Growth in the urban population of Africa can potentially lead to a US$1tn regional market for African producers by 2030. Agriculture and food processing are vital for creating this $1tn industry. Food processing is any intentional change in food occurring before consumption. Changing consumer demographics related to lifestyle changes, urbanisation, and tourism is resulting in an increased demand for convenience and processed foods. However, Africa’s agriculture and agribusiness industry is underperforming, providing opportunities for investors to benefit from this huge market.
The demand for convenience and processed food is growing in Nigeria. This demand is led by Nigeria’s expanding middle class, with consumer changes in tastes, patterns and style. Consumers are also becoming more health conscious, adding to the need for nutritious pre-packaged food. The food processing and packaging market report notes that Nigeria’s packaging and food processing market is one of the largest in Africa, estimated at about $545m. Between 2010 and 2012, imports of food processing and packaging technology increased 39%, from €198m ($236m) to €275m ($327m). The packaging industry experienced growth of 12% between 2010 and 2015.
The food processing and packaging market report also notes that the food and beverage industry accounts for 66% of total consumer expenditure, estimated at $150bn. It is the largest sector in manufacturing, accounting for 22.5% of the manufacturing industry. Small and medium enterprises account for 85% of companies, with 10% of total sales volume, while the big food and beverage players constitute 15%, with 90% of sales. In the packaged food sector, a 65% share of total revenue go to multinational firms who partner with local firms to repackage and market their products. The packaged foods sector has seen an influx of new players and products, making it one of the most dynamic sectors in the industry. Improved product quality and innovation, advertising and direct distribution all contribute to the dynamism.
Nigeria’s agriculture and agribusiness industry is plagued with numerous challenges such as business, infrastructure and regulatory problems. Business challenges include the lack of funds, market share, cost of raw materials, taxation and other issues affecting the ease of doing business. There is inadequate infrastructure – such as power supply, transportation facilities and networks, and storage facilities – which can lead to a poor capacity for post-harvest handling, and high production and productivity costs. Regulatory challenges, such as insufficient food inspection, lack of standards and/or enforcement, hinder food processing and quality.
Food quality and safety systems need to be revamped to ensure the health of consumers and the competitiveness of food exports. There is a need for more food testing facilities, a strengthened inspectorate system and better co-ordination between federal agencies. Lessons from initiatives, such as the 2013-2018 European Union (EU)-funded National Quality Infrastructure Project for Nigeria (NQIP), should be put to good use. The NQIP, implemented by the United Nations Industrial Development Organisation, seeks to address challenges related to the quality of infrastructure, including providing trust for Nigerian products in regional and international markets, strengthening technical regulation and improving the enforcement of quality control of local and imported products.
The National Agency for Food and Drug Administration and Control (NAFDAC) and the Standards Organisation of Nigeria (SON) are beneficiaries of the NQIP, increasing the potential for policies and programmes to be implemented for food safety and improved industry regulations. A tangible outcome of the NQIP is the preparation of the National Directory of Testing and Calibration Laboratories in Nigeria. The directory featured 78 laboratories with a strong presence in Lagos, Port Harcourt and Abuja. It hopes to eventually cover the whole country and become a web tool accessible to all interested stakeholders. With regards to testing for foods, the directory lists a number of private and public laboratories. For instance, the SON’s directorate of laboratory services, which undergoes testing in its food technology laboratories in Lagos with sub-laboratories in microbiology, physio-chemical, micro-nutrients and mycotoxin, is involved in the testing of a number of food products listed in the directory. The directory is therefore a useful tool for companies who want to confirm the integrity, quality and competitiveness of their products in Nigeria.
Agricultural research is also necessary. The government needs to engage its numerous institutions to ensure the conduct of valuable, quality and accessible research that will increase productivity across the agricultural value chain. Nigeria’s National Agricultural Research system, made up of over 78 institutions and organisations, including research institutes, federal colleges of agriculture, agriculture facilities in universities and specialised agriculture universities, need to increase their efforts to engineer sustainable growth. Reasons cited for the failure to engineer growth include weak mechanisms for translating research into field usage and an inability to incentivise innovation. The private sector can help these institutions by more effectively collaborating with them in areas such as funding, professorships/chairs, scholarships and awards.
Despite the challenges, there is tremendous untapped potential in Nigeria’s agriculture and agribusiness sector. In the third quarter of 2016, the sector grew 4.88% and has grown by as much as 13% in previous years. The Nigerian government is prioritising agriculture with growth plans of 6.9% from 2017-2020. Rice, cashew nuts, groundnuts, cassava and vegetable oil are products the country hopes to export by 2020. There are plans to make Nigeria self-sufficient in tomato, rice and wheat by 2017, 2018 and 2019/2020 respectively. These goals will involve significant private sector investment and government collaboration and support.
A broad range of food production and processing opportunities can be gleaned from The Green Alternative, Nigeria’s agriculture promotion policy document. It provides the following table with 2016 estimates of demand and supply gaps across key crops and activities in Nigeria.
The report focuses on the production and processing of nine core agriculture products. This includes four key crops on The Green Alternative list above – rice, tomato, chicken (poultry) and oil palm, as well as five other products – chicken eggs, fruit juice, mixed nuts (cashew and peanuts), cassava and organic fertilisers. The depth of research needed to cover all key crops listed in the green alternative necessitated a selection of key crops to be addressed.
Statistics from the Food and Agriculture Organisation of the United Nations (FAO) on Nigeria’s 2014 production, yield and area harvested for rice, tomato, fruit, cashew and groundnuts, as well as chicken stocks, show Nigeria’s performance in the given year.
Comparing selective sections of Nigeria’s 2014 agriculture performance with the statistics given for Western Africa below, Nigeria’s opportunities and capabilities in agriculture arguably are evident. For instance, Nigeria produced 2.1 million tonnes of tomatoes of the 3.5 million tonnes aggregate production for Western Africa.
The Green Alternative, FAO statistics and regional comparisons highlight the opportunities prevalent in Nigeria’s agribusiness sector. Focusing on the selected agricultural products in this report, there are investment opportunities for local production and strengthening processing capacities. This is more so considering the foreign exchange restrictions on the importation of rice, tomatoes, eggs, crude palm oil and poultry. The abundance of fruits, cashew and groundnuts, as well as the large consumer market, are also attractive for investors. Investors will be able to provide Nigeria with efficient productivity methods and value additions through processing, capable of taking Nigeria’s agribusiness to higher levels of growth and profitability.
Source: How we made it in Africa