The operation of Nigeria’s five remaining cocoa processing factories has decreased to 8% of the industry’s installed capacity due to deteriorating macroeconomic issues, notwithstanding the federal government’s export drive initiative.
There are presently just five operational plants in the once-thriving industry, with a combined utilization capacity of 20,000MT annually, out of the 15 facilities that had a combined installed capacity of 250,000MT when it was first established.
Due to some factors, including high energy costs, various taxes, farmers’ preference to sell their cocoa beans to merchants rather than processors because merchants offer higher prices, and challenging operating conditions, Nigeria’s remaining cocoa processing factories are finding it difficult to meet the demand for butter, cake, and powder exports.
“It is very challenging and tough for Nigerian cocoa processors, and there is a need to declare a state of emergency in the sector,” Felix Oladunjoye, chairman of the Cocoa Processors Association of Nigeria (COPAN), said in a press briefing on Tuesday.
“In addition to other rising production costs, we need about five times the working capital used last year to secure key inputs now,” he continued.
NAFDAC’s new export requirements deepen industry woes
He claims that the challenging operating conditions in the nation have compelled many processors to cease operations entirely, and those that remain to do so at capacities below what they were designed to.
He pointed out that the industry has invested over N500 billion in machinery due to the failure of multiple processors, and he said that if the government approves the National Agency for Food and Drug Administration and Control’s (NAFDAC) proposed export regulations for 2024, the situation in the sector will only get worse.
Oladunjoye said, “Various policies are strangling Cocoa processors, and now NAFDAC is coming with another sword.”
The head of COPAN pointed out that the proposed NAFDAC export regulations for 2024 are a blatant repetition of the work and duties of other government agencies, with dire consequences for exporters including double taxation, international default due to delayed shipments, severe fines, and job losses.
The most populous nation in Africa has a highly indebted cocoa processing business; COPAN estimated the debt was above N50 billion in 2017.
Operator survival has been challenging because of the nation’s hard operating environment, increasing import duties in European markets, and processors’ difficulty acquiring loans at single-digit interest rates.
“The current economic issues have had a significant impact on Nigeria’s cocoa processing business. Only electricity accounts for more than thirty percent of our production expenses,” stated Sunday Bamikole, the managing director of Premium Cocoa Products Limited.
According to Bamikole, Nigerian processors are less competitive than those in Ghana and the Ivory Coast because of their high production costs.
He further notes that exchange rate inadequacies will suffer more under the law. He claims that the planned NAFDAC export restrictions would further harm export enterprises since the agency has the infrastructure and personnel capacities to regulate large Nigerian maritime and airport export transactions.
Nigeria has not yet completely capitalized on its cocoa output, despite the industry’s potential to diversify into agriculture and provide exponential improvements in earnings, employment, and other spin-offs.
The swift rise and spread of chocolate confectioneries and other products has made cocoa one of the most attractive and fastest-selling agricultural commodities in the global market; nonetheless, the Nigerian government continues to ignore it.
The development of cocoa growth and processing, the only significant and significant foreign exchange earner in the largest economy on the continent since the discovery of oil, has been consistently emphasized by the government over the years.
However, value addition has decreased, and with 340,163 tonnes produced and supplied globally in the 2021–2022 season, the nation has fallen to the fourth position in the world, according to data from the International Cocoa Organisation (ICCO), which tracks global production.
Due to a worldwide increase in the price of the commodity in the first half of 2024, Nigeria exported a record N408.66 billion worth of cocoa beans in the first three months of the year, according to data from the National Bureau of Statistics (NBS).
Compared to the N107.59 billion recorded in the first three months of the year, this is a 279 percent growth.
“We need N140 million per cycle today, but the industry’s average working capital in 2022 was N20 million,” Bamikole stated.
“A bank cannot finance that for any processor in the country today,” he said, emphasising that, in addition to transportation costs, the exporter now pays N1.54 million for each shipment of cocoa beans and N3.5 million for each cargo of butter and alcohol.
