Unlocking Zambia’s agricultural potential through smart investments in agro-processing

Zambia, in southern Africa, is a landlocked country with immense agricultural potential. Out of the country’s 75 million hectares of land, 58% or 42 million hectares is classified as medium-to-high potential for agricultural production. The 15% that is actually being utilized for agricultural purposes yields enough produce that Zambia is able to export some of its vast harvest such as maize, soybeans, coffee, groundnuts and rice to its neighbours. 

Zambia’s grain and milling sector may have grown in importance, attracting investments from both local and foreign investors, and contributing significantly to the country’s economic growth, but the country has other opportunities to grow its mantle as an agriculture powerhouse in the region. Agricultural value addition as a government strategy for economic growth extends beyond maize farms and includes other important Zambian produce including cashew nut, mangoes and tomatoes, among others.

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Cashew nut processing grows in importance

Cashew nut was first introduced in Zambia in the 1940 but decades of mismanagement of the sector left many farmers abandoning the crop for other lucrative alternatives. By 2015, production had plummeted to 50 tonnes per annum. This decline left the country’s 2 cashew processing companies namely Western Cashew Industries Limited and Barotse Cashew Company Limited – which have total estimated capacity to process 780 tonnes per year –   to order raw cashew nuts from Tanzania for processing in order to sustain their businesses. 

The neglect of cashew nut was unfortunate because unlike maize which trades at about US$300 per tonne, cashew nut is a high value product selling at an average farm gate price of US$500 per tonne with the price of the finished processed product going as high as US$11,200, according to data from Statista. Given its high value, recent Zambian regimes have prioritized cashew production as part of economic diversification and as a poverty reduction strategy in Western Province.

Cashew nut prioritization saw Zambia launch a US$55.4 million Cashew Infrastructure Development Project (CIDP) in conjunction with the African Development Bank (AfDB) to revive the sector. The 5-year project was targeting to add at least 6 million productive cashew trees, providing a new source of livelihood to almost 60,000 farmers in the country’s western region. 

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To further stimulate growth in the sector, former President Edgar Lungu in June 2021 launched the cashew nut plantation initiative which is under the US$32.8 million Zambia Integrated Forest Landscape Project (ZIFLP) in Chasefu district in Eastern Province. Ministry officials at the time revealed that the World Bank funded project targeted to benefit about 15,000 farmers.

For the years that it has been in operation, CIDP has made attempts to address the challenges holding back developments in the sector by supporting cashew value chain infrastructure such as feeder roads, irrigation facilities, bulking centres and agro-processing facilities. 

An AfDB report indicated by the end of its tenure in June 30, 2022, CIDP will raise Zambia’s cashew nut production by 48,000 tonnes and raise the sector’s contribution to foreign exchange by US$8 million. Although the project may not fully achieve its objectives, it has certainly transformed the cashew nut sector in Zambia’s Western region, providing a new source of livelihood to farmers. More women are now starting cashew-based enterprises, providing direct competition to the Barotse Cashew Company which had for a long-time enjoyed a monopoly status in the region.

The 5-year cashew infrastructure development project targets to add atleast 6 million productive cashew trees, providing a new source of livelihood to almost 60,000 farmers in Zambia's Western region.

“The cashew value chain has so far created the processing industries where the cashew nuts are being processed into butter and biscuits. This also includes processing of cashew nut apple into juice and liquors such as cashew nut wines,” Zambia Agriculture Research Institute technical research assistant Bwalya Kaponda said in an interview with Zambia Daily Mail.

With Zambia’s cashew nut expected to rise tenfold in the coming decades, the government is not slacking in its quest to find opportunities for value addition locally. Supply in the coming years will certainly outstrip local processing capacity which is slightly above 780 tonnes annually.

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To avert an oversupply crisis, the government is currently looking for private sector players to invest in a new US$5 million cashew nut processing facility in the country’s capital Lusaka. According to a project proposal by the Zambia Development Agency, the cashew nut processing plant will produce an average of 12,000 tonnes of cashew kernels per annum. “The private investors will be expected to meet the entire project costs of US$5 million,” ZDA said in the proposal. “GRZ, Zambia Development Agency (ZDA), Ministry of Trade Commerce and Industry (MCTI), Ministry of Agriculture and Livestock (MAL) and other Government Agencies will assist the private investors to establish the project, through various forms of interventions.” 

ZDA targets to sell the processed cashew nut products to the domestic market in Zambia as well as regional and international markets. Main targets on the regional market are Kenya, Mozambique and Tanzania, where the growth rates on cashew markets are forecast to be around 3% annually.

In the international markets, the target is the European Union, India and United States of America.  Europe is a particularly attractive destination as it is the largest importing region of cashew kernels in the world, accounting for around 35-40% of total global imports. Netherland-based Center for promotion of Imports from developing countries (CBI) projects that in the next five years, the European market for cashew nuts is likely to increase with an annual growth rate of 3-5%. 

Investors in Zambia’s cashew nut sector thus have an opportunity to exploit this demand which is described as stable by the CBI, helping the Dutch customers to meet fluctuating production from their current import countries.

Turning mango delicacy into a viable commercial venture

Zambia produces a fair share of fruits and the most produced is mango. In the months of October to January, the fruit is usually available in abundance across all the provinces of Zambia. Zambians, both in cities and rural areas, mostly enjoy the fruit in its raw unprocessed form with a very small portion processed into juice and other products such as jam.

Lack of value addition of the country’s most abundant fruit means that farmers earn less from their produce. A 2019 study published in the Texila International Journal of Management revealed that Zambian farmers receive a net profit margin of 18.34% from their produce with the farm gate prices being 50% the price of the same fruit in the market. Even though Zambians love mangoes, the relatively limited capacity for value addition leads to post harvest losses of up to 40%, according to the study. 

Just like in cashew nuts, the government has been making deliberate efforts to attract investment into the sector to reduce post-harvest losses, boost farmer income and increase the sectors contribution to the country’s GDP. 

In July 2021, The Zambia Development Agency invited the private sector to establish a modern mango processing facility in Lusaka. According to ZDA’s project proposal, the mango processing plant will produce an average of 30,000 tonnes of mango pulp and 5,000 tonnes of dried mango per annum. Collection depots, with cold storage facilities will also be constructed in all provinces of Zambia to preserve the mangoes as they await transportation to the processing facility in Lusaka. 

Zambia targets to sell processed products to both the domestic market as well as regional and international markets. ZDA in the project proposal reveals that the country’s main targets on the regional market are Angola, Democratic Republic of Congo (DRC), and Tanzania. “On the international markets the target is the European Union, Middle East and United Arab Emirates,” the Agency revealed. 

Investment in mango value addition is timely as the global processed mango products market size is expected to reach US$25.55 billion by 2025, according to a report by Grand View Research, Inc. The market is projected to register a CAGR of 6.4% during the forecast period primary driven by increasing demand for fruit-based food and beverages.

ZDA projects that its proposed mango processing venture will start generating profits from the first year of operation, with net profit margins ranging from 10% in year one to 23% in year five. Additionally, ZDA notes that the project offers an attractive investment opportunity with an estimated Internal Rate of Return (IRR) of 35%, a Pay Back Period of 4 years, a Discounted Cash Flow (DCF) valuation of US$28.5 million (using a discount rate of 12%) and a Net Present Value (NPV) of US$5.9 million.

Although new mango value addition projects like the one’s proposed by ZDA will find themselves in direct competition with existing small local Zambian companies as well as large regional and international processors of mango products, the Agency notes a strategy anchored on high-quality processed products should enable any serious investor to succeed in the market.

Tomato becomes priority to cut imports

Zambia produces sufficient tomatoes to meet its domestic demand and even has a surplus for exports. The country has however for a long time relied on imports to meets need for processed tomato products such as tomato paste and sauce.

In 2014, the country’s processed tomato import bill stood at US$9.27 million, a figure almost double the US$4.9m that was recorded in 2010. This was despite of tomatoes worth millions of dollars rotting away annually in markets across the country. 

Nearly 10 years on, several players in the industry have made investments into the sector to close the gap that has been existing in the market. In 2017, the New Apostolic Church Relief Organization launched a tomato processing plant in Chibombo, funded by NAK-KARITATIV, a faith-based organization based in Germany. The plant has a capacity of producing 1200kg tomato paste in a day. During its launch, the project had attracted the interest of 2,000 out of the 5100 farmers it was targeting. 

That same year, Italian tomato producer Pomorete partnered with Asili Processing Limited to explore the possibility of setting up of tomato farms and a factory in Zambia for the production of tomato concentrate. These new investments were coming to supplement value addition activities of three major firms Rivonia, Freshpikt and Sylva Foods that were already engaged in tomato processing.

The following year, the National Union for Small-scale Farmers of Zambia came up with plans to set up cold room facilities to preserve crops. More recently in September 2021, local food processor COMACO was awarded a US$600,000 grant from the Enterprise Challenge Fund to finance a tomato production plant that will provide additional income to more than 20,000 farmers in Zambia.

Recognizing tomato’s importance in boosting Zambia’s agro-processing profile, the government made it a priority sector to further stimulate investment. The ZDA last year floated a proposal for a tomato processing facility to be fully funded by the private sector. According to ZDA’s proposal, the processing plant will be located in Monze, Southern Province of Zambia and will have capacity to process 10,000 tonnes of tomato paste annually.  The state agency further noted that the business will outsource tomatoes from all provinces in Zambia, which will need the construction of tomato collection depots for the collection of fresh tomatoes for processing.  

About 20% of tomato paste produced will be sold to the domestic market in Zambia whose demand level is estimated to be 5,000 tonnes per annum, with a 3% annual growth rate. This implies that the tomato project will cover about 40% of the local market, which is feasible given that there are very few tomato processors in Zambia. The remaining 80% will be sold in the regional and international markets.

The demand level in the regional market for tomatoes is estimated to be 150,000 tonnes per annum with a growth rate of 2% annually, whilst the international market is estimated to be 3,233,883 tonnes, with a growth rate of around 2.1% annually according to TomatoNews.com.

The agency estimates that the project will require a total investment of US$5 million and will take about 12 months to complete. Like other investment projects by ZDA, the project is anticipated to start generating profits from the first year of operation after being commissioned, with net profit margins ranging from 11% in year one to 20% in year five.

Government leads agro-processing revolution 

The Zambia Development Authority (ZDA) and the Industrial Development Corporation have been at the forefront of the agricultural value addition campaign.

Formed in 2006, ZDA has been working to attract private sector involvement in the country’s agro-processing subsector while the IDC has been leveraging state resources to set up agro-prosseing industries across the country.

In 2021, IDC invested over US$15 million in expanding the country’s agro-processing capacity. US$8.8 million was invested in setting up a tropical fruit processing plant in Katete District, US$5.5m was injected into a new fruit company in Mwinilunga while US$1.1 million was used to revive a banana estate firm that went under, a few years after privatization. 

Zambia’s Ministry of Agriculture has also thrown its weight behind the agro-processing initiatives with its Enhanced Smallholder Agribusiness Promotion Programme (E-SAPP). The project with support from International Fund for Agricultural Development (IFAD) aims to increase the volume and value of agribusiness outputs sold by smallholder producers in Zambia. The 7-year programme has been running since 2017 and hopes to increase incomes, food and nutrition security of rural households involved in market-oriented agriculture by the time its tenure elapses in 2024.

Development partners avail funding for SMEs

Small and medium sized enterprises are critical in Zambia’s agro-processing revolution. To encourage greater participation in the sector, the government has partnered with foreign development partners such as the European Union and the United States Agency for International Development to avail funds for entrepreneurs seeking to invest in agro-processing. 

The European Union has been one of the most active development partners in this subsector. In 2021 alone, it invested over US$48 million towards various programmes aimed at easing access to credit for agro-processing SMEs.

In April 2021, EU funded a project aimed at strengthening agri-business and aquaculture markets dubbed ENTERPRISE Zambia Challenge Fund. The 5-year project is being implemented by Self Help Africa and Imani Development. Later in October, the European Investment Bank disbursed a 7 year €15 million (US$17m) EIB loan to Zanaco, the country’s largest bank, in combination with the risk-sharing facility. According to the EIB, the funding will allow the bank to advance credit facilities of up to US$34 million to small holders and private companies involved in agriculture across Zambia. 

USAID, another key development partner, invested US$3.9m in 2021 to support small and medium sized agribusiness enterprises. That same year, the Swedish International Development Cooperation Agency (Sida) announced a US$4 million grant to support the growth of foundational, small and medium-sized food processing enterprises in Zambia. The funds to be managed by TechnoServe was channelled towards the implementation of the Food Enterprises for a Developed (FED) Zambia program, running from 2020 to 2023.

A sector on the rise

Agro-processing seems to have been the missing link in unlocking Zambia’s true agricultural potential. Ngolwe Sikazwe, Portfolio Manager of the EU funded Enterprise Zambia Challenge Fund notes that the lack of an established agro-processing industry demotivated farmers to produce more as there wasn’t a ready market and more often than not, they were stuck between accepting throw away prices for their produce or throwing the produce away.

A commitment by government and its development partners to supporting the agriculture sector through value addition is however bringing the much-needed change. Development partners are pumping in the much-needed capital for enterprises to venture into agro-processing while at the same time providing entrepreneurs the much-needed technical expertise required to successfully run businesses.

The government on the other hand is creating programs such as the CIDP to stimulate growth in sectors which had for long been neglected, while new and existing companies are joining the new way, ramping up their investments in the sector.

In August 2021, Zambia’s leading potato producer, Buya Bamba vertically expanded its operations with an investment of US$7 million in a new processing factory for production of frozen chips. A few months earlier, Chenguang Biotech Zambia Agri-Dev Limited announced that it was seeking to invest US$23 million to cultivate, harvest and process paprika, marigold and stevia.

All these concerted efforts are testament of a rising agro-processing industry that may finally give Zambia the diversification away from copper that has remained elusive 58 years after independence.  

This feature appeared in the March/April 2022 issue of Food Business Africa. You can read this and the entire magazine HERE

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