Kenya Maize & Wheat Flour Market Will Show Strong Growth

The Kenyan maize and wheat flour market will show strong growth (CAGR of 7.3%) over the next 3 years as changing consumer preferences for wheat flour, improving retail accessibility, and increasing market sophistication drive demand. Worth $738.1 million in 2015, the Kenyan wheat flour market is expected to reach $1.15 billion by 2020 at a CAGR of 9.2%, accounting for 47.2% of the market by 2020. In comparison, the commercial maize flour market is expected to increase from $315.8 million in 2015 to $444.0 million by 2020 at a CAGR of 7.1%, while posho maize flour will increase from $658.2 million in 2015 to $840.2 million by 2020 at a CAGR of 5.0%.

Both the wheat and commercial maize flour markets in Kenya are very competitive, dominated by Tier I participants. The commercial maize flour market has an additional segment to compete with besides wheat flour-posho flour. Posho millers provide inferior-quality flour at cheaper prices for price-sensitive consumers, and comprise the bulk of the maize flour market in Kenya.

Tier I market competitors involved in both wheat and commercial maize milling include Mombasa Maize Millers (MMM), Diamond Lalji Group (DLG), Pembe-Kitui, and Unga Group Limited. TSS Grain Millers (wheat milling), Uzuri Food Limited (wheat milling), and Alpha Grain Millers (maize milling) conclude the list of Tier I competitors. Tier II and Tier III competitors are also mentioned, as well as the estimated milling capacities of Tier I, II, and III participants. Five key growth opportunities as well as critical success factors are highlighted.

Geographic scope: Kenya

Product scope: Wheat flour, commercial maize flour, and posho maize flour Application scope: Business-to-business (B2B) and business-to-consumer (B2C)

Study period: 2017 to 2020

In Kenya, maize market reform began around the same time as other countries in the region when it embarked on the Cereal Sector Reform Program in 1987/88. The European Union supported the program as part of the country’s overarching structural adjustment policies. The reform process intensified in the early 1990s when, under pressure from international lenders, the government eliminated movement and price controls on maize trading, deregulated maize and maize meal prices, and eliminated direct subsidies on maize sold to registered millers (Jayne and Kodhek 1997). Maize and maize meal prices, which prior to policy change were set at pan-seasonal and pan-territorial levels, were deregulated. Private traders were allowed to transport maize across districts without any hindrance. Prior to this policy change, they were required to acquire movement permit for varying quantities of maize that was to be transported. The government still participates in markets, albeit on a more limited scale. For the first time in several years, the NCPB in 1999 purchased about 72,000 tons of domestically produced maize as part of a governmental decision to stabilize maize prices.

Nature of Maize Milling in East Africa Community

This study sought to establish the role of the private sector in ensuring food security in East Africa Community. All the interviewees unanimously agreed that majority of the milling firms are located primarily in urban, deficit areas and operated between 1 and 2 factories mainly in Nairobi followed by Mombasa. A very small number of the firms operate milling factories in Tanzania, Uganda and Rwanda but relied to a great extent on their existing distribution channels outside Kenya to reach customers. The interviewees unanimously agreed that a few of the milling firms obtained their raw materials from other East African countries. Most of the interviewees however indicated that majority of the milling firms obtained their raw materials locally and whose prices were determined by prevailing regional market prices. It is only in a few instances when there are domestic production shortfalls that international markets are used for purchasing foods. On the effect of liberalization of the maize market, all interviewees unanimously agreed that this led to millers reducing the degree of flour refinement in order to cut down their costs to rival those of the many small-scale mills. A few of the interviewees indicated that their companies had expanded into other countries in East Africa. This is attributed to the existing distribution channels outside Kenya that these companies use to reach customers. On the factors that influence firms to pursue internationalization strategies, the interviewees indicated that these included opportunities for growth through market diversification, opportunities to earn higher margins and profits, being closer to supply sources and to gain access to lower cost or better value factors of production. On whether the milling firms are members to a regional association, the interviewees indicated that only very few firms are members of any regional association. These few firms belong to the East African Association of Maize Millers. Most of the interviewees indicated that their organisations did not have any plans for a merger or acquisition in any other East African country. Further, the interviewees were requested to indicate relevance of the EAC on enhancement and participation of the private sector. They responded that EAC has not eliminated double tax and tariffs.

Maize Value Chains in East Africa

The Maize Global Value Chain

The maize value chain can be divided into five categories: inputs; production; aggregation; processing; and marketing and distribution. One of the world’s three dominant crops along with rice and wheat, the global maize industry had revenues of US$219.5 billion in 2015 (Marketline, 2016). End uses depend on geographic location and food security considerations; however, animal feed and, increasingly, ethanol production are the focus in developed nations. The interest in ethanol and animal feed helps shape the organization of the global industry. The largest grain traders, often called the ABCDs, are Archer Daniels Midland Co (ADM), Bunge Group, Cargill, and Louis Dreyfus. Collectively, these four companies manage an estimated 70- 90% of globally traded grains (Murphy et al., 2012). The ABCDs are critical to the world food trade, using an unmatched network of silos, ports, ships and farmer relationships to buy and sell grains to customers ranging from food groups to biofuel companies and animal feed corporations. Their size and market diversification allows them to exploit economies of scale in information gathering, data analysis, technology, storage, transportation, and risk management. Investments in new markets are often contingent on securing supplies of grain or accessing new

markets for growth segments—ethanol, animal feed, or advanced food products such as glucose—for outputs.

The EAC in the Maize Value Chain

The EAC maize context is partially disconnected from global trends. This stems from maize’s status as a staple food crop in East Africa, where it accounts for nearly half of the calories and protein consumed (Macauley, 2015). Kenya, in particular, is a voracious consumer. Unable to satisfy its demand with domestic supply, the country imported the second highest volume of maize in Sub-Saharan Africa behind Zimbabwe in the period from 2004 to 2013. Its processors serve as lead firms in the regional chain, exerting their power by demanding traders and other suppliers deliver high-quality maize that adheres to EAC or Kenyan standards. While maize is not as significant a component of the Ugandan diet—a cash crop instead of a food crop—the country enjoys resource advantages in upstream segments of the chain, allowing it to become a prominent regional producer and exporter of maize to Kenya and other markets. In addition to Kenyan demand and Ugandan supply, a second significant characteristic that shapes the EAC maize market is the prominence of maize flour exports. Depending on the year, Africa generally accounts for 1.5 to 3.5% of global exports of maize; by comparison, the value of the continent’s exports of maize flour represented 20% of worldwide trade in 2013. Much of the maize flour emanates from more technologically advanced processing nations to countries that do not have extensive milling infrastructure. Both Uganda and Rwanda have sizeable market share in maize flour exports. Consumers in the EAC are sensitive to price considerations, which mean that transportation costs can impair competitiveness.

As a result, trade of maize flour is concentrated in countries in close geographic proximity. Uganda exports its surplus maize flour to the Democratic Republic of Congo (DRC) and South Sudan, while Rwanda, which is a relatively minor player in the regional market and not reliant on Kenyan consumers, exports low quality flour to the DRC and Burundi. The differences in the trading profiles between Uganda and Rwanda hint at contrasts in the organization and the structure of their value chains. While “formal” aggregators, including mills and large traders, compete with “informal” traders in the sourcing of raw material in both countries, Uganda’s industry has a higher number of larger-scale actors. Smallholder farming systems characterize the production systems in each; however, cooperatives are larger in Rwanda compared to Uganda, with thousands of farmers instead of hundreds. In the downstream segments of the chain, Rwanda has only one large mill and a small number of formal traders; Uganda, on the other hand, has a higher number, including roughly five large and several medium-sized mills. These characteristics lead to strengths and weaknesses that can be both generalized and localized. The advantages include:  Widespread maize farming with recent increases in production and export volumes. While there are conflicting estimates about maize production and exports in the EAC as well as concerns about data reliability, the clear trend line is for increasing production and export volumes in both Rwanda and Uganda. Rwanda’s production volume increased from 88,000 MT in 2004 to 667,000 in 2013; Uganda’s jumped from 1.3 million to 2.7 million MT in the same period. The gains have helped Uganda solidify its place as one of Africa’s three largest exporters of both maize and maize flour.  Favorable growing conditions. Maize production is widespread in both countries. Uganda, in particular, has been the target for upstream investments in the chain, with foreign companies such as Afgri Limited (South Africa) and Amatheon-Agri (Germany) expanding their presence in the country.

Government attention to the sector. Both the Rwandan and Ugandan governments have included maize as part of broader pushes to spark agricultural development. In Rwanda, the CIP provides subsidies to farmers for key inputs such as seed, fertilizer, and insecticide. In Uganda, the Development Strategy and Investment Plan (DSIP) developed by the Ministry of Agriculture, Animal Industry & Fisheries in 2010 included maize as a priority crop.

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