Cocoa processors hit by high input cost

Nigerian cocoa processors are hard hit by high input cost as prices of cocoa beans, which is the major raw material for processors, have doubled, owing to lower value of the naira against the US dollars.

This has increased the cost of production for processors and reduced competitiveness of their produce.

Key players in the industry who spoke with BusinessDay said the situation has shrunk their profit margins as currency control exert pressure.

“The price of cocoa beans today is been determined by the black market exchange of naira to dollar, this makes prices to change daily. Farmers want to sell at that rate and this is hurting the processors,” said Akin Olusuyi, chairman, Cocoa Processors Association of Nigeria (COPAN).

After buying the raw material at a high price, we will still spend much more transporting and grounding the beans. When we export the processed beans, we get our proceeds at the official rate making processors to lose at both ends,” said Olusuyi.

The processors stated that the current economy situation is not encouraging value addition, which is what is essential for the country to harness the full benefits of the agricultural sector. “The situation is discouraging value addition as it is better to sell the raw cocoa beans than processing,” he said.

There are only three processing companies with foreign funding in operation and cumulatively operating below 15 percent capacity, stakeholders say.

“There are only three processing companies in operation currently out of eight with no indigenous cocoa processing company without foreign funding in operation,” the association chairman said.

BusinessDay findings show that the local price of cocoa per ton at Matori cocoa warehouse in Lagos was N1.2 million on Thursday, November 15, almost twice higher when compared to N650, 000 per ton in December 2015.

Akin Laoye, chief executive officer, FTN said, “As a result of naira devaluation, prices of our raw material which is cocoa beans have doubled and this is decreasing our capacity and taking us far from our break-even.”

“Most processors could not invest in backward integration because it is very expensive to invest in the processing and also the farming aspects. We do not have access to cheap long term funds,” Laoye said.

Meanwhile, cocoa farmers and exporters are smiling to the bank as the steep devaluation of naira has resulted in a sharp increase in the naira income from cocoa sales.

“Farmers are making more money now, not because of price increase but as a result of the lower naira value,” said Sayina Rima, president, Cocoa Association of Nigeria (CAN).

He urged the government to provide long term funds for cocoa farmers as this would have encourage the processors to invest in backward integration.

Nigeria’s two cocoa harvests include the smaller midcrop from April to June and the main crop from October to December. The midcrop normally accounts for about 30 percent of Nigeria’s cocoa output, while the main-crop constitutes the rest. High input costs, poor weather, aging trees are the main challenges faced by cocoa farmers.

Josephine Okojie