By Ade Adefeko
Theobroma Cacao, better known as cocoa is a crop that has been in the consciousness of Nigerians long before independence and one that is capable of stimulating agricultural growth if we remove politics and look at it strictly from the prism of economics.
We need to establish and agree as a first step the production figures we bandy around year in year out and thereafter chart a proper course to encourage production and processing, as well as cocoa beans trading and exports.
As a background, it is important to situate Nigeria’s ranking in the cocoa comity of nations in Africa. e number one producer on the continent is Cote d’Ivoire with 1,980 million tons, followed by Ghana with is about 950 thousand tons, Cameroon and Nigeria with 240 and 220 thousand tons respectively come a distant third and fourth. All these figures are for the 2016/2017 season. One other important point to note here is that in the last ve years Nigeria’s production has been on a yo-yo. For instance, in the 2012/13 season, it was 225,000 tons; in 2013/14 it was 248,000 and in 2014/15, it was 195,000. Of course, as earlier stated, for 2016/17, production was 220,000. e question you want to ask is, what is responsible for this unsavory development?
I would say a plethora of reasons. A cursory look at the cocoa industry reveals that despite Nigerian cocoa farmers getting one of the highest prices for cocoa in the world, Nigeria has not been able to maintain its erstwhile dominance in the world cocoa market on account of numerous challenges, some of which are listed below. With regards to domestic production, Nigeria is plagued with stagnant crop size- old cocoa trees, old and ageing farmers, not many new plantations, lower yields per hectare, as well as lack of awareness of good practices by farmers and non-availability of good quality inputs (fertilizer/ chemical). Also worthy of note is the inconsistent quality of beans, high-interest rate and operating costs occasioned by relative lack of investment in cocoa sustainability initiatives by the chocolate industry mainly due to insecurity perception.
On the cocoa processing segment of the value chain, the following challenges are prevalent. Inconsistent availability of power (PHCN) – High cost of fuel – High-Cost Structure; Spare parts – Non-availability, shortage of domain expertise, high local interest rate, lack of currency hedging options, no economy of scale, very high security costs, inconsistent application of Export expansion grant (EEG) Policy and lack of coordination between regulatory authorities. Presently, NDCC Certi cates discount rate has shot up from 7-8 percent to 40 percent, there is no liquidity for NDCCs leading to capital constraints and higher interest cost. Limited markets is also an issue.. Other ash- points are the inability to target US Butter Markets due to pesticide residue issues, logistics costs also make it di cult to compete against Malaysian / Indonesian manufacturers in the Far East Markets. Uncompetitive Duty Regime in Europe is a bane as Nigerian cocoa products attract a differential import duty in Europe of 6.1 percent for Cake and Powder 4.2 percent Cocoa Butter attracts around $300 PMT duty for Nigerian Butter / Cake Vs Cote d’Ivoire/Ghana products is has led to the current sorry state of cocoa processing in Nigeria which is hampered by two major factors:
No Economy of Scale-Nigerian cocoa processing factories operate at very small scale as compared to their other West African and global counterparts which lead to zero economies of scale which most non-Nigerian factories enjoy. Global competitiveness is low.
Low Operating Capacity- Nigerian processing industry operates at about 40 percent, which is much lower than the ideal capacity of 85 percent and above whilst CIV processes about 492,000 of its 1.980 million metric tons, Nigeria is struggling with lack of beans to process optimally.
A vision for Nigeria cocoa
There is need to allow companies that are global and have scale and expertise to set up and operate state of the art processing facilities with global competitiveness, thus bringing the Nigerian processing industry to the forefront of the global map. Nigeria needs to meet consumer demand in Europe/ America and Asia with high-quality products. Develop local products consumption and most critically support processing operations through plantations in specialized Staple Crop Production/Processing Zones (SCPZs) in this case for Cocoa. I am an apostle of production first before processing as you can only process what you produce enough of. is Large-scale manufacturing set up to give economies of scale and global competitiveness adds to direct employment and improves the economy of the country. For this to happen, the Federal government and Subnational (State governments) support & assistance is needed to achieve this objective.
In addition, the below is a sine qua non for us to deepen the sector.
License to export cocoa beans should be given mainly to cocoa processors who have up to two times, based on the bean equivalent export production quantity, over the last three years.
Non Processors of cocoa beans be given licence for up to 5000 MT of cocoa beans with an export tax of 15 percent.
New manufacturing plant set up by any investor or the capacity improvement, to be given to only two or three organisations with a minimum incremental investment of not less than $75 million and a minimum investment in plantation of not less than 5,000 hectares.
First right of refusal of beans for processing. Fiscal Bene t / Duty / Local Duties / Registration Cost and waivers to be provided on fresh investment, free land for factory and plantation, input and research support from government agencies. Sustainability e orts should be supported with funding in the range of $10 Million dollars thereabout. Financial support from govt. basis export earnings to com- pensate for operational disadvantages.
Agri-Fund or other intervention funds be provided at a concessional rate of four percent, for about 20 years. A moratorium on interest on loans for the period of 10 years should also be provided.
The government already knows the major players and large behemoths and as such encouragement and policy enablement is all that is needed and only then can they strive to take their rightful place in the global cocoa production and processing ecosystem.
We must put a stop to political statements and rhetoric and put our money where our mouth is. Talk is cheap and Capital will always be mobile.
Adefeko is VP, government relations, Olams
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