Transcorp Agro set to reduce cost of fruit processing with local Juice Concentrate Production
Category: Investors NewsBeat
Markurdi, Benue State, Nigeria – May 19th, 2011
Teragro, the agro-business subsidiary of Transnational Corporation of Nigeria (Transcorp) yesterday signed an agreement with the Benue State Government for Benfruit, the fruit juice concentrate company.
The plant, which is located in the Makurdi Industrial Estate, is situated on one hectare of land. It has installed capacity to produce orange, mango and pineapple fruit concentrates at up to 26,500 metric tonnes per annum. Demand for fruit juice in Nigeria has grown exponentially over the last decade and this growth is expected to continue.
Strategic Value to the Economy and Public
When the Federal Government banned the importation of Fruit Juices into Nigeria, it was inpired by health concerns and the desire to help the local manufacturers grow. The ban however left out a loophole – importation of CONCENTRATES. This lacuna has allowed most of the fruit huice manufacturers to import concentrates at a significant cost, both in foreign exchange and cost of production.
The agreement between Transcorp and BenFruit therefore should, in the long run, save Nigeria a lot of money, leave manufacturers with no reason to import concentrates and reduce the cost of production for the fruit juice processing companies.
Fruit juice consumption in Nigeria has increased by approximately 10 percent year-on-year from years 2002 to 2010. In those years, juice consumption in Nigeria has grown from 200 million litres (2002) to 320 million litres (2007) with the latter valued at about US$480 million.
The market for fruit juice concentrate, pre-mix and syrup (concentrates) has risen from 1.5 million kilograms in 2002 to about 30 million kilograms in 2007, valued at about US$85 million.
This phenomenal growth in the Nigeria fruit juice market is due to increasing incomes of Nigerian consumers, an expanding middle class, and greater health-consciousness of consumers.
With a large population base, an expanding middle-class and rising incomes, Nigeria has become a major market for juice and juice concentrates. Teragro intends to provide leadership in this market space by using abundantly available fruits to produce concentrates locally to replace the concentrates imported into the country.
The Business Case
Over several months, the board of Transcorp worked closely with the Benue State government to determine the structure of the inward investment in a bid to assure the best outcome for all stakeholders, including the citizens of Benue and Transcorp shareholders. During several positive consultations across the state with farmers’ cooperatives, government representatives, and local politicians, Transcorp was invited to make the investment in support of Benue’s reputation as the ‘food basket of the nation.’
Currently, Benue State produces over one million (1,000,000) metric tonnes of citrus fruits per annum.
Transcorp has held extensive talks with potential buyers of the plant’s output, who have indicated strong interest and preference for buying their raw material locally. At present, juice makers in Nigeria import over thirty million tonnes of fruit concentrate each year.
The significant costs of delivering the product to factory-gate, added to the foreign exchange volatility exposure they must bear, make local buying a compelling proposition.
Since fruit juice pack prices are not quickly adjustable to pass on these fluctuating costs, manufacturers welcome a solution that enables them to plan forward with stable prices, while local farmers are eager to remove the risk of excess harvest and wasted inventory. The concentrate processing plant meets both problems with convenience.
The Benefit to Both Parties
For Benue State, the gains of the investment include a guaranteed return for its venture funding of Benfruit, the assurance of private sector confidence in its business-friendly climate, and job and wealth creation for its citizens.
The Benfruit transaction is Transcorp’s first investment in the agro-business segment. It lays a vital plank in Transcorp’s growth ambitions to become a leading diversified business group in sub-Saharan Africa committed to the development of the continent’s human and natural resources.
Speaking of the Benfruit transaction, Dr. Jide Adedeji, Transcorp’s head of agro-business and nominated managing director of Teragro, stated that:
‘Transcorp has carefully nurtured this deal over a long period to ensure that all parties have 100% buy-in to support its success. The size of market potential for fruit concentrate manufacture, in Nigeria, and Benue State in particular, is quite significant. Transcorp is thrilled by the openness to business shown by the state government and good people of Benue by hosting Transcorp’s first investment in the agricultural sector. We are confident that this deal will be good by every measure for our shareholders and Benue State. It will also reflect in lower costs for local fruit juice manufacturers and lower prices at the till for buyers of made-in-Nigeria packaged fruit drinks. Transcorp’s investment is a win-win for all.’