian soy processing capacity is already strong: capacity currently exceeds production. However, only about 40% of produced soybeans are processed into oil or meal. Not all Nigerian soy consumption is in the form of processed products, but more importantly, the beans that processors acquire from middlemen are often unusable because of poor quality. This further exacerbates challenges such as old equipment, limited access to capital, and prohibitive energy and transportation costs.
As a result of the policy changes and Nigerian industry’s inability to keep up, Nigerian soymeal imports have increased by 348% between 2006/2007 and 2014/2015, from 27,000 tonnes to 121,000 tonnes (NB: Laws around the importation of crude vegetable oil were loosened in 2014).
The failure of the domestic industry to respond to increased demand demonstrates the importance of effective market linkages. An estimated 96% of Nigerian soybean farmers do not have direct access to processors and depend on middlemen to provide that link. This inefficiency has negative effects for farmers and processors alike.
The most significant similarity between the Zambian and Nigerian soybean markets is the need in both markets for soymeal to support a growing poultry sector. In Zambia, about 89% of all consumed soybean goes to the production of animal feed. Most of this goes towards the rapidly growing poultry sector, which boasts an annual growth rate of about 20%.
Beyond this similarity, however, the soybean production environment in Zambia is vastly different from that of Nigeria. Whereas smallholders dominate Nigerian production, commercial farmers are responsible for over 85% of Zambian production. These farmers, who operate on farms ranging from 20 hectares to several hundred hectares, are often able to achieve yields in excess of 2.5 tonnes/hectare.
Also unlike Nigeria, Zambian producers have strong ties with processors, which helps to create an efficient value chain. Soy marketing is made easier by the scale nature of commercial farming, as well as the integration of livestock rearing with the production of animal feed: most soymeal and animal feed producers in the country are also major livestock companies. Zambia’s largest soybean processor, Zamanita, is a subsidiary of Zambeef, the country’s largest beef producer, which also has significant poultry operations. Zamanita has the capacity to process 25% of total Zambian soybean production and it also has 30% market share in oil production.
Zambia’s integrated value chain has contributed to substantial increases in national soybean and soymeal production. Since 2006, when Nigeria banned poultry and retail vegetable imports, that country’s increase in soymeal production has been negligible, while imports have grown by 270%. During the same period, Zambia increased soymeal production by 330% and imports of soymeal were close to zero.
Although for much of the past decade farmers in Zambia struggled to achieve profitable margins, due to high input and transportation costs and uncertain export policies, locally grown soybeans are now competitive against imported ones.
Responsible for more than one-third of African production, South Africa has, since 2009, been the continent’s top producer. Despite this, South Africa is a major importer of soybeans, and Africa’s top importer of processed soybean products. Traditionally, South Africa has sourced these imports from 2 of the world’s top 3 producers: 90% of its soymeal comes from Argentina, and 94% of its soybean oil comes from either Brazil or Argentina.
Much like in Nigeria and Zambia, growing South African soy consumption is driven by the demand for livestock meal. About 60% of the South African crop is processed for animal feed, largely for poultry. Historically, South Africa has been a net importer of soymeal. This is likely changing: in the harvest that ended in February 2014, South Africa produced a record (for Africa) 944,340 tonnes of soy. Within South Africa, prices of locally produced soy are becoming increasingly competitive, so that it makes less sense to import the product. In February 2015, the price of domestically produced soy was about $437.51 versus a cost (including logistics) of $521.91 for imported American soy, $558.99 for Argentinian, and $490.85 for Brazilian.
According to an earlier statement from an economist at Grain South Africa (Grain SA) to Bloomberg News, production in the 2015 season is likely to surpass the 1 million tonne mark. Extreme heat and dry conditions in North West Province and in the Free State—both significant producers of soybean—may negatively impact total production and that forecast. A later statement from Grain SA, published on February 12, stated that rainfall levels in the subsequent two weeks would be critical in determining the health of the crop, and indeed “the fate of South African food prices over the next 12 months.”
Ninety-eight percent of South African production is by commercial farmers (with an average 1,200 hectares) and this production is supported by a highly developed agro-processing sector. This sector is similar to that of Zambia. Not only is marketing easier, but the majority of processing is undertaken by animal feed and livestock producers, as opposed to general oilseed processors.
The sector has seen excellent growth, with soymeal production increasing by 400% since 2006, and imports decreasing over this time period by 27%. The country is becoming increasingly self-sufficient in all aspects of soybean production, as it continues to expand its processing capacity. The RussellStone Protein facility in Bronkhorstpruit (east of Pretoria), has been open for over a year, but is not yet fully operational and as a result is not crushing at capacity. Once it is operational, it will be able to process 240,000 tonnes of soy each year, which will increase the country’s total capacity by about 30% (This is also equal to the total amount of soy processed in Nigeria each year).
Farmers across South Africa, like those in Zambia, have struggled to make attractive profits from soybeans, but this situation may now be changing. Although soybean and soymeal prices declined by 13% and 8.4% in 2014, respectively, this was a much gentler decline than the 24% drop of white corn. Relatively stable prices and rising demand are making soybeans more appealing, and farmers have responded by planting a record area of soybeans this season. The area dedicated to soybeans will be 620,300 hectares, a 23% increase, while the area for corn will drop by 1.2%.
Soy Africa Nairobi-based, 80-tonne per day soy processor, has experience in dealing with many of the problems facing the African soybean sector. Soy Afric sources its soybeans from all over Africa, including from top producers Uganda, Malawi, and Zambia. According to Soy Afric’s General Manager, David Muriuki, securing sufficient and consistent supplies of soybeans is a constant challenge. The firm is unable to source from top producers Nigeria and South Africa: prohibitive logistics costs prevent imports from Nigeria, and Kenya’s anti-GMO laws prevent any importation from South Africa, where the vast majority of soy is genetically modified. Underfunded farmers in Kenya and the region more broadly lack access to quality seeds, which curses them either with very low yields or an inability to cultivate soybeans altogether. This is despite the fact that soy has a high potential for success in the country (soy potential is also strong in Rwanda, Tanzania, Angola, and Mozambique). A more robust soy seed market in Kenya would not only help to increase farmer incomes, but it would also help maize farmers in particular to tackle a costly, deadly crop disease. Maize lethal necrosis (MLN) has repeatedly devastated the Kenyan corn crop, and one relatively easy way to help manage MLN is through crop rotation. Rotation with soy, which also happens to be a nitrogen-fixing crop, would make sense for many of the affected farmers.
By practically all accounts, soy demand is slated to continue growing in the coming years. African farmers and processors, therefore, have the potential to fill a lucrative supply gap. Before this can happen efficiently, a number of the African producers will have to make some changes.
The first of these is the need to strengthen the linkages within these value chains. As demonstrated by the situation in Nigeria, there can be a major disconnect between farmers and processors, especially when these farmers are small-scale. Both parties lack access to the financing that could help them to do better: farmers do not have the ability to buy yield-enhancing inputs, and processors are unable to buy new, more efficient equipment.
Even in countries with strong market linkages like Zambia and South Africa, there are other weaknesses, such as poor energy and transportation networks. As commercial farmers attempt to make soy farming profitable, transportation and energy bills cut into margins. In South Africa, for example, energy costs have been cripplingly high, and businesses are struggling to grapple with power shortages. Businesses have been forced to suspend operations during peak hours, as the state power provider Eskom cut 2,000 megawatts of power due to a constrained grid as recently as February 26th.
Until low transportation costs and dependable infrastructure are a consistent reality in sub-Saharan Africa, the region’s soy producers will struggle to become major forces on the global market.