Tuesday, October 18, 2016/ 3.58pm /CardinalStone Research
The Federal Government announced that the school feeding programme under its social investment plans will commence this month. Kindly find below our analysis of the impact of the programme on the consumer goods sector;
F.G school feeding programme expected to commence October 2016
The Vice-President - Yemi Osinbajo announced that the Federal Government's (FG) free National Home Grown School Feeding Programme will commence in October 2016 in some states of the federation.
In our view, the planned fiscal expenditure programme will provide new demand for consumer food staples companies along the school feeding supply chain.
This holds the potential to lift their revenue especially at this time when consumer demand has been significantly subdued owing to the ongoing recession in the economy.
Of particular interest to us are listed consumer staple companies as we believe the federal government will obtain the bulk of food supplies needed for the programme from these companies.
By our estimate
N18.5 billion will filter down to companies along the supply chain in Q4'16
The school feeding programme is aimed at feeding over 24 million primary school children in the nation.
However, due to limited resources, the government has placed immediate focus on primary one to three pupils in 18 states. We believe the new pupil estimate will track closely to the 5.5 million school children earlier announced in June 2016 by the federal government as the number of children to be fed in the first year of implementation.
Given that the federal government has appropriated
N93 billion to fund the first phase of the programme, we estimate that each meal will cost c. N90 per student based on 200 school days per year.
Assuming 40 school days left in Q4'2016, we expect c.
N18.5 billion to filter down to suppliers, the bulk of which will be food producing companies.
Dangote sugar and Flour mill of Nigeria will be the biggest gainers in terms of topline growth
As part of the programme, the FG had earlier signed a memorandum of understanding (MoU) with NASCO Foods limited for the commercial production of High Nutrient Density (HND) biscuits for primary pupils.
Given that biscuits are commonly made from sugar and wheat flour, we expect refined sugar producers and flour millers to benefit from this arrangement.
Dangote Sugar and Flour Mills of Nigeria hold substantial market shares in refined sugar production and flour milling respectively and have the capacity to guarantee adequate supply as the number of pupils increase over time.
We envisage that these companies will be choice suppliers and thus expect some uplift to their toplines. Local palm oil producers such as Presco, Okomu and PZ Wilmar will also benefit from the programme and see improved demand.
Given this new development, we anticipate an increase in aggregate demand and uplift in revenues of consumer staple companies.
With the planned extension to more states, the impact will be much more substantial in boosting overall demand in 2017.