ACF

AGRICULTURAL CONSULTATIVE FORUM

DRAFT REPORT ON THE GROUNDNUTS VALUE CHAIN ANALYSIS FOR ZAMBIA

Prepared by the Agricultural Consultative Forum P/Bag 16, Woodlands Lusaka, Zambia Tel/Fax 260-211-263083

March, 2013

Contents
1. 2. INTRODUCTION .......................................................................................................................... 3 GROUNDNUTS PRODUCTION AND SALES............................................................................ 4 2.1 Producing Areas ............................................................................................................................ 4 2.2 Production Trends......................................................................................................................... 4 2.3 Groundnuts Marketing .................................................................................................................. 6 3.0 THE STRUCTURE OF ZAMBIAS GROUNDNUT VALUE CHAIN STAKEHOLDER ANALYSIS ............................................................................................................................................. 7 Smallholder farmers ........................................................................................................................ 8 Food Processors .............................................................................................................................. 8 These provide a major market for intermediaries and farmers, as they service the needs of the consumers. They are involved in this business for profit................................................................ 8 Consumers....................................................................................................................................... 9 Value chain service providers ......................................................................................................... 9 4. OPPORTUNITIES AND CHALLENGES IN THE GROUNDNUTS VALUE CHAIN IN ZAMBIA ............................................................................................................................................... 10 4.1 Challenges ................................................................................................................................... 10 4.2. Opportunities.............................................................................................................................. 12 5. CURRENT RESEARCH .................................................................................................................. 13 6. KEY FINDINGS, CONCLUSIONS AND RECOMMENDATIONS .............................................. 14 6.1 Key Findings and Conclusions: .................................................................................................. 14 6.2 Recommendations: ...................................................................................................................... 15 6.3 Key stakeholders for consideration at the national workshop............................................... 16

REFERENCES ..................................................................................................................................... 17

1. INTRODUCTION Groundnuts contribute to the gross value of field crops. Groundnuts can be consumed in an unprocessed state, but they also serve in the economy as raw materials for the manufacturing of various products such as peanuts, peanut butter, sweets and cooking oil. According to Staple Food Value Chain Analysis-Zambia Report (2009) by Chemonics International, Zambia used to be a major supplier of confectionary groundnuts to the World market in the 1960s when the Chalimbana nut was highly desirable. However, the parastatal company that used to market the commodity became a costly burden on producers and collapsed, the basic seed became moribund due to lack of a sustained rejuvenating breeding programme, and gradually consumer tastes turned towards the smaller confectionary nuts produced by South Africa, which were marketed more aggressively. This resulted into groundnut production declining considerably as most commercial farmers ceased to produce and small-scale farmers were not offered the services and rewards associated with successful marketing arrangements. Concerned about these declining production levels of the commodity, the Zambian government and other concerned stakeholders over the last decade have tried to revitalise the groundnut industry in the country. This paper has therefore been prepared to understand the main challenges facing the industry so that a framework for sustainable development of the groundnut industry in the country could be proposed. The report describes the various value chain activities and key players in the groundnut value chain. Some key conclusions and policy recommendations have been made. The study relied heavily on existing data from the Ministry of Agriculture and Livestock and past value chain reports on groundnuts as well as a draft Groundnuts and Common Beans Intervention Plan by the Smallholder Agribusiness Promotion Programme (SAPP).

The study had its own limitations. Investigations were only centred in Lusaka and to a few organisations due to limited resources and time. No visitations were made to the productive regions for groundnuts in the country.

2. GROUNDNUTS PRODUCTION AND SALES 2.1 Producing Areas Groundnuts are mainly produced in six provinces of Zambia, namely Eastern, Northern, Southern, Central, Luapula and Muchinga. The contribution of various provinces to Zambias total groundnuts production is depicted in Figure 1 and 2 below. Table 1: Production by Province during 2012 Season
Zambia Central Province Copperbelt Province Eastern Province Luapula Province Lusaka Province Muchinga Province Northern Province N/Western Province Southern Province Western Province Area Planted 184,397 19,234 8,735 56,946 17,599 2,487 14,163 29,025 7,814 23,089 5,305 Production Mt 113,026 12,106 5,427 30,930 14,133 1,152 10,817 16,211 10,337 9,616 2,298 Yield Mt 0.6 0.6 0.6 0.5 0.8 0.5 0.8 0.6 1.3 0.4 0.4

Figure 1: Area Planted to Groundnuts 2012

Figure 2: Production in Metric Tonnes by Province 2012

Western Province 3% N/Western Province 4% Southern Province 12% Central Province 10%

Copperbelt Province 5%

Production in Metric Tonnes by Province 2012

Southern 9% N/Western 9% Western Central 2% 11% Copperbelt 5%

Northern Province 16%

Eastern Province 31%

Northern 14% Muchinga 10% Lusaka 1%

Eastern 27% Luapula 12%

Muchinga Lusaka Province Province 8% 1%

Luapula Province 10%

2.2 Production Trends Trends in the area planted, production and yields of groundnuts is as depicted in Table 2 and Figures 3, 4 and 5 below. Zambia is experiencing increasing groundnuts production since 2007. However, production hasnt increased to desirable levels partly due to the low yields that have been obtaining in the country. Zambias groundnut yields have varied from between
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0.3 and 0.6 MT/ha. These variations in groundnut yields are typically related to changes in soil fertility, farming systems/practices and seed selection. Groundnuts production in the country is mainly by the smallholder farmers who used recycled seeds year in year out. The Zambian government and NGOs, through drought relief programs had supplied the bulk of groundnut seeds to farmers particularly those in marginalized areas. However adoption of improved varieties has been extremely low despite their record high yields over local varieties. Nearly all groundnuts grown in Zambia are produced from farmer retained seed recycled over several generations, resulting in perpetual low yield records.

Table 2: Groundnuts: Area planted and total production

Groundnuts Area Planted (Hectares) 2000 70,018 2001 137108 2002 129,473 2003 150,460 2004 116,494 2005 161,962 2006 144,251 2007 147,320 2008 144,201 2009 216,126 2010 267,567 2011 448,243 2012 184,397

Production Mt Yield Mt

23,447 0.33

57,753 0.38

41,421 0.32

82,551 0.55

69,696 0.60

74,218 0.5

84,010 0.6

55,215 0.4

70,527 0.5

120,564 0.6

163,733 0.6

278,775 0.6

113,026 0.6

Figure 3: Area planted to Groundnuts 1987 - 2012

Area Planted: GROUNDNUTS PRODUCTION IN ZAMBIA IN HECTARES 1987 2012 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 Year

Area planted in Hectares

Figure 4: Groundnuts production in Zambia, metric tonnes 1987 2012

GROUNDNUTS PRODUCTION IN ZAMBIA, METRIC TONNES 1987 - 2012

300,000 250,000 gnut prod in mt 200,000 150,000 100,000 50,000 0 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 Year

Figure 5: Groundnuts Yields 1987 - 2012

GROUNDNUTS YIELD PER HECTARE IN METRIC TONNE IN ZAMBIA ,1987 - 2012 0.70 0.60 Yield per hectare 0.50 0.40 0.30 0.20 0.10 0.00 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 Year

2.3 Groundnuts Marketing Figure 6 depicts groundnuts sales in the country. The volumes of groundnut sales have been low in the country over a number of years due to the low production the country has been

recording. As production started rising especially from 2007 onwards, sales also rose proportional to production reaching highest in 2011 and then having a drastic decline in 2012. One important point to note is that the informal supply chain accounts for the major share of groundnut sales in Zambia and the major players in this group include the smallholder farmers, the brief case traders; the village based micro processors and the informal crossborder traders.

Figure 6: Groundnuts Sales in Zambia, Metric Tonnes 1987 2012

GROUNDNUTS SALES IN ZAMBIA, METRIC TONNES 1987 - 2012

100000 90000 80000 70000 Sales in mt 60000 50000 40000 30000 20000 10000 0 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 Year

3.0 THE STRUCTURE OF ZAMBIAS GROUNDNUT VALUE CHAIN STAKEHOLDER ANALYSIS There are a number of value chain players in the groundnuts value chain. Figure 7 shows a sketch or structure of the Zambian Groundnuts value chain. The major players in this chain are summarised below: Seed companies Zambia has a number of seed companies (ZAMSEED, MRI, SEEDCO, MONSANTO, PANNAR Seed, etc who supply seed to smallholder farmers. Most of these companies are

located along the line of rail as such their outreach to the majority of the producers is limited. In addition, these companies prefer to trade in maize seed which has a big market from the government subsidy programme. As a result these companies have invested very little in groundnuts seed production. Traders Traders provide a market to farmers and also act as suppliers to food processors and exporters. They are sometimes referred to as brief case traders but they play a vital link between producers and processors. The interest of this group of players is to make quick money before the smallholder farmers take their groundnut to big markets of big buyers. However the biggest challenge is that most these traders operate along the line of rail with easy access and good road infrastructure network leaving out the outlying areas. Smallholder farmers Smallholder farmers form the biggest and most important group of stakeholders in the groundnut value chain. Smallholder farmers either operate in groups or individuals. This group has very limited seed multiplication capacity and is reluctant to invest in basic seed, hence their continued use of recycled seed. Food Processors This group provides peanut butter, roasted nuts, and oil intermediaries who interface with the end users who are the consumers. A number of big companies and organizations belong to this group of players. The majority of them have the capacity to buy the groundnuts from the traders, value add and export or sale within the country. However, Zambias groundnuts processing industry is fragmented, has inadequate capacity or access to finance. There are no international recognised groundnuts processors in the country. The processors are interested in adding value to the groundnuts to produce a number of products such as peanut butter, salted nuts, paste, oil, seed cake for animal feed and other products. This group is mainly concerned with aflatoxin. Supermarkets, Food Service Suppliers, Restaurants, hotels, canteens and bars These provide a major market for intermediaries and farmers, as they service the needs of the consumers. They are involved in this business for profit.

Exporters/importers These are those business entities that export and import the commodity and its finished products. They are in the business for profit. Currently Zambia has inadequate capacity to be a player in the main export markets. Limited informal trade has been recorded through Chipata into Malawi and Mozambique. In addition, limited trade has also been made into South Africa. Consumers Consumers are the end users of the following end market products are: fresh unshelled nuts in bulk, dry unshelled nuts in bulk, shelled nuts in bulk, packaged unshelled nuts, and processed shelled nuts with flavourings, peanut butter, oil and cake. Consumers normally are interested in high quality cheap products. Currently, most Zambian consumers are not aware of the potential nhealth risks associated with the consumption of aflatoxin infected groundnuts. Value chain service providers These comprise of a range of institutions such as seed research institutions, seed multiplication out-growers, seed companies, input suppliers and non state actors. Their interest is mainly in improving both production and productivity through research and extension work. Service providers especially from government departments have been failing to fulfil the mandate in promoting groundnuts mainly due to human and financial challenges.

Figure 7: Structure of Zambias Groundnut Value Chain

Input Suppliers

Importers

Producers Wholesalers Small scale processors

Traders/first stage processors

Peanut Butter Manufacturers

Oil Manufacturers

Confectionery Processors

Retailers

Consumers

4. OPPORTUNITIES AND CHALLENGES IN THE GROUNDNUTS VALUE CHAIN IN ZAMBIA There are a number of opportunities and challenges associated with the groundnuts value chain and these are summarised below: 4.1 Challenges Production Constraints Limited crop management skills, inadequate pest, disease and weed control resulting in low yields and high losses

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Poor harvesting, drying and storage skills increase aflatoxin risk Lack of knowledge and information on markets/market specifications High labour input during harvest and immediate post harvest Lack of basic de-shelling equipment Lack of micro-finance Farmer malpractices e.g. soak nuts and add foreign bodies to increase weight when selling Lack of farmer commodity organisation e.g. soak nuts and add foreign bodies to increase weight when selling Lack of a groundnuts commodity association

Input Constraints Limited information on input usage by farmers Few input supply points Lack of basic seed on the market Use of recycled seed and non-certified seed leading to reduced yields and lowering trust in seed products Underdeveloped out-grower networks Limited interest by seed companies Limited access to finance

Supply-Processors and Processing & Storage Constraints Limited premium for higher special nuts Trader malpractices e.g. inaccurate scales Supply according to specifications Erratic supply/inconsistent demand Lack of selling/marketing facilities Side selling undermines and limits development of out-grower schemes Inadequate sorting and grading adds processors costs and limits value addition Lack of modern processing equipment Lack of appropriate packaging plants Limited access to finance by traders Lack of organised market by farmers and traders
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Lack of aflatoxin testing facilities/equipment

Sales and Distribution Constraints Cross contamination in storage/logistics chain Product inconsistency Aflatoxin Reliability of supply High prices/price fluctuations destabilise market Inconsistence specifications Inability to access international markets Little incentives to produce to specifications

Market/Demand Constraints Unsafe high levels of aflatoxin Lack of infrastructure to meet international market requirements Downgraded groundnut/products due to poor practices Lack of appreciation of standards/grading system Inadequate use of scales at selling points Shortage of all grades with demand outstripping supply

4.2. Opportunities Zambia has favourable climate and good soils which are ideal for growing groundnuts. In addition there is high demand for groundnuts both internally and on the export market. Taking advantage of this market could have a substantial impact on the economy of smallscale farmers involved. The major constraint to accessing this market on a large scale is control of aflotoxin. Harvesting systems and early access to hygienic shelling capability together with the use of storage and packaging systems followed by testing with modern equipment can overcome this constraint and open Zambias production to the export market.

The low productivity and poor quality product is a challenge to be addressed through a breeding programme and extension work by a party with commercial interest in the successful outcome of such efforts. The commercial incentive will arise from the
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establishment of aflotoxin control systems and open access to export markets. This is dependent upon the business enabling environment and the willingness of investors to commit themselves to a sustained effort to turn the industry around and regain at least some of the former status that it enjoyed under private management.

A risk associated with all export enterprises in Zambia and elsewhere is exchange rate movements, particularly in the context of an industry in which the majority of the costs of production are Kwacha based. Many agricultural export sectors have failed due to appreciation of the Kwacha, which although ostensibly subject to free market forces, is in fact subject to a large measure of central control that is driven more by the interests of consumers of imported goods than by exporters.

5. CURRENT RESEARCH There are currently a lot of support being undertaken in the country on groundnuts to assist in understanding and resolving the constraints identified. The Smallholder Agribusiness Promotion Programme (SAPP) Implementation Plan (2012) provides detailed information with regard to the organisations and programs undertaking support activities in the groundnuts value chain and this is reproduced in the Table below
Organisation Msekera Research Institute Type of Support engaged in Variety research and support to seed certification Misamfu Research Institute Variety research and support to seed certification Zambia Agriculture Research Agricultural research and Institute aflatoxin issues Seed Control and Certification Seed certification and control Institute Seed companies Possible seed multiplication and distribution Profit + Farmer training, household food security, market access and Aflatoxin control Farmer Input Support FISP has been extended to Programme (FISP) cover groundnuts. This will create a major pull for private sector investments in inputs, processing and marketing Dunavant Groundnuts input supply and marketing. Possible out-grower development Location Eastern Province Northern Province Nationwide Nationwide Eastern and Northern Provinces Eastern Province

Nationwide

Eastern Province

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Organisation Type of Support engaged in Cotton Association of Zambia Farmer mobilisation into (CAZ) growing of groundnuts MUSIKA Support to out-grower development in groundnuts Zambia National Farmers Support to the development of Union oilseed commodity association which includes groundnuts Indaba Agriculture Policy Commodity research and policy Research Institute (IAPRI) development and also support to commodity association World Vision Seed distribution to small scale farmers Katopola Agriculture Manufacturing of groundnuts Engineering Services shellers and lifters GIAZ Groundnuts Commodity Association COMACO Groundnut out-grower and processor Jungle Beat Groundnut out-grower and processor Kingdom Delicacy Groundnut out-grower and processor

Location

Eastern Province Nationwide

Nationwide

Eastern Province Eastern Province Nationwide Eastern Province Eastern Province Eastern Province

6. KEY FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

6.1 Key Findings and Conclusions: The following conclusions may be drawn based on information gathered from the Ministry of Agriculture and Livestock and from reviewed literature: 1. Zambia has very limited seed multiplication capacity and farmers are reluctant to invest in basic seed, hence the continued use of recycled seed in the country. 2. The Zambian groundnut industry is riddled with lack of the necessary investments in groundnut processing. Almost all groundnuts exported from Zambia are in the form of raw material thus depriving the country of the opportunity to harness the income generating potential of value adding processes. Developing a strong agro-processing industry will improve the prospects of the groundnut subsector which has the potential of creating strong backward and forward linkages in Zambias economy. 3. Newly released improved varieties come with special characteristics adapted to specific enduses. For example some varieties by virtue of their physical (i.e. kernel shape and size), biological (i.e. high yields, early maturity, disease and pest resistance etc.) and
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chemical (i.e. high oil content) characteristics may be suited for specific end uses. Therefore for Zambians to remain competitive, farmers must be given access to groundnut varieties which meet the demands of potential export markets 4. Zambias agricultural potential is not being stimulated sufficiently to take advantage of endowments to create wealth or exploit export opportunities. The cost of production is too high for competitiveness, partly due to VAT and other charges. Cost and access to finance is a major constraint to development due to competition from Government and risks associated with policy changes and exchange rate fluctuations. 5. There is insufficient confidence in the private sector to invest in outgrower schemes for groundnuts in the country. 6. Delays in enacting the legal framework for agricultural marketing is suppressing the scope for growth in the free market 6.2 Recommendations: 1. Government through the Ministry of Agriculture and Livestock should put in place a deliberate programme on seed multiplication and sensitise smallholder farmers on the benefits of using certified seeds 2. Government should facilitate the development of a strong agro-processing industry to improve the prospects of the groundnut subsector which has the potential of creating strong backward and forward linkages in Zambias economy. 3. Government and other service providers should undertake more training and awareness on how to improve the level of post harvest handling of groundnuts 4. There is need for more research in the areas of technology development, transfer and adoption, value addition, post harvest handling, and farmers institutional strengthening and change management. 5. For Zambians to remain competitive, farmers must be given access to groundnut varieties which meet the demands of potential export markets 6. Government should look into the high cost and access to finance 7. There is need for government to encourage out-grower schemes for groundnuts in the country. 8. Government should enact the draft legal framework for agricultural marketing in the country

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6.3 Key stakeholders for consideration at the national workshop The following are the possible institutions from which potential participants can be drawn from to attend the stakeholder workshop in Malawi and also to come up with the research topics for Zambia on the groundnut value chain. 1. Zambia National farmers Union 2. Agribusiness Department, Ministry of Agriculture and Livestock 3. Early Warning Unit, Ministry of Agriculture and Livestock 4. Department of Agriculture, Ministry of Agriculture and Livestock 5. Grain Traders Association of Zambia 6. PELUM Zambia 7. University of Zambia 8. Smallholder Agribusiness Promotion Programme 9. FAO 10. FOSUP 11. Seed Control and Certification Institute SCCI 12. Agricultural Consultative Forum ACF

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REFERENCES 1. Chemonics International Inc(2009) Staple Foods Value Chain Analysis, Country Report Zambia 2. I-Life DAP (2005), Regional Market Overview Groundnuts 3. Ministry of Agriculture and Livestock, Agriculture Statistics 1987 2012 4. Smallholder Agribusiness Promotion Programme (2012), Draft Groundnuts and Common Beans Intervention Plan

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