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Despite challenges Nigerian manufacturers are backward-integrating – Gbededo

Few months past the one-year anniversary of its N50bn Sunti Golden Sugar Estate in Mokwa, Niger State, Paul Gbededo, Group Managing Director, Flour Mills of Nigeria PLC speaks with BusinessDay journalist, SEGUN
ADAMS, on the strides made in Nigeria’s quest towards self-sufficiency in food production and backward integration, especially FMN’s contribution in helping the country actualize its sugar production goal.

What informed the Sunti Sugar Estate Project?

For starters, it is essential to note that FMN still has one of the biggest product offerings of any Nigerian company operating in the FMCG sector. Since independence, our flagship food brand, “Golden Penny,” has remained the family favourite, and has earned a prominent position for itself in the kitchen of just about every household in the country.

To ensure that we continue to meet the expectations of our consumers, especially in terms of delivering on quality, we embarked on an ambitious backward integration strategy since the early seventies with a deliberate focus on five key food areas that are essential for nourishing our consumers. Accordingly, our businesses now cover five value chains of grains, oils & fats, proteins and feeds, starches and of course, sugar.

Naturally, we had continued to focus our investments in developing and improving our production competencies in these value chains. Sunti Golden Sugar Estates is essentially the upstream segment of our operation in the sugar value chain. Don’t forget that we also operate in the downstream sector as well.

FMN owns and runs one of the largest sugar refineries in Nigeria, here in Apapa, with the=capacity to process 750,000 metric tons of sugar per annum.

Sunti Sugar Estates is in line with the Federal Government’s backward integration policy, the National Sugar Master Plan and in compliance with the mandatory requirements for sugar processors in Nigeria. But for us, Sunti
has always been more of a strategic approach that is intended to secure our supply chain and ensure the sustainability and future growth of our business.

Whatis the significance of Sunti Golden Sugar Estates in FMN’s backward integration agenda?

As one of the biggest food and agro-allied companies in Nigeria today, we understand that millions of Nigerian families depend on us for their daily food and nutrition needs. As such, our entire backward integration strategy
has been designed around the need to secure a sustainable supply chain that guarantees access to quality raw materials for our production process.

In addition to improving synergy within the Group, the Sunti Sugar Estate, like most of our businesses within the agro-allied sector, offers numerous import substitution opportunities to help conserve forex and further create jobs for our teeming youth while tackling food security in the country.

What is the scale of this project in terms of cost and infrastructure acquired?

The Sugar Estate is in Mokwa, Niger state. It comprises of 17,000 hectares of arable farmland and a sugar mill with the capacity to process 4,500 metric tonnes of sugarcane daily.

At full capacity, the estate can easily produce one million tonnes of sugarcane and 100,000  mt of sugar annually.
The estate is enclosed within a 35-kilometre dyke, which is designed to provide flood protection from River Niger. The estate features a state-of-the-art irrigation system that will ensure efficient cultivation of sugarcane, with infrastructure that includes drain pumps, pump stations, and a power grid.

We believe that Sunti estate is one of the purest representation of the Federal Government’s Nigerian Sugar Master Plan (NSMP) in action. In addition to its capacity of reducing the need to import Sugar, which will save billions in foreign exchange for the country, the estate has also significantly boosted local capacity, and have created several jobs including direct employment for about 10,000 people and  indirect employment for about 50,000
people yearly.

In terms of investments to date, we have invested well over N60 billion on the project.

What have been the challenges encountered in the Sunti Golden Sugar Estate BIP?

The most significant challenge is the recurring flooding of the Estate since the inception of the project. In September 2018, for example, we recorded two significant breaches, each in excess of 30m at our dykes because of flows from local catchments and the unprecedented rise in the water levels at Niger river. The floods affected as much as 750ha of sugarcane which was submerged by the floods. Sadly, most of the flood cases could have been averted with proper management of the water flow from the upstream river and dam network at the Kainji and Jebba Hydroelectric dams. Lately, we have received a lot more cooperation from the dam authorities and have been in constructive talks with the government on the best approach around these challenges and are very hopefulthat we would soon reach a workable solution that will benefit all the parties.

Is Nigeria on track with its vision for self-sufficiency and food securitization agenda?

I believe that we have to come to the realisation that we can’t continue to depend on just the revenue from oil as a nation. Likewise, the era, when we had to rely on the importation of food and raw materials, is gradually passing. Since the start of this administration, we noticed that an increasing number of policies had been designed to stimulate broad-based and inclusive growth in the economy. The agriculture sector, in particular, is witnessing
increasing support in the forms of enabling policies. The Agriculture Promotion Policy and the Economic Recovery and Growth Plan, for example, have both focused heavily on improving food security and achieving self-sufficiency in food production. If I am not mistaken, the GDP from Agriculture in the country witnessed some growth in the second quarter of 2019.

The growth though marginal is incremental, and this is a good sign. For us to see the type of development that is expected in this sector, we need commensurate investments that in turn will lead to increased production and create
value in the long run. The long-term sustainability of Nigeria’s agriculture depends on its linkage to industry.

How much of a commitment towards backward integration are we seeing across the manufacturing industry in
Nigeria?

I believe there has been a steady increase in the number of backward integration projects in the manufacturing space, especially in the last couple of years. Clearly, there is a need to diversify the economy and promote sustainable growth.

In spite of the challenges that manufacturers face, we can see that there is still a lot of investment going into space because we understand the need to continue to create and improve backward linkages. It is also worth
mentioning that the Federal Government’s effort to encourage and promote investments in backward integration is starting to yield the desired results albeit it is early days and this effort requires even greater focus and consistency.

According to a survey conducted by MAN, Nigeria witnessed an increase in local sourcing of raw materials from 47.2 percent in 2014 to about 60.23 percent in 2018. Take FMN as an example – in the last couple of years, we
have made substantial investments in raw material sourcing as a means of strengthening our supply chain. Our goal to be involved in all stages of the food value chain has over the years continued to inspire our investments in the development of critical infrastructure that is required to support our target value chains.

In 2014, we unveiled one of the biggest, automated edible oil refineries and the first margarine plant in the country. The operation of the refinery is supported with palm oil from our 4,500-hectare oil palm plantation in EdoState together with soybean sourced by our aggregation teams across the country.

In 2017, as part of a strategic plan to develop a centrally located grains hub in Nigeria, we commissioned one of the biggest and modern Sorghum milling plants in Kano. The mill has an installed capacity of 100,000 metric tons per
annum and engages a network of about 10,000 farmers in an out-growers scheme and create jobs for at least another 40,000 people, and small-scale businesses.

Then in 2018, we commissioned Sunti Sugar Estates. Another project that has been positioned to promote our backward integration strategy and efforts to increase the local content of our products. Sunti is a shining example
of the magnitude of investments and level of activities that is going into the space.

What measures can be taken to encourage greater participation?

Like I stated earlier, the Government has already started to introduce several new initiatives designed to encourage investments and growth. However, I must say that a lot more needs to be done. We need to continue to see
the implementation of newer reforms that will not just attract strategic investments in the agro-processing sectors alone but the real sectors in general. The Government must continue to make provision for enabling infrastructures
– This is very important. Without enabling infrastructures like power, adequate roads, including rail, and functional seaports, growth activities in the productive sector will be hindered. On the agricultural sector, investment in irrigation and water management is critical. Good governance and supporting policies and incentives should be a given at this point, but it must be at all levels, including sub-nationals and at the grassroots levels.

How has the National Sugar Master Plan (NSMP) impacted on Nigeria’s global competitiveness?

The objectives of the National Sugar Master Plan were clear from the very start – help Nigeria establish a viable local sugar industry and ensure that the country achieves self-sufficiency in the production of sugar. Between2012, when the plan was introduced and now, we can agree that there has been a considerable increase in the level of activities
in the sector. The sugar sector has attracted massive investments and several jobs have been created. I am particularly delighted that local skills in agronomy, farm management, sugar technology and industrial automation are being developed. While we are not quite where we need to be, I imagine that the investments that the NSMP would generate can only help Nigeria to consolidate its position as the largest economy in Africa and regain its position as a powerhouse of global Agriculture and an investment destination to be reckoned with.

Given heavy investment involved in backward integration, how can the national objective of backward integrating be balanced with business profitability especially in the face of current economic realities affecting
business performance?

First, we must recognise that large-scale agriculture and agro-processing investments are typically long-term. Take sugarcane, for example, the life span is usually seven years and above.

To support such large-scale investments and encourage even higher participation, the government must continue to implement effective and consistent policies, while ensuring a level playing field for all operators. I cannot overemphasise the importance of sincerity of purpose and consistency in our pursuit of growth in the sector. As such, we must clearly define the roles between the government and the operators and each of the parties must ensure that they come to the table.

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