Africa’s Commodity Markets: A look at Tanzania & Kenya
In this note, Market Atlas would like to highlight a slice of the African market for agricultural commodities, specifically grains. In Africa, we have some up and coming commodity exchanges such as the Ethiopian Commodity Exchange that has done reasonably well since its inception. We also have smaller commodity exchanges that focus on specific products such as coffee and tea.
The African commodity market space is still very much a spot/cash market although a few thoughts and conversations have revolved around a possible development of a futures market to help manage price volatility and counterparty risk for both buy and sell sides of the market.
In this analysis, we will focus on one of the most economically robust regions of Africa: The East African Community. Specifically, the non-land locked countries of Kenya and Tanzania. We picked these two countries due to their size compared to the rest of the EAC members, but also because they have alternatives as far as their dietary sourcing. For a particular grain, it could be grown in-country, or imported from bordering countries in Africa or imported from overseas locations. We would expect prices to somewhat reflect the supply side mix of these choices depending on the grain in question.
We have chosen to look at two crops that play a key role in African diets of this region:
We will look at price(mid-price) volatility over the last 5 years both on a short term (yearly) and long term (5 year average) to gage how each grain has performed in each of the two countries at each important major city hub where these grains are traded at the wholesale price level.
The findings will show price action that would peak the interest of any commodity market value chain participant. From the banker looking at pricing a 5-year risk yield on agricultural opportunities with farmer clients, farmers who are looking to see how they can use forecasting to properly price their future crops, to the grains trader or processor looking for a better supply chain to provide their clients or cost base the best market price.
Maize is a crop that has a very healthy demand in Kenya on a daily basis, as well as in Tanzania. Per charts below, the spot/cash price of maize in U.S. dollars per metric ton has been well correlated in Kenya in the major 5 cities that it is traded (Eldoret, Kisumu, Mombasa, Nairobi, and Nakuru) per data gathered by Market Atlas. On a yearly basis, the grain dropped in price an average of 29.46% in 2010, gained an average of 49.39% in 2011, gained an average of 11.72% in 2012, dropped an average of 9.05% in 2013 and as of Oct 30, 2014 has gained an average of 4.70% this year. Each city point of purchase has had a much higher volatility on a yearly basis then on a long-term (5 years) basis.
If one looks at the long-term price action of the grain, we see a 5-year average return of a gain of 6.76% in Eldoret, gain of 6.50% in Kisumu, gain of %7.67% in Mombasa, a gain of 2.55% in Nairobi, and finally a gain of 3.81% in wholesale price (USD) per metric ton in Nakuru.
In Tanzania, we see a more much more uncorrelated price movement between the major points of purchase at the wholesale level with maybe, Dar-Es-Salaam and Arusha the most correlated cities. Major year on year price volatility in these cities can be attributed to the location in the country and their specific supply chain set up. In Tanzania, we look at the top 5 cities that serve as wholesale points of purchase: Arusha, Dar-Es-Salaam, Iringa, Mbeya, and Songea.
On a yearly basis, the grain in Tanzania dropped in price of an average of 24.58% in 2010, dropped an average of 7.42% in 2011, gained an average of 22.01% in 2012, gained an average of 27.89% in 2013 and as of Oct 30, 2014 has dropped an average of 13.13% this year. Each city point of purchase has a much higher volatility on a yearly basis then on a long-term (5 years) basis.
If one looks at the long-term price action of the Maize, we see a 5-year average return of a gain of 3.14% in Arusha, gain of 0.99 % in Kisumu, gain of 4.87% in Iringa, a loss of 2.23% in Mbeya, and finally a loss of 2.01% in wholesale price (USD) per metric ton in Songea.
Per charts below, the spot/cash price of rice in U.S. dollars per metric ton has been well correlated in Tanzania in the major 5 cities that it is traded (Arusha, Dar Es Salaam, Iringa, Mbeya, and Songea) per data gathered by Market Atlas. On a yearly basis, the grain dropped in price of an average of 17.22% in 2010, dropped an average of 5.20% in 2011, gained an average of 54.64% in 2012, dropped an average of 18.90% in 2013 and as of Oct 30, 2014 has dropped an average of 6.66% this year. Each city point of purchase has had a much higher volatility on a yearly basis then on a long-term (5 years) basis.
If one looks at the long-term price action of the grain, we see an average return of a gain of 0.05% in Arusha, a gain of 2.54% in Dar Es Salaam, a loss of % 0.88% in Iringa, a gain of 6.60% in Mbeya, and finally a loss of 1.66% in wholesale price (USD) per metric ton in Songea.
In contrast, Kenya sees a much more volatile price movement between the major points of purchase at the wholesale level. Major year on year price volatility in these cities can be attributed to the location in the country, market demand given Maize is a more consumed grain then rise, and their specific supply chain set up. In Kenya, we look at the top 5 cities that serve as wholesale points of purchase of rice: Eldoret, Kisumu, Mombasa, Nairobi, and Nakuru.
On a yearly basis, Rice in Kenya gained in wholesale price an average of 26.50% in 2011, gained an average of 28.12% in 2012, gained an average of 12.55% in 2013, and gained an average of 14.66% in 2014.
If one looks at the long-term price action of Rice in Kenya, we see a 5-year return average of a gain of 21.70% in Eldoret, gain of 15.58 % in Kisumu, gain of 40.81% in Mombasa, a gain of 13.84% in Nairobi, and finally a gain of 10.35% in wholesale price (USD) per metric ton in Nakuru.
Market Atlas will continue to bring to you in future post insights into Africa’s markets with a focus on market action. Africa is still mainly a spot/cash market as far as commodity grains are concerned. Market Atlas sees a trend toward centralization of price discovery at both the wholesale and retail level. With this potential trend being continent wide, look for a drastic improvement in logistics focused service delivery organizations both on the transportation and storage side but as well on the technology centric delivery of price information to the end user.
Justin Mahwikizi is the Founder and Chief Executive Officer at Market Atlas. Market Atlas provides a decision support tool for the institutional and financial market participant as it pertains to investing in Africa’s public and private markets. We use innovative technology and human-centered design to help normalize African markets for the user from a research and due diligence process.
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