ONGOLO offers scouting services to help clients find specific goods and services in Africa. We have received queries from all over the world, including from a persistent cashew nuts processor in Vietnam. Most of the queries come from outside Africa, however, one of the biggest potential deals came from a prospective client on the continent. Even though the deal fell through, it offers some interesting insights about sourcing products in Africa. 

New client request: sugar from Zambia

In Q3 2024, I received an enquiry from a potential client based in Rwanda. The client was keen to import the following agricultural commodities from Zambia: maize, sugar rice and soya. They were looking for reliable producers who could also show the standard certification and export documentation.

I immediately reached out to my contacts in Zambia. There was a maize export ban in effect at the time. It would not be possible to meet the request for 5,000 metric tons (MT) of grade one or two white maize. Soya was in short supply because few farmers planted it during the previous farming season. The client had asked for 2,000MT. Zambia’s domestic production of rice was too low for exports and the client needed 50 containers. Within the first hour, I knew that the only viable product was sugar. 

I had a fantastic chat with someone at Zambia Sugar, which is the largest single mill cane sugar producer in Africa. They supply a related company called Illovo Rwanda. The buyer had actually reached out to the local entity and thought it would be cheaper to buy at source. The request for 50 containers of sugar worked out to roughly 1,400MT (28MT per container). The sugar cost was $740 per MT ex-facto, $240 per MT for transporting by road and the total cost was $980 per MT landed. The total deal value was $1.37m. This excluded the 20% import duty in Rwanda. It would take 1-2 weeks to transport the containers by road. Plus another week for Zambia Sugar to do buyer due diligence and finalise the contract. 

Why did the deal fall through?

The deal fell through for several reasons. Firstly, Zambia Sugar did not have stock because the season runs from April to November. I would have tried to negotiate a discount had it been in stock. I would have also reached out to the Somali-run trucking companies to get a better transportation price than $240 per MT. Secondly, the client preferred white product and Zambia Sugar could only export brown sugar. Lastly and perhaps more importantly, the landed price of Brazilian sugar, which is readily available, was $850 per MT or $200k cheaper for the contract amount. 

Why is Brazilian sugar cheaper?

There are several reasons why Brazilian sugar is cheaper than Zambian sugar:

• Economies of scale in Brazil: Brazil is the world's largest sugar producer and exporter, benefiting from economies of scale that reduce production costs. Brazil's sugar industry is highly industrialized, reducing labor and operational costs compared to Zambia.
• Subsidies and government policies: the Brazilian government supports sugar producers through subsidies and favorable export policies, helping keep prices competitive in international markets. Zambia, on the other hand, does not have the same level of subsidies and often has higher production costs.
• Logistics and transport costs: while Zambia is closer to Rwanda than Brazil, logistics costs in Africa are disproportionately high due to: poor road and rail infrastructure; high fuel cost; and, expensive border crossings, with bureaucratic delays and corruption increasing costs. Brazil benefits from efficient maritime shipping routes, making bulk exports cheaper even over long distances.

Conclusion

Even though Zambia is closer to Rwanda, the combination of economies of scale, cheaper shipping, lower subsidies, and high intra-Africa trade costs makes Brazilian sugar more competitive in price. This is a classic example of how structural inefficiencies in African trade make it cheaper to import goods from outside the continent rather than within Africa.