Nigeria's wheat dilemma

by Arvin Donley
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Nigeria can strengthen its economy via wheat trade liberalization, according to a report by the U.S. Department of Agriculture’s Foreign Agriculture Service Global Agricultural Information Network (GAIN) report.

The report, which was released on June 27, said the African country remains a huge export market for wheat. High demand for wheat flour for the production of bread, noodles, pasta and biscuits (cookies) contributes to Nigeria’s wheat market being worth approximately $1 billion in U.S. exports.

Nigeria’s wheat milling capacity increased in 2012-13 to about 8 million tonnes (wheat equivalent), up from 6.6 million tonnes the prior year, although local capacity utilization is about 50%.

Flour Mills of Nigeria (FMN) continues to be the market leader by capacity but other millers such as Dangote, Honeywell and BUA keep increasing market share, the report noted.

“Competition among the wheat millers remains strong on the basis of price and quality,” the report said.

Wheat in Nigeria is mainly milled into flour for bakery and confectionary as well as domestic pastries and local dishes. Recently, wheat meals such as semovita are gaining popularity in restaurants. Additionally, the Nigerian baking industry (small and large independent bakeries and retail in-store bakeries) continues to expand and upgrade production facilities, the report said.

“The increased competition has resulted in a more diverse product selection and an increase in the variety and quality of fresh baked products available to consumers,” the GAIN report said.

The report noted that consumption patterns are changing in line with the strong growth of the middle class. Production of bread continues to expand because it is a standard item in the modern breakfast diet, and it is convenient for many Nigerians. The rapid growth in the quick service restaurant industry (fast food) offering savory pastries in recent years has also contributed to increased 
wheat demand.

At present, Nigeria is experiencing the greatest growth in the production of pasta as virtually all flour mills in the country have established noodle production facilities, the report said.

“Noodle production is estimated to use up to 560,000 tonnes of Hard Red Winter (HRW) wheat in 2012-13,” the report said “Although Nigeria is traditionally a market for HRW, in recent years there has also been a steady increase in demand for other types of wheat such as Soft Red Winter (SRW) wheat for use in cookies (biscuit) production, Hard White Wheat (HWW) wheat for bread and noodle production, and even durum for pasta.”

According to industry sources, Nigerian wheat flour is exported informally to neighboring countries as official exports are not permitted. Trade figures are not available for such exports, but industry sources estimate informal exports of wheat products far exceed 400,000 tonnes. The report said branded Nigerian flour can be found in several countries in West and Central Africa.

LOCAL WHEAT PRODUCTION

Wheat cultivation began in Nigeria in the 16th century utilizing local methods and low-yielding seed in pockets of land where varying temperature permitted its cultivation. The wheat area covers mainly the Sudan/Sahelian zones of Borno, Yobe, Bauchi, Jigawa, Kano, Zamfara, Katsina, Sokoto, Kebbi and Adamawa states, where commercial wheat production is possible through the use of expensive irrigation.


The GAIN report said that for Nigeria to become a significant wheat producer, the country will need to explore producing the crop under less expensive rain-fed conditions, especially in the highland areas of the country such as the plateaus of Mambila, Jos and Obudu. Also, there is a need to expand areas under production and increase the yield of varieties through improved breeding and management.

The first major Government of Nigeria intervention on wheat production came in 1959 and was spurred by the development of irrigation schemes for Northern Nigeria and increasing local demand for bread. Also that year, some increased research in promoting local wheat production resulted in the introduction of some improved and high- and early-yielding local wheat varieties for better bread making. The Lake Chad Research Institute in Nigeria collaborated with the International Maize and Wheat Improvement Center (CIMMYT) to do so.

In 1987, the government initiated the Accelerated Wheat Production Program in order to stimulate local wheat production and encourage backward integration. This was followed by a decline in wheat importation that year and eventually resulted in an outright ban on wheat imports into the country. Wheat production figures increased from 400,000 to 600,000 tonnes whereas the estimated total national demand for wheat stood at about 3.7 million tonnes per year, the report said.

The government lifted the import ban on wheat in 1993. Nigeria’s wheat production figures then declined to 50,000 tonnes, given that local production was economically viable.

Current domestic wheat production is less than 100,000 tonnes per year and increased production is mostly challenged by the lack of development and heat-tolerant wheat varieties that are high yielding and development of rain-fed wheat cultivars that are tolerant/resistant to high temperatures, humidity, pests and diseases, the report said.

“Poor extension services, inadequate capital, weak infrastructure, insecurity and many other factors restrain Nigeria’s efforts at increasing local wheat production for addressing the country’s food security challenges,” the GAIN report said.

But the Nigerian government has vowed that it will boost production in the near future. In June, according to various media reports, Nigeria Agriculture Minister Adkinwunmi Adesina told the Nigeria Agribusiness Group that activities have been scaled up to boost wheat production to meet the nation’s domestic requirements.

He said the government was looking to increase the local production of wheat in the northern parts of the country and that the Lake Chad Research Institute has released new high yielding tropical and heat-tolerant wheat varieties that can yield up to 6 tonnes per hectare.

Adesina said that 21,000 tonnes of wheat was harvested in 2012 from the new varieties, which would be used as seeds. He said the target was to plant 212,000 hectares of wheat by 2014, with expected production of over 1 million tonnes and a projection to expand the cultivated area to 215,000 hectares by 2015 with an anticipated output of 1.2 million tonnes. This goal, if met, would allow the country to meet about 68% of its wheat needs by 2015.

But achieving this goal will be difficult, the report concluded.

“Nigeria’s efforts at exploiting its wheat growing potential are challenged by inconsistent agricultural policies, poor marketing channels, and weak farming organizations and motivation,” the GAIN report said.

NIGERIA'S WHEAT POLICY

Nigeria imports about 4 million tonnes of wheat per year, and this is expected to continue to increase, the report said, due to increasing prices for wheat flour and flour-based products. The Government of Nigeria has initiated an Agricultural Transformation Agenda (ATA) to increase agricultural productivity by 2020, but this effort relies upon taxes and import bans to stimulate import substitution.

The report noted that in order to cut back on wheat imports, the government began the implementation of a 15% levy on imported wheat grains which pushed the effective duty from 5% to 20% in July 2012 and led to the price increases. The Nigerian government also started enforcing its policy that millers must include cassava flour in wheat flour beginning with a 10% cassava flour inclusion rate, increasing steadily to 40% by 2015.

“Flour millers and bakers are reluctant to invest to comply with this directive, generating a rift between them and the Government of Nigeria agencies responsible for enforcement,” the GAIN report said. “This has had a negative impact on wheat purchases by millers this year. However, the shortfall in the domestic food supply resulting from Nigeria’s flooding last year continues to hold up demand for wheat as more consumers turned to the available flour-based products.”

The report said Nigeria remains a growth market for wheat imports because of its huge population of about 170 million people with annual population growth of 3%, and the United States has enjoyed a dominant market share, averaging 85% the country’s wheat market during the past decade.

“Increasing prices for wheat flour and wheat flour-based products has been a major challenge for flour millers as they have not been able to pass the rising wheat prices to consumers,” the GAIN report said. “This is resulting to the recent dropping of market share for the higher quality U.S. wheat.”

Nigeria’s wheat imports from the U.S. fell more than 12% from an average 3.2 million tonnes to 2.9 million tonnes estimated in 2012-13 as wheat flour millers and other facilities that utilize wheat as input are gradually shifting to inexpensive wheat from third-country suppliers, the report said.

Nigeria Agriculture Minister Adkinwunmi Adesina recently expressed great satisfaction that these wheat import substitution policies initiated by his regime reduced the importation of wheat flour into the country from about 4 million tonnes in 2010 to 3 million tonnes in 2012 and has saved “scarce foreign exchange.” However, industry analysts’ view is that if cassava inclusion into bread would actually be feasible, Nigeria would still be unable to meet the demand of the wheat flour milling industry due to the country’s lack of adequate cassava production, weak existing infrastructure and unstable policies.

U.S. COMPETITIVE ADVANTAGE

The demand for wheat flour-based products has remained strong because of high prices for other staples and weaker domestic supplies, the report said. The U.S. has a strong reputation as a consistent and reliable supplier of high quality wheat, especially for HRW.

Market analysts view that over time consumers will insist on demanding higher quality, wheat flour-based products which will cause U.S. wheat market share to rebound.

The report noted that U.S. Wheat Associates is active in Nigeria in providing training opportunities and trade servicing support for the Nigerian milling industry.

SUMMARY

The report concluded that Nigeria has the potential to serve a huge export market for wheat flour and wheat-based products in the sub-Saharan region covering West Africa, Central Africa, North Africa and beyond. According to industry sources, branded Nigerian wheat flour estimated at more than 400,000 tonnes is exported informally to countries in these regions.

“Unfortunately, the Government of Nigeria is neglecting this existing huge export market for Nigeria’s wheat flour while Nigeria’s wheat flour milling capacity utilization remains woefully underutilized at only 50%,” the report said. “The government should drop the recent levies on imported wheat to encourage wheat flour millers to produce more at affordable and internationally competitive prices.

“The wheat millers and the Nigerian Export Promotional Council should develop this huge regional wheat flour market. This would represent a boost to regional food security and assist local wheat flour millers to maximize capacity utilization. It would also create many Nigerian jobs and earn foreign exchange.”




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