The disruption of the global wheat supply chain and local production challenges pressed the Nigerian public and private stakeholders to seek alternative wheat sources. Nigeria wheat millers have diversified their wheat sourcing so that they are not limited to specific countries. USDA estimates wheat imports for 2022/23 season at 6 million metric ton.
Nigeria is the economic powerhouse of Africa. As the largest economy of the continent at US$ 440,777 in 2021 and the most populous country at 211 million, the potential of its markets, human capital and natural resources is enormous.
Nigeria has the world’s 10th largest proven oil reserves and 9th largest proven gas reserves, large seaports connected to global trade routes, vast and underutilized agricultural land, a large population and a growing middle class. It is geographically well-placed as the economic hub for West Africa. Despite falling into recession in 2020 caused by the Covid-19 pandemic an associated decline in oil prices and spikes in risk aversion in global capital markets, Nigeria remains Africa’s largest economy.
Following the pandemic-induced recession in 2020, Nigeria’s economic growth recovered but macroeconomic stability weakened. Amidst global commodity shocks, a depreciating currency, trade restrictions, and monetization of the deficit, inflation is surging and pushing millions of Nigerians into poverty. Since 2021, Nigeria is also unable to benefit from the surging global oil prices, as oil production has fallen to historic lows and petrol subsidy continues to consume a larger share of the gross oil revenues. While the economy is projected to grow at an average of 3.2% in 2022-2024, the growth outlook is subject to downside risks including further declines in oil production and heightened insecurity.
According to the UN Food and Agricultural Organization (FAO), Nigeria has 70.8 million hectares of agricultural land. In 2021, agriculture contributed more than 22 percent of the Gross Domestic Product (GDP). The World Bank suggests that agriculture is perhaps the country’s most prosperous sector. It is definitely the largest employer, contributing to more than 24 million livelihoods. More than 70 percent of Nigerians engage in the agricultural sector, but many of them at a ‘subsistence’ level. More than 80 percent of Nigeria’s farmers are smallholders. They grow some 85 percent of domestic production.
Nigeria has the most substantial arable land in Africa yet relies on imports to meet its food and agricultural needs (primarily wheat, rice, poultry, fish, food services, consumer-oriented foods, etc.) - worth about $10 billion annually. Europe, Asia, the United States, South America, and South Africa are significant sources of agricultural imports.
The National Bureau of Statistics (NBS) reports that price volatility has continued since the beginning of the year. Increases in the prices of bread and cereals, food products, potatoes, yam and other tubers, meat, fish, oil, and fat caused a rise in food inflation. The escalated inflation rate is also due to increased energy prices – higher prices for gasoline and diesel lead to higher transportation costs.
Currently, there is a general surge in insecurity as Nigeria prepares for the upcoming 2023 general election. Kidnapping for ransom and bandit attacks continue throughout the Northwest, disrupting the agricultural season. However, the Northeast Governors’ Forum (NEGE) underscores that normalcy is returning to the Northeast region, which is the epicenter of the Boko Haram insurgency. The government’s counter-insurgency operations have reduced the insecurity perpetuated by armed extremist groups. On the other hand, the prolonged armed conflicts and instability have negatively impacted access to farms and disrupted agricultural production.
This year, rainfall at the start of the rainy season was normal, which resulted in favorable crop conditions. However, excessive floods in parts of the Northwest, Northcentral, and Abuja affected upland rice production significantly.
WHEAT PRODUCTION
Wheat is the third most consumed grain in Nigeria after corn and rice. The country’s population growth is driving wheat consumption. Nigeria is a net importer of wheat. It only managed to produce just about two percent of all the wheat it consumed. The country imposes a 5 percent tariff on wheat imports, plus an additional 15 percent levy (earmarked for the national wheat development program) for a total 20 percent duty. Despite the preferences of Nigerian millers for imported wheat, there is a constant government focus on reducing wheat imports by 50 percent. Notably, the Ministry of Agriculture and the central bank have underscored their commitments to reduce wheat imports, enhance food security, and conserve foreign exchange. The central bank is working closely with flour millers on backward integration projects to enhance wheat self-sufficiency.
The United States Department of Agriculture (USDA) estimates wheat production to be 110,000 metric tons for MY2022/23. The yield remains flat at 1.1 metric tons per ha. Nigerian farmers and policymakers face severe challenges to increasing production and area under cultivation. Government policies and programs to boost production are ineffective. The programs failed to reach their targets due to a lack of funding for regular seed production and multiplication, insurgency in the wheat growing areas, lack of input supply to farmers, and limited area under cultivation.
USDA forecasts wheat consumption at 5.8 million metric tons for MY2022/23. The Russia-Ukraine war situation and the COVID-19 pandemic have exposed Nigeria’s vulnerable food system. Before the war, the country imported significant wheat from Russia and other Black Sea countries. Bread is a staple for millions of Nigerians. However, millers are currently facing severe business challenges amid the increasing cost of freight and energy.
Wheat-based product consumption is related to the economy’s performance and the purchasing power of consumers – both are under increased inflationary pressures. Rises in the price of bread and other wheat-based products have made consumers increase demand for substitutes/other staple foods like maize, yam, and sweet potato products that are relatively affordable.
USDA estimates 2022/23 season wheat imports at 6 million metric tons, 3 percent decrease compared to the last season. Ukraine- Russia war contributed to the decline in wheat imports. In 2021, Nigeria imported 51 percent of wheat demand from Russia, Lithuania, Latvia, and other Baltic countries.
Nigerian bakeries are expecting a protracted Russia-Ukraine war. As a result, bakeries are exploring the options of blending wheat with cassava flour, millet flour, and sweet potato flour. Over the past decade, the government has pushed for cassava flour mixed in bread, hoping that the policy would significantly reduce wheat imports. Meanwhile, the government’s cassava flour blending policy is still in play. The policy calls for cassava flour blending up to 40 percent. However, millers do not support the policy because cassava flour does not blend well with wheat flour to produce good-quality dough.
The Russia-Ukraine war has prompted Nigerian officials to collaborate with the private sector in diversifying the country’s wheat sources. The Ministry of Industry, Trade, and Investment approved Crown Flour Mill’s request to import wheat from India. The disruption of the global wheat supply chain and local production challenges pressed public and private stakeholders to seek alternative wheat sources. Nigeria wheat millers have diversified their wheat sourcing so that they are not limited to specific countries. For example, during the first half of 2022, Nigeria’s wheat imports came mainly from North and South America.
CONSOLIDATION IN THE FLOUR MILLING INDUSTRY
In 2021, the flour milling sector experienced a major consolidation. The largest flour milling company Flour Mills of Nigeria (FMN) acquired majority shareholding stake in its major competitor Honeywell Flour Mills. The deal helped FMN get bigger to reduce costs and reach more consumers. Currently, the company has an installed flour milling capacity of about 12,000 metric tons per day. It has the largest single-site flour mill located near Nigeria’s biggest port. Honeywell Flour Mills has about 2,500 metric tons per day flour milling capacity. The two companies offer similar products and have a combined market share of 70 percent. In general, the large flour mills owned by FMN, Honeywell, BUA and Olam are highly integrated efficient purchasing, transporting, and processing systems that strengthen their competitive advantages.
CORN PRODUCTION
Corn accounts for the majority share of Nigeria’s coarse grain production. Corn constitutes the staple meal for a significant number of Nigerians and is the most critical ingredient in producing animal and aquaculture feed. Nigeria’s corn consumption occurs in the form of corn flour, confectionery, roasted corn, boiled, or prepared as porridge. Green corn is also boiled or roasted on its cob and served as a snack. Household consumption accounts for 10-15 percent of total consumption, while the remainder goes towards food manufacturing. Over 20 percent of Nigeria’s corn production goes into animal feed, especially for poultry feed. Corn production is rain-fed, and the planting season starts in mid-March through mid-June annually - March/April in the South and May/June in the North. The crop matures within 3 months of planting.
USDA estimates Nigeria’s 2022/23 season corn production at 12.1 million metric tons, a roughly 5 percent decrease compared to the 2021/22 figure of 12.5 million tons. Regional insecurity across Nigeria’s corn belt hampers corn production as farmers abandon their farms and escape to nonviolent areas in cities.
RICE PRODUCTION
Rice is an essential cereal in Nigeria. Currently, the country’s annual population growth rate is 2.6%, with a median age of 18. Nigeria imports rice due to a growing population and increasing demand – essential factors contributing to rice imports.
USDA forecasts 2022/23 season rice rough production at 7.8 million metric tons, a 7 percent decrease compared to the previous year and rice consumption at 6.9 million metric tons (MMT), a 5 percent decrease from last year. Nigeria rice farmers in the northern part of the country experienced insecurity and flood incidents this year. These threats negatively impacted upland rice cultivation.
Nigerian rice milling capacity increased from 350,000 metric tons per annum in 2015 to more than 3 million metric tons per annum in 2021. The number of integrated rice mills jumped up from 10 to above 60 mills during the same period. The scarcity of rice paddy is a major challenge for rice milling companies across the country as most of these mills operate below 50% milling capacity. According to the Rice Millers Association, millers are operating under a tight economic environment due to a lack of paddy, low milling capacity, high diesel cost, and lack of access to official foreign exchange to import parts and new equipment.