Focus on Nigeria
November 13, 2006
World Grain Staff
Country has gone from banning wheat imports to becoming one of the world’s biggest wheat importers
by David McKee
Nigeria is by far Africa’s most populous country and is also a major oil exporter. In the grain trade, it now occupies a special place as well, as the largest market for the world’s largest wheat exporter.
In 2006-07, the U.S. expects to ship 3.8 million tonnes of wheat accounting for nearly 90% of total Nigerian imports. The country has long been the largest buyer of American hard red winter (HRW), but demand for soft red winter (SRW) has also been rising dramatically.
This is quite a change from 1987, when Nigeria imposed a total ban on wheat imports. That ill-conceived policy was the creation of a military government, which was worried about controlling the outflow of hard currency during a period of low oil prices. Wheat imports had already been rising and reached a peak of 1.3 million tonnes in the early 1980s.
One result of the ban was a flood of smuggled flour from neighboring countries of Togo, Benin and Cameroon, the beneficiaries of subsidized product from the U.S. under the Export Enhancement Program. In 1992, the Nigerian government reopened the doors to wheat imports with just a 5% tariff.
The transformation of Nigeria into a major wheat importer says a lot about the potential of wheat-based products to transform diets in rapidly urbanizing countries where bread or pasta is not a traditional staple food. Per capita wheat consump- tion has increased since 1992 from just 7 kilograms (kg) to more than 23 kg today. By international standards this is still quite low — less than one-half the global average per capita consumption of wheat. And wheat products still rank only sixth as a basic food behind cassava, yams, maize, sorghum, and rice, the principle food crops of this mostly agricultural nation.
Nigeria’s population has nearly doubled since 1992 from 72 million to 132 million. Much of this increase has been in urban areas where bread and pasta consumption is much higher than in the countryside. In cities, bread is treated mainly as a kind of convenience food — readily available, easy to transport and store, inexpensive and consumable on the go.
FLOUR MILLING There has been much investment recently in new and expanded grain facilities as the industry strives to keep capacity greater than demand. By some estimates, the total installed capacity has increased by 50% since 2002.
The eight largest milling companies control about 19 mills with daily wheat capacity of around 18,000 tonnes out of a total capacity of 20,000 tonnes. The pioneer of the industry and still the number one milling company is Flour Mills of Nigeria Ltd. Founded in Lagos in the 1960s, Flour Mills of Nigeria’s flagship mill in that city has a daily capacity of 4,500 tonnes. The second-largest mill in the country — Northern Nigeria Flour Mills Ltd. — is located in Kano and has a daily capacity of 1,750 tonnes.
Flour Mills of Nigeria is a public company and the Greek-American, George Commantarous, has a controlling share. In addition to these two, Commantarous owns two other 250-tonne-per-day mills: one in Maduguri, in the country’s northeast corner, and the second across the border in Niger.
Dangote Industries Ltd. is in the number two position with 4,000 tonnes of total daily capacity at four plants in four regions of the country. Dangote is a major Nigerian business group with diversified holdings in oil and gas, sugar refining, textiles, salt production, transportation and shipping. It made its move into flour milling just seven years ago but had the management and financial resources to expand rapidly.
Most of the major milling companies are parts of business groups with other activities that include telecommunications, fisheries, banking, haulage, property and even hospitals. Either these holdings started with flour mills that became cash cows providing the financial resources and synergies for entry into other areas, or they were already large business groups, like Dangote, with the capital to build modern high-capacity mills at a strategic time.
The third-largest milling company by capacity — Ideal Flour Milling Group — also falls into the former category, with four mills in different regions and an installed capacity of 2,340 tonnes. The same is true of Crown Flour Mills Ltd. It was founded in 1983 by Chief Maan Labidi and consists of mills in Lagos and Warri in Delta State, with a combined capacity of 1,260 tonnes. Honeywell Group is in the latter category, having started its mill in 1998 and expanded it to 1,600 tonnes of daily capacity.
Such is the promise of the industry that it continues to attract new entrants, the latest being BUA Flour Mills with a 500-tonne mill in Lagos commissioned in 2005 and a second 500-tonne mill to be started up in Kano in the last quarter of 2006.
Though wheat flour consumption has been growing by leaps and bounds, the current picture is not completely rosy for wheat millers. The government, in its desire to help the nation’s farmers, has imposed a requirement, effective July 2006, that millers blend 10% cassava flour into all their wheat flour production.
Compliance will be an enormous burden on millers, given the difficulties of processing, storing and transporting sufficient quantities of good quality cassava flour, not to mention the negative impact on bread quality and other products made from such a blend.
On the other hand, Nigerian millers are increasingly exporting their product — without cassava flour — to drought- stricken and landlocked neighbors like Niger and Chad that face periodic food shortages and have underdeveloped milling industries. Exports may include as much as 10% of wheat flour production.
OTHER CROPS/FEED Protectionism extends to other crops besides cassava. Rice is gaining as a food staple, and the rising demand from urban dwellers can no longer be met by domestic production of just 2.7 million milled tonnes. Nevertheless, the government maintains a 100% duty on imported rice. Parboiled rice is the number one category of import demand, since it takes less fuel or energy to cook. Despite the import duty, Nigeria will officially import 1.6 million tonnes of rice in 2006. Smuggling of rice imported at low duty rates to Benin probably adds another 300,000 tonnes to the total imported consumption.
Much work has been done through breeding programs to promote soybean cultivation in Nigeria. The total crop is now about 400,000 tonnes. About one-quarter goes to direct human consumption and most of the rest is used by the eight largest domestic oilseed processors.
These soybean crushers are now hard pressed to meet demand from the most rapidly growing sector of the Nigerian food industry — feed and poultry. High rates of GDP growth stimulated by record oil prices have caused skyrocketing demand for chicken, despite the arrival of the avian flu in Nigeria two years ago. Industrial feed production, 90% of which is for poultry, has been going up at an annual rate of 30% to 40% and is now in excess of 2 million tonnes. Soybean meal imports have surpassed 100,000 tonnes.
The biggest grain crop by far is maize. The 2005-06 harvest was 7 million tonnes. Only 800,000 tonnes went to feed milling, but that will certainly increase as chicken becomes a bigger part of the diet of an expanding urban middle class.
Perhaps there is a pattern emerging: the first boom in Nigerian flour milling occurred in the 1970s and 80s, when oil prices jumped from U.S.$6 to U.S.$36 per barrel. Now the latest escalation in petroleum prices appears to be sustaining booms in both flour and feed milling. WG
David McKee is a grain industry consultant providing market research and other services to companies seeking to initiate businessin new markets. He can be reached by e-mail at email@example.com.