Nigeria: A key player in grain market

The most populous country in Africa with abundant natural resources, Nigeria is the continent’s largest economy by GDP. Agriculture in Nigeria is so important to the economy and people’s daily lives. However, it is a net importer of food and major agricultural products. Bread, semolina, pasta and other wheat flour-based products are staples in the country and the demand for the products has continued to increase. USDA forecasts Nigeria’s wheat imports in MY 2019/20 at 5.6 MMT. Russia, the United States, Canada, and Australia supply the bulk of Nigeria’s wheat imports.

A key regional player in West Africa, with a population of approximately 203 million, Nigeria accounts for about 47% of West Africa’s population. The country has the largest population of any African nation and it has one of the largest populations of youth in the world. With an abundance of resources, it is Africa’s biggest oil exporter, and also has the largest natural gas reserves on the continent. Nigeria accounts for nearly 20% of continental GDP and about 75% of the West Africa economy.

While Nigeria has made some progress in socio-economic terms in recent years, it continues to face massive developmental challenges, which include the need to reduce the dependency on oil and diversify the economy, address insufficient infrastructure, and build strong and effective institutions, as well as governance issues and public financial management systems.

Agriculture in Nigeria is so important to the economy and people’s daily lives. The farming sector employs about 70 percent of the entire country’s labor force. Nigeria’s small farms produce 80 percent of the total food. This is the leading African country in farming because it has the highest levels of productivity and profitability in this particular sector. However, agriculture may remain affected by conflicts and climate and weather events; and the non-oil-non-agriculture will likely continue to struggle in the face of sluggish demand and constrained private sector credit growth.

The population, projected to grow to 392 million by 2050, will make Nigeria the world’s fourth most populous country. This population is increasingly reliant on domestic and imported processed food products. Bread, semolina, and durum pasta and other wheat flour-based products are major stables in Nigeria’s urban areas.

Nigeria continues to employ trade-restrictive measures, including high tariffs, foreign exchange controls, levies and import bans to protect its domestic agricultural production (including grains), despite its membership in the World Trade Organization (WTO).

In Nigeria, there are over 30 million hectares of farmland under cultivation season to season, falling substantially short of the estimated 78.5 million hectares of land that is required for farming to feed Nigeria’s growing population.

The people of Nigeria depend on produce from the local farms for their daily meals as more than 80 percent of Nigerians buy their farm produce from the market. This country is at a huge advantage in terms of agriculture profitability because of the huge demand for farm produce.

Photo courtesy of Bühler. Photographer, Thomas Eugster

Nigeria has the benefit of having large stretches of fertile land available to cultivate. It has one of the largest expanses of land in Africa with more than 900 thousand square kilometers and 70 percent of it is able to be cultivated to produce sustenance for the population of Nigeria. This land provides Nigeria with practically an unlimited source of farming food, providing agricultural produces and jobs for the people.

The Nigerian economy took a hit from declining oil revenues in 2015, forcing the government to seek economic diversification. It has set to pursue agricultural development as one of its key goals to help address the country’s dependence on food imports totaling nearly 11 billion dollars annually. It has also engaged in a campaign to redirect focus from oil to agriculture, manufacturing and solid minerals development. In this regard, the government has rolled out five agricultural development initiatives.

A MAJOR SETBACK TO FOOD AVAILABILITY
There is significant demand for new and used agricultural tractors, agricultural chemicals, irrigation systems; food (grain and fruit) processing and storage systems. Post-harvest losses, which the Nigerian Government currently estimates to be about 60%, remains a major setback to food availability.

Major agricultural commodities produced in the country are cocoa, peanuts, sesame, kola nuts, palm oil, corn, rice, sorghum, millet, cassava (tapioca), yams, rubber, cattle, fish and timber.

DEMAND FOR WHEAT INCREASING
Nigeria is a net importer of food and major agricultural products. Bread, semolina, pasta and other wheat flour-based products are staples in Nigeria and the demand for the products has continued to increase. Currently, the shares of wheat flour for bread, semolina, pasta and others, are estimated at 60 percent, 20 percent,10 percent, and 10 percent, respectively.

Nigeria’s wheat consumption is mostly filled by local production augmented by imports valued at about $1.5 billion in 2017 and $1.7 billion in 2018. Local wheat production remained inadequate and domestic supplies of substitute staples within Nigeria and neighboring countries have not kept pace with demand. USDA forecasts Nigeria’s wheat consumption in MY 2019/20 at 5.26 million metric tons (MT).

USDA forecasts Nigeria’s wheat production in marketing year (MY) 2019/20 (July-June) to reach 60,000 metric tons (MT), unchanged from the production figure for marketing year 2018/19. The area harvested to remain at 60,000 hectares, with yields holding steady at one metric ton per hectare, according to USDA Foreign Agricultural Service (FAS) report published in May. Here is some important detail from the report:

Nigeria’s traditional wheat-producing regions are located in the country’s northeast region and in the highlands. Wheat production in the northeast region (i.e., states of Adamawa, Bauchi, Borno, Gombe, Taraba, and Yobe) has been declining in recent years due to insurgencies. Sources comment that for production levels to increase, to come close to meeting local demand needs, this will require long-term private sector investment along with massive infrastructure development and greater access to untitled (free) lands.

The Nigerian government, along with humanitarian relief organizations, and non-governmental organizations (NGO) routinely purchase local wheat at roughly $500/MT, paying a $100/MT premium. This wheat goes to Nigerians (living in camps) displaced by the Boko Haram insurgency. Wheat farmers are refusing to sell at the mandated $400/MT rate to millers, preferring to sell to the institutional buyers and or export at premium rates.

USDA forecasts Nigeria’s wheat imports in MY 2019/20 at 5.6 MMT. Russia, the United States, Canada, and Australia supply the bulk of Nigeria’s wheat imports destined for milling. Sources indicate that the flour milled from local wheat is not economically suitable for the manufacture of bread, pasta, and noodles. Local wheat flour is, however, nonetheless used in the preparation more traditional/customary meals in Nigeria and in the Sahel region.

The market share of U.S.-origin wheat has been declining over the past decade; falling from a high of 91 percent in MY 2010/11 to a low of 27 percent in MY 2017/18. The drop in U.S.-origin wheat’s market share is due to increasing competition from cheaper priced wheat imports from Russia, Australia, Canada, and Argentina.

MILLING SECTOR
The country’s wheat milling capacity is at about 8 million tons. Major millers aim to operate at productive levels, adjusting inputs to maximize profits. Flour Mills of Nigeria (FMN) is Nigeria’s largest flour miller; it is also the world’s second-largest flour miller. DUFIL, Nigeria’s noodle giant, acquired Standard Flour Mills, Pure Flour Mills, and Valleumbra Flour Mills, transforming it into a major HRW importer. Other major players include Dangote, Honeywell, OLAM International (which acquired Crown Flour Mills and BUA), and the Seaboard Group. Seaboard’s Life Flour Mill in Sapele has 1,200 MT/day milling capacity, specializing in bread flour and semolina. In 2018, Honeywell Flour Mills, one of Nigeria’s largest flour millers, commissioned a 350,000 MT/day mill near Lagos. A new flour mill, under construction in Port Harcourt, is slated for commissioning in 2019.

Nigeria imposes a five percent tariff on wheat imports, plus an additional 15 percent levy (earmarked for the national wheat development program) for a total 20 percent duty. The government’s policy on composite flour (i.e., substitution of cassava flour for wheat flour for use in bread making and other flour-based products) remains in place. The policy offers a 12 percent tax rebate to bakers willing to blend cassava flour with wheat flour for bread making. Industry sources, however, note that full enforcement of the composite flour policy is unlikely until flour millers, bakers, and other stakeholders, overcome technical challenges in developing an appropriate mix of wheat and cassava flours. Nigeria is the largest producer of cassava in the world. This West African country produces cassava for 20 percent of the world, 34 percent of Africa. Although Nigeria has an enormous market for cassava, it is mostly grown for family consumption and local sale by smallholders.

USDA forecasts Nigeria’s corn production in MY 2019/20 at about 10.5 MT and corn imports at 400,000 MT. Decreases in consumer incomes is lowering demand for poultry meat and eggs. Demand for animal feed, which normally absorbs over 60 percent of the national production, is down.

AFRICA’S LARGEST RICE CONSUMER
Nigeria is Africa’s largest producer of rice and among the top 15 producers globally. FAS Lagos forecasts Nigeria’s rough rice production in MY 2019/20 at roughly 7.4 MMT, down about three percent lower than Post’s MY 2018/19 estimate of 7.6 million metric tons. Post expects however that the high cost of rough, paddy rice, as well as high operational costs to constrain large-scale/integrated rice mills from producing at prices that are more competitive. Post forecasts Nigeria’s rice imports in MY 2019/20 at 2.4 MT, up nine percent higher than the MY 2018/19 estimate of 2.2 million metric tons. Thai and Indian-origin rice (long-grain varieties) dominate imports. Lastly, USDA forecasts Nigeria’s sorghum production in MY 2019/20 at 6.9 MT, up almost two percent higher than the MY 2018/19 estimate of 6.8 million metric tons.

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