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Forward Movement in Local Substitution

Proshare

Friday, July 28, 2017 9:45 AM /FBNQuest Research

There are conflicting figures on Nigeria’s food import bill. According to newswires, the country’s annual food import bill was as high as N1.5trn (US$4.1bn) last year. Import substitution has remained one of the FGN’s primary focus areas, with agriculture serving as a potential catalyst.

Over the past eight quarters, agriculture has posted uninterrupted growth. In Q1 2017, crop production remained the largest contributor to agriculture GDP, accounting for 87% of the total. Meanwhile livestock farming accounted for just 9%.

Based on CBN data, importation of food products accounted for 8.9% of fx utilisation in Q1 2017 compared with 9.5% recorded in the previous quarter.

 

The latest inflation report also points towards a reduction in imported food items. The impact of the CBN’s stepped up fx interventions on parallel market rates has been a contributing factor to the latest decline in imported food price inflation which slowed to 14.2% y/y in June from above 21.0% throughout Q4 2016.

 

There are a few investments within the sector which should drive sustainable local substitution of food. One is the dairy industry. Local milk production is less than 1% of Nigeria’s annual demand, estimated at 1.45bn litres.

 

However, the dairy industry is set to receive a boost with the Dangote Group’s proposed injection of US$800m to breed 50,000 cows. This should translate into annual production of 500 million litres of milk.

 

 
 

Another boost for agriculture will come from the recently inaugurated Indorama fertiliser plant.  

The plant has a daily production capacity of 4,000 metric tons (MT) of nitrogenous fertilisers. The potential impact will be a reduction in fertiliser pricing which generally feeds into food product costs.  

These investments should reduce the country’s food import bill considerably and push Nigeria closer to its self-sufficiency goals. 

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