Focus on Nigeria
March 9, 2015
Nigeria is an important market for grains with a big population. Its government is moving to achieve greater levels of self-sufficiency, but increasing demand for wheat-based foods is making it tough to change consumption patterns. The system also has to struggle with the effects of an insurgency affecting much of the country. The country’s flour industry is dominated by a small group of major players.
According to the International Grains Council (IGC), Nigeria produced 21.5 million tonnes of grains in 2014-15, down from 22 million the year before. The figure includes 7.5 million tonnes of maize, down from 7.7 million in 2013-14.
The country is a big producer of sorghum. Its 2014-15 crop is put at 6.3 million tonnes, down from the previous year’s 6.5 million.
Total Nigerian imports of grain are put at 4.8 million tonnes in 2014-15, compared with 4.7 million the year before. Of that total, imports of wheat is estimated at 4.7 million tonnes, up from 4.6 the year before. Nigeria’s imports of durum wheat (also included in the wheat total) are put at 130,000 tonnes, down 5,000 from the previous year.
Nigeria’s rice production is estimated at 2.6 million tonnes in 2014-15, down from 2.8 million the year before. It will import a total of 3.1 million tonnes of rice, down from 3 million.
“Nigeria is a huge export market for wheat and rice,” the USDA said in an annual report on the grains sector in the country. “High demand for wheat flour for the production of bread, noodles, pasta, crackers and biscuits (cookies) contributes to Nigeria’s wheat market estimated at just under $1 billion in U.S. exports for FY2013. Nigeria depends on about 3 million tonnes of parboiled rice imports to meet half of its rice demand. Demand for other grains such as corn, sorghum, millet is also very high.
“Nigeria plays a pivotal role in the regional economy from being the largest market in West Africa. Policies implemented in the country also have far-reaching effects on the economic positions of countries throughout the region. The country is also of significant strategic importance for the United States in the non-oil trade as it is among the world’s largest importers of U.S. wheat, with purchases valued at $959 million
The attaché also outlined the government’s Agriculture Transformation Agenda (ATA) program which is designed to significantly reduce food imports by increasing production of five key crops: rice, cassava, sorghum, cocoa and cotton.
“The overall objective was to increase agricultural production in order to increase domestic food production and generate employment,” the report said. “Under ATA, agriculture is treated as a business and not as a development project. It is intended to develop strategic partnerships with the private sector to stimulate investment in agriculture and repair the value chains in those agricultural sub-sectors where Nigeria perceives to possess a comparative advantage.”
The government has introduced a number of import-substitution measures. “It initiated a policy mandating cassava flour inclusion in wheat flour, starting with a 10% cassava flour inclusion rate in 2012, to increase steadily to reach 40% by 2015,” the attaché said.
Even so, the report pointed out that demand for wheat-based food is large and growing. The cassava flour import substitution initiative impacted U.S wheat market share negatively, but it is expected to rebound, “as Nigeria and its neighboring countries continue to demand high quality wheat-based foods.
“Pressured by grossly insufficient domestic production and increasing demand by the poultry sector, larger imports of corn began in mid-2013,” the attaché continued. “The ban on corn imports was lifted in 2008 but large-scale commercial shipments of corn had not occurred until recently due to uncertainties over custom enforcement activities.
“Another policy goal was to increase domestic rice production to make the country self-sufficient in rice production by 2015, when rice imports will be banned,” the attaché said. “Attempts have been made to reach farmers with required inputs of fertilizers and improved seeds. However, implementation has been spotty and all supporting infrastructure is grossly inadequate.”
Many farmers still say that government policies have had little or no impact on their production. “Nigeria therefore remains a food deficit country and domestic agriculture is still underdeveloped,” the report said.
The attaché explained that not only is Nigeria’s wheat production small, at 70,000 tonnes in 2013-14, it’s major growers are the northern states of Bornu, Yobe, Jigawa, Kano, Zamfara, Katsina, Adamawa, Sokoto and Kebbi. “BH (Boko Haram) insurgency activities are growing stronger in many of these areas and local wheat production has declined during the year,” the attaché said. “Unfavorable local climatic conditions requiring expensive irrigation also make it not competitive to grow wheat within this otherwise wheat-suitable growing belt.
“These northern states are also strong producers of other food and agricultural products and the security challenges caused by BH have significantly reduced domestic food supplies generated from these areas.”
CONCENTRATED FLOUR INDUSTRY
In a research article published in Issues in Business Management and Economics in October, C. Chris Ofonyelu of the Department of Economics, Adekunle Ajasin University, Akungba Akoko, Ondo State in Nigeria, considered the level of competition in the Nigerian industry.
“The flour milling industry comprised of nine players as of March 2014,” he said. This number excludes Standard Flour Mill Limited and Lister Flour Mills Nigeria Ltd. The two had attempted a skeletal production within the last six months but have since remained closed down. The top two brands (Golden Penny and Honeywell) have an installed capacity of over 10,000 tonnes per day and control over 75% of the market.”
The five leading firms control over 90% of the market. “The common trend in the flour industry is that the firms operate below their installed capacities,” the article said. “For instance, FMN (Flour Mills of Nigeria) operates on only 55% of the current production capacity. For Honeywell, Mama Gold and Life flour brands, each of these companies harbors as much as about 30%, 25% and 18% idle capacity respectively, based on their current output levels. The accumulations of idle capacities by the firms serve as buffer and a preying strategy for market capture.”
The millers’ push for expansion was highlighted in a report on the Business Day newspaper published in January. “Flour millers in the country are investing heavily in capacity expansion, just as they also strive to outdo each other in the market through innovation,” it said.
It quoted analysts as saying that “demography, shifting consumption culture, growth of the middle-class and urbanization have been key drivers of Nigeria’s flour milling industry.”
“Competition among the wheat millers is intense and is based on price and quality,” said the attaché. “The Nigerian baking industry continues to expand and upgrade its production facilities. There is a proliferation of all sizes of independent bakeries and retail in-store bakeries. The increased competition has resulted in a more diverse selection, increased variety, and better quality for the fresh baked products available to consumers.”
The report also explained that consumption patterns are changing along with the growth of the middle class.
“Production of bread flour also continues to expand because it is a standard item in the modern breakfast diet and it is convenient for many Nigerians,” it said. “Compared with 2012, the quick service restaurant industry (fast food) offering savory, wheat-based pastries grew 10% in 2013 and contributed to increased wheat demand as well.”
“Nigeria has also continued to experience strong growth in the production of pasta (noodles), with almost all flour mills in the country producing noodles,” it said. “The demand for pasta in Nigeria is very high and noodle imports are banned by the government. Nigeria’s noodle manufacturers have also benefited from the removal of the ban on crude vegetable oil, a key component in instant noodle production.”
Religions: Muslim 50%, Christian 40%, indigenous beliefs 10%.
Location: Western Africa, bordering the Gulf of Guinea, between Benin and Cameroon.
Government: Federal republic. Chief of state and head of government: President Goodluck Jonathan (since May 5, 2010).
Economy: Following an April 2014 statistical “rebasing” exercise, Nigeria has emerged as Africa’s largest economy, with 2013 GDP estimated at $502 billion. Oil has been a dominant source of government revenues since the 1970s. Regulatory constraints and security risks have limited new investment in oil and natural gas, and Nigeria’s oil production contracted in 2012 and 2013. Nevertheless, the Nigerian economy has continued to grow at a rapid 6% to 8% per annum (pre-rebasing), driven by growth in agriculture, telecommunications, and services, and the medium-term outlook for Nigeria is good, assuming oil output stabilizes and oil prices remain strong. Fiscal authorities pursued countercyclical policies in 2011-13, significantly reducing the budget deficit. Monetary policy has also been responsive and effective. Following the 2008-09 global financial crises, the banking sector was effectively recapitalized and regulation enhanced. Despite its strong fundamentals, oil-rich Nigeria has been hobbled by inadequate power supply, lack of infrastructure, delays in the passage of legislative reforms, an inefficient property registration system, restrictive trade policies, an inconsistent regulatory environment, a slow and ineffective judicial system, unreliable dispute resolution mechanisms, insecurity, and pervasive corruption. Economic diversification and strong growth have not translated into a significant decline in poverty levels – over 62% of Nigeria’s 170 million people live in extreme poverty. President Jonathan has established an economic team that includes experienced and reputable members and has announced plans to increase transparency, continue to diversify production, and further improve fiscal management. The government is working to develop stronger public-private partnerships for roads, agriculture, and power.
GDP per capita: $2,800 (2013 est.); inflation: 8.7% (2013 est.); unemployment: 23.9% (2011 est.).
Currency: Nairas (NGN): 199.950 nairas equal 1 U.S. dollar (Feb. 20, 2015).
Exports: $93.55 billion (2013 est.): petroleum and petroleum products 95%, cocoa, rubber.
Imports: $55.98 billion (2013 est.): machinery, chemicals, transport equipment, manufactured goods, food and live animals.
Major crops/agricultural products: Cocoa, peanuts, cotton, palm oil, corn, rice, sorghum, millet, cassava (manioc, tapioca), yams, rubber; cattle, sheep, goats, pigs; timber; fish.
Agriculture: 30.9% of GDP and 70% of the labor force.
Internet: Code: .ng; 1,234 (2012) hosts and 43.989 million (2009) users.
Source: CIA World Factbook