Sugar Production in Nigeria: A Revenue Opportunity Despite A Growing Health Consciousness

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Thursday, March 14, 2019  10:29 AM /by FDC

 

Sugar, a commodity that has received increased attention in recent years, provides an avenue for Nigeria to improve its diversification strategy. Nigeria’s sugar output barely accounts for 7 percent of its demand. Grown in states such as Katsina, Taraba, Kano, and Adamawa, the commodity fetches Nigeria a miserly $24.88 million in revenue and the demand gap is approximately 900,000 metric tons. This has resulted in an annual sugar import bill of approximately $100 million, the largest import bill for the commodity in sub-Saharan Africa.   

The sub-optimal sugar output in Nigeria may be connected with the projected slowdown in global consumption, which is tied to the increased health awareness towards diseases such as diabetes and obesity caused partly by too much sugar intake. However, there are still arguments in favour of Nigeria boosting its sugar output.  

The most obvious is that the country’s growing population is likely to keep demand for the commodity stable in spite of increased health consciousness across the world. As such, it is worth investing in sugar to close the demand gap. An even more sustainable investment opportunity, however, lies in the increasing global demand for ethanol, a by-product of sugarcane and corn.  

Ethanol has witnessed growing demand in the transportation industry over the past four decades as it is a cleaner and more affordable source of energy. To take advantage of this sugar opportunity, however, Nigeria must address certain challenges such as land acquisition and inadequate funding towards the ethanol sub-sector.  In striving to address these obstacles, Nigeria can learn lessons from Brazil, which has tackled many of these challenges to become the leading global sugar producer. 


Insecure investments and poor industry protections put sugar production at risk

The Nigerian Sugar Master Plan of 2012 is the starting point for this opportunity. The plan’s objective was to boost domestic production of sugar to attain self-sufficiency by 2020 and to contribute to the production of ethanol and the generation of electricity.


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However, supply chain bottlenecks across the various producing states have hindered government attempts to meet the 2020 targets. Amongst the challenges hindering sugar production is the issue of land acquisition. Many sugarcane farms have been turned into residential areas, making it difficult for private investors to acquire land to establish sugar plants. The Dangote Group, for example, experienced several bottlenecks in acquiring enough land to meet its production 2013 target of 1.5 million metric tons. The Group was eventually forced to review its target downward to 1 million metric tons. If unable to secure the required land space to situate plants, investors become discouraged and Nigeria’s sugar output remains sub-optimal.  Another challenge stifling sugar output is the government’s poor protection of the local sugar industry. Currently, government incentives to boost domestic production of sugar include:

  • a five-year tax for investors in the value chain
  • a 10 percent import duty and 50 percent levy on imported raw sugar
  • a 20 percent duty and 60 percent levy for imported refined sugar


However, without proper attention and implementation, these incentives are ineffective. Other governments have implemented strict measures with proper monitoring to encourage local farmers. For example, the U.S. deliberately keeps sugar prices high to encourage farmers to repay loans and continue production. The domestic sugar sub-sector needs serious attention from the government that goes beyond the formulation of a long-term plan, if it is to meet national consumer demand and explore ethanol opportunities. 

Policy makers can look to Brazil to better understand how to enter the ethanol market. Brazil, the leading producer of sugar, has relied on its export earnings from sugar for over five decades.  Its output has more than doubled from 122.08 million metric tons in 1965 to 671.4 million metric tons in 2009, fetching the country revenue of approximately $10 billion annually. Sugar production for ethanol has ensured that Brazil continues to remain relevant, producing more than 30 billion litres in 2015/2016. There are also projections that Brazil’s annual ethanol capacity could rise beyond 50 billion litres by 2030.2 Brazil’s ethanol industry dates back to the 1970s, after the oil price shock of 1973. Sugar cane became the country’s main agricultural

crop, serving as the feedstock for ethanol refineries. In the last two decades, the renewable liquid fuel became a replacement for gasoline in powering internal combustion engines.  The challenges facing Nigeria’s sugar and ethanol output are not peculiar to Nigeria. Brazil has successfully addressed these obstacles and is worth emulating both for its ability to overcome bottlenecks and for its efforts to protect the sugar industry. To encourage ethanol producers, the Brazilian government introduced the RenovaBio program in 2017. The program is expected to double the use of ethanol by 2030 from its current level of 26 billion litres by fuel distributors. The framework of the program is designed to reward producers who invest in manufacturing clean biofuels. Fuel distributors will also be encouraged to buy the clean biofuel produced through a credit trading program. This structure is expected to attract new investment in the ethanol subsector and could be useful in modifying the Nigerian Sugar Master Plan.

Another concern of biofuel expansion is the diversion of land meant for food production towards energy processing. The expansion of Brazil’s ethanol output has come at a great cost and resulted in 14 percent of total agricultural land in the country being used to grow sugarcane. However, the boost in Brazil’s ethanol output in the last two decades has not resulted in a drop in the country’s food production. The replication of the Brazil model would require a substantial amount of land space in order to attract investors. It is important for the Nigerian government to engage communities on the long-term benefits of sugar plantations in the Nigerian economy. This would help to reduce the clashes between the government and omo oniles (local people who lay traditional claim to the land and often demand compensation ahead of land development). Compensation for affected families can also be used to encourage them to release the land to the government and prevent disputes. Such was the case in Oyo State when the government compensated approximately 77 families whose lands were acquired for mass production of cassava within the region in 2018. 


Conclusion

In conclusion, Nigeria has a long way to go before it attains self-sufficiency in sugar production. However, with the right investment and government attention the country can become a net exporter of this commodity and a key player in the global market.  Ethanol production offers a viable avenue and incentive for Nigeria to boost its sugar output, regardless of increased health consciousness. 


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