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Cocoa - A Potential Revenue Booster

Proshare

Wednesday, November 09, 2016 9:14 AM / FBNQuest Research

Nigeria’s current macro challenges have resulted in an urgent call to boost the non-oil economy and encourage non-oil exports in order to diversify the country’s revenue base.

Arguably, cocoa leads Nigeria’s agricultural exports. Following the cut in the projected cocoa output for 2016 from 270,000 metric tons (mt) to 190,000 mt, Nigeria has slipped to seventh position in the league table of largest producers of the commodity from fourth.

Ivory Coast, Indonesia and Ghana remain the leading three producers. In West Africa, Nigeria ranks third in terms of cocoa exports behind Ivory Coast and Ghana.

About 70% of global cocoa supply is sourced from West and Central Africa, with the vast majority grown on smallholder farms.

Industry sources suggest that Ghana currently produces 700,000 mt per year. Meanwhile, Nigeria’s annual production is approximately 250,000mt; the target is to hit 500,000mt over the next few years.

Given that the potential exists to grow cocoa across at least 20 states in the country, Nigeria is performing below par when compared with its peers within the West African region.

Due to the high moisture content in its cocoa beans, Nigeria’s cocoa is more suitable for cake baking, butter production and soap manufacturing and is less attractive for chocolate production – a lucrative market worth US$800bn globally - when compared with Ghana and Ivory Coast.

Notwithstanding, the scale of the untapped potential is significant, leaving the chocolate industry to one side.

In 2014, the cocoa value chain which was under the FGN’s Agricultural Transformation Agenda (ATA) received a N100bn Development Fund. This fund was expected to expand cocoa plantation across the country, support the Cocoa Corporation of Nigeria and improve access to finance for cocoa farmers.

To our knowledge, the impact of this initiative on the cocoa production segment has been very little.

To drive the economic diversification narrative, more support from the FGN by means of fully implemented intervention funds is a necessity.

In addition to this, efforts towards an effective industrial take-off for the Nigerian economy would accelerate the diversification process.

The agriculture sector is a rare positive in terms of GDP growth. Based on data from the National Bureau of Statistics, the sector grew by 4.5% y/y in Q2 2016 compared with 3.5% recorded in the corresponding period of the previous year.

Crop production accounted for 89% of total agriculture GDP and remains the primary driver of growth within the sector.

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