Building resilient regional value chains (RVCs) under the Africa Continental Free Trade Area Agreement (AfCFTA) is an important pathway to growth and development.1 RVCs are value chains in which production and value addition occur within a specific geographic region. The intermediate or final product is therefore collectively produced by countries within a region, but can be consumed within that region or exported to other regions2 and countries. RVCs have the potential to boost intraregional and intra-African trade and investments which, in turn, can spur greater industrialization and reduce the continent’s reliance on value-added imported products. Firms that export to other countries within the same region have greater market access, enabling them to invest in upgrading their technological capabilities and product offerings. By increasing productivity in regional markets, firms also improve their chances of participating in global markets.3
Food value chains, in particular, present substantial opportunities to develop RVCs on the African continent.4 Africa’s growing middle class and urban population are demanding more processed food and beverages. Revenues in these sectors are projected to increase by US$120 billion in Africa over the next decade.5 This signals good prospects for developing RVCs to cater for this growing demand. Food and beverage production, as well as certain primary agricultural activities,6 can entail highly sophisticated technological processes, and developing these capabilities can enable firms in emerging economies to earn more revenue and participate in regional and global markets.
However, all of these benefits are largely determined by how the value chain is governed, the power dynamics of actors at different levels within the value chain, and which actors are able to shape investment decisions in terms of their standards, requirements and procurement practices. For example, South African supermarket chains have spread across the region and act as large, lead buyers. They are an important route to market for food producers and processors, but they also wield considerable power in food markets and often act as “gatekeepers”.
Opportunities to develop RVCs in food
Despite Africa’s potential to significantly and sustainably expand food production in regions with good soils, land availability and favourable growing conditions, the continent as a whole remains heavily reliant on processed food imports.7 This has been a key factor in rising food prices and food insecurity.8 The Southern African Development Community (SADC), for instance, is a net importer of processed food and agro-based products, resulting in net financial outflows (see next figure).
RVCs in food remain strikingly under-developed in Africa.9 There are many factors hampering intra-African trade, including poor infrastructure, inefficient border controls, inadequate support services, weak institutions and weak factor markets.10 However, large lead buyers, particularly at the food processing and retail levels, also have a role in facilitating or hindering the development of food RVCs.
Supermarkets chains as gatekeepers to end markets
The urbanization of Africa means that supermarkets are an increasingly important route for both fresh and processed foods to reach consumers.11 Supermarket chains hold considerable buyer power and act as “gatekeepers” between producers and consumers, shaping the direction and development of the value chain.12 In the case of Southern Africa, this power is largely concentrated within a few South African supermarket chains, which have expanded and spread throughout the region.
This has some benefits, such as providing suppliers with access to large customer bases. They can also benefit consumers by demanding specific product and process standards from their suppliers, as well as environmental and social standards beyond what is strictly required by law. This does, however, have the effect of increasing production costs, squeezing supplier margins and making it difficult for them to invest in upgrades and innovation. Small and medium-sized suppliers in the SADC region often struggle to meet these stringent and escalating private standards, effectively preventing them from accessing these markets.
An implication of this buyer power in Africa is that it can hamper the participation, growth and upgrading of food producers and processors. For example, even though large South African supermarkets have spread to other countries in the region, they tend to continue dealing with established (often large) multinational food processors in South Africa, as these are able to meet the chains’ requirements. Further, there is a relative lack of processing capability outside South Africa. This means that South African goods displace local produce in other countries, whereas other countries’ goods rarely make it to South African shelves. The result is a heavily skewed trade balance in favour of South African exports (see figure below).
The power of supermarket chains puts them in a strong position to promote the development of local and regional supplier bases through their procurement practices. They could also leverage their market power to develop supplier capabilities in the region, and ensure fair prices and conditions of supply. In the longer term, this would benefit the larger supermarkets by creating a more competitive and closely located supplier base, reducing dependence on multinational food processors or imported products.
Some policy recommendations
This article put the spotlight on supermarket chains as an important actor at the downstream level in food RVCs. Through their gatekeeper role, supermarket chains can effectively shape supplier investments in upgrading their productive capabilities. A collaborative relationship between supermarkets, suppliers and other relevant stakeholders – such as governments and competition authorities – could positively contribute to RVC development. This could take the form of formal supplier development programmes (SDPs) to stimulate food RVCs, or regional codes of conduct could be incorporated into a “Regional Retail Charter” to ensure fair trading practices. Similar commitments have already been made at national levels (e.g., the South African Agriculture and Agroprocessing Master Plan, the Namibian Retail Charter and the Retail Code of Conduct in Kenya), but the AfCFTA clearly has a role to play in developing a regional equivalent.
This would need to be combined with supportive industrial and agricultural policies, as well as a harmonization of standards. This could be “piloted” in two or three countries within limited value chains to better understand what works (and what doesn’t) before expanding to larger geographies. At the same time, market-shaping policies and interventions are needed to create less concentrated, more resilient and diverse food systems.
Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).
- For further reference, please consult: World Bank Group, 2020. Chisoro-Dube, das Nair and Nsomba, Making regional value chains work: Lessons from AFCFTA, 2022.
- Stuart, J., Value Chains Can Drive, and be Driven by, the AfCFTA, 2022.
- For further reference, please consult: African Export-Import Bank, Leveraging the Power of Culture and Creative Industries for Accelerated Structural Transformation in the AfCFTA Era, 2022.das Nair, The Oxford Handbook of the South African Economy, 2021.
- For further reference, please consult: Nsomba and Shedi, Market development for regional industrialization and sustainability: the case of the soybean to poultry value chain, 2023; Kaziboni and Roberts, Industrial Policy for a Just Transition to a Green Economy – The Importance of Regional Food Value Chains in Southern Africa, 2022; das Nair, The Oxford Handbook of the South African Economy, 2021.Paremoer, Regional Value Chains: Exploring linkages and opportunities in the Agro-processing sector across five SADC countries, 2018
- African Export-Import Bank, Leveraging the Power of Culture and Creative Industries for Accelerated Structural Transformation in the AfCFTA Era, 2022.
- For further reference, please consult: Cramer and Sender, Oranges Are Not Only Fruit: The Industrialization of Freshness and the Quality of Growth, 2019; Cramer and Chisoro-Dube, The Industrialization of Freshness and Structural Transformation in South African Fruit Exports, 2020.
- Roberts and Tshabalala, High Food Prices in Africa: causes, consequences and agenda for action, 2022.
- For further reference, please consult: Roberts and Tshabalala, High Food Prices in Africa: causes, consequences and agenda for action, 2022; Okou, Spray and Unsal, Africa Food Prices Are Soaring Amid High Import Reliance, 2022.
- Chisoro-Dube, das Nair and Nsomba, Making regional value chains work: Lessons from AFCFTA, 2022.
- Christiaensen & Demery, Agriculture in Africa Telling Myths from Facts, 2018.
- For further reference, please consult: das Nair and Shedi, ‘Supermarketisation’ of African Food Systems: Implications and Responses, 2022; das Nair, The Oxford Handbook of the South African Economy, 2021.
- das Nair and Shedi, ‘Supermarketisation’ of African Food Systems: Implications and Responses, 2022;