Grain and Feed Annual Report 2013

Report Highlights: Nigeria is a huge export market for wheat and rice. High demand for wheat flour for the production of bread, noodles, pasta and biscuits (cookies) contributes to Nigeria’s wheat market worth approximately $1 billion in U.S. to Nigeria exports. Domestic wheat production is low and the U.S. wheat market share is over 85 percent. Rice production in Nigeria is very low but the country imports rice worth about $3 billion per year, making it one of the largest rice importing countries in the world.

Demand for other grains such as corn, sorghum, millet, is very high. The GON has initiated an Agricultural Transformation Agenda (ATA) to increase agricultural productivity by 2020.Unfortunately, this effort utilizes punitive taxes and import bans to stimulate import substitution. The GON is persisting with import substitution policies despite heightening food insecurity resulting  from flooding that destroyed farmlands, crops, seeds and households in 2012 and the increasing state of insecurity caused by the Boko Haram (BH) Islamic sect in northern Nigeria.

Executive Summary:

As the largest market in West Africa, Nigeria plays a pivotal role in the regional economy, and policies implemented in the country often have had far - reaching effects on the economic positions of countries throughout the region. The country is also of significant strategic importance for the United States in the non - oil trade. Nigeria’s Agriculture Transformation Agenda (ATA) is a new Government of Nigeria (GON) initiative designed to significantly increase production of five key crops: rice, cassava, sorghum, cocoa and cotton, and reduce food imports.

Nigeria is among the world’s largest importers of U.S. wheat, with purchases valued at nearly one billion dollars ($1b) in 2012. As part of the measures to cut back on imports and grow local agriculture and create employment, the GON initiated a policy mandating cassava flour inclusion in wheat flour, starting with a 10 percent cassava flour inclusion rate. The inclusion rate is expected to increase steadily to 40 percent by 2015. Bakeries are allowed 18 months (until July 2013) to comply with the new requirements. Some fiscal incentives, such as duty - free import of related equipment and machinery, have also been introduced. The GON aims to increase marginal growth in the country’s Gross Domestic Product (GDP) by this step and save the country foreign exchange. This has generated friction among the policy makers, flour millers and bakers.The bakers indicate they are not able to produce their usual bread products with such flour, while flour millers are still struggling with a one to three percent cassava flour inclusion to produce flours acceptable to the local bakers. The GON has maintains that 10 percent cassava flour blend is achievable and is not expressing willingness to accommodate the millers or bakers. producer in Nigeria, and also at Josepdam Sugar Company. The rehabilitation of the other sugar estates remains stalled at various stages of development.

Flooding of arable lands under cultivation in 23 out of Nigeria’s 36 states in September through October 2012 negatively impacted agriculture and grain supply/prices. Consumers saw a general 30 percent increase in food prices as of mid January 2013 when compared to the same period in 2012. The floods destroyed livestock and farmlands of rice and other food crops such as sorghum, millet, groundnuts and cotton in the north and plantain, oil palms, cocoyam etc. across several northern states in Nigeria. The activities of the Islamic group BH pose major security concerns and have caused problems for farms in the food - producing northern region. BH activities have adversely impacted social and economic activities in widespread areas across northern Nigeria. Other security challenges such as kidnapping in the south - east of Nigeria and militancy in the Niger Delta region also limit large - scale farming of grains and other food and agricultural products within these regions. These problems hamper food production/distribution and are generating concerns for Nigeria’s food security.

The corn crop in 2011/12 was good in Nigeria as well as in some neighboring corn supplying countries not affected by floods. Prices remained high due largely to the strong demand from the poultry and brewing sectors. The GON tapped supplies held by Nigeria’s Strategic Grain Reserve unit of the country’s Federal Ministry of Agriculture (equivalent of USDA). Stocks were released to stabilize market prices during Nigeria’s flooding. Corn prices had increased 15 percent from $435 per metric ton as of March 2012 to approximately $500 per metric ton for the same period in 2013. Back in September 2008, the GON lifted the import ban on corn, but local poultry producers to date have failed to successfully explore import opportunities to cushion the impact of high domestic corn

prices. Corn is the preferred energy source and accounts for about 60 percent of compound feed.

Feed millers increasingly substitute imported feed wheat for corn utilizing already established import channels for wheat. Potential corn importers fear that Nigeria’s customs may arbitrarily block any corn imports upon arrival at Nigeria’s ports in support of domestic producers.

Overall there is a renewed drive under ATA to increase agricultural production in order to increase food production and generate employment. The GON has indicated that agriculture will now be treated as a business and no longer as a development project with a view to developing strategic partnerships with the private sector to stimulate investments in agriculture. The initiative is designed to give particular attention to fixing the value chains in sectors where Nigeria perceives comparative advantage. The government intends to attain self-sufficiency in rice production by raising the duty on imports and increasing funding for domestic production to more than double production

of paddy rice from 3.4 million metric tons presently to 7.4 million metric tons by 2015.

Exchange Rate: US$1 = 160 Naira

Commodities:

Wheat

Production:

Nigeria’s wheat production

Is expected to drop 20 percent from 100,000 tons in MY2011/2012 to 80,000 tons in MY2012/2013. Local climatic conditions in Nigeria are not suitable for extensive wheat production and the wheat that is produced is grown under irrigation in a few states in northern Nigeria. Nigeria’s northern states of Bornu, Yobe, Jigawa, Kano, Zamfara, Katsina, Adamawa, Sokoto, Kebbi, etc. are wheat growing areas. BH activities are strong in many of these areas and this has created impediments for wheat production and distribution during the year. Farmers there are under pressure and the loss of crops, seeds, income and lack of financial assistance will limit domestic wheat production in MY2013/2014, to 85,000 tons.

Consumption:

Nigeria’s wheat milling capacity increased in 2012/13 to about 8.0 million tons, up from 6.6 million tons. However, capacity utilization dropped 10 percent to approximately 50 percent in 2012/13 as compared to the previous year. The growth in Nigeria’s wheat imports witnessed during the last few years could not be sustained this year because of the difficulties in moving products to parts of the country affected by the incessant social strife, especially in thenorth.

The increase in FSI consumption (3.8 million tons) for in 2012/2013 is unusual as flooding led to shortfalls of local produced staples and caused demand for wheat – based foods to increase to augment domestic food needs. This is expected to fall back to nearly within normal levels in 2013/2014. The increased levy on imported wheat grains and the other GON policies including the

Cassava inclusion requirement have resulted in rising prices for wheat flour and other flour – based products. Flour millers indicated at the time of this report that market resistance to higher prices is strong and they have not been able to pass on increasing costs to the consumers. Flour Mills of Nigeria (FMN) continues to be the market leader by capacity but other millers, such as Dangote, Honeywell, and BUA, keep increasing market share. Competition among the wheat millers is….

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