Emily Fryer, Executive Search Consultant (Agri), shares insights from her network on some of the challenges faced by the edible oil sector in Zambia.
Agriculture is an essential sector for Executives in Africa to support in order to feed a growing population and it is an area where we can have a positive impact on the Continent. We have placed a number of leaders in this sector including a full leadership team for a palm oil refinery including Managing Director, Quality Director, Supply Chain Director, Marketing Director, B2B Sales Manager and HRBP, which is now operating at full capacity and planning a second refinery to meet demand.
Emily Fryer, Executive Search Consultant specializes in the Agri sector and has run mandates across Dairy, Livestock farming, Row Crops and Commodities. She is delighted to introduce Aman Singh, General Manager – Edible Oils for SADC Region, Olam to hear his insight into the challenges facing the Edible Oils market in Zambia currently.
The national requirement for edible oils in Zambia, on the basis of national consumption estimates, is about 120,000 tonnes per year. Of this, 33 percent is currently supplied by domestic production and 67 percent is supplied by imports of refined, semi-processed and crude edible oils. Edible oils, manufactured domestically from local raw materials, only constitute about 20 percent of the national requirement.
However, despite having a larger proportion of edible oils supplied by imports, Zambia actually has more than enough in-house capability to supply all of its edible oil requirements by utilising the available installed processing capacity, which amounts to more than 161,000 tonnes of refined edible oils and equating to a crushing capacity of 375,000 tonnes of oilseeds per year. So why is the country still importing so much rather than producing locally which is more sustainable for the economy long term?
Imported crude and semi-processed edible oils offer stiff price competition to those produced domestically. As a result of this, processors have less incentive to utilise local oilseeds in the production process because it is cheaper for them to import crude and semi-processed oils for refining domestically.
With regards to refined edible oils, although 80 to 90 percent of imports are officially in crude and semi-processed form, there may be misclassification by importers who have an incentive to avoid paying duty or pay 5 percent when importing refined oils. As such, imported refined oils can also be supplied at a competitive price.
So a major challenge for the domestic industry is that illegal edible oils are imported through false declarations, circumvention of border authorities and undervaluing of products. This is as result of weaknesses in the enforcement mechanism of import procedures, uncoordinated inspections and the lack of systems for determining the true value of edible oil products by ZRA. Importation of oils by rail is quite significant and there are also insufficient inspections, resulting in rapid increase in imports mainly supplying Muchinga, Northern and Luapula provinces. Clearly there is work to be done regarding importation processes in order to protect domestic prices.
The effects of undervalued edible oil imports are evident for both small scale and large scale farmers. Large scale farmers are faced with the challenge of uncertainty with oilseed markets, as well as declining price of soybeans, which could negate the positive developments achieved in the market in recent years.
Smallholder farmers, some of whom are new to the crop, face limitations with productivity due to lack of technical knowledge and poor access to input markets. Further, the lack of numbers of contracts with buyers increases their exposure to price risks which is another area that needs to be addressed. Some organisations are supporting these farmers through interventions such as seeds, chemical, tools & fertilizer education and supply, such as the one under ZNFU (Zambian National Farmers Union). However there is still a great risk that both large scale and small scale farmers might reduce production of soybeans.
The inability of the domestic edible oils and oilseeds industries to effectively compete also shows there are inherent inefficiencies in production and processing. This may be as a result of limited investments in research and development and farm extension, which could reduce costs both at the production and processing stages.
Edible Oil imports in Zambia cannot be banned completely, however the imports of Packed Edible Oil should be curtailed by putting quota restrictions on the same as well as better border controls and classification checks. In-fact this is being done currently, by Ministry of Trade in Zambia by the introduction of issuing Import Permits on a quarterly basis. Whilst there is still a long way to go, it will be interesting to see how private organisations can work together with government departments and industry associations to address some of these issues in order to support the long term future of Zambian oilseed farming and production.
For more information on how Executives in Africa can support the growth of your business in Africa through the identification of business leaders within the broad Agriculture sector, please contact Emily Fryer, Executive Search Consultant (Agri) at email@example.com