Policy Notes for Key Issues in the Rural Sector

Policy Notes for Key Issues in the Rural Sector:

Gum Arabic and Livestock Marketing

Concept Note

Background

In Sudan, agriculture accounts for two thirds of employment, makes up more than 80% of the non-oil revenue, and contributes around a third of the GDP.Development of the agriculture sector, particularly the traditional rain fed systems, represents Sudan’s main prospect for equitable economic growth. However, the country’s current development policy favors urban areas.

Two thirds of the population in Northern Sudan lives in rural areas. More than 80 percent of the rural population depends on rainfed traditional farming for their livelihoods, a system prevalent in Western, Central and Eastern Sudan. It produces a share of agricultural GDP that is lower than the share of the rural population it supports. Levels of rural poverty are in the range of 65 to 90 percent.

This farming system is characterized by largely subsistence production and the use of family labor with no modern equipment and inputs such as fertilizers or improved seeds. In order to secure the food needs of the household, the priority is given to crop production (usually sorghum or millet). Livestock and gum arabic - most prevalent in traditional rainfed farming areas- constitute a crop diversification strategy to mitigate potential crop failure and raise sources of incomes to meet the household’s basic needs other than grains.

In addition to being core to the livelihoods of small-scale producers, livestock is the second export commodity after petroleum products (though most of the livestock produced is slaughtered for domestic production). Gum arabic is also a main export commodity[1].

These two commodities could play a crucial role in alleviating rural poverty if farmers obtained a fair share of domestic and export prices. However, gum arabic and livestock production have suffered from inadequate marketing arrangements, compounded by high taxation,a deficient land tenure policy that discourages investment and credit and the recent appreciation of the Sudanese Dinar against the US dollar, reducing competitiveness.

Gum Arabic Marketing:

Gum arabic is produced from acacia trees. It is a complex polysaccharide that has food, pharmaceutical and technical applications. It is produced across sub-Saharan Africa, from Senegal, Mali and Nigeria to Ethiopia and North of Kenya. Sudan is the world’s largest producer of gum arabic.

The gum arabic belt spans over the traditional rainfed areas of western and central Sudan. Acacia tree has a regenerating impact on the land. Thesupplementary revenues generated by gum arabic are crucial tothe livelihoods of 6 million Sudanese (1 million small-scale farmers and their households).

In 1969, the Government granted the Gum Arabic Company with statutory monopoly over raw gum arabic export. This was aiming to guarantee production and protect producers through the execution of a minimum price policy (floor price), support the country’s export revenues in foreign currency, and protect the environment.

Over the last 40 years, Sudanese gum has gradually lost shares on the world market. This downfall is primarily due to the inadequate domestic and export pricing policy implemented by the Gum Arabic Company (GAC). Low prices paid to farmers haveresulted into disruptions in production. Strong variability of export price and supply has pushed end-users to shift to other sources of gum (Chad and Nigeria have emerged as large producing countries) and synthetic substitutes. Over the recent years, GAC has accumulated important stocks that jeopardize to its financial sustainability.

On November 01, 2006, the Economic Committee of the Council of Ministers issued a directive to the Ministry of Trade to terminate the current monopoly export powers held by the Gum Arabic Corporation. If implemented and accompanied by adequate measures, such a deregulation would benefit small-scale producers through increased prices and hence higher incomes and would allow Sudanese gum to regain world market shares.

Scope of the Policy Note:

Assess the impact of the marketing policy of the Government policy for exports, within the context of impact both on supply and demand,

Explore the options for increasing and stabilizing exports and providing producers with a larger share of fob prices

The gum arabic marketing policy note will be prepared based on:

-meetings with key informants, including Gum Arabic Company, National Forest Corporation, traders and processors;

-field visits to meet village merchants and small-scale producers; and

-Secondary sources – reports and other publications.

Draft note to be distributed for comments to WB peer reviewers by December, 10;

Comments by WB peer reviewers to be incorporated by December, 30;

Submission to Technical Secretariat for distribution to OC members in early January 2007;
Final note issued for public distribution after incorporating OC comments.

Livestock Marketing

Sudan is home to large numbers of livestock; namely cattle, goats, sheep, and camels. The average value of livestock production accounts for almost 50 percent of the total value of agricultural production.

Livestock are most prevalent in traditional rainfed farming areas - Western, Central and Eastern Sudan - where they are raised under nomadic and transhumance systems (moving with livestock and growing short-maturity subsistence crops). Sedentary agriculture also includes a significant number of livestock. Livestock provide an important capital asset and are a risk management tool for pastoralists and farmers who continually face uncertainty caused by drought and crop failure.

The structure of livestock marketing is based on primary markets at the village level, secondary markets at the regional level, and on one terminal market (Khartoum Omdurman) for final domestic sales or exports. Apart from the Omdurman market and a few secondary markets run by the Animal Resources Service Company, management of livestock markets is the responsibility of States and Localities. Off take percentages are low due to the absence of incentives for herders to sell their animals; animals are not paid on a live weight basis, there is no grading system in place. Marketing margins are high in Sudan because of the large distances traveled by animals on the hoof, the absence of transparent sales system (no market information to herders) that results the multiple intermediaries, and heavy taxation of animals trekked to terminal markets (up to 20% of the f.o.b. price). The number of exporters has substantially decreased due to adverse marketing arrangements. As a result, average price of livestock at the primary market level is much lower than the export price. In addition to these impediments, the appreciation of the currency (Sudanese Dinar) against the US dollar - as a result of recent and rapidly increasing oil revenues - has reduced the competitiveness of Sudanese livestock on international markets.

The livestock marketing policy note will:

-describe current market structure and marketing arrangements (including value chains for sheep and cattle from relevant production areas to Khartoum and export markets),

-identify constraints in the existing marketing system (market management, taxation, credit provision, transport costs, export arrangements, standards…),

-Identify the demand side,

-propose options for improved livestock marketing.

The livestock marketing policy note will take into consideration the outcome of:

-The diagnostic trade integration study (DTIS), led by the World Bank, which analyzes both the internal and external constraints facing Sudan in increasing its integration into the global economy. DTIS will notably assess Sudan’s livestock exports competitiveness;

-The preparation of the MDTF N livestock project, which targets on Eastern Sudan and North Kordofan. Project preparation deliverables include a description of marketing arrangements (including value chains) for sheep and cattle in areas targeted.

Draft note to be distributed for comments to WB peer reviewers by February 10, 2007

Comments by peer reviewers to be incorporated by February 20

Submission to Technical Secretariat for distribution to OC members in early March 2007
Final report issued for public distribution after incorporating OC comments.

Budget

The MDTF National Oversight Committee has approved the preparation of two policy notes on Gum Arabic Marketing and Livestock Marketing. Preparation will be financed by MDTF N budget. Total budget approved is $50,000 for the two studies.

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[1] Livestock is the first agricultural export (in 1999, export value was US$ 114 M). Other main export commodities - in descending order - are sesame, cotton and gum arabic. In 2000, gum arabic export value amounted to $US 25M. (Source: Min Ag. Stat.).