Nigeria’s cocoa processors squeezed as debts hit N50bn

Despite the Federal Government’s export drive initiative, Nigeria’s cocoa grinding has slumped to less than 20 percent of installed capacity of processors, as a N50 billion debt burden cripples activities in the sub-sector, BusinessDay investigations have shown.
The once thriving industry that once had eight cocoa processing factories with a combined installed capacity of 150,000MT, now has only five factories functional with a combined utilisation capacity of less than 30,000MT per annum.

Some of the challenges faced by processors include high operating cost coupled, higher import duty in European markets and high cost of cocoa beans which makes it unattractive for Nigeria’s remaining five cocoa processing factories to tap export demand for butter, cake and powder.

BusinessDay’s onsite investigation at Ile Oluji Nigeria Limited, Nigeria’s oldest cocoa processing firm, found that the company has only processed 2,000 metric tons of Cocoa since the beginning of the year, which is by far below its 30,000 metric tons installed capacity.

A visit also to FTN Cocoa Processors PLC, a company listed on the Nigerian Stock Exchange with a 20,000MT processing capacity showed that it has only being able to process 600MT between January and June. This is because of insufficient working capital in the industry to increase production due to the absence of long term financing resulting in the accumulation of debts.

“Our capacity utilisation in the industry is less than 20 per cent because most of the cocoa processors are really under the heavy weight of debt.  The total debt in the industry today is not less than N50 billion,” Akin Olusuyi, managing director, Ile Oluji Nigeria Limited told BusinessDay.
“Despite special funds provided by the government for us, the least we pay as interest is 12 per cent at 360 days while the least for commercial banks is 26 per cent at 360 days. We are 30 percent less competitive than our counter parts in Ghana and Ivory Coast. Processors in Ivory Coast and Ghana attract less financial risks because they have access to long term financing at single digit interest rate,” Olusuyi said.

Olusuyi who is also the chairman of the Cocoa Processors Association of Nigeria (COPAN), said that only five cocoa processing factories are functional in the country today.

Multi-Trex Integrated Foods PLC, Nigeria’s largest cocoa processing factory with a production capacity of 65,000MT per annum, has since been shut down and thereafter taken over by the Asset Management Corporation Organisation of Nigeria (AMCON) over a N5 billion non-performing loan the processor acquired from Sky Bank.

Apart from the huge debt burden in the industry, Nigeria’s cocoa cake, powder and butter attracts 6.1 per cent  and 4.2 per cent import duty in Europe when the products of manufacturers in other leading cocoa producing countries attracts zero per cent. This makes it difficult for Nigeria’s processed cocoa to compete favourably.
BusinessDay’s found that the higher tariffs on Nigeria’s cocoa beans, cake and butter in the European markets is due to the failure of the Federal Government to sign the continent’s Economic Partnership Agreements (EPA).
The EPA is a scheme to create free trade between the European Union and the African, Caribbean and Pacific Group of States.
Furthermore, despite the potential of Nigeria’s cocoa industry to diversify into agriculture and make exponential gains by way of earnings, employment and other spin-offs, the country is yet to fully capitalise on its production.

Cocoa remains one of the fastest selling and most desirable agricultural commodities in the international market due to the rapid growth and expansion of chocolate confectioneries and other products, however it is still neglected by the government.

Over the years, the government keeps saying its priority is to develop cocoa farming and processing, the only sizeable and largest foreign exchange earner in the continent’s biggest economy since the discovery of oil.

But various government policies have not yet made it beyond the talking stage.

The Buhari led government promised to revive cocoa production and make payments of backlogs of the Export Expansion Grant (EEG), instead the country lost its position from fourth to seventh in the comity of cocoa producing nations.

Similarly, exporters of processed agricultural products are yet to get any payment under the EEG initiative even after three years of the APC led government in office.

“We are yet to access the EEG that was designed to cushion structural misalignment in our economy since 2013. Since last year we have been given approval by NEXIM and our banks but we are yet to get it,” Akin Laoye, executive director, FTN Cocoa Processors PLC said.
Furthermore, BusinessDay’s investigations in Ondo, Ogun, Cross River and Edo states shows that processors are being priced out by exporters of raw cocoa beans in the country.
“The Nigerian cocoa beans market is un-regulated and so farmers sell their cocoa beans at almost the price of the international market. This makes it difficult for processors to buy at that price and still be competitive,” Pascal Okoko, a licensed cocoa buying agent at Ikom, Cross River state said.

According to Okoko, the processing industry which has failed to attract any private investments over the last five years needs 2.7 MT of raw cocoa beans to process a metric ton of butter and 1.4 MT of cake.

As at the time of writing, a metric ton of cocoa beans sells for $2,428, the International Cocoa Organisation daily price states, while the price of a MT of cocoa butter sells for $6,000 and cake sells for $800 per ton.

“Unless there is a well-defined policy for processing of agricultural commodities, the country would continue to exports it jobs and lose revenue it would have generated through value addition,” Olusuyi of Ile Oluji Nigeria Limited said.

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