The professional services firm has published a report calling on Nigeria to impose export tariffs on domestic cocoa to stimulate local cocoa processing.
Nigerian cocoa: Key figures
Nigeria made up around 20% of global cocoa production in 1970, but its share of the global output has fallen to less than 10% today.
- Production volume 248,000 MT (2014 FAO)
- Average farm size: 2.5 hectares
- 30,000 farmers
- Ondo is the largest cocoa producing state (31% of production)
70% increase
PwC’s report said: “Based on an extensive review of the cocoa value chain, we identify significant scope to increase production by at least 70%, driven by an increased supply of improved seedlings, pesticides and fertilizers.”
There is also a lot of untapped land. Only 34 hectares of 82 million hectares of arable land is currently being cultivated in Nigeria, said PwC.
Low average yields
Hershey aimed to double Nigerian cocoa production in 2013 when it expanded its Learn to Grow program to the country.
But Nigeria’s cocoa output (248,000 MT in 2014) remains far lower than West African compatriots Côte D’Ivoire (1.7m MT) and Ghana (700,000 MT).
PwC said Nigerian cocoa yields have historically been low due to “poor” and “limited” input provisions, such as seedlings and fertilizer.
Nigeria’s average farm size of 2.5 hectares and yields per hectare of 400 kg are also below the global average for smallholder cocoa farms of 3-4 hectares and 500 kg per hectare, respectively, and have been declining since 2000.
Nigeria’s annual cocoa production consequently fell 37.9% between 2010 and 2014, leaving it lagging behind Côte D’Ivoire and Ghana in cocoa exports, said PwC.
“A combination of rural poverty, increasing rural-urban migration and land degradation have kept production at subsistence levels,” said PwC, adding Nigeria had not adopted technology and inputs to the same degree as other cocoa origins.
30% processed locally
“Moving further down the value chain, processing and marketing activities have been plagued by poor infrastructure, low investment and unfavorable government policies,” it added.
Only 30% of Nigeria’s cocoa was processed domestically in 2014, generating income of $144m.
“Cocoa processors are underutilized, as Local Buying Agents (LBAs) and cooperatives prefer to sell cocoa beans to merchants, who offer a higher premium than processors,” said PwC.
Around 90% of cocoa in the main producing state of Ondo is sold to LBAs.
The report recommended higher export tariffs to encourage local processing. The cocoa market has been liberalized since 1986 when Nigeria abolished its marketing board.
Grinders support export tariffs
Adedayo Akinbiyi, an economist at PwC, told ConfectioneryNews, there was appetite among Nigeria’s major grinders such as FTN Cocoa Processors to scale up.
“Current capacity utilization ranges from as low as 9% to 25% from our findings. The main issues here are the limited availability of raw cocoa beans, and the high cost of energy to run the factories,” she said.
Processing in Nigeria
The world’s largest cocoa processor Barry Callebaut and number two Cargill have no capacity in Nigeria. Mondelēz International operates the Cadbury Nigeria Plc Cocoa Processing Plant, formerly Stanmark Cocoa Processing Company Limited, while Olam recently acquired a plant in Nigeria after buying ADM cocoa arm. Tulip Cocoa Processing Ltd, owned by Ecom Agroindustrial Corp Ltd operates a 35,000 MT plant. FTN Cocoa Processors Plc is another major commercial grinder with an annual capacity of 20,000 MT, while Alfa Systems and Commodity (12,000 MT) is also present.
PwC interviewed farmers, industry experts and processors mainly in South West Nigeria to reach its conclusions.
“Our respondents were certainly supportive of export tariffs as it gives them a chance to ramp up capacity. We understand there has been some conversation with the government in this regard, but nothing has really moved,” said Akinbiyi.
PwC says value addition through local processing will shift the focus from increased yields, which has left farmers – 80% of whom are smallholders in Nigeria – with only a small percentage of the value of finished chocolate.
PwC also urged farmer cooperatives and processors to explore UTZ and Rainforest Alliance certification, which it claims “could increase productivity and guarantee farmers a fair price for their produce”.
[Source: Transforming Nigeria's Agricultural Value Chain: A case study of the Cocoa and Dairy industries, PwC]
Domestic chocolate market potential
Nigeria has been the biggest consumer of food in Africa in the last five years, according to the FAO (Food and Agriculture Organization of the United Nations). It is predicted to be the third most populous country in the world by 2050, reaching a population of 400m. Nigeria is also forecast to be the joint fastest growing African chocolate confectionery market by revenues with a +3.2% compound annual growth rate (CAGR) up to 2021, according to FoodTrending.