Investment Opportunities in Sisal for Tanzania
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Investment Opportunities in Sisal for Tanzania OCTOBER 2019 Sisal is a highly versatile product, with its use determined by the form of processing Input Semi-processed products Outputs Carpets High quality fiber Yarn Low quality fiber Artisanal goods Non-fiber products Fiber Ropes and twines Cordage Baler & binder twines Gunny bags 2% of plant Paper goods, e.g. boxes, paper, Pulp tea bags and filters Juice Construction composites Roving Automotive parts Sisal plant Alcohol c.25% of plant Sugars/Syrup Waste Biogas/Biomass 70% of plant Fertilizer Source: Dalberg stakeholder interviews; World of Sisal, “Sisal products,” 2018; Key Color, “The Many Uses of Sisal,” 2017; FAO, “Future 2 Fibers,” 2019 High-quality sisal fiber products have a larger market value than low-quality products Global market size of sisal products (2017) Details High-quality fiber Low-quality fiber M USD Fiber 3L: white c. 100 cm SSUG: brown 80-100 1,754 grades fiber, with 8% - 10% of cm long fiber, with 30% 34 16 fiber production share share 138 UG: white 80-100 cm 3DB: Brazilian double long fiber, with 50% brushed sisal 466 share Tow 1: short white fibers Tow 2: short colored fibers Price: 1,728 to 1,929 400 to 1,563 264 (USD/ton) 1,100 34 1 Processing Water-based large- Manual raspadora 80 format scale processing processing 149 Market use Carpets, construction Twines, ropes and yarns, materials, baler and artisanal goods, High-quality Low-quality binder twines agricultural sacks Countries Tanzania, Kenya, Tanzania, Brazil Pulp goods Artisanal goods Madagascar Wire rope Gunny bags Substitutes Natural fibers: wool, Natural fibers: jute, Carpets Baler and binder twine cotton cotton Polishing cloth Ropes, yarns and twines Synthetics: nylon Synthetics: nylon, *Construction products polypropylene *Modeled after gypsum board given it was the most mentioned construction product Source: TSB; FAO Committee on Commodity Problems, “Review of the Sisal market Industry,” 2017; OEC-MIT, “Sisal,” Retrieved 3 September 2019; Dalberg stakeholder interviews The demand for sisal fiber is fragmented, and declining due to competitiveness with cheaper substitutes Sisal usage across different products (2000 – 2015) Competitiveness of nylon to sisal MT/year 127,500 129,500 Today sisal ropes are four 124,500 124,000 122,000 4X 6% 5% 118,000 times more expensive than 6% 8% 3% 10% 3% 4% nylon ropes, while bags are 11% 10% 5% 12% 8% 2X twice more expensive 11% 10% 12% 11% 11% 12% 12% 15% 15% 18% 18% Demand for sisal 16% 18% Given the fragmented nature of the sisal 23% industry there is inconsistent data on the 26% 22% 20% 23% 24% demand for sisal. • Stakeholder interviews consistently mention high demand for sisal, with 32% 32% 34% 27% 27% 27% suppliers not able to meet the requests of buyers 2010 2011 2012 2013 2014 2015 • Tanzanian Sisal Board cites a global demand of 500,000 MT per year Dartboard Sisal carpets Construction materials • Sisal can be stored for up to a year in Artisanal goods Polishing cloth Rope, yarns and twines bales, meaning there can be some lag Wire rope Pulp Baler and binder twines in production Source: Committee on Commodity Problems, Intergovernmental Group on Hard fibers, FAO report, 2017; Biodegradable Plastics Market, 4 MarketsandMarkets, 2018; Dalberg stakeholder interviews The sisal market today is in transition as production and usage trends shift • Brazil’s production is declining steeply due to smallholder farmers moving out of the sisal business, following numerous years of drought and low returns Producers • East African production has been volatile due to irregular rains • Tanzanian production is moving away from estate farming, changing a long- established industry norm of buying from large estates • Historically there have been 2-3 main buyers in East Africa who trade sisal with a diverse range of industries, this has limited the ability of producers to create direct linkages with the markets they are serving • Chinese traders, and to a smaller degree Saudi and Nigerian traders, have increased Buyers their direct presence in Tanzania, shifting market dynamics from a consolidated buyer model to a more competitive model • However, this has led to price fluctuations. Farmers that lack contracts with traditional buyers sell to local producers at lower prices. This leads to lower prices in the markets, particularly in periods with high production from small producers • Most sisal industries, already niche markets, have been declining over the past 20 years, with synthetic materials or other natural materials proving themselves to be more cost competitive with similar structural qualities Consumers • As the global move away from plastic becomes more pronounced there is potential for sisal to play a role in new industries, however these have very limited funding, and are highly fragmented Source: Dalberg analysis 5 Sisal production has been in decline over the past 20 years, primarily driven by the Brazilian market Production of Brazil and the Rest of the World (1990 – 2017) Tonnage Brazil Rest of the world 450,000 418,232 444,240 409,771 410,363 405,810 400,000 388,908 365,831 352,208 350,000 320,066 316,419 312,858 300,340 300,000 269,285 250,000 244,077 214,879 200,000 150,000 100,000 50,000 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2017 Global production has seen an overall decrease in the last 20 years with the rise of cheaper substitutes. This is most pronounced with Brazilian low-quality sisal, which can readily be substituted compared to high-quality fiber from most producers Source: FAOSTAT, “Sisal,” Retrieved October 2019 6 The price of fiber has increased faster than the decline in supply - suggesting the development of a niche market Production of Brazil and the Rest of the World, with price based on fiber quality* (2004 – 2017) Tonnage, USD/T 450,000 2,200 2,050 2,000 400,000 1,850 1,700 1,800 350,000 1,580 1,600 1,450 300,000 1,320 1,320 1,290 1,325 1,400 1,200 1,200 250,000 1,100 1,200 200,000 900 900 870 880 1,000 800 800 840 700 700 720 800 150,000 670 630 650 580 620 600 100,000 420 400 50,000 200 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 High-quality fiber Low-quality fiber Brazil’s production Rest of the world *Adopted prices for UG and Bahia fiber types for high-quality and low-quality fibers respectively Source: FAOSTAT, “Sisal,” Retrieved October 2019; Committee on Commodity Problems, Intergovernmental Group on Hard fibers, FAO 7 report, 2017 Tanzania is the global leader of high-quality sisal, due to historically organized producers, despite limited innovation Global sisal production with top 5 producers (2013 – 2017) Strengths of Tanzanian sisal Tons Sisal is a legacy crop in Tanzania with over 349,376 350,000 341,821 30 well established estates and businesses 304,970 Sisal is designated as a strategic crop in 293,608 22% 21% 300,000 Tanzania, promising more support for its 20% 22% 4% 4% 249,382 development in the coming years 250,000 5% 5% 5% 6% 6% 5% 7% Sisal grows well in arid areas, and needs 34% 200,000 8% 6% 11% 10% limited inputs to get a sufficient quantity of 8% harvest for profitability 11% 150,000 13% 5% 7% East African sisal is recognized as a superior 9% quality fiber than Brazilian sisal due to its 100,000 53% 53% 13% central processing 49% 47% 50,000 32% Sisal is a labor-intensive crop to plant, harvest, and process, and labor in Tanzania is 0 readily available 2013 2014 2015 2016 2017 The ports of Tanga and Dar es Salaam can Brazil Kenya China easily export sisal around the world Tanzania Madagascar Others Source: FAOSTAT, “Sisal,” Retrieved September 2019; Committee on Commodity Problems, “IGGHF,” 2015; Dalberg stakeholder 8 interviews Sisal in Tanzania has in the past been grown on large estates, many of which have their own spinning mills PRIMARY SECONDARY INPUTS PRODUCTION MARKETS PROCESSING PROCESSING Sisal is drought-resistant; Estates have historically Most processors only process to Most processors operate at 80% of fiber is exported to however, it benefits from dominated production since fibers given higher operational c.30% capacity due to low global markets which inputs for increased the colonial era, as sisal costs in semi-processing and demand for finished products demand high quality from the yields and better fiber requires huge tracts of land ease of market access given price competitive estates quality to realize health margins substitutes Pesticides & herbicides Most estates do not Global use if they clear land before harvest Fertilizer Increasing use of sisal Large estate Fiber processing Spinning mill Regional waste 72% of market center Labor 50 people/ha for land preparation and Sisal leaves are passed through a harvesting decorticator that peels the flesh of the leaves apart, leaving fiber. This uses large Domestic Land amounts of water. The obtained wet fiber Average size of is dried in the sun for 1 – 2 days, after 5,000ha which it is brushed to make it softer and baled into 250kg stocks Source: Dalberg stakeholder interviews 9 Smaller commercial farmers and smallholder farmers have entered the industry, producing high- and low-quality sisal PRIMARY SECONDARY INPUTS PRODUCTION MARKETS PROCESSING PROCESSING Farmers currently do not There is an increasing Availability of mobile sisal Most processors operate Market for smallholder sisal use inputs due to a lack of number of SHF in sisal processing machines in under capacity is the domestic and regional financing and extension production which is inline Tanzania has increased with market for final products, workers.