Improving Nigeria's Food Processing Industry 30505v

IMPROVING NIGERIA’S ECONOMY: ROLE OF FOOD PROCESSING INDUSTRY: CHALLENGES AND WAY FORWARD

INTRODUCTION

The past decade has seen the Nigerian economic grow at unprecedented rates becoming Africa largest economy and being one of the fastest –growing global economies. The Nigerian food processing sector dominated by small, medium and as well as multinational food companies. still undergoing development is gradually moving steadily and setting the pace in the African markets with a projected output of $50.6bn in 2020, The growth year-on-year for the industry in 2016 is projected at 10.5% CAGR during next 4-5years to become home of African food manufacturers with massive international and local investment shifting their attention to Africa’s largest economy. The sector-wise break-up of Food Industry in Nigeria shows that Processed foods were most consumed taking a lion share of 37.6%, followed by Protein 32.3% and cereals 30%. Nigeria Food Industry has expanded at an unparalleled growth rate over the last five decades. The market for processed foods has shown both multi-nationals and indigenous food processing companies and fast food companies competing for unprecedented market share in Nigeria worth USD 20.55billion in FY’ 2015. Growing at a compound annual growth rate (CAGR) from 2015-2020 at +11.5 per cent annually, while the USD term is valued at +4.7 percent (BMI), the Nigerian processed foods industry is likely to touch USD 50billion in 2020 with Nigerian diversification into Agricultural sector after several years of being oildependent nation. The Nigerian Food processing industry have the prospect and we believe can play a pivotal role by driving improvement in the Nigeria economy in 2017 as the first organized Private sector in Nigeria sustaining human life linking farm and the consumers together. The Nigerian markets conditions has been forecasted to remain on upward trend in 2017 based on affluent middle class with higher disposable income, growth of already large population and rapid urbanization population particularly babies, children and young people driving categories of baby food, confectionery, noodles, biscuit and dairy products. While the market activities have been continuously heightened by marketing activities, technological innovations by companies targeted at increasing Product value. Lastly, it is important to note that food processing is a significant contributor to economic and social growth- with high outputs ($20.55Billion in 2015), substantial employment generation (1.5 million employees in organized and Small Medium Enterprise Segments), and impact on local economies. Therefore, the food processing sector deserves the attention of all key stakeholders in the government and private sector now that Nigeria is diversifying its economy. For the country’s Food processing industry currently suffering negative impact of economic contraction with a result of 0.35% in Q1 and 2.05% in Q2 respectively, 0.18% in Q3 and PMI shrinking of 2.9% in 2016 as result of fall in the exchange rate which makes manufacturing inputs more expensive thereby increasing production and business cost, Nigeria would need a 6 to 8 percent increase in food supply. By 2030, five factors will impact the

country’s food requirement, driven primarily by diversification to agricultural sector, Industrial technological innovations, rapid urbanization and increasing income to cap with more inclusive growth: 

The Food and beverage holding 66% in 2016 while the beverage segment the largest sector in the Nigeria’s food processing industry which include beer, soft drinks, and juices for 44% of the market share.

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The Dairy the second largest segment posting 8% CAGR over the past three years with USD2.02 billion in revenue generation.

Despite the success achieved by food processing industry in 2016, there are significant risk to availability that need to be bridged by the Nigeria food industry in 2017, especially fruit and beverages, Pulses and grain, diary, meat and poultry, edible oils products: 

The fruit and vegetable market is driven by increasing awareness surrounding health and nutrition. Juices provide a stiff competition in the face of Ready to drink beverages, bottled water and sport/energy drink. Following a lull due to the Nigerian economic crises, the juice market is expected to rebound led by natural juices and refortified juices. Natural beverages are leading the market but the food demand must not out-weigh the food supply for which may lead to shortages resulting to high import dependency.

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Pulses and grain segment will need to replicate thrice production growth output to end the import substitution Policy of rice and wheat flour content in bread with cassava flour, but with agricultural diversification Policy beginning in 2015 more Pulses and grains would need to be supplied before effecting the total importation ban on pulses and grains. An inability to effect quantum improvement of annual production output and yields could result in a shortfall of food grains by 2030, leading to importation to meet the shortfall.

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Rapid expansion and growth of dairy, meat and poultry segments has proven that good government policies could revive back any dormant sector into vibrant segment with active key players of the segments competing to have market share thus having a positive impact on the Nigerian food industry, but high cost of production may lead to domestic non- availability and prices affordability to low- income consumers which may create fundamental threats necessary for diary production.

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Change in consumer preference/diet and rising income has driven up consumption of edible oils, which is expected to substantially increase in the share of energy intake. Though, Nigeria which is the second largest producer of oilseeds just placed ban on edible oils importation. But a lucrative export and insufficient markets demands by domestic edible oils manufacturer could pose domestic availability which run the risk of shortages to consumers.

Resolving these issues centres around five pillars of my previous article “Food value chain Theory” namely; availability, affordability, quality and safety. Hence, the approach needed is a critical factor that would spread across the entire food value chain. But essential Food value chain factors that would play essential role in improving Nigerian Food Processing Industry in 2017:

Availability: Increase commercial viability of food production while leveraging publirivate partnership to enhance effectiveness, simplify the regulatory environment in developing a consolidated policy for food and food processing and encourages investment in R&D and technology to improve yields and reduce food waste with implementation of effective skill development programs for food production. Affordability: Helps to increase commercial viability of organized supply chains with focus on high –nutrition food products while ensuring transparency of price, volume, and inventory in wholesale markets Quality and Safety: Help the regulatory agency revamp the food safety laws by focusing on enforcement and also create market demand through better awareness of food quality and safety to consumer. In summary, development of Nigerian Food Processing Industry is anchored on the challenges of the sector namely: Food Production, Food Processing Quality and Safety, Supply chain Infrastructure and Procurement and Consumers awareness.

IMPACT OF NIGERIA’S PROCESSING INDUSTRY ON THE ECONOMY Nigeria economy depends on and benefits from the economic activity (employment, outputs and taxes) of food processing, as well as the impacts from the supply and distribution chains that this industry. In 2015, Nigeria’s Processing sector was estimated to produce $22.55Billion in economic output, including 45-50% direct economic and indirect economic impact to overall market. The activities of the sector generated about 1.5 million jobs while the sector is expected to grow at around 10-12% on a nominal basis and reach $50 billion to $55 billion by 2020. Food and beverages is the largest segments, while the diary is the second sector with grains and cereals, meat and marine, edible oils expected to make significant growth. The Substantial impact on the sector

With ever increasing demand for processed and packaged foods in the urban centres of Nigeria, rapid urbanization and economic growth, ever-expanding middle-class population and widen market structure that cuts across West Africa, has made food processing plants more viable in Nigeria. This is reflected in urban resident consumption of 76% of processed and packaged foods in 2016, while rural resident consumption is 24%. With growth of grocery retail industry and food service fueling consumption of processed foods. Processed and Packaged foods includes ready-to-eat foods, snacks foods, healthy and functional foods. The Processed food industry has been dominated by ready to eat market. According to a recent study, the Nigerian Ready-to-eat food market is expected to grow to $250.7mn by 2016 from the current level of $102.3mn (2012-2013). In Nigeria RTE food market, preservative, aseptic pouches and canned segment are more popular contributing approximately 95% of market share and the CAGR is

growing at 70% derivative. RTE foods with longer shelving Food products without no refrigeration contribute 65% approximately of the total market. “Ready-to-eat foods (RTE) are convenience foods, enclosed in aluminum container either aseptic pouches or canned foil that only need to be cut open, consumed cold or reheated before being served. RTE foods includes range of products viz. vegetarian/non-vegetarian meals, basic food and delectable deserts. These may be canned or pouched foods. They are many varieties but classified into two: Meals, Ready-to-eat (MREs), and direct, Readyto-eat (RTEs)” The difference in the Nigerian market is driven by demand and supply factors: Consumption behavior. Nigerian consumer prefer to purchase more ready- to-eat foods with rapid urban centers as well as the younger generation shifts towards processed foods because of lack of time. This is distinct from many other countries where consumers prefer to procure unprocessed and fresh food and then convert it into a consumable form through the food preparation process either in homes or restaurants. Technological advancement of Nigerian food processing sector. Recent agroprocessing and food exhibitions have re-invented the technological innovations and advances in machineries and equipment, packaging materials and intermediate goods use in the food-processing itself. With Nigeria processors capitalizing on this best opportunity to build relationships with food machine manufacturers, enter an untapped market, build food business profitability and form new business networks. Therefore, Raw materials availability. Most agricultural raw materials such as tropical crops, livestock that are used by food processors into finished consumable products such as milk, fruits and vegetables are readily available nationwide in Nigeria hence there is not much need for preservation and packaging of raw materials transportation over long distances to industrial companies before they are processed. CHALLENGES OF NIGERIA’S FOOD PROCESSING INDUSTRY 1) Food Production: Nigeria economy is an agrarian where agriculture has been described as the most economic factor contributing to nations Gross Domestic Product having 41% share. With Nigeria having 30.7million hectares (33%) land area. Agriculture is still on substience level. With small farms contributing 80% of total food production. Average crop yield growth rate for cereal, fruits, oils crops and tuber is 0.51%, 0.56%, 0.31% and 0.24% respectively (UNCTAD). Food production has experienced average positive growth rate but recent food trade deficit has grown by an average rate of 17.5% per annum which indicates Nigeria is a Weak Net food importer( between negative 0-5% of GDP)(UNCTAD&WFI) attributed to Poor Food Production and dependency on importation. The major constraint of Nigeria’s food production are: i.) Nigerian Agricultural Policy Reforms ii) Nigeria’s Agricultural diversification iii.) Nigeria Agricultural Productivity Decrease over the time

i.) Nigerian Agricultural Policy Reforms: An important part of any Food Production agenda would involve the impact of agricultural policy reforms meant to improve the incentives for farmers to increase food production by reducing domestic market distortions. Nigerian Agricultural policy reforms aims attainment of self sustaining growth in all the sub-sectors of agriculture and the structural transformation necessary for socioeconomic development of the country. Chances for success for some of the agricultural policy reforms are most of the time enhanced by general macroeconomic and institutional reforms. But Nigerian Agricultural sub-policies cover issues of labour, capital and land whose prices affect profitability of food production systems; but implementation of agricultural policy is, however moderated by macro-economic policies which provide the enabling environment with other sectors. ii.) Nigeria’s Agricultural Diversification: Recent Nigeria’s economy diversification from Oil to Agricultural presents new opportunities to farmers to access new food markets, produce for niche food markets and/or to move to higher value crops compared to what they have traditionally been growing or produce for niche markets. This is particularly true for farmers in areas with good agricultural potential. Even for those in less endowed areas, Nigeria agricultural diversification can be used as partly a response to climatic risk and to improve the level of their agriculture. The extent of diversification and its potential can therefore be a good measure of transformation possibility in the Agricultural sector. However, it would be important to analyze Nigeria agricultural diversification possibilities in of demand (internal, regional and export markets) and in of available technical packages and possibilities that exist for Nigerian farmers in meeting the food processing industry challenges which are agricultural raw materials and raising our domestic deficit food production. It would be important to understand Nigeria’s farmers technical capacity as a result of training in of seeds inputs of new crops, machinery utilization/promotion of cooperative machinery ownership and utilization, and government programs ensuring access to credit if not what is required in of for the farmer to bring them up to speed and to expand adoption of the diversification crops. In order to provide the required for the new areas of food production, Nigeria Ministry of Agriculture and its policy makers should know if the process of diversification requires any changes in food production methods in of increasing levels of contract farming from small-holder to medium and/or large-scale commercial farms. Also, large-scale de-facto consolidation and transition especially land tenure and displacement of small holders from their lands to enable greater farm investment should be ed by Nigerian government. iii.) Agricultural Productivity Decrease over Time: Nigerian agricultural labor and land productivity per worker has stagnated and in some cases even declined with production increases coming mainly from area expansion . It’s highly important for the Nigerian government and agricultural Policy makers in this sector should seek to understand why average crops yields and agricultural activities have stagnated or declined over the last two to three decades. It is imperative to do an analysis of the main factors that have affected crop yields and agricultural activities understand the main binding constraints behind improving crops and agricultural yields. Some of the constraints for adopting improved technology that have to be looked at include; climate change impact, rainfall decline, deteriorating soil quality, absence of modern inputs, lack of technological packages, lack of agricultural advice, lack of investment (land, inputs) by farmers, and availability of finance, and general risk aversion. Apart from these factors that affect the

production side, it will be important to look at demand for the products, such as markets, pricing policy, and istrative and transport bottlenecks that discourage farmers from selling their produce and hence limit their interest or ability to adopt high yielding crop varieties and productivity enhancing methods of cultivation. 2. Food Processing Quality and Safety: Nigeria does have strong food safety laws and regulations with organizations (NAFDAC, SON) that ensures that quality safe and standard foods are manufactured in/imported into Nigeria. Despite their presence, there are major gaps and fallouts in food safety implementation but a stricter compliance by food regulators in Nigeria can handle sheer number of food players in Nigeria food chain which makes this organized food segment implementation of quality and safety norms difficult. For example, many uned food processing/companies operating within the Nigerian food value chain with lack of basic facilities running unhygienic and safety practices. However, recent National Policy on Food Safety and its implementation strategy is targeting some of these challenging areas but the following factors are undermining Food processing Quality and Safety: i.) Poor Unhygienic and safety Practices: Large presence of the unorganized sector limits oversight into the standards processes followed from agricultural production to processing and distribution. For example, Poor manufacturing sanitary conditions in some RTEs packaged foods in Nigeria where there is no Good manufacturing Practices (GMP) such as sanitation programs or Personnel training for an appropriate sanitation principles and food handling practices, manufacturing controls, and personal hygiene practices like handwashing. ii) High Adulteration: Adulteration is most notable in all spheres of Nigerian Processing industry, A 2014 study shows how consumers’ are willing to pay more for food products with safety label has increased than buying food products without no label to avoid adulterated foods which may cause food-related illness. According to experts, strong evidence indicates that the upsurge in reported cases of cancer, heart diseases, internal organ failures and other terminal ailments is partly traceable to the proliferation of adulterated food items, especially imported palm oil and fruits. Further study identified non-confirmity to food safety standards in Nigeria is more than 25% iii.) Abuse of Chemical Products: Recent survey in Nigeria shows several levels of intermediaries, quality control of food is extremely difficult. For example, recent trends has seen use of carcinogenic agents and calcium carbide used in accelerating ripening of fruits. Food Private Players must operate under regulatory constraints in developing new highquality and safe products, yet generating demand often requires t efforts by the Nigerian food processing industry and other stakeholders to influence consumer behaviour while Food regulatory agencies (NAFDAC, SON) must focus on implementation and innovative solutions given the vast complexity in the Nigerian food chain. 3. Supply-Chain Infrastructure& Procurement The increasing role of Food processing companies can help accelerate investment in storage and transport capabilities thereby lowering wastage levels and enhancing the shelf life of products, while food processing companies can deploy more scientific methods, innovations in technology with adoption and application of modern technologies in the supply-chain

infrastructure and procurement. However, supply chain infrastructure is in adequate in Nigeria, though recent Nigerian government incentives new investment especially in third-party logistics players in areas of cold-chain. Thus, food processing industry can play role in building supply chain capabilities as their presence across the value chain will help better the realization of improvement in supply-chain efficiency. Higher involvement in procurement will also improve price realization for Nigerian farmers by reducing intermediaries and thus lowering price buildup by eliminating non-value adding activities. Well-connected collaboration among retail players and logistics operators along with Nigerian government can effectively drive organization levels and efficiency of supply chain. Nigerian government and its policy makers also need to play its part by developing specialized functional models to investment which may include privatepublic partnership operating models, viability gap funding models, land-holding acquisition and requirements. While Private players also have an important role in driving demand for foods to make back -end infrastructure investment viable. Nigerian Food processing industry will need to continue improving the quality and safety compliance across their suppliers, logistics providers and retailers.

4. Consumers Awareness: For consumers in Nigeria, access to safe and nutritious food is an essential requirement for maintaining their overall health and well-being. Accordingly, food producers make significant investments to ensure the safety of their food products and to reduce the risks associated with consumer exposure to contaminated or unsafe foods. Producer efforts to provide safe food can impact every aspect of the entire sourcing and production supply chain, and represent approximately 14% of the total expenditures related to food production. Consumer awareness is key fundamental importance because of food quality and safety, most notably associated health-risk. Consumers appear to be willing to pay a price for food products whose safety has been independently verified. Among consumer study participants, food products that have been verified by a credible, independent third-party as exceeding applicable government standards would command an average 20% price over similar products. Educating consumer about the better – quality, safer goods intake in Nigeria can drive improvement while providing impetus for back-end improvements in The Nigeria Food Processing Sector. THE WAY FORWARD -

Leverage Private-Public Partnership(PPP) to develop a consolidated Food Production Policy - Simplification of Food Regulatory environment for Nigerian Food Processing sector.  Development of food safety and quality Policy as seen as strategic business objectives which can contribute directly to improve Nigeria’s financial performance. - Increase Supply chain and procurement commercial viability - Continuous Consumer education for food security