Polishing Peanuts: The Senegalese Groundnut Story

Global background

China, India and the United States are the biggest producers and consumers of peanuts in the world. On account of good weather, American peanut production will be high in the 2014/2015 marketing year, which should allow for elevated exports. In India, production is anticipated to be lackluster due to unfavorable weather, which is likely to depress exports. Chinese production is also expected to be lower than usual, because of floods in southern Chinese groundnut-growing areas and simultaneous droughts in the northern production zones. This may in turn translate to elevated imports into China, and potentially favorable prices for producers in the coming few months. China is the world’s largest producer of groundnuts, and used to be a globally significant exporter. But due to seemingly ever-increasing demand for peanuts and peanut oil in the country, it has recently become a consistent small importer. India and the United States, on the other hand, are much less likely to import groundnuts, as both consistently produce more than enough to satisfy domestic demand. In 2013, the highest proportion of exported peanuts to produced peanuts among these countries was the United States, at about one-fifth.

The largest groundnut importers are typically Indonesia, the Netherlands, Germany, the UK, and Mexico. Some of these countries, like the Netherlands, go on to re-export these groundnuts as higher-value, processed items, or as ingredients in such processed items.

About one-third of groundnuts are eaten as nuts—in snack foods, in confectionary items, in peanut butters, and the like. The remaining majority is processed into oil, which is commonly used as a form of cooking oil in many parts of the world, especially China, India, Myanmar, and Nigeria.

Prices for peanut oil peaked in mid-2012, while peanut prices peaked in mid-2013. China, unsurprisingly, will be the major driver of growth in peanut oil demand, whereas demand for non-oil peanuts is likely to be more diverse.

Senegalese peanuts

Senegal was once one of the most significant worldwide players in the groundnut industry. After decades of decline due to ineffective policies and poor agricultural management, the West African country is now hoping to regain its former peanut glory.

Senegal has a “groundnut basin,” in which most of the country’s crop is grown. The basin covers a large swathe of central and western Senegal, north of Gambia. This area is large indeed: in 2010, over 40 percent of land under harvest was dedicated to the cultivation of groundnuts. Further, the groundnut sector both directly and indirectly employs about 1 million Senegalese people (close to 7 percent of the Senegalese population). Groundnuts typically require between 500 and 700 mm of rain to achieve good yields (this is similar to how much water corn needs to grow successfully). Senegalese droughts, which are not uncommon, have devastated production levels in the past, recently in 2002 and 2011.

The 1960s were very good years for Senegalese peanuts. At the peak in 1965, Senegal produced 1.1 million tonnes of groundnuts, and exported about 300,000 tonnes of them —which represented roughly 20 percent of total global peanut exports. In the subsequent years, Senegalese production began to slip, as the country’s former colonizer, France, lifted the price support it had been offering under the Lomé Accord. Meanwhile, global tastes in oils began to diversify as soybean oil, sunflower oil, and others became increasingly popular. China quickly filled the void left by Senegal and others, increasing production drastically thanks to agricultural reforms and the increased adoption of new varieties.

Over the next two decades, Senegal was only able to achieve strong groundnut production in 1974, 1978 and 1982. But after that, production trended downward, and was extremely erratic, so that the country did not again achieve production in excess of 1 million tonnes until 2000, and then again in 2010.

Senegal is now striving to regain its footing in the world groundnut market, if not in terms of the proportion of the world peanut market it controls (there are more peanuts being traded today than there were in the 1960s and 1970s), then at least in terms of the absolute quantity of groundnuts produced. In 2013, Senegal was producing just 60 percent of the groundnuts it had produced in 1966.

Low crop yields have been a primary reason behind Senegal’s lackluster peanut performance. Yields have actually declined since peak production five decades ago: in the first decade of the 2000s, yields were 13 percent lower than they were in the 1960s. This decline is happening in a context in which yields for groundnuts and most other crops in most parts of the world are increasing.

Senegalese groundnut yields are just a fraction of those of industrialized producers like Argentina or the United States, and are slightly lower than those of India. These low, stagnating yields result from the usual combination of lacking inputs, little access to capital, and ineffective agricultural techniques. If Senegal is to once again become a major groundnut producer, its farmers will have to have access to the types of inputs and education that will allow them to increase their yields.

Other production barriers

Of course, there are issues beyond yields affecting the Senegalese groundnut sector. Some of these issues are out of the control of farmers or the state. For example, in the years 2002 and 2011, dramatic dips in both production and yields are visible in the above charts. Both these dips are attributable to major droughts that devastated much of the Senegalese agricultural sector in those years.

The groundnut basin of central Senegal was effectively the epicenter of the 2002 drought, and production fell by about 70 percent. The next major drought was in 2011—after 2 years of bumper harvests during which Senegal finally managed to once again attain production greater than 1 million tonnes. That drought devastated much of the Sahelian region—namely, Burkina Faso, Cameroon, Chad, Gambia, Mali, Mauritania, Niger and Nigeria. Senegalese farmers in the north and northeast of the country were hit particularly hard. Following each of these weather events, Senegalese groundnut production took some time to bounce back, as farmers were unable or unwilling to plant groundnuts so soon after a disaster.

There is also a visible dip in both production and yields in 2007 due to floods. Although the rains that season were delayed and started slowly, they fell heavily in the final weeks of the rainy season, resulting in severe floods that were particularly devastating in the northern parts of the country.

Peanuts come in a number of different varieties, all of which have a particular use. In Senegal, most of the peanuts that are produced are destined to be crushed into oil. It therefore becomes extremely important that producers choose the optimal varieties for this purpose. As the suitability of seeds deteriorates or fluctuates, it can take more and more peanuts to produce the same amount of peanut oil. This can be bad for the farmers, whose product will be worth less. Low oil yields are also bad for processors, for whom it will be more cumbersome to produce oil.

Senegal urgently needs to successfully combat aflatoxins. Aflatoxins are produced by a fungus within the aspergillus species, which are likely to attack maize, peanuts, tree nuts and cottonseed. These fungi can spread onto crops when they are still in the ground, but are more likely to spread after harvests, when crops are being stored. Therefore, farmers lacking access to appropriate threshing, drying, and storage methods are particularly prone to having aflatoxin-contaminated crops. This relationship between inadequate post-harvest handling technology and aflatoxins explains why contamination is more likely in developing countries.

Evidence indicates that continued aflatoxin consumption can lead to immune system suppression and liver cancer. Acute toxicity occurs when (usually) livestock consumes large amounts of aflatoxin-infected products. The poison inhibits their metabolic abilities and can lead to death. The susceptibility of livestock to aflatoxins means that dairy products can also be infected with toxins.

Most countries have limits as to the maximum amount of aflatoxin permissible in agricultural products. Strict maximums set by importers like the European Union and the United States have meant that exports of agricultural products from areas prone to aflatoxins, like Senegal, have suffered. Globally, US $1.2 billion is lost in commerce each year due to contamination, and African states are losing about $450 million of that. Senegal is therefore looking to improve its aflatoxin mitigation strategy—not just to boost its exports, but also because aflatoxins pose a threat to the health of its citizens.

Senegalese groundnuts: the domestic market

Right now, the Senegalese groundnut market is in an exciting place. Historically, the government had set the price at which producers sold their groundnuts through the CNIA, Comité National Interprofessionnel de l’Arachide (National Inter-professional Committee on Peanuts). The CNIA would review this purchase price every year, and implement any changes to prices at the beginning of the season. The CNIA offered the same price to producers regardless of their location in the country. It absorbed any transportation-related costs. Producers would sell their products, at the nationally determined price, to processors. Processors, who were also receiving government subsidies, would crush the groundnuts into oil ready for export.

In 2010, the last year in which the described domestic processor subsidy was in place, the nationally-set price for peanuts was 165 CFA ($0.34) per kilo. The government was offering a subsidy to the processors of 15 CFA ($0.03) per kilo, which meant that the processors effective cost was 150 CFA ($0.31) per kilo.

Both farmers and processors frequently expressed their frustration with the system. Farmers insisted that the prices that they were receiving were too low, and did not reflect international prices. Processors argued that the prices they were forced to pay to farmers were too high, and did not adequately take into account questions about quality and oil content. Furthermore, groundnut production was outstripping the capacity of oil processors. This in turn helped lead to a tense, inefficient situation in which the government was delayed in handing out its subsidy payments to processors, and processors were in turn very late to pay their supplying farmers.

In 2010, the Senegalese government loosened its groundnut policy, first by removing the subsidies it had been offering processors, and second by allowing unprocessed groundnut exports. This allowed farmers to bypass the CNIA and export all forms of peanut other than seeds. As a result of this liberalization, buyers from around the world have begun to flock to Senegal, offering higher prices than the CNIA. Buyers from China, India, and Lebanon have begun to buy groundnuts from Senegalese producers. China has especially begun to play a large role in that market. Farmers indicated that in 2012/2013 the prices that Chinese buyers offered were often higher than those of the CNIA by 30 percent.

Although this was a good sign for peanut farmers that year, it also led to a degree of overconfidence: in 2013/2014, these enthusiastic, international, high-paying buyers did not come as they did in the previous year. This was the result of poor nut quality and high aflatoxin incidence. This in turn led to a higher rate of waste, as well as some farmers having to settle for lower prices than they had the previous year.

As mentioned earlier, an improvement in seed quality and aflatoxin control methods would allow farmers to obtain better prices for their goods—prices that are more reflective of the much-higher average international price of peanuts. The Government of Senegal, as a part of its 2008 Grand Agricultural Offensive for Food Security (GOANA), has begun offering subsidized inputs for Senegalese farmers, and offered $18 million in subsidies for groundnut seeds (mostly certified seeds) in the 2014/2015 year.

Conclusions

The Senegalese groundnut sector is in an exciting state of flux. Recognizing this, a number of buyers and actors have begun to move into the space since 2010. Investment from Chinese peanut processors has been particularly prominent in the Senegalese headlines. With the liberalization of the export market, producers have new, more enticing incentives. And with these added incentives to peanut production, Senegal’s total output is likely to increase, as is the area under harvest, as more farmers take advantage of the opportunities offered by the sector.

However, in order for farmers to truly reap the benefits of the peanuts they produce, they need to have access to quality seeds. In this case, that means not just seeds that will grow well in the Senegalese climate, but ones that are optimal for the seeds’ purpose: oil production.

On a more macro level, Senegal needs to develop a strategy to better handle the impact of drought. As was apparent following the droughts of 2002 and 2011, such weather events are not only extremely damaging, but also have long-lasting effects. Introducing better seed varietals, as well as better insuring farmers so that they are capable of quickly bouncing back, has become essential.

Lastly, Senegal needs to mitigate the effects of aflatoxins. Estimates suggest that reducing aflatoxin contamination alone could add US$ 281 million annually to the total value of Senegalese groundnut exports.