Recent events such as the Covid-19 pandemic and the Russia-Ukraine conflict have significantly impacted global commodity markets. These disruptions open opportunities for businesses that can increase their production and export capabilities to fill the supply gaps that emerge.
Seelan Gobalsamy, CEO of South Africa-based fertiliser and chemical manufacturing group Omnia, spoke with James Torvaney, and revealed some of the key trends and opportunities that the African agricultural sector can look to capitalise on.
How are current geopolitical events affecting agricultural businesses in Africa?
Supply chains are already in a state of shock from the Covid-19 pandemic, and the prices of basic goods and shipping have risen substantially.
Now on top of that there is the added pressure of the Russia-Ukraine conflict. A lot of agricultural inputs come from Russia and Ukraine. People are asking whether there will be an adequate supply of inputs for the upcoming planting season.
Which commodities are most affected by the Russia-Ukraine conflict?
Russia is one of the world’s most significant suppliers of fertiliser and related input materials such as ammonia, urea, and sulphur. In February, Russia suspended exports of ammonium nitrate for which it is the biggest exporter in the world. (This was an attempt to guarantee affordable supplies for domestic farmers following a spike in global fertiliser prices.)
The Southern African Development Community (SADC) region imports around 80% of its fertilisers, though admittedly not all from Russia, and these shortages could have a big impact further down the line on agriculture and agro-processing businesses.
In addition, a number of other commodities will be affected. Russia and Ukraine are the first and fifth biggest exporters of wheat globally, and the second and first biggest exporters of sunflower oil. (The two nations account for 69% of the world’s sunflower oil output).
What opportunities do these commodity shortages present for African farming businesses?
There are opportunities for African companies to increase production to meet global demand and take advantage of higher prices for these commodities, although in the short-term it is more about optimising the output on existing farms, as dedicating new land to these crops takes a lot of capital and won’t happen overnight.
We know, for example, that there will be shortages of wheat. So there are opportunities for countries that produce wheat and other substitute grains – such as Ethiopia, Kenya, Nigeria, South Africa, Sudan, Zambia, and Zimbabwe – to optimise production, for example by improving water sources, enhancing fertiliser usage, and sourcing the right equipment.
For sunflower oil, South Africa is the biggest producer on the continent, followed by Tanzania. There are also opportunities to increase the yield here, but it’s important that these farms get the necessary tools and inputs as soon as possible.
What can companies do to mitigate the effects of supply chain disruption and increased input prices?
Fortunately, Omnia has built up a very agile supply chain. We have a lot of flexibility in where we source our products and how we move materials around.
For example, we can import phosphates or buy them locally, or we also have our own plant that can produce phosphates from rocks. We can obtain our ammonia from a number of different countries, including here in South Africa. We can import it into any one of a number of different ports, transport it using our own trains, and process it in our own facilities. In addition, many of our products use similar ingredients – for example, we also have flexibility over whether we use ammonia for fertiliser or explosives.
That flexibility and agility allows us to respond quickly to supply challenges and has allowed us to keep on growing our volumes as we have done.
Where do you see the longer term opportunities for African countries, as a result of the current supply chain disruption and geopolitical shifts?
Logistics costs such as fuel, port prices, and container costs, have all gone up and that is driving inflation. We have already seen food prices rise up to 10%, and I think we will continue to see prices rise in the medium to long-term.
There is huge unexploited potential for African countries to increase their agricultural exports, both by planting more hectares and by increasing yields. There are large chunks of land either side of the Nile and across the continent that can be cultivated, and also large areas of land farmed by smallholders, who are not exporting food. How drastically countries can increase their agricultural exports really depends on how quickly governments and farmers can mobilise to plant more and increase production using better inputs and better technology.