KELVIN KACHINGWE, Lusaka
ONE of the biggest success stories of the Zambian agriculture sector is probably Zambeef Products Plc, one of the largest integrated agribusiness and food processing companies capable of holding its own even in the region.
Zambeef is principally involved in the production, processing, distribution and retailing of beef, chicken, pork, milk, dairy products, eggs, stock feed and flour. The group also has large row cropping operations involving principally maize, soya beans and wheat, and plants 16,500 hectares in summer and 8,000 hectares in winter.
The company is said to slaughter around 70,000 beef cattle, 6.75 million chickens and 70,000 pigs per annum, while also processing 16 million litres of milk, producing 150,000 tonnes of stockfeed, 60 million eggs, 78,000 pairs of shoes and processes 97,500 hides in its tannery per year.
It has 187 retail outlets throughout Zambia and west Africa.
It is the stuff of envy.
In the seventies and eighties, there was a policy by the government of encouraging people to go back to the land.
This is how settlements like Kanakatampa and Kasenga came about.
Andrew Sardanis lives near these areas and he writes about them in his book Zambia: the First 50 Years.
“I have been in the area since it began so I can see the difference land makes to the life of people,” he says.
“The farmers around me are not rich. But they work hard and they make a living. They feed their families and they send their children to school and they are able to meet secondary school costs, away from our area where we only have basic schools.
“Kasenga and Kanakatampa and the many other similar settlements around the big cities and towns of Zambia began slowly but they have worked and they are working. Lusaka is within reach for the vegetables, potatoes, onions and sweet potatoes and chicken and goats that people produce, also for the beef and milk, which they mostly sell directly to consumers, which makes it beneficial to both sides: the farmers make more money and the consumers save because the prices are lower than they are in shops.
“But the mainstay of peasant agriculture is maize and the acreage is increasing every year. But in order to move to the next phase of development, agriculture needs financial attention.
“There are plenty of financial institutions in the country, big and small; but the small commercial banks are focusing on the same commercial and industrial sector that the big banks cover. If they turn their attention to small farmers, they will make more money.
They can charge higher rates, which will make more profitable even after the inevitable higher debt delinquency they will face. But they can mitigate that risk too if they team up with implement suppliers.”
Indeed, unlike Zambeef, the majority of farmers in the country are peasant and unable to process most of the foods that they process.
A collaborative project between two universities in Denmark, Copenhagen Business School and Roskilde University and three universities in Africa, the University of Dar es Salaam, Tanzania, University of Nairobi, Kenya as well as the University of Zambia, studied 38 Zambian firms in the food processing industry.
Under the project called the Successful African Firms and Institutional Change (SAFIC), they surveyed Zambian food processors that operate in grain milling, diary, edible oils, juices, jams and sauces.
The food processors are mainly located in Lusaka and the Central provinces with a few residing in Southern and Eastern provinces.
The SAFIC project focuses on the challenges that Zambian-owned enterprises experience in their quest for success.
The policy brief released by the project admits that although the Zambian economy was dominated by mining at the time of independence in 1964, agriculture also played an important role in terms of employment and food security.
“The development in the Zambian agricultural sector has been closely linked to other political and economic developments in the country. Agriculture [and processing of agricultural products] was for a long time perceived as a way to feed the masses in the urban areas,” the brief reads.
“In order to facilitate this process, the agricultural policy in the years preceding multiparty elections in 1991 comprised comprehensive controls over pricing, marketing and financing. Meanwhile, it encouraged the concentration of resources on the production and sale of maize.
“The food processing industry has been characterised by large monopolies in meat production, maize, sugar and milk, but is now undergoing change as the business environment has been opened up making new local and foreign companies enter the industry. Still, the former monopolies continue to have presence in the sub-sectors such as meat and sugar.”
The food processing chains consists of five steps or processes beginning with delivery of input, continuing to production of food items, transport, processing and ending with consumption.
“All parts of the chain are located in Zambia with one or two exceptions. However, import of food processed outside Zambia also does take place to a large extent,” the brief reads.
“Suppliers of input [seeds, fertiliser, pesticides] constitute the first part of the food processing value chain. Here, a large number of firms, both foreign and local, sell to the farmers. The Zambian state has also had a significant presence through subsidies to the maize farmers in the form of input packages.
“Farmers then use the inputs and cultivate the land. Large farmers to an increasing extent use irrigation to ensure sufficient supply of water while subsistence farmers often are reliant on rain water.”
To some extent that farmers do not bring their produce to the market, intermediate companies transport the crops to the processors and retailers. Processors and retailers sometimes perform this task.
The food processors transform the raw materials into final products while ensuring proper packaging. In some sub-sectors, like meat and sugar, a high level of concentration is found while concentration is much lower in others like maize, groundnuts, edible oils, sauces and jams.
“Finally, retailers and supermarkets chains [e.g. Shoprite, Spar, and Pick ‘n’ Pay] handle the sales of the food products to the end consumer,” the brief says. “The foreign firms have moved in and now control a major part of the sales. The firms also exercise substantial control on the rest of the chains [farmers and food processors] often and to an increasing extent based on particular standards. A major part of the products are imported.”
However, as the State monopolies have been gradually abolished, this has opened up the sub-sectors to smaller firms, local as well as foreign. The entry of the foreign supermarkets has also altered the balance of power in the chains.
“Nevertheless, the former State-owned enterprises have maintained dominant roles in each of their sub-sector. Today, Zambeef, Zambia Sugar and National Milling continue to have substantial market shares in their sub-sectors,” the brief points out.
“This combination of major reshuffling of the value chains has provided opportunities and challenges to the Zambian food processors. They now have to deal with a growing number of foreign firms and numerous standards which are imposed by the retailers and supermarkets based in Zambia.
“It is thus quite apparent that the local food suppliers in Zambia constitute a quite heterogeneous group where quite a number manage to grow despite the changing institutional environment while others struggle to keep afoot.
“Despite these differences, they point to similar factors explaining growth and constraining it, respectively.”
Accordingly, the three most important factors explaining growth of the surveyed firms are in order of importance: the vision and leadership of the owner, highly skilled and specialised employees, and a strong brand.
In contrast, the three most important factors constraining growth of the companies are high cost of capital, high input costs, and political interferences in business. The high cost of capital is also reflected in ‘starting capital’ as well as ‘operational capital’ where only 13 percent of the companies mentioned that formal financial institutions were the most important source of capital when the company was founded, the most important ones being personal savings and family and friends. Only 40 percent of the companies perceive banks to be the most important source of operational capital.
Given the importance of agriculture and food processing, SAFIC says it is crucial to build sustainable value chains, whether local or global. But in order to do so, companies have to collaborate.
“Specifically, the government has to draft an industrial policy that first of all, ensures to reserve certain products required by the retailers and end consumers to be supplied locally,” the brief recommends. “Second, the policy needs to build capacity among the famers and the food processors in order for them to meet the quality standards required by the retailers including improving reliability, lead times and efficiency.
“It is suggested that such policy is drafted and implemented by a special unit within the Ministry of Agriculture and the Ministry of Commerce, Trade and Industry.”
However, the brief says, in line with international experiences, it is important that all incentives are time-limited, competitive and based strictly on performance.
“The idea is to pick ‘winners’, which in the medium-term will be able to ensure sustainable value chains – not to support all food processors nor all farmers,” it recommends.
(This is the second in a three-part series of articles looking at the Successful African Firms and Institutional Change project, which explores why some Zambian firms in agribusiness and other suppliers to the mines perform better than others).