Last week, I wrote a piece on value addition of agricultural products and equated selling raw materials to modern-day slavery. The article generated some useful debate on social media.
One reader argued that with liberalisation and globalisation of economies, rich countries make it deliberately hard for poor countries to add value to their products. I argued that with the internet, knowledge and technology are easily accessible and we don’t need to continue to be victims.
A bit of recap is in order just in case you missed out. I said that when we export raw materials— oilseeds such as sunflower, soybeans, cotton, canola, maize, or minerals such as gold or silver— we’re essentially losing jobs and wealth to other countries.
To illustrate my point, I gave the example of cotton which I know a lot about because when we were growing up, it was the only cash crop we grew.
Here’s the thing. My father sold cotton (the downy white fibre) for a couple of shillings to a nearby ginnery. He waited for six months to be paid even as we were sent home for school fees arrears. At the time, I didn’t know what happened to the cotton but thanks to the internet now I know.
At the current rates, a kilogram of ginned cotton sells at about $1.37 but when it’s turned into yarn, the price is $3. When woven into fabric, it sells at $5. The final garment sells between $8-10, up from the initial cost of a kilo of ginned lint cotton ($1.37).
What was I saying before you interrupted? Okay, when a county or country sells lint cotton (after ginning) to another, it’s losing jobs in spinning, weaving, printing and tailoring. This scenario applies to virtually any product you can think of— coffee, tea, oilseeds (soybeans, maize, sunflower) and minerals such as copper and gold.
By the way, a small scale oilseed processing and refining machine costs between Sh200,000 and Sh300,000.
Let’s cut the chase. The edible oil that we use for frying chapatti or Sukuma wiki is mainly extracted from oilseeds such as soybean, canola, maize, sunflower, coconut or cottonseed. A litre of cooking oil sells between Sh100 and sh300 depending on the quality. After the oil has been extracted, what remains (sunflower cake, soybean cake, cottonseed cake) is used in making animal feeds mainly to provide protein, energy and micronutrients.
To make poultry feeds, I buy a kilo of soybean cake at Sh75 from retailers. To make a 50kg bag of layers mash, I need 12 kg of soybean cake which totals to Sh 900 ($9).
Oops! The soybean cake alone accounts for about one-third of the final retail price for a 50kg bag of layers mash.
In essence, if I choose to extract the oil from the seed and use the cake to make animal feeds, I am gaining at four levels: edible oil (for cooking), cake (making animal feeds), mash (feeding chicken), and selling chicken meat and eggs to my customers at a lower price. What else can I say?
One challenge with low-cost manufacturing on large scale is low wages, poor working conditions, long working hours, and often child labour is employed.
Which brings me to this question. Is low-cost manufacturing and technology-driven village economies the way to go in Africa? Here I am talking about cottage industries where production, buying, selling and processing of products occurs at local level where value is negotiated.