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Nigeria Agribusiness Report Q1 2012
Business Monitor International, Dec 2011, Pages: 72
BMI View: All of our supply and demand forecasts for Nigeria's agribusiness sector have been extended to 2015/16. Our new forecasts envisage strong production growth for cocoa, sugar and corn, as well as for Nigeria's livestock and dairy sectors. Meanwhile, although we forecast positive consumption growth across all agricultural sectors, the strongest demand growth is predicted for wheat, corn, milk, poultry and pork. Although strong demand growth is envisaged for cocoa, this will be from a low starting point.
Growth in the consumption of sugar, wheat, cocoa, meat and dairy products will benefit from rising living standards and an expanding population. Despite having high growth potential, Nigeria's agricultural industries suffer from insufficient investment. As part of an effort to improve food security and diversify the economy, the Nigerian government has committed itself to further agricultural development. However, given that agriculture accounts for around 44% of Nigeria's GDP and approximately 88% of its non-oil earnings, actual investment levels can be considered low. One of the biggest factors which have limited private-sector investment levels is Nigeria's challenging business environment.
Key Forecasts
- Cocoa production growth to 2015/16: 43% to 343,000 tonnes. Production growth will reflect increased plantings as farmers move to capitalise on the higher price of cocoa beans. Although long-term growth will benefit from government and private-sector investment, we identify several major downside risks to our production forecast.
- Corn consumption growth to 2016: 23% to 10.85mn tonnes. In addition to direct human consumption, the use of corn for brewing beer and its use as a source of poultry feed will drive strong demand growth. Demand will have a positive impact on production, which will increase by 23% to 10.86mn tonnes.
- Poultry production growth to 2015/16: 33% to 367,100 tonnes. Poultry output will benefit from increased government support, improved farming techniques and rising demand for meat.
- Milk production growth to 2015/16: 18% to 579,200 tonnes. Despite benefiting from new forms of investment, the dairy industry will be unable to satisfy domestic demand for milk. Milk consumption is predicted to grow by 41% to 2.28mn tonnes in 2016.
- Sugar production growth to 2015/16: 50% to 90,000 tonnes. Production growth will be supported by government incentives. Meanwhile, we anticipate a 27% rise in sugar consumption to 2016; consumption will be underpinned by rising disposable incomes and increased demand for sugar as an ingredient for food-processing sectors - predominantly soft drinks, alcoholic drinks and confectionery.
- Rice consumption growth to 2016: 15% to 5.74mn tonnes. Despite steady output growth, total demand for rice is expected to remain well in excess of Nigeria's productive capacity; this will necessitate a continued reliance on imported grain. We are doubtful that the government will deliver on its recently announced plan to ban rice imports from 2014.
- Real GDP growth 2012: 7.6% (down from 7.8% in 2011)
- Unemployment rate 2012: 17.9% (up from 17.1% in 2011)
- Inflation (annual average, % chg y-o-y) 2012: 10.2% (down from 11.1% in 2011)
Industry Developments
Agribusiness accounts for around 44% of Nigeria's GDP and roughly 88% of its non-oil earnings. The sector is therefore seen as offering the best opportunity to diversify the country's economy and reduce its dependency on oil. Key industries currently receiving government support include cocoa processing, sugar refining and poultry production. Specific forms of government support are numerous and include the provision of subsidised agro-chemicals, the rehabilitation of old farms and efforts to help local production through limiting imports. In order to improve access to financing for farmers, Nigeria's banks have been encouraged to increase their lending to the agricultural sector. Meanwhile, there have been calls for the government and financial institutions to make interest-free loans available to entry-level farmers.
In addition to providing direct support, the Nigerian authorities will continue to encourage foreign investment in key sectors such as corn, rice, sugar, livestock and dairy production. In October, Nigerian Export-Import Bank (NEXIM) announced that it was partnering with United States EXIM Bank to boost the development of agriculture in the county. Meanwhile, recent examples of efforts to improve dairy farming include a project by Dutch firm FrieslandCampina to invest in the production of locally produced milk, and a newly unveiled initiative by Nigeria's Sterling Bank and Karma Milk Industries to produce milk from soya beans.
Although BMI predicts strong long-term production growth for the majority of Nigeria's agricultural subsectors, we emphasise the presence of numerous downside risks to our forecasts. In the cocoa sector, these include structural hurdles such as the need to negotiate improved access for its cocoa products to European markets. Disease continues to be one of the biggest downside risks to poultry production. Meanwhile, in the grains and dairy sectors, the production, storage and distribution of produce is hampered by inadequate infrastructure and energy supplies.
With regard to Nigeria's agribusiness sector in general, there is a need for the government to ensure that food production standards are adequately enforced. In some sectors, clearer regulations and standards are required to govern food production; in other sectors, existing standards need better enforcement as well as the provision of assurance guarantees to potential agribusiness investors.
Business Monitor International's Nigeria Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Nigeria's agribusiness service.
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