• Wednesday, December 06, 2023
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Chuka Mordi on Ellah Lakes’ 5-year plan to becoming a billion dollar company


With 10,000 hectares of land across different states, Ellah Lakes’ journey towards becoming one of the agricultural businesses that will redefine food security and industrial competitiveness in Nigeria is gradually taking shape. This is especially with the company’s new direction, and CHUKA MORDI, managing director, Ellah Lakes Plc, in this interview with CALEB OJEWALE, discusses the company’s five-year strategic plan, its ambitious plans for a billion dollar balance sheet, and the establishment of Staple Crop Processing Zones in five states. Excerpts:

It has been two years since you took over as CEO of Ellah Lakes, can you share how it has been so far?

It has been a phenomenal journey from the very start, and to be quite candid, it has progressed at breakneck pace, which was unexpected. We began this journey with a Three-Stage strategic plan, and in spite of this strategic plan being disrupted to a large degree by the Covid–19 Pandemic in 2020, we have already achieved a great deal of success. We have fully achieved stage one of our plan, which was to recapitalise the balance sheet, and take the company back to solvency. We have 2000 shareholders whom we care a lot about, and do not wish to disappoint.

Stage two is to make sure we start to generate cash flow so we can start to pay out dividends to the long term shareholders of Ellah Lakes. The key to that is our diversification process – to expand our offering to more crops and commodities with a shorter gestation period than Oil Palm. Crops and commodities that we can process to finished goods in the long term, trade in the medium term, and sell for a profit, in the short term. Hence the diversification to Soya, Maize, and Cassava. The execution process will take a while to complete, but our targets/models are global companies like Cargill, Bunge, Louis Dreyfus, and OLAM. These are fully integrated Agribusiness operations, and it takes a lot of careful strategic planning to get into that level.

Read Also: Ellah Lakes says on path of shareholder value creation

If we are to be specific, what major strides have been recorded by the company under your leadership; where was it and where is it now?

One major objective was to take the size of the land bank to 10,000 Hectares by the end of the 2021. I’m glad to say that we have already achieved our goals in this regard. It’s quite a momentous achievement for us, and we are very proud of how much we have done in this short space of time. We had to get capacity on board – a Chief Agronomist, a CFO and competent officers, including a completely revamped board of Directors that is capable of proper oversight, and exceptional governance. Governance in a very important aspect of running any operation and is key to long term and sustainable success.

Until last year, the stock Ellah Lakes barely traded on the Nigerian Stock Exchange. Even though we are still resolving our free float deficiency, due to the concentration of stock in the hands of the new investors, trading volumes are up, and liquidity in the shares is improving on a daily basis. We are very proud that shareholders now have the ability to realise the value that they have held for a long time, and we expect that we should be back to normal by the end of the year, justifying our status on the Main Board of the Nigerian Stock Exchange.

What is the scale of your expansion to more states, and what is it meant to achieve?

We have started the expansion with just 5,000 Hectares in Ogun State. The plan is to establish Staple Crop Processing Zones (SCPZ’s) in each of these states, and scale up progressively. Ultimately, what we want to achieve is food security for Nigeria. The next step would be to become a Pan African Agribusiness, with a diversified income from multiple crops, in Multiple Geographies.

What we aim to be, is a fully integrated Agribusiness, from the Primary production to processing, whilst leveraging the primary production to run a successful trading business.

The Staple Crop Processing Zone (SCPZ) is an initiative of the Africa Development Bank (AfDB) to transform African Agriculture by focusing on Eighteen (18) priority Commodities across the Five Agro Ecological Zones of Africa. The key priority of this initiative, is an increase in primary production whilst developing allied agro-industries to absorb the additional production, add value to it, and produce and market high quality and nutritious food products to replace Africa’s over-dependence on imports and reduce our import bill. This generates something akin to a multiplier effect for industry and employment prospects at all stages of agricultural value chains.

If we can successfully create up to Five Staple Crop Processing Zones in Nigeria (ideally in up to Five different states) in the next Five Years, I would view this as a successful outcome, as we would be creating employment, increasing IGR in States, and contributing to improving the Nigeria’s current account balance in relation to food.

One of the milestones of our 5-year Strategic plan is to have $1billion in assets on the Ellah Lakes Plc Balance Sheet by the end of the period. Given the resources available to us in Nigeria, and the opportunities for growth, I would be very disappointed if we do not achieve this. The Nigerian import bill for food and Agro Derivatives is over $10billion Dollars annually. 20 percent of that market translates to over $2billion in Annual sales. That’s a moving target for us, as we expect this number to increase, going forward. These are some of the metrics that we are utilising to gauge our progress, and performance.

If we can successfully create up to Five Staple Crop Processing Zones in Nigeria (ideally in up to Five different states) in the next Five Years, I would view this as a successful outcome

Ellah Lakes started in 80s as a fishing business, how is that still playing out in the company’s future?

Not in any way. Ellah Lakes is no longer involved in Fish Farming. The company discontinued the business when the takeover of Telluria occurred. We don’t have a problem with the fishing business, but our intention is to focus on the few areas where we can achieve scale quickly, and be globally competitive.

You now have interests in Cassava, Maize, Soya Bean and Oil Palm, what is the value addition component of your production plans?

We only started cultivation last year. An entire year was lost to the Covid–19 pandemic, when the country shut down and we were unable to continue our operations. We are still recovering from that significant setback. However, the pragmatic thing to do was pick ourselves up, dust ourselves down, recalibrate operations, and keep on working very hard. Everybody suffered from the pandemic, so even though it set our plans back, it did not destroy us.

With Cassava, we plan to sell in the short term to retail clients for Garri, and to industrial clients for Starch manufacturing. We eventually expect to move into the High Quality Cassava Flour (HQCF) space, and then work towards increasing the Starch content with a view to producing Industrial Starch for the Pharmaceutical Industry and other Agro Allied businesses. As a by-product, it can be applied to the production of a variety of industrial materials that are useful in Nigeria, such as Adhesives and glues, Cosmetics, paper making, Beverages, Textiles, and Biodegradable materials. .

There is also a massive Maize deficit in Nigeria, and the plan is to fill that gap, as quickly as we can. Maize production has a significant number of industrial by–products and is responsible for other consumables such as Custard, Cornflakes, and Animal/Livestock Feeds. Some of the derivatives like Corn Flour and Corn Starch can be utilised both industrially, and in the consumable sector. This is what makes it attractive for Ellah lakes to cultivate.

Okomu Oil and Presco Plc have shown what is possible to achieve in the Oil Palm space in Nigeria. In spite of these two giants, Nigeria is still a net importer of Palm Oil and its derivatives (Oleins, Stearins, etc) – here we see a significant market opportunity, and we are moving to take advantage of this. Even if the country doubles production capacity in the next 5yrs, we will be unable to satisfy local demand, to our expanding population, and its resultant demand pressure. We expect that many other companies will be exploring market entry opportunities, but we are not worried. The supply/demand imbalance is sufficient to accommodate all of us, and a competitive environment will encourage improved performance by all the market participants.

Maize and Soybean are the key ingredients for the poultry industry, which has been struggling on account of feed. The industry’s leadership in fact wants more importation so its members can survive. How are businesses like yours rising to this challenge of an unmet, yet, huge demand?

Importation per se, is not a bad thing. There is a constituency that argues for the imposition of significant tariffs on importation or the banning of a variety of imports, in order to protect the national industries, or developing sectors.

I think it is important to highlight that it is not a simple Black or White issue. One question to ask is: What is being imported for instance? If the imports are of industrial materials, and capital goods, rather than consumer goods from low cost countries, then that is probably a good thing, as Nigeria lacks capacity in industrial supplies and materials.

Imports offer the Nigerian consumer a multiplicity of choices, a wider range of quality, and access to lower-cost goods and services. When they are in the right sector, imports also have the capacity to create competition, and compel local producers to enhance value by improving the quality of their products, or figuring out ways to reduce costs.

That said, lower priced or higher quality imports that compete directly with Nigerian production can cause disruption in the local industry, and the government has to make an informed choice on when it should impose tariffs, and what it should ban in order to stimulate local production. Therefore, the argument for importation of goods, tariffs, and bans is quite nuanced, and I think is different from sector to sector.

I fully understand the call for importation of key ingredients for the feed sector. If local production cannot meet demand, it is the only solution. However, it needs to be implemented carefully so the local sector can grow alongside the importation, and not be stifled. We already have offtake agreements with two of the largest consumer goods companies in Nigeria for the offtake of our produce. Our short to medium term focus is fulfilling these supply contracts and leveraging on our success to scale up, and grab as much market share as we possibly can. As long as we are importing any food product that can be grown in Nigeria, there is an opportunity to expand into that space, as long as there is a Nigerian competitive advantage to be exploited.

With Maize and Soya, there is that competitive advantage, so we are certainly targeting that unmet demand. I think it is quite pertinent to note that any dent we make on that volume, translates to a reduction in our import bill, which also reduces pressure on our Dollar reserves. These joint food security/Macroeconomic factors indicate how critically important dealing with these matters are, to us as a nation.

You recently announced a Ghanaian partnership that signals your intention to start international operations, can you give some details as to when this will crystallise and what major activities you’re looking into?

The key strategic imperative was to mitigate our “single country risk” from the point of view of our investors. We had very early on as part of our strategy, outlined how we wanted to grow and diversify our income streams. We think that it was important that they recognised that we understood the importance of doing what we professed, and not just talking about it.

Ghana is very similar to Nigeria in terms of the Lingua Franca, cultural practices, and the general legal environment. Also, it has experienced long term political stability, and their multi-party elections have led to transfers of power which so far, have been quite rare in Africa. These factors make it a very comfortable jurisdiction for us to start our international expansion. Like everywhere else in Africa, it’s not perfect, and even Ghana has its challenges, however, we have seen appreciable progress made across all the relevant developmental indices, and this has encouraged us to do business there.

With all these inbuilt advantages, it was very important to us, to choose the right local partners, with which to move into the country, in order to ensure that we achieve the targets that we set for ourselves. They have a good and measurable track record of local recognisable achievements in the real sector, and we have been happy with them, right from the start.

What is your forecast on how the international businesses, starting with the Ghanaian one will turn out in comparison to the operating environment in Nigeria?

As I said earlier, Diversification and Risk Mitigation are key components of our strategic outlook. Rather than just comparing Nigeria with Ghana, what we try to do is seek out the optimal value extraction, from the separate countries, and leverage the competitive advantage of the individual countries, as best as we can.

For example, Ghana and Ivory Coast have more expertise, and operational scale in the Cocoa sector – we can take the experiences from one country to enhance productivity on the other side, and vice versa for other crops, and practices.

What have been the major challenges you have had to deal with in managing an agribusiness in Nigeria?

Because most of the work we do is with inhabitants of rural areas, it is difficult managing communities made up with people who have varying interests and desires. My general advice to people who find themselves in this situation is to deal directly with the leaders of all the stakeholder groups – youth Leader, traditional leaders, etc. It is no use trying to engage with splinter groups, or individuals who have specific grouses about particular matters. If they are compelled to come via the community approach, it is easier to address the problem from a communal perspective, and once a situation is solved communally, everyone has to comply.

The multiple issues concerning Logistics are obviously a challenge – transporting goods, raw materials, etc is problematic if the transport networks are not optimal. If the Capital Expenditure on transport from the Federal and State Budgets go up significantly, it would be a boon for Agribusiness in Nigeria. That said, I think this is unlikely in the short to medium term, hence our focus on developing Staple Crop Processing Zones – we can manage the Logistics and Infrastructure challenge with the Zone. The zone will have adequate infrastructure, logistics and specialized facilities and services such as power, business services, cold chain facilities, and waste treatment, that are necessary for the agro-industrial activities which are being carried out.

The Lagos to Kano Rail line (when it becomes operational again) could remove a few hundred basis points from the Consumer Price Index (CPI) numbers, if we could transport goods from Farm to Market, more easily, with less spoilage. This means, less food inflation, and more money in the pockets of our rural farmers who are the main contributors to the Nigerian food basket.

Aside from challenges on the macro level, getting well-qualified staff has not been as easy as the population and unemployment statistics would suggest. Entry level staff require a great deal of appropriate training, and there is always the threat of larger multinationals with a longer history, track record, and bigger balance sheet, which younger employees, understandably, find more attractive .

Finance is often mentioned when people in agric are asked what the challenge is, but, is money the one singular thing that can make agribusiness deliver the right value in Nigeria?

I don’t think that money is the one singular thing that can make Agribusiness deliver the right value in Nigeria. Obviously, money is extremely important. It is impossible to achieve anything without money, but there are a variety of other factors that are key to optimising the sector.

Utilising the correct inputs, efficient Agricultural practice, modern Agronomy, proper land management, are all driven by Technical knowledge and expertise. All the money in the world is useless without a proper Agronomist, or a sector expert in Land Management of whatever crop is being cultivated.

There are simply no shortcuts to achieving High Yields, and the reason for the sub-optimal yields in Nigeria, is usually down to outdated and poor farming practices. This is more a matter of ignorance, than money, and the solution to this is Farmer education.

Money is extremely important, but we need to fix our Departments of Agriculture in the Universities, develop modern outreach programs, and engage in mass education of our farmers on modern farming practices. It is after this that Money for purchasing fertiliser, inputs, machinery etc, become utilised properly.

For example, if you have enough money to buy a Tractor, and it becomes damaged because it is not utilised properly, that is a complete waste of the money. Therefore, the important thing is to have knowledge to do things properly.

If you look at Rice production in Nigeria, aside from a few major operations such as Olam, Coscharis, and Dangote, virtually every aspect of the average farmer’s operation is manual and not mechanised. From cultivation, to applying fertilizer, to weeding and harvesting.

This unfortunate scenario on most Nigerian farms, means that the average yield per hectare is just over 2 tonnes, which is less than half of the global yield.

We are trying to help, with our own outreach schemes – our Chief Agronomist, Mr. Jamie Rixton works with the USA Soyabean Association in Nigeria, and spearheads our efforts in farmer education, and teaching of modern Agronomy practices. As part of our CSR efforts, we have offered to extend his services to the Agricultural cooperatives in various States, in order to broaden their knowledge and increase the yields of their harvests.

The Central Bank of Nigeria (CBN) has a developmental remit, which it is trying to fulfil with a variety of schemes. These have been very helpful, but I think it is very important to note that unless the cash is allied with knowledge about advanced and modern global practices, intervention programs will always struggle to have as much impact as they should have. Education is key to having Agribusiness delivering on its potential in Nigeria. Ellah Lakes is currently engaging with the Faculty of Agriculture Benson Idahosa University as one of the ways to achieve this.