Nigeria, the most populous country in Africa, is a massive market for wheat flour served by some of its biggest flour milling companies in a highly concentrated industry. Low local production means it is dependent on imported wheat supplies to keep its mills going.
The industry is dependent on imported wheat. In April, the U.S. Department of Agriculture attaché forecast Nigeria’s 2018-19 imports of wheat at 5.4 million tonnes, up 200,000 from the year before. Domestic production is around 60,000 tonnes.
“Locally produced wheat is not economically suitable for milling wheat flour for producing bread, spaghetti, etc., consumed in Nigeria’s urban areas,” the report said.
“Over the last two decades, the U.S. wheat industry (through the U.S. Wheat Associates) invested in numerous capacity-building activities for Nigeria’s flour millers, bakers and pasta manufacturers through training in the United States and Nigeria,” the attaché said. “As a result, the U.S. market share reached about 90% in 2011.”
However, the market share of U.S. wheat dropped to around 35% in 2017.
“In order to stay competitive in Nigeria’s price-sensitive market, flour millers increasingly blend the lower quality/lower cost wheat mostly from the Black Sea region, with the higher quality/high cost U.S. wheat,” the attaché said. “Freight paid on wheat imports from the Black Sea is also lower compared to that from the United States.”
But the United States is determined to regain market share. The U.S. Wheat Associates on June 28-29 took 10 participants from Nigeria and South Africa to the IGP Institute Conference Center in Manhattan, Kansas, U.S., for training on flour milling, with lectures and hands-on training exercises led by Kansas State University faculty and staff. The group included Hakeem Alabi from Flour Mills of Nigeria, Emmanuel Elechukwu of Dangote Flour Mills Ikorodu-Lagos and Olayode Muhammed of Honeywell Flourmills PLC.
Nigerian millers were also among flour milling executives hosted by the Texas Wheat Producers Board June 11-14 in Corpus Christi, Texas, U.S.
“Hosting the sub-Saharan African trade team is part of the ongoing market development efforts of the board,” said Rodney Mosier, executive vice-president of Texas Wheat. “The event is designed to maintain and increase wheat exports, which will reduce carryover stocks and strengthen wheatprices.”
Anurag Shukla, CEO of Crown Flour Mill, owned by international food and agribusiness Olam, explained the opportunities for millers in the country in an article in the company’s OlamInsights publication in September 2016.
“Nigeria is the largest importer of wheat in sub-Saharan Africa,” he said. “It has a growing population of 160 million, more than 50% of which is urbanized.”
The country was becoming more urbanized and the median age of its population was 18 years.
“Nigeria’s demographics underpin growth in demand for downstream food products, such as bread, pasta, noodles and biscuits, which in turn support demand for the principal products of the milling industry — bread flour, pasta flour, noodle flour, confectionery flour and semolina,” Shukla explained. He put the value of Nigeria’s 3.2-million-tonne flour market at $2 million, with growth at 3.5% a year.
Shukla also explained that the Nigerian milling sector is highly consolidated, which means high barriers to entry.
“Port access and a nationwide sales and distribution network are critical success factors in this business,” he said.
Olam acquired Crown Flour Mill in January 2010 and it has grown to become the second largest miller in Nigeria.
Olam announced on Jan. 11, 2016, that it was acquiring Amber Foods Ltd. from the BUA Group at a value of $275 million.
“The BUA Group, a diversified foods and infrastructure business group in Nigeria, is among the top five wheat millers in the country with wheat milling and pasta manufacturing capacities of 3,760 and 700 tonnes per day, respectively,” the company said.
The acquisition gave Olam two wheat mills and a pasta manufacturing facility in Lagos, a non-operating mill in Kano and a wheat mill and a pasta manufacturing plant under construction in Port Harcourt.
“The acquisition will strengthen Olam’s position as the No. 2 wheat miller by sales volume and make it a leading pasta player in Nigeria,” Olam said.
The move meant an increase in Olam’s wheat milling capacity to 6,140 tonnes a day from 2,380 tonnes.
“Nigeria is a high growth milling market with volumes expected to reach 5 million tonnes in 2020 as population growth and urbanization increase the demand for wheat-based products,” said Keshav Chandra Suresh, managing director and CEO of Olam Grains. “We are very pleased to acquire these strategically located, port-based assets as undeveloped land at Nigerian ports is increasingly difficult to access. They are highly complementary to our existing asset base in Lagos and Warri, and will not only strengthen our current market position and deliver multiple synergies, but also enable us to access the high growth areas in the north and southeast of Nigeria.”
At Lagos, Crown Flour Mill has a milling capacity of 1,580 tonnes a day, along with storage capacity of 48,000 tonnes, while at Warri it has milling capacity of 800 tonnes a day, with storage capacity of 20,000 tonnes.
“Olam has identified grains as one of the six prioritized platforms for investment and accelerated growth,” Suresh said.
FMN, Dagote rebounding
Flour Mills of Nigeria Plc presented its results for the year to March 31, 2018, with a reminder that the company has evolved from a single mill in the port of Apapa over 50 years ago to a vertically integrated agrifood and logistics business. Its turnover was up 3.5% at N542.7 billion ($1.5 billion), with profit before tax at N16.5 billion.
In a March 24, 2017, update, Paul Gbededo, group managing director and CEO of Nigerian Flour Mills, bemoaned the effect of Nigeria’s recession, triggered in the last quarter of 2014 by a fall in the price of oil, on the economy.
“The recession of Nigeria hit everybody unexpectedly,” he said. “Nobody foresaw it. We were affected, and our performance was too, but within 12 to 15 months, we readjusted.”
Dangote Flour Mills recovered from “years of losses” with a profit in 2016, according to a report on its financial affairs published by This Day Live on June 25, 2018. The company made a profit of N15.1 billion ($42 million) in the year ended Dec. 31, 2017, up from N10.5 billion ($29 million) in 2016.
In a report on the company’s annual general meeting, Asue Ighodalo, chairman of Dangote Flour Mills, said the company will “continue to develop strategies to harness opportunities occasioned by improvements in economic indices while mitigating the adverse effective of the continued and emerging threats to the performance and growth of our business.”
He promised an aggressive marketing and branding campaign. The company’s reported turnover was N125.4 billion ($346 million), up 18.6%.
Honeywell’s big investment
Honeywell Flour Mills also has achieved rising turnover. According to a report published by the Daily Trust on July 9, 2018, its revenue in the year ended March 31, 2018, was up 34% at N71.5 billion ($198 million). However, higher energy costs caused by disruptions in gas supplies meant that the cost of sales rose by 37% to N55.4 billion ($153 million). Operating profit rose by 15%, but interest expenses and taxation meant that profit after tax was up just 3%.
Honeywell has invested in a big new production complex at Sagamu, This Day Live reported on Sept. 18, 2016, on a visit by shareholders to the new plant. Nino Ozara, executive director of manufacturing at Honeywell Flour Mills Plc, called the new site, “proof of the company’s growth prospects and commitment toward re-enforcing investors’ trust even in the face of the current economic challenges.”
“The plant will produce large-scale wheat and non-wheat-based products that would meet present and future food needs of Nigerian consumers, thereby further strengthening the company’s leadership position in the Nigerian milling industry,” Ozara said.
Two of Nigeria’s millers became involved with a plan to ease a serious bottleneck with the 4.3 billion Naira ($12 million) project to reconstruct Wharf Road at the port of Apapa in Lagos, according to a June 18, 2017, report from This Day Live, which described the vital road as decrepit. According to the report, Babatunde Fashola, minister of Power, Works and Housing, signed a Memorandum of Understanding with Dangote Group, the Nigerian Ports Authority (NPA) and Flour Mills of Nigeria. The road was then handed over to the three stakeholders, with project to be carried out by Dangote’s construction arm.
“Fashola, while speaking at signing ceremony, explained that the gridlock in Apapa became compounded and had reached an unbearable level as transporters ignored the old system of moving cargo through rail to trucks and containers,” the report said.
“I like to acknowledge the leadership role of Dangote and Nigerian Flour Mills, who are operators and have also contributed to make this a reality,” the minister said.
Gbededo called Wharf Road the “most important road in the entire country.”