Enabling smallholders to trade across regions and borders promotes food security and economic growth. Although everyone is calling for exactly that, implementation is still difficult
Prof. Dr. Christine Wieck has been teaching and researching at the University of Hohenheim since February 2018, where she heads the Department of Agricultural and Nutrition Policy. She is a member of the Task Force Rural Africa, an independent expert group of the European Union. Previously, she spent two and a half years working as a political consultant for the German Society for International Cooperation (GIZ).
Not just since the Malabo declaration has regional agricultural trade been high on the agenda of African countries. In the declaration, African states declared their intention to triple intra-African agricultural trade by 2025. The recent political agreement on establishing a free trade zone across the continent is cause for hope for regional integration in Africa.
After all, trade in agricultural products is an important source of income generation for most small farmers and the agri-food industry.
Regional trade in agricultural products - i.e. between neighbouring countries or within a region such as West Africa - helps to balance seasonal production fluctuations and regional bottlenecks caused by extreme weather and climate change.
This increases food availability and variety, and helps to reduce price volatility, keeping food prices affordable.
This in turn helps to achieve global sustainable development goals, to eliminate hunger and malnutrition and to strengthen the livelihoods and income prospects of people in rural areas.
Trade in agricultural products generally takes place when buyers and sellers agree on the quantity, price and quality of a product. In the field of staple foods in particular, there are still many opportunities for development, but also great challenges.
Along with the perishable nature of many products, a lack of packaging options and of cooling equipment means that potentially attractive trading opportunities often fail.
Unlike "cash-crops”, which are mostly destined for export, regional agricultural trade in basic foodstuffs is mostly small-scale, often informal and often challenging with regard to transportation and border crossing. Along with the perishable nature of many products, a lack of packaging options and of cooling equipment means that potentially attractive trading opportunities often fail, with losses occurring during transport. This often makes it cheaper to import agricultural products, especially in coastal regions.
This is also reflected in the fact that regional agricultural trade in Africa has not achieved the growth rates that could be expected in comparison to other regions of the world.
For instance, according to a study of the International Food Policy Research Institute (IFPRI), only six percent of regionally traded agricultural products were also regionally produced in the Western African ECOWAS region, measured by the value of the products. The remaining regionally traded agricultural products were imported from other African and non-African countries. The figures look slightly better for the COMESA trade zone in Central and Southern Africa, with regional produce accounting for 20 percent of regional trade, and 42 percent for the Southern African SADC. But even here, that is less than half of the traded products.
In terms of product value averaged across Africa, 15 percent of agricultural products are traded regionally in Africa, the remainder being exported mainly to Europe and other emerging and developed nations. A World Bank study from 2011 comes to a similar conclusion: it states that only about five percent of the grain imported by African countries is also produced in Africa.
These very small trade volumes are closely linked to the still very high trading costs for agricultural goods. For example, a joint OECD and WTO study shows that trading costs for agricultural goods in developing countries are on average twice as high as for processed goods.
However, not only the cost of cross-border trading is high: the cost of domestic trade - including for producers - can often be extreme. 50 percent of non-tariff measures often associated with (trading) costs are enforced by one of the countries. For example, the World Bank report shows that for trucks carrying staple foods, crossing the border between Chad and Niger costs the same as an additional 600-kilometre trip. However, the report also emphasises that the "first mile" - from the smallholder to the nearest market - is often the most costly.
Infrastructure in rural areas, i.e. agricultural production areas - is often poorly developed, which increases transport costs and losses, and prevents the connection of agricultural production areas to the urban regions and cities where demand is rising. These do not need to be the often cited “megacities”: the demand for food is also growing steadily in small and medium-sized cities.
The cost of domestic trade - including for producers - can often be extreme.
Recent estimates by the IFPRI, the OECD and other research institutions show that households in African countries now buy about half of their food in stores. That’s why the market connection and a functioning infrastructure are so important.
Not only transport within a country needs attention: there are still many obstacles to cross-border trade between neighbouring regions. In this context, the regulatory and administrative framework is of particular importance. Trade facilitation measures, customs clearance, veterinary checks at borders and the harmonisation of rules for trade in food are important to support regional agricultural trade.
The World Food Programme is one of the most important staple food retailers in Western Africa. In practice, however, there are great problems in obtaining the often necessary export licenses or quality certificates, leading to delays and high transaction costs.
In Zambia, each vehicle carrying agricultural products requires a permit that costs six US dollars. To obtain the permit, traders must also provide other valid documentation, for example phytosanitary certificates, which are often arbitrarily issued. Corruption and bribery therefore generate massive transaction costs for traders.
This problem is illustrated by an anecdotal example from the Congolese border. Here, an egg trader had to pay 1500 Congolese francs and four eggs in bribes to obtain all the certificates and permits necessary to export his goods.
Regional agricultural trade faces many problems that reduce the competitiveness of regional products and limit their availability.
Small traders usually account for the majority of informal trade. There are good reasons for that: In the border area between Zambia and DR Congo, informal small traders pay 40 percent more bribes per tonne of traded goods than wholesalers. A World Bank study found that these retailers would pay 76 percent more customs fees than the wholesalers if they participated in formal trading. This shows that there is virtually no economic incentive for small traders to enter into formal trade. Another case study analysed which costs are incurred by the lack of harmonisation in SPS rules. According to estimates, this increases the cost of staple foods in Africa by 13 to 15 percent.
All these examples show that regional agricultural trade faces many problems that reduce the competitiveness of regional products and limit their availability.
Political declarations promoting regional and intra-African trade are therefore to be welcomed, while much remains to be done in practice and at the African border crossings.
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