Is Nigeria’s sugar backward integration policy working?

Within 10 years of introducing the Nigeria Sugar Master Plan (NSMP), local production of the sweetener has grown steadily and billions of naira have been pumped into its backward integration policy (BIP) programme.

Nigeria has been making an average of 17,625 tons of sugar annually since the BIP policy was introduced in 2012, ranking fourth in West Africa and 19th in Africa, according to a recent data analysis by the National Sugar Development Council (NSDC).

The industry receives billions of naira in annual incentives in the form of tax holidays, crop loans, tariffs, and regulated imports of foreign sugar, among others.

The essence of these incentives is to grow sufficient sugar to satisfy the local demand and expand it into a foreign exchange earner.

The backward integration policy, which is a critical part of the NSMP, was initiated in 2012 in the industry as a way of harnessing Nigeria’s sugarcane resources, creating jobs and a ready market through the value chain while bridging the country’s sugar demand at 1.53 million MT in 2020.

Under the initiative, local investors would make sizable investments in the industry within 10 years to guarantee self-sufficiency in the production of the sweetener and domestically produced extracts for their refineries.

Also, operators with backward integration plans were given import quotas to import raw sugar. The policy helped in attracting investments into the industry and has impacted production positively.

Nigeria’s sugar industry has expanded and continues to attract more investments as producers in the sector have vastly invested in cultivating large sugarcane plantations and building mills as stipulated in the policy.

According to the NSDC data, local production increased to 38,597 MT in 2019 from 6,843 MT when the country kick-started the backward integration programme for the sector. This has allowed big millers such as Golden Sugar Company, BUA and Dangote Sugar to continue making huge investments across the value chains.

According to the United States Department of Agriculture, Foreign Agricultural Services (FAS), Nigeria comes behind South Africa as the second largest market for sugarcane in sub-Saharan Africa while Nigeria produces less than five percent of the total consumed sugar.

Sugar refinery capacity in Nigeria is said to have increased from 2.75 million metric tons per annum in 2019 to 3.4 million metric tons per annum in 2020 but operating at less than 70 percent capacity.

Industry experts say this is a result of the commitments made by sugar producers under the backward integration policy.

They believe that with sustained investments by players under the backward integration policy, Nigeria would become the leading grower of the commodity in West Africa and among top producers in the continent within a matter of time.

Currently, there are only three players in the industry which are Golden Sugar Company, Dangote Sugar, and BUA.

The second phase of the NSMP to run through 2033 is being implemented where allocation of sugar import quota would be based on the extent of BIP performance in the preceding year, and no longer based on the refining capacity.

These latest developments will increase investments in sugarcane production this year, the USDA has predicted in its 2024 sugar report for the country. However available recent data of the country’s production has not been released since 2019 by NSDC.

While demography and the rise of the food and beverage industry are two major factors driving sugar demand in Nigeria, the country’s sugar consumption is expected to decline this year owing to high import costs and weak consumer spending.

Increasing sugarcane cultivation

Despite insecurity limiting access to lands and communal hostilities and land ownership tussles between host communities and operators challenging the cultivation of sugarcane in the country, its production has continued to grow marginally.

Smallholder farmers in major producing states who have abandoned growing sugarcane to cultivate other crops of higher demand are now returning to the production of the commodity since the BIP was introduced in the sugarcane value chain.

While there is no recent data to show the marginal rise, the USDA projected the country’s 2024/2025 production output to remain unchanged at 1.7MMT owing to a lack of recent government support to increase local production.

Also, the report added that owing to the country’s economic downturn and accelerating inflation, investors are challenged to source financing to expand production.

However, the second phase of the NSMP aims to produce around 1.7 to 1.8 MMT of sugar a year, providing 300,000 ha of irrigated land in nine states, and onboarding new sugar mills and refineries.

The nine states where these facilities are planned to operate are in Nasarawa, Kwara, Adamawa, Oyo, Niger, Taraba, Ondo, Sokoto, and Bauchi.

Sugarcane, also known as Saccharum officinarum, is a species of tall perennial true grass and belongs to the grass family Poaceae. The economic grass grows and thrives in a variety of soils, but it grows best in deep, well-drained soil that is rich in organic matter with a pH of between 5.0 and 8.0.

It is suited to tropical and subtropical regions, with high-temperature 26-33 centigrade, radiation, and sufficient annual rainfall between 1500 and 2500 mm.

Sugarcane is mainly grown in Adamawa, Niger, Taraba, Kwara, Kano, Kaduna, Kastina, Jigawa, and Sokoto state. It grows well mainly in regions with lots of rainfall and farmers are often advised to get an additional irrigation facility to support it.

On the average, it takes approximately 12-16 months for sugarcane to mature and can be harvested four times from a single planting.

Sugar imports on the rise

Despite increased investments in the sector, sugar imports have continued to make a steady increase. Sugar is the second most agricultural import in Nigeria in terms of quantity after wheat, according to the Food and Agricultural Organisation.

Africa’s most populous nation is the fourth net importer of sugar with 1.53million metric tons imported in 2020 from 1.09 million metric tons the country imported in 2012, a 40.1 percent rise in imports over the period.

It has a 2.1 percent ratio of production to demand, according to the Nigeria Sugar Master Plan.

And yearly, millions of dollars amid acute shortage are still spent on importing the sweetener yearly – a narrative BIP is to change.

Africa’s most populous nation still spent a whopping N517.8 billion in 2023 importing sugarcane amid acute FX shortage from N350.8 billion it spent in 2022 importing the commodity, data from Nigeria’s Foreign Trade Report shows.

The NSMP has placed the country on a sustainable path to sugar sufficiency and must ensure that its objectives are fully realised. NSMP as a watchdog must ensure that sugar producers are not given undue advantage to frustrate the realisation of its goal owing to their selfish interests.

Nigeria has a long way to go before it attains self-sufficiency in sugar production. However, with the right investment and effective monitoring of backward integration, the country can become a net exporter of this commodity and a key player in the global market.