The global sugar market is facing a major crisis, with prices soaring to record highs, driven primarily by the weather events in El Nino which led to a supply squeeze from major sugar-producing countries including Brazil (due to rain-delayed harvest), Thailand (due to drought and competition with high-priced cassava), China, and India amongst others.
Data from the World Bank revealed global sugar prices have increased by 26 percent to $0.53/kg in August 2023 from $0.42/kg in January 2023. The price is also a 36 percent increase from $0.39/kg in August of 2022.
This increase in prices flows through to the domestic market as Nigeria’s local industry is still largely dependent on imports of raw sugar. The average price of sugar according to the National Sugar Development Council (NSDC) rose by 44.2 percent to N835,400 per metric ton in July 2023 from N579,400 in the corresponding period in 2022, while data from the National Bureau of Statistics show that sugar imports in the first quarter (Q1) of 2023 ranked fourth on the list of imported food items amounting to N75.79 billion.
Ayodeji Ajilore, investment manager at ARM Investment Managers, said the surge in the global sugar price is largely tied to the dual concerns of demand and supply.
“While demand has continued to rise as the global economy aims for pre-pandemic levels, the encumbrance coming from climate issues in India for one, has impaired the supply side of the balance,” he said.
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The elevated global sugar prices mean higher market price of sugar in the domestic market which translated to higher revenue for industry players like Dangote Sugar Refinery (DangSugar), BUA Foods, and Golden Sugar Refinery (a subsidiary of Flour Mills of Nigeria Plc) who accounts for over 95 percent of the sugar market in Nigeria, according to the Sugar Annual Report of the United States Department of Agriculture.
Data gleaned from the Nigerian Exchange Group (NGX) reveals that revenue generated from sales of sugar and molasses by DangSugar accounts for 99.4 percent of total revenue generated in the first half (H1) of 2023 (N202.78 billion). DangSugar’s revenue from the sale of sugar grew by 9.51 percent to N201.59 billion in H1’2023 compared to N184.08 billion in the corresponding period of 2022.
Similarly, BUA Foods revenue from the sale of sugar and molasses grew by 80.11 percent to N196.5 billion in H1’2023 from N109. 1 billion in H1’2022, thereby accounting for 61.23 percent of its total revenue generated during the period (N320.93 billion).
BUA Foods in an earning release statement attributed the increase in revenue to volume and price adjustments within the period. It also said “contribution margin increased to 40 percent from 30 percent recorded for half year 2022. This was driven by sales volume growth, price adjustments and export sales within the period.”
The company also said “volume sold increased significantly by 29.6 percent to 344,130 tons within the period (H1 2022: 256,509 tons). Fortified Sugar sales sustained her market share with a 176.5 percent increase in sales to ₦151.5 billion.”
Golden Sugar on the other hand, grew its revenue from 20.85 percent to N66.49 billion in the three-month period ended 3oth June 2023 from N55.02 billion in the corresponding period of 2022.
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Dangote & NASCON: A Marriage of Convenience
Compared to its peers, DanSugar continued to be the only company in the sugar sector whose revenue came only from the sale of sugar and freight.
BUA Food’s diversified income stream comprises revenue from the sale of Sugar, Pasta, Flour, and Rice. Flour Mills of Nigeria (FMN) revenue segments include Food Value Chain, Sugar Value Chain, Agro-Allied Value Chain, and Support Services.
As a result, the total revenue generated by BUA Foods amounted to N320.93 billion in H1’2023, 58 percent higher than DanSugar’s total revenue of N202.78 billion in the same period. FMN on the other hand, reported total revenue from its revenue-generating segment of N456.38 billion in the three-month period ended 30th June, 2023.
Dangote Sugar Refinery Plc, on July 31, revealed its plan to merge with NASCON and Dangote Rice Limited (DRL).
Prior to the disclosure, DangSugar’s share price traded at N30 per share (as at week ended 28th July 2023) while BUA Foods traded at N135.75 per share, bringing their market capitalisation to N364.4 billion and N2.44 trillion respectively.
Following this disclosure, the shares of Dangote Sugar Refinery and NASCON have seen improved buy activities, helping to push the market to record year-to-date.
Read also: Dangote Sugar’s profit rises by 148% on sales, finance income
Since the announcement of the proposed merger, the share prices of Dangote Sugar Refinery and NASCON have rallied significantly this year in excess of 300.9 percent and 442 percent respectively.
On Friday (8th September, 2023), the share price of Dangote Sugar Refinery was N64.15, while that of NASCON was at N57.2, bringing both their market capitalisations to N779.2 billion and N151.5 billion respectively. BUA Foods on the other hand, is currently trading at N185, bringing its market capitalisation to N3.33 trillion.
According to Tajudeen Ibrahim “ the estimated market capitalisation from the combined entity that will result from the merger of dangote sugar, NASCON and dangote rice, will be above N1 trillion. However, it will not be up to the market capitalisation of BUA Food which is currently over N3 trillion.”
“If the merged entity is called ‘Dangote Foods’, then Dangote Foods will be the second largest consumer company listed on the Exchange by our estimate,” Tajudeen said.
