Overall, Nigeria has the potential to generate about $40 billion annually from the export of agricultural goods, with China accounting for 65 percent of the total of untapped potential value, after Turkey and Japan.
The Nigerian Export Promotion Council (NEPC) analysis indicates that the total amount of estimated untapped potential for Nigerian exports of cocoa beans, for instance, to the ten best markets including Germany, Malaysia, Singapore, Turkey, Netherlands, Italy, Japan, France, Mexico and Indonesia will be around $425 million by 2021.
These means opportunities abound but to hash these revenue figures from promises into reality, however, a supportive instrument such as possessing the right export pricing method is essential, the NEPC says. Pricing serves as a competitive tool for attracting and communicating an offer to a potential but poor skill and lack of adherence to terms sometimes short-change exporters, their goods undervalued.
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“To become a successful exporter you need the right knowledge about export pricing methods. This includes all items meant for costing and sourcing of products,” the council says, highlighting ‘cost plus’ and ‘top down’ method as the most viable methods for price calculation.
The cost-plus method is a sort of dual pricing that considers the domestic and foreign cost of a product while the marginal method factor the direct costs of producing and selling exports as floor price
Both methods have their strengths and weaknesses, implying that export calculations need to combine both methods for optimum export pricing balance. But doing does not mean that an exporter should ignore the competitiveness of pricing. The council encourages that while export-related and associated costs are covered, an exporter should be able to identify break-even points, set realistic profit margins and familiarise with INCOTERMS 2010 for pricing purposes.
Incoterms are the internationally accepted standard definitions for terms of sale set by the International Chamber of Commerce (ICC) since 1936. The terms include free carrier (FCA), free alongside ship (FAS), free on board (FOB), cost and freight (CFR), delivered duty paid (DDP) and delivered duty unpaid (DDU).
Also, an exporter can achieve better pricing by negotiating best rates from service providers, be abreast of exchange rates, periodic review of cost elements, inclusion of appropriate currencies and harmonised commodity description codes and minimum order quantities.
It is important to be very clear about the obligations for seller and buyer, by spelling out where ownership is transferred between an exporter and the importing party.
In terms of negotiating the terms of sale, considerations should include the amount of payment and the need for protection, terms offered by competitors, practices in the industry, capacity for financing international transactions among others.
For international exports, costs should consider, freight, travel to overseas markets, promotional costs, import duties and taxes. Other associated costs could be research into international markets, international communications, and production of export literature including translations.
Agriculture has proven to be a viable source of foreign exchange earnings and the opportunity remains bigger for more players to tap. The agriculture industry contributed approximately 25 percent to total GDP in 2018 while the oil sector’s share of total economic output was 8.6 percent over the same period. Since the agriculture sector is the largest contributor to Nigeria’s GDP, unlocking the potential of agricultural exports is key, says a PricewaterhouseCoopers report on ‘Unlocking Nigeria’s Agricultural Exports’.
