Attaining Self-Sufficiency in Sugar Production

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Monday, July 19, 2021 / 01:42 PM / by CSL Research / Header Image Credit: iStock

 

Last week, the Central Bank of Nigeria (CBN) issued a circular stating that only three sugar refining companies, with considerable progress in achieving an agreed backward integration plan will be allowed to source FX from the official window to import sugar into the country. These companies are BUA Sugar Refinery Limited, Dangote Sugar Refinery Plc and Golden Sugar Company. However, the CBN directed authorized FX dealers not to provide foreign exchange to any company, including the three companies, without its prior and express approval.

 

Production of sugar in Nigeria has continually lagged domestic demand, and this creates a huge supply gap that is largely bridged with importation. In 2020, out of the estimated annual demand of c.1.7million metric tonnes for sugar, 93% (c.1.5million metric tonnes) were imported. The country spent an estimated US$433.4m on sugar importation in 2020, an increase from US$382.3m in 2019. Clearly, the sector requires prompt efforts to reverse the trend of weak output. In this light, the Federal Government has made efforts through its National Sugar Master Plan (NSMP) to attain self-sufficiency in sugar, with little progress. The backward integration policy introduced to and adopted by sugar companies to invest in sugarcane farming and promote domestically produced extracts for their refineries has not translated to a remarkable improvement in the commodity's production.

 

In our view, the goal to become a net exporter of the commodity requires small steps leading to great leaps, but the current reality shows it may remain a mirage within the stipulated time (2022) if decisive steps are not taken. Thus, the CBN's position on FX intervention in the segment, as concerted efforts persist to reinvigorate the sector. Current sugar production, which stood at 38,597 metric tonnes as of 2019 by the National Sugar Development Council (NSDC) compared with the burgeoning demand signifies we are far from the target. The continued reliance on imports has negative implications on the FX reserves. Besides, the rising insecurity in the country which affects regions that are involved in sugarcane farming also needs to be resolved as a first step in the quest for sugar sufficiency.

 

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