Senegal: Groundnut sector performance at mid-June 2014

Senegal: Groundnut sector performance at mid-June 2014

by Market Insider

Tuesday, 24 Jun. 2014

The following Market Insider analysis is based on information from business and published sources, in particular the USDA/FAS GAIN report "Oilseeds and Oils Annual 2014" issued on 16 June 2014.

Production 

Groundnut planting area increased by 9% in 2013/14, but the yield was lower than the previous season (922 kg/hectare versus 943 kg/hectare) and the quality of the crop worse than the previous season, chiefly because of insufficient rainfalls during the groundnut reproductive phase and of the poor quality of seeds - most of which were not certified. The Senegalese government estimates the in-shell groundnut production at 710,000 tons for the marketing year 2013/14 starting in November 2013, i.e. a 2 % increase compared to the previous season. According to estimates of industry and the United States Department of Agriculture (USDA) staff based in Dakar, production may however not exceed 600,000 tons.  For the marketing year 2014/15, official forecasts put the groundnut output at 850,000 tons, while business sources and USDA staff in Dakar think that it will not exceed 700,000 tons due to the poor quality of seeds.

It is noteworthy that the production zones shifted south of the Kaolack groundnut basin, towards Nioro, Tambacounda, and Velingara, which received more rains. 

Farmers and processors asserted the quality of 2013/14 crop worse than the previous year, with only 24 % oil content compared to 30 % in 2011/12, and a low density of 50% (weight of the kernel within the shell). For this reason, farmers are preferring to sell in-shell groundnuts instead of shelling the product using additional labor (good quality kernels could be sold at better prices). The Senegalese Union of Agricultural Cooperatives (UNCAS) preferred not to participate in the 2013/14 marketing campaign; the poor quality of groundnuts hinders its ability to distribute the proceeds from sales equally to farmers. The reason is that the industrial processors remove all in-shell low density groundnuts and waste from deliveries by blowing and therefore the quantity of groundnuts purchased and paid for by processors differs substantially from the quantities collected by cooperatives from farmers.

The National Network of Seed Producers' Cooperatives (RNCPS), comprising 26 cooperatives across the country, produces groundnut seeds, but the production does not cover the national demand. These cooperatives produced 1,600 tons of certified groundnut seeds in 2012/13 and 2,900 tons in 2013/14. The seeds are analysed by national seed laboratories; this season they have shown a very low germination rate averaging 30%, lower than the previous campaign (50-60%). As a result, the farmers will need to use more poor quality seeds per hectare, i.e. 200 to 250 kg/ha instead of 100 kg/ha and their production cost should increase accordingly. 

The Government provided a subsidy of 18.6 million US$ for the purchase of 74,000 tons of planting seeds for the 2014/15 campaign, of which 24,000 tons are certified. The subsidised price for improved quality seeds has been reduced from 0.4 US$/kg in 2013/14 to 0.28 US$/kg in 2014/15, while the subsidised price for certified seeds has been lowered from 0.4 US$/kg to 0.3 US$/kg. In addition to seed subsidies, the Government supplied 11,274 tons of fertilisers subsidised at 55%.  

Marketing  

The 2013/14 marketing campaign started with the disagreement between farmers and processors over the pricing of in-shell nuts. In November 2013, the National Inter-Professional Groundnut Committee (Comité National Interprofessionnel de l'Arachide - CNIA) fixed the farm gate price for in-shell groundnuts at 0.4 US$/kg.

The fixed price was acceptable to farmers, who before November 2013 were selling their production to private operators at 0.24 - 0.28 US$/kg. But the farmers over optimistically thought that Chinese, Russian and Pakistani buyers who purchased large quantities of groundnuts the previous season, would continue to buy the crop at the new fixed price in 2013/14. Their expectations did not materialise, partly due to the poor quality and aflatoxin infestation of groundnuts. Moreover, artisanal processing (shelling of nuts, oil and meal extraction and the manufacture of derived products such as groundnut butter and paste, soap, etc.) decreased due to the low groundnut quality. Farmers preferred therefore to sell in-shell groundnuts to processors who ended up being the only buyers, instead of shelled nuts.

The fixed price was, on the contrary, not acceptable to processors who considered it too high for two reasons: the poor quality of the groundnuts (only 24 % oil content and 50 % density) and the continuous decrease of international groundnut oil prices (from 2,400 US$/ton in 2013 to 1,160 US$/ton in 2014) because of the low demand. As a matter of fact, the quantity of groundnuts with an oil content as low as 24% needed to produce 1 litre of groundnut oil has to be increased up to 4 kg, rising considerably the production and sales costs.

The Government had to reach an agreement with the processing companies in order to solve the disagreement, providing for the subsidisation of losses they incurred after sales of their groundnut oil and derived products in the international market, as well as for the guarantee of loans provided by banks to processors to finance the marketing campaign. The National Agricultural Bank, for instance, injected about 17.6 million US$ into the campaign. Two to three month later, once the guarantee of loans was in place, the processors started buying the crop and become more confident in purchasing large stocks.

In the Council of Ministers of June 12, 2014, the Minister of Agriculture and Rural Equipment stated that 313,836 tons of groundnuts have been collected across the country and supplied to processors by the beginning of June, valued at 81.93 million US$ (53% to SUNEOR SA, 36% to COPEOL SENEGAL SA and 11% to TOUBA AGRO-INDUSTRIAL COMPLEX (CAIT). About 30% of the groundnuts collected are expected to be sold as edible kernels and 70% to be crushed to oil and meal.

Processing  

It is difficult to determine the current amount of groundnuts processed informally because the traditional processors are not registered with the government; industry sources estimate it at 40 - 45% of the total crop.

The three major industrial groundnut processors are:

• SUNEOR SA - the dominant groundnut processor and edible oils manufacturer and trader.  The company, which has been privatized in 2005 (former the public company SONACOS), is now wholly owned by the French group ADVENS. SUNEOR has a 70% share in the Senegalese market and exports about 98% of the groundnut oil produced by to EU, USA and China, being believed to be one of the world's largest exporters of groundnut oil. Its annual processing capacity of about 300,000 tons is only partly utilized. The crushing activities have been sealed in particular over the past 2 years, since the groundnut market has been opened to foreign buyers including Chinese, to whom the farmers preferred to sell their crop. In 2011/12 the company was able to collect less than 10% of its groundnut input needs. In 2013, two of its five industrial sites remained closed throughout the year and the other three were operating for only two month for the same reason. According to SUNEOR's General Manager, the turnover of the company collapsed, from 207 million US$ in 2011 to 118 million US$ in 2012 and 62 million US$ in 2013. The company is heavily indebted and in a critical social situation;

• COPEOL SENEGAL SA - a joint holding of the French brewer CASTEL and the group SOFIPROTEOL (major French agro-food group owner of LESIEUR OILS), has been set up in 2012 in Kaolack, to process groundnuts into crude groundnut oil. COPEOL SENEGAL took over the assets of the former second largest groundnut processor NOVASEN, while SOFIPROTEOL acquired the same year the SENEGALESE EDIBLE GROUNDNUTS AND OILS CO. (SENRAH);

• TOUBA AGRO-INDUSTRIAL COMPLEX (CAIT) - processes groundnut since 2009 and imports up to 20,000 tons of vegetable oil per year. Its annual installed capacity of 35,000 tons has never been fully used. The refined groundnut oil produced is partly distributed in Senegal and partly exported to Switzerland.

An agreement has been announced in March this year between the Kaolack Chamber of Commerce, Industry and Agriculture and the Chinese company Qingdao Golden Rock Nuts Co, concerning the investment of 4 million US$ for the promotion of groundnut production and the construction of a groundnut processing plant. No news about the progress of this joint venture is available since this date.

Groundnut balances - estimates of USDA staff in Dakar on 16 June 2014