Bloomberg News

Sudan Courts Gum-Arabic Farmers to Satisfy Demand for Soda (1)

February 21, 2014

Sudan is boosting loans to farmers and providing laborers with low-cost housing in a bid to double harvests of gum arabic, an ingredient used by companies including Coca-Cola Inc. (KO:US) and Sanofi SA (SAN), an industry board said.

Exports may climb to more than 100,000 metric tons in 2014 from 63,000 tons last year as Sudan offers incentives to agricultural workers, including building 30,000 housing units near plantations, Abdelmagid Abdelgadir, secretary-general of the state-run Gum Arabic Board, said in a Feb. 19 interview. Sudan targets annual shipments of 300,000 tons within three years, he said.

“Many farmers and producers care more about other crops” such as corn and peanuts, Abdelgadir said. “We are trying to make gum arabic a more lucrative business.”

Sudan, the world’s biggest gum-arabic producer, is trying to diversify its $59 billion economy after losing control of about three-quarters of its oil output when South Sudan seceded in 2011. Companies including Coca-Cola and Pepsico Inc. (PEP:US) use gum arabic in their products, according to the World Bank. Sanofi lists the tree sap as one of the ingredients in its Avil antihistamine medication, while it’s also used to make glue, paint and incense.

The commodity’s importance to western markets led the U.S. to exempt Sudan from a trade embargo first imposed in 1997 because of the country’s alleged sponsorship of terrorism.

Exports Growing

Prices for top-quality gum arabic are currently between $2,800 and $3,200 per ton, little changed from the previous year, according to Abdelgadir. Exports grew to about $134.1 million last year from $80.8 million in 2012, stoked by increasing demand from Europe and the U.S., he said.

Extracted from branches of acacia trees growing in Sudan’s southern savanna, gum arabic is a natural emulsifier, holding together substances that don’t mix well. Starches, the most popular alternative, are less successful at retaining flavors and their use can mean shorter shelf lives.

About 80 percent of Sudan’s gum arabic is bought by European countries, with some of that sold on to U.S. companies, Abdelgadir said. France imported almost half of Sudan’s total exports in 2013, he said.

Sudan is “only tapping into about 10 percent” of its gum arabic resources, Abdelgadir said. “Harvest season only lasts for a couple of months from October to December, and we have to mobilize a lot of labor.”

‘Unrealistic’ Plans

Plans to export 100,000 tons are “unrealistic,” according to Abda el-Mahdi, a Khartoum-based economic consultant and former state minister of finance. “There is a need to organize the producers and to link them to markets,” she said in an e-mailed response to questions. “Structural constraints are the problem.”

The government plans to build accommodation near gum-producing areas over the next three years to encourage migrant workers to settle, according to Abdelgadir. Gum is grown in 12 of Sudan’s 18 states, he said.

“We have to give them incentives,” he said. “We are providing them with services, housing and giving them ownership of land with gum arabic trees.”

A group of 10 Sudanese banks has also pledged 250 million Sudanese pounds ($41.9 million) of financing for gum arabic producers and exporters, he said. Four new domestic companies have begun gathering and processing the commodity since 2012, with three more starting business this year.

The government is also encouraging domestic consumption, with demand having surged 20-fold in the past decade to 10,000 tons, according to Abdelgadir.

“Gum arabic is produced in packets for household consumption,” he said. “Now it is available in supermarkets and pharmacies.”

Sudan mostly produces the hashab, or hard, variety of gum arabic, according to the World Bank. Its main competitors include Chad and Nigeria, which mainly produce the lower quality talha, or flaky gum.

To contact the reporter on this story: Ahmed Feteha in Khartoum at afeteha@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net


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Companies Mentioned

  • KO
    (Coca-Cola Co/The)
    • $43.29 USD
    • 0.41
    • 0.95%
  • PEP
    (PepsiCo Inc)
    • $93.55 USD
    • 2.04
    • 2.18%
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