TUE, MAY 14 2019-theG&BJournal-The latest US Foreign Agricultural Service (FAS) report says the domestic Wheat Purchase Incentives geared towards ramping up production is not working because Flour millers favour imports.
The FAS said in the report that the policy was ruined by the Central Bank of Nigeria (CBN) when it devalued the Naira in February 2017 and authorized private individuals to buy U.S. dollars at almost 20 percent above the normal rate for travel, some school fees and medical bills.
The FAS report also suggests that Flour millers favour imports because locally produced wheat tends to have higher protein content, lower moisture and lower gluten-characteristics not well suited for bread production.
In 2017 the federal government enacted policies aimed at reducing wheat imports by 50 percent and which required millers to purchase local wheat at a fixed price of $400 per metric ton.
‘’This sly devaluation resulted in driving up the price of locally produced wheat to $420 per metric ton. At the same time, one metric ton of Nigerian wheat in the neighbouring, drought-stricken Sahel region (i.e., Niger, Chad, Mali, and Burkina Faso) commands prices of around $600 per metric ton.’’
The report noted that the federal 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.’’
Meanwhile, Nigeria’s wheat production in marketing year (MY) 2019/20 (July-June) is forecast to reach 60,000 metric tons (MT), unchanged from the production figure for marketing year 2018/19. At the same time imports in MY 2019/20 is forecast at 5.6 MMT, up almost four percent or some 200,000 MT higher than Post’s MY 2018/19 estimate of 5.4 million metric tons.
The stagnation in production is attributed to dearth of long-term private sector investment along with massive infrastructure development and greater access to untitled (free) lands.
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.
Although Nigeria has sought out cheaper priced wheat in the wake of the economic downturn triggered by the 2014 crash in oil prices and the subsequent foreign currency crisis, local millers have over time become accustomed to improving Russian wheat quality.
In marketing year 2018/19,Nigeria’s imports of Russian-origin wheat total about 1.9 MMT, compared to imports of U.S.-origin wheat of 1.7 million metric tons.
The Federal government 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 noted 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. Wheat is not on the list of 41 items ineligible for foreign exchange access. However, the dollars required for wheat purchases are not always available, compelling Nigerian wheat traders to turn to the higher-rate parallel market instead of the Central Bank of Nigeria’ slower rate.
FAS also forecast wheat consumption in MY 2019/20 to reach 5.26 million metric tons (MT), up nearly four percent or 200,000 MT higher than from Post’s MY 2018/19 estimate of 5.06 million metric tons.
The revised estimate is attributed to the increase to an uptick in imports combined with an increase in food, seed and industrial (FSI) usage. The rise in FSI wheat consumption is attributable to population growth of about 2.54 percent (2015-20) and the population is increasingly reliant on domestic and imported processed food products.
Bread, semolina, and durum pastas and other wheat flour-based products are major stables in Nigeria’s urban areas. Russia, the United States, Canada, and Australia supply the bulk of Nigeria’s wheat imports destined for milling and product production.
According to FAS, 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.
Flour Mills of Nigeria (FMN) is Nigeria’s largest flour miller; it is also now the world’s second largest flour miller. It is the country’s largest importer of Soft Red Wheat (SRW), Hard Red Winter (HRW), and Hard White (HW) wheat types. 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, OLAMInternational (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, specializingin 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 (population 13.4 million). A new flour mill, under construction in Port Harcourt (Nigeria’s oil port, population 2.3 million), is slated for commissioning in 2019.
Pasta consumption is also on the increase according to the report, accounting for about 15 percent of wheat flour usage, up from virtually zero in 1999. Flour Mills of Nigeria pioneered pasta production in 1999; since then it expanded pasta production capacity from 40,000 MT (1999) to 350,000 MT today.
Dangote similarly expanded its own milling capacity from 15,000 MT/year in 2000 to a total installed capacity of 800 MT/day currently. Other major players in pasta production include Honeywell Flour Mill and OLAM/Crown Flour Mills.
‘’Expansion began in earnest in 2003 following the government imposing a 100 percent tariff on imported pasta and biscuits. In 2008, the government did lift this tariff as the local manufacturing industry took off.’’
FAS noted that Leventis Bakery, in partnership with FMN, is Nigeria’s sole surviving mass-scale bread producer. Leventis and FMN have installed new silos at their Lagos plant. Lagos state counts with more than 18,000 small-to medium-scaled independent bakery operations, retail in-store bakeries, and informal baker/entrepreneurs.
Competition from these bakeries, combined with the high production costs has forced a number of automated bakery plants out of business. Bread demand in Nigeria remains elastic.
Biscuit manufacturing took off in 2003, with the government’s introduction of a 100 percent tariff on imported biscuits; 2008 saw these tariffs eliminated. Today, Nigeria is Africa’s largest manufacturer of biscuits.
‘’According to sources, the biscuits industry grew two percent between 2004 and 2009; and by 10 percent in 2012. This growth has now levelled off. Nigeria’s leading biscuit manufacturers include OK Biscuits (OLAM International), Yale Biscuits, Niger Foods, Beloxxi Biscuits, and Energy Foods.’’
The extensive report also x-rayed Nigeria’s Domestic Agriculture, Trade Policies and Implications and knocked the 2018, Anchor Borrower Program (ABP). The program provides farmers single-digit loans to boost domestic production.
The FAS said that many rural/small holder farmers and cottage agri-businesses who produce over 80 percent of the country’s agricultural products indicate they remain cut off from the program.
‘’Some sources also regard the ABP as “merely an off-taker program,” which is not effectively linking farmers to the agribusiness value chain. They indicate the ABP is simply supporting subsistence farming, resulting in increase in rice production—without significant impact on mechanized farming as well as expanded milling capacity.’’
According to them, 90 percent of agriculture is still subsistence-based, while the rice sub-sector contributes about 10-12 percent of total agricultural production. The modified Growth Enhancement Scheme (GES), an agricultural support program, initiated to assist farmers obtain inputs at subsidized costs has yet to be fully implemented.
‘’Due to limited funding availability, many farmers lack adequate inputs to increase their production. Access to fertilizer remains a challenge for small-and medium-scale farmers, constraining efforts to increase grain production despite growing demand.’’
The FAS also forecasts Nigeria’s corn (maize) production in MY 2019/20 (October-September) at about 10.5 MMT, down less than two percent or about 200,000 MT lower than Post’s MY 2018/19 estimate of 10.7 million metric tons, on concern about potential resurgence of pest infestation.
‘’ The Fall Army Worm (Spodoptera exempta) devastated corn crops across the region over the past 3-4 years. Many farmers are reluctant to return to corn production after having lost entire crops to the destructive pest. This fear remains despite increased collaborations between donor agencies, research centers (including the International Institute of Tropical Agriculture -IITA), the U.S. Agency for International Development (USAID), and other agricultural stakeholders (in both Nigeria and in surrounding West African countries) aiming reduce corn crop damage.’’
Corn consumption is equally projected to fall over five percent or 600,000 MT lower than Post’s MY 2018/19 estimate of 11.3 million metric tons. It said Nigeria’s animal feed sector is underdeveloped, mostly due to high production cost.
‘’ Most poultry, aquaculture and other livestock operations in Nigeria spend about 70 percent of their operational costs on feed, reflecting the huge demand for feed in the sector.’’
Corn imports in MY2019/20 at 400,000 MT, is forecast unchanged from Post’s MY 2018/19 estimate. Post forecasts Nigeria’s corn exports in MY 2019/20 at 100,000 MT, unchanged from Post’s MY 2018/19 estimate.
For over a decade, Nigeria has maintained a five percent tariff on imported corn in addition to stringent import permit requirements. The government is concluding a concession arrangement for 20 out its 33 silos as it aims to liquate its 1.3 MMT strategic grain reserve.
Rice production in MY 2019/20 at roughly 7.4 MMT, is forecast to drop about three percent or 200,000 MT lower than Post’s MY 2018/19 estimate of 7.6 million metric tons. The drop is attributable to a nearly three percent reduction in forecasted area harvested, representing a falloff of around 100,000 hectares compared to MY 2018/19.
Consumption in MY 2019/20 at 7.1 MMT, 100,000 MT is lower than Post’s MY 2018/19 estimate of 7.2 million metric tons and imports is forecast to spike in MY 2019/20 at 2.4 MMT, up nine percent or 200,000 MT higher than the MY 2018/19 estimate of 2.2 million metric tons.
Nigeria imposes a 10 percent tariff, plus a 60 percent levy (totalling 70 percent) on imported rice (arriving by sea).
‘’The official ban on rice imports through land borders remains, but is difficult to control,’’ FAS said.
Nigeria is Africa’s largest producer of rice and among the top 15 producers globally.
On the other hand sorghum production in MY 2019/20 (October-September) at 6.9 MMT, is forecast up almost two percent or 130,000 MT higher than the MY 2018/19 estimate of 6.8 million metric tons. Post forecasts area harvested at 5.9 million hectares, with yields at 1.174 MT/ hectare compared 1.172 MT in the MY 2018/19 estimate. While consumption (including FSI) in MY 2019/20 at 6.8 MMT, is forecast up about two percent or 130,000 MT higher than Post’s MY 2018/19 estimate of 6.7 million metric tons.
‘’Industrial demand for sorghum by beverage, cereal, and confectionery producers is the major driver in the sorghum market. Industrial sorghum users are utilizing less expensive sorghum-based intermediate products to lower costs. Poultry feed manufacturers have also overcome the challenge of high tannin in sorghum feeds, which should reduce costs and boost production.’’
The Federal government imposes a five percent tariff on sorghum imports. Nigeria does not import sorghum. However, over 100,000 MT of informal exports of sorghum go to the Sahel, especially to Niger and Chad where desertification threatens food security.
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