Sugar production rose to 30,000 metric tons (MT) in 2018, the highest since 2012, but issues around land tenure system, smuggling and ports hurt the fledgling industry.
Production rose from 10,843 MT in 2012 to 30,000MT in 2018, according to the National Sugar Development Council (NSDC). However, raw sugar import was 1.098 million MT in 2012, but rose to 1.216 million MT in 2018.
Though population may have risen since 2012, importation of raw sugar into Nigeria is still high, analysts say.
The data show that importing 1.216 million MT of sugar cost Nigeria $337.312 million. However, importation of 1.098 million MT in 2012 cost Nigeria $517.22 million.
“There are a lot of improvements in the sugar value chain,” Masur Ahmed, president, Manufacturers Association of Nigeria (MAN), said at a press conference in Lagos recently.
“Three companies are already developing significant sugarcanes as their raw material,” he added.
An analysis from Vetiva Capital explains that sugar farmers profit from high prices usually caused by the scarcity by selling to the millers and refiners at much higher prices, which implies higher margins for farmers.
“In most parts of the world, sugar milling is being integrated to sugar refining. More recently, most sugar refineries are acquiring sugar cane plantations to complete the value chain, entering the upstream segment and thereby riding the curve to minimize shocks from price uptrend,” Vetiva Capital says.
Dangote Sugar has invested over $1 billion in sugar plantations, making it the biggest investor in the chain.
The Golden Sugar Company of the Flour Mills of Nigeria is Nigeria’s second largest sugar maker the country, having one of the largest production facilities in the country. It has N40 billion sugar refinery where 750,000 tonnes of sugar are produced daily. It also has about 10,000 hectares of sugar plantation and is involved in backward integration activities.
In Q1 2019, Dangote Sugar recorded a gross profit of N12 billion, marking a 20 percent increase from the corresponding period of 2018. The company’s operating profit recorded a 27 percent increase with N11 billion while its total profit was N7 billion with a 19 percent increase.
McNichols in Q1 recorded increase in its gross profit by 7.06 percent with N41 million while its operating profit amounted to N19 million, with a 31 percent increase from the previous period. The company’s profit before tax stood at N10 million while its total comprehensive profit was N8 million, with 30 and 40 percent increases respectively.
Speaking at the AGM of the Dangote Sugar recently, Aliko Dangote, president of Dangote Group, complained that the industry is struggling with smuggling activities which caused a downturn in the activities of local sugar producers.
Dangote also said that smuggling also caused economic sabotage for the country as it hindered the employment of no fewer than 250 Nigerians.
Sadiq Usman, head corporate business development, Flour Mills, said in a telephone interview that various factors are hindering sugar production in the country.
“Documentation, planting issues, weak infrastructures and land rights pose big problems for us and these factors have continued to slow the pace of our development in boosting sugar production,” Usman said.
He disclosed that Flour Mills lost 75 percent of its sugarcane plantation owing to 2018 floods that ravaged the farmland.
“Last year, the floods wiped away a significant proportion of our sugarcane production. It affected close to 2,000 hectares of the 3,000 hectares we planted and now we are replanting again.”
Asides from the issue of smuggling, infrastructure deficit has hindered the potential of the industry. This is especially evident in the difficult access to necessary machinery and difficulty in moving products from one place to another
Furthermore, due to soil content and location, sugar plantations are established in strategic locations, but according to Dangote, communal clashes between the host community and herdsmen, which are rampant in communities, affect the production scale as a clash can lead to companies closing down for some time.
Despite these challenges, the sugar producers still manage to keep their heads above the turbulent waters which reflect on their financial statements analysed by BusinessDay.
Gbemi Faminu
