Interview: Namık Kemal Parlak

Eastern Africa’s vast agricultural potential is pivotal in shaping the continent’s food security and impacting global grain markets. Despite the region’s dynamic nature, it faces both significant challenges and promising opportunities. In this exclusive interview, Gerald Makau Masila, Executive Director and CEO of the Eastern Africa Grain Council (EAGC), provides valuable insights into the major obstacles and emerging opportunities within the region’s grain industry. He also outlines a compelling vision for sustainable growth and enhanced global competitiveness.

Gerald Makau Masila
Executive Director and CEO
of the Eastern Africa Grain Council (EAGC)

Since taking the helm in 2011, Masila has guided the Council’s expansion across 10 countries, including Kenya, Uganda, Tanzania, Rwanda, Burundi, the DRC, Zambia, Malawi, Ethiopia, and South Sudan. Under his leadership, the EAGC has navigated a complex landscape marked by trade policy challenges, infrastructure deficits, and the need for improved market access. Despite these hurdles, Masila remains optimistic about the region’s potential.

In this exclusive interview, Masila shares insights into the key obstacles and emerging opportunities shaping Eastern Africa’s grain industry and outlines a compelling vision for sustainable growth and global competitiveness. Masila highlighted Africa’s “over 60% of the world’s arable land,” which presents immense potential for “large-scale commercial agribusiness.” He pointed out that “partnerships between local and international investors” hold significant promise and that “regional infrastructure projects” could drive agribusiness growth and efficiency.

He also noted a growing “demand for pulses and drought-resistant crops like sorghum and millets,” which offers “new export opportunities.” The region is experiencing increased “exports of pulses to new markets,” including the European Union.

According to Masila, the implementation of technologies such as “the EAGC GSoko trading platform” and “electronic warehouse receipting systems” can “automate and add efficiencies” to grain trading, enhancing transparency and attracting finance.

With a clear understanding of the broader context, let’s hear directly from Mr. Masila about the pressing challenges and promising opportunities in Eastern Africa’s grain market.

Mr. Masila, first, can you provide an overview of the Eastern Africa Grain Council’s (EAGC) mission and vision?

EAGC was established in 2006 as a not-for-profit membership council of firms and organizations in the grain value chain in the Eastern Africa region, with a mission of facilitating structured, efficient, inclusive, sustainable, and profitable grain trade. Its vision is “to be the leading voice of the grain industry in Africa.” Membership to EAGC is open to registered organizations in the grain value chain, including those that actively handle grain in production/farming, trade/warehousing, and processing, known as active members, and those that provide solutions to the sector, such as inputs, technology, logistics, finance, etc., categorized as associate members. Currently, EAGC has over 700 registered members who meet at their apex governance body, the General Assembly, every year to receive reports from their elected representatives on the Board and make key decisions for execution by the Secretariat.

Which countries in Eastern Africa does the organization primarily operate?

EAGC countries in the Eastern Africa region include the seven East African Community (EAC) Partner States that include Kenya, Uganda, Tanzania, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo, as well as the three neighboring countries of Malawi, Zambia and Ethiopia, making a total of 10 countries. We soon expect to welcome members from Somalia after they join the East Africa Community. We have also received interests from grain value chain stakeholders in the Indian Ocean islands that are under consideration and may soon be joining the Council.

GRAIN DYNAMICS IN EASTERN AFRICA

Can you provide an overview of the current state of the grain and agribusiness industry, highlighting recent trends and developments?

The grain sector in the Eastern Africa region is quite diverse and vibrant. The region is producing, trading, processing, importing, exporting, and consuming significant quantities of grains – cereals and pulses. Some countries have a comparative and competitive advantage in the production of certain grains while others have deficits and must import grains from within and without the region. In general, the region has a large deficit of wheat and imports between 90 to 95% of the wheat consumed. 

Some countries like Uganda and Tanzania are surplus producers of maize and they trade across the borders to the neighbouring countries with Kenya being the largest buyer of maize in the region. 

Ordinarily, countries like Zambia and Malawi produce enough for local consumption and at times even have a surplus that they export in the region. However, this season 2023/24 crop year, Malawi and Zambia have suffered a drought leading to shortages and are looking to import maize to cover the deficit. 

Sorghum, millets, and barley are other cereals produced in the region, with the brewing industry driving the production and trade of sorghum, particularly white (gadam) sorghum for brewing. Red sorghum is increasingly becoming popular for blending with other cereals to make porridges. Barley is predominantly produced for brewing – malting, usually under contract.

Besides cereals, the region is a major producer of pulses, including beans – common beans such as red kidney beans, yellow beans and others. Others are the peas family – pigeon peas, chickpeas, cowpeas, etc and green grams. The region exports pulses to Asia, Europe and other markets with India being a leading market for pulses from Eastern Africa where Tanzania is the lead producer and exporter.

Recently, we have seen a growth in exports of pulses to new markets including the European Union where export of green grams to Italy and other countries is growing. We have also seen demand for red sorghum increasing as well as for millets – finger millet and pearl millet which, being drought-resistant crops and highly nutritious, offer a promise to increase farmers’ fortunes while delighting consumers. We have also seen increased investments in the post-harvest handling and processing of grains more so for animal feeds. 

MAJOR CHALLENGES CONFRONTING EASTERN AFRICA’S GRAIN INDUSTRY

What are the main challenges faced by stakeholders in the grain value chain in the region, particularly in terms of production, storage and market access?

Trade policy is one among the biggest challenges facing the industry and adversely affecting investments and leading to an increase in consumer prices. While we have the East African Community (EAC) and the Common Markets for Eastern and Southern Africa (COMESA), the implementation of the treaties is a challenge. For instance, the application of the common external tariffs (CET) by the member states remains a challenge as some governments allow frequent stay of application of the duties allowing duty-free imports in one country, while others are applying the tariffs in full. This gives an advantage to those importing duty-free and selling to the neighboring markets grains such as rice and even wheat at much lower prices compared to those that have paid the duties in full. The continued frequent bans on imports and exports, usually unpredictable and without a clear basis, pose a perennial threat to the sector and make it difficult for investors to make long-term investment decisions as the policies are ad hoc, and often politically motivated.

Storage infrastructure and warehousing facilities are also limited, again because of the policy risk, since these are major investments that take many years for a return. The viability of investing in storage and warehousing is determined by sustained utilization of the facilities to generate sufficient revenues to cover the operating costs and the capital expenditure. Nevertheless, even the existing facilities, in some instances, stay empty for long periods when local production is not adequate, and imports are banned by governments.

Export and import bans affect access to markets as well as the application of other tariff and non-tariff barriers to trade, such as sanitary and phytosanitary requirements. For instance, since the early 70s to date, Indian wheat has not been allowed in the Eastern African markets on account of restrictions imposed due to sanitary and phytosanitary measures. Importation of grains with genetically modified organisms (GMOs), is also not allowed in most countries in the region thus limiting access to the markets.

Cross-border trade between the neighboring countries in the region is predominantly informal, mainly because of the unfriendly, costly, and bureaucratic procedures for border clearance. The informal cross-border trade goes unrecorded and is not featured in the national trade statistics meaning that the direction, volume and value of trade are under reported, and requisite policy as well as required trade support, such as finance and other facilities, are not provided for due to lack of data and evidence.

The movement of grains within the countries is also not as smooth as one would expect. Stakeholders in the grain sector must contend with numerous police roadblocks and county cess collection roadblocks. In Kenya, for instance, the counties established by the 2010 constitution have become additional borders within the country, charging for passage taxes from one county to the next, all adding to the costs of doing business and eroding the competitiveness and ease of doing business. 

An example is Nairobi City County, which is charging KSh 50 per bag of grains delivered at the millers’ premises, regardless of whether it is imported or locally produced, further adding to the costs, and making the county not attractive for locating a processing and milling plant. Besides, the charge to deliver raw materials to process, the county charges for branding of the trucks, signage at the milling/factory premises and parking fees while the truck is delivering, all in addition to the many other licenses and permits that are mandatory for a business charged annually. Indeed, we have seen an exodus of processing plants relocating to the neighboring counties of Kiambu, Kajiado and Machakos, to evade these charges and the attendant harassment meted on the business by the county forces that pounce and clump the trucks and charge exorbitant fees for unclamping, a real nightmare for business.

What are the key strategic objectives of EAGC, particularly in enhancing ease of grain trade and food security?

In facilitating efficient, structured, inclusive, sustainable, and profitable grain trade, EAGC’s key strategic objective is to enable to trade increase at national, regional and international levels in terms of volume, variety, value and velocity and better in terms of reducing transaction costs as well as improving safety and quality – more and better trade!

We deploy four main service pillars that include; the provision of market information and intelligence to inform policy and business decisions through the EAGC RATIN (Regional Agricultural Trade Intelligence Network) , policy research and advocacy to create an enabling business environment, training and capacity building for our members to become structured grain trade practitioners, delivered through the EAGC Grain Business Institute (GBI) and developing and promoting structured grain trading systems through the Grain Trade Business Hubs (GHuBs) and the EAGC GSoko grain exchange platform.In advocating for the free movement of grains globally with minimum disruptions, EAGC is a member of the International Grain Trade Coalition-IGTC, based in Geneva, which is an association of all grain councils and associations in the world where we engage policymakers and stakeholders at the international level such as the London based inter-governmental International Grains Council (IGC), the UN bodies including the FAO, UNCTA, WTO and the International Seed Federation, International Plant Protection Convention etc, on matters such as plant protection and other conventions. At the continental level, EAGC engages the African Union and other regional economic communities including ECOWAS, IGAD, COMESA, EAC, SADC in the spirit of the African Continental Free Trade Area (AfCFTA).

EAGC hosts the biennial Africa Grain Trade Summit (AGTS) every two years and recently hosted the 10thAGTS in Kampala Uganda, attended by over 300 delegates from all over the world. At the AGTS, delegates share information, exhibit, and demonstrate the latest technologies and innovations, engage in business-to-business linkages sign trade contracts, deliberate on challenges facing the sector and craft policy recommendations that are submitted to the policymakers and followed up for implementation. At the national level, EAGC hosts Agribusiness expos and other membership events and forums for exhibiting new technologies and solutions, networking, connecting members and creating business opportunities as we as trade finance solutions.

In what specific ways does EAGC work to address the challenges faced at each stage of the grain value chain, from production to market access?

EAGC’s interventions cut through the entire grain value chain in the Eastern Africa region and beyond. At the pre-production and production levels, EAGC employs the GHuBs solution where we encourage and facilitate the farmers to come together in farmer groups to work collectively in choosing crops to produce, source inputs, mechanization and advisory as well as aggregate their produce for collective marketing. Through the GHuBs farmers consolidate their input requirements and are supplied directly by the manufacturers who sign tripartite GHuB partnership supply agreements (GPAs) between the GHuB, the input supplier and witnessed by EAGC. The farmers then offer their commodities, aggregated at the GHuBs, for sale through the EAGC GSoko exchange where they are linked directly to exporters and processors earning them better prices and margins.

KEY FACTORS AFFECTING GRAIN PRODUCTIVITY IN EASTERN AFRICA

Could you elaborate on the productivity challenges in grain production within the Eastern Africa region?

The productivity levels of grain in the Eastern Africa region are generally below the world average and way lower than other regions such as America and Europe, creating a significant gap in the yields. Causes of the yield gap are many and include the predominance of smallholder farms that, at the onset, are disadvantaged compared to the large commercial farms in the West that enjoy enormous economies of scale, are highly mechanized and knowledge-based precision farming operations. 

While farms in the West are getting larger through acquisitions and land consolidation in pursuit of higher efficiencies and economies of scale, farms in Africa are getting smaller as they get increasingly subdivided for inheritance. We are also seeing arable land reducing over time as prime agricultural land is converted from agriculture to other uses, a trend that if not checked and reversed will greatly undermine the ability of the region to produce adequate food, thus increasing food importation. It is no wonder therefore that Africa’s food import bill currently estimated at a staggering USD 41 billion, is expected to increase to over 100 billion by 2025. 

It becomes a double tragedy for Africa to have to import all technology and capital goods – machinery, tractors, vehicles, computers, solar panels, etc and then import such high amounts of food, making the balance of trade between imports and exports grow worse by the year, considering that Africa cannot access the markets in Europe and the West with the process and value-added products.

Sustained monoculture without proper crop rotation, lack of soil analysis, inappropriate and inadequate use of fertilizers leading to increased acidity of the soils and inability of plants to tap the nutrients from the soils, dependency on rain-fed agriculture in the face of climate change, use of rudimentary labor intensive inefficient farming equipment, improper harvesting and handling leading to contamination of the grains with aflatoxin and high post-harvest losses, are just but some of the issues driving down productivity in the region. These issues, unfortunately, coupled with policy challenges, continue to persist pushing productivity lower down, thus eroding returns on investments to the farmer.

What role does technology play in enhancing grain production, quality and trade in Eastern Africa?

Technology plays a critical role in enhancing production, quality and trade, starting from the seed technologies and the use of improved certified hybrid seeds that are suited to the target agroecological zones. Thankfully, the seed industry in the region is well-regulated and very advanced with all major multinational, national and regional seed companies providing certified seed under the COMESA seed trade platform. 

Farm mechanization technologies for planting, weed and pest control, harvesting and post-harvest handling also play a key role in the sector. However, most of these technologies are imported and subjected to import and value-added taxes. In Kenya, for example, seeds, farm inputs and machinery are subjected to taxes, levies and duties that increase the cost of production and make Kenya less competitive compared to their neighbors.  

Other technologies like laboratory testing and quality assurance equipment and consumables are also subjected to duties, taxes and levies making them expensive and out of reach to the farmers. Consequently, farmers and traders do not sample and test their grains as the cost of testing is prohibitive, thus making it difficult to implement food safety and quality standards, thereby exposing the public to risks of consumption of contaminated grains leading to fatalities caused by acute aflatoxicosis as well as other effects such as stunting and increases in cancer cases.

The EAGC GSoko trading platform and the electronic warehouse receipting systems are examples of technologies being employed in the region to automate and add efficiencies and transparency in grain trading to attract finance and other trade support solutions. These solutions, although still at their infancy, have provided proof of concept having been piloted and require further support to scale and generate the benefits to the sector. 

FUTURE PROSPECTS FOR AFRICA’S AGRIBUSINESS

How do you envision the future of Africa’s agribusiness sector? What are the key opportunities for investment and expansion in Eastern Africa’s grain and agribusiness industry and what factors should potential investors consider when entering the market?

Africa’s agribusiness sector has a huge potential. Since over 60% of the world’s arable land is in Africa, the opportunity for large-scale commercial agribusiness is immense. Opportunities for primary production, increasing productivity and upstream value addition is processing, warehousing and trade, particularly in the African continent under the African Continental Free Trade Agreement (AfCFTA) are many.  

However, the recent trends at the geopolitical level where new conditions for international trade are being coined to systematically block produce from the African continent to enter the European and other Western markets, suggest that investments to develop agribusiness in Africa may not be forthcoming. An example is the new EU deforestation regulations (EUDR) that block the import of commodities produced from land deforested and degraded after December 31, 2020, which means that Africa cannot utilize their available arable land to increase production of commodities for export. 

Aside from the geopolitics, potential investors considering entering the African agribusiness sector must consider several factors including the laws relating to land – access, leasing, purchasing, etc and be careful not to be caught up in a land that has disputes, a very common phenomenon in Africa. Politically instigated conflicts against commercial agribusiness involve in production and vertically integrated- processing and distributing final consumer products, is a real challenge where corporates can suffer extortions from politicians for “protection”.  Many agribusiness projects have collapsed or not seen the light of day on account of such hinderances by politicians, who often are opposed to initiatives that have the potential to transform and economically empower the rural folk, in the belief that such empowerment may be detrimental to their political ambitions.

For an agribusiness to be very viable, it requires access to a significant market, usually beyond the host country to enable establishment at a scale that can generate attractive economies of scale. In theory, the regional economic communities such as the EAC, COMESA, SADC, ECOWAS, etc are supposed to avail a sizeable regional common market with free and full access by the enterprises established in any of the partner states. However, continued nationalist tendencies continue to fuel positions that block access to the markets, usually through trade barriers – tariff and non-tariff that undermine the efforts for regional integration.

Partnerships offer great opportunities for potential investors seeking to enter the African agribusiness. A combination of local enterprises and foreign investors under a robust governance and management structure presents a great opportunity for successful investments. Many a foreign entity, established in Africa without the benefit of understanding the lay of the land in the cultural, economic and political aspects have failed to succeed. While it is not easy to establish such partnerships, they still hold the key to a successful investment in agribusiness in Africa.

Energy is another factor to consider as the availability of reliable, good quality electricity, competitively priced is a challenge. Efforts to invest in large-scale hydroelectric generation, geothermal, offshore and coal-powered plants have been sluggish as they require substantial investments that are not readily available in Africa. Such major projects would do extremely well if syndicated and funded across several countries or under the RECs through regional infrastructure bonds raised through regional capital markets and regional monetary systems. 

Lastly, to consider is the issue of managing the foreign exchange and related volatility as well as the possibility to repatriate profits which in some jurisdictions in Africa are a challenge.