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The Cocoa Alternative

“In the next 10 years, Nigeria will be the largest producer of cocoa in the world”.

This was the prediction of African agriculture experts from Conservation Alliance in April 2012.

Cocoa has witnessed tremendous growth in production and demand over aeons. According to the World Cocoa Foundation, there has been a 3% annual increase in demand for the past 100 years. Being the key ingredient in the production of chocolate, this continuous growth in cocoa demand is in tandem with the budding demand for chocolate.

Annual global consumption is estimated at 2.8 million tons with the key consumers comprising Europe, Brazil and the US, while annual cocoa production is estimated to be in the range of 3 million tons, with 70% of this sourced from West African countries. The World Cocoa Foundation further predicts a 3% yearly growth in global demand for cocoa.

The UN Food and Agriculture Organization (FAO) in 2010, ranked Nigeria as the 4th largest producer of cocoa in the world, with a 2010 output of 0.4 million tonnes. Apart from crude oil, cocoa is the highest foreign exchange earner in Nigeria. There are 14 states endowed with the appropriate climate to grow the crop, namely Abia, Adamawa, Akwa Ibom, Cross River, Delta, Edo, Ekiti, Kogi, Kwara, Ogun, Ondo, Osun, Oyo and Taraba, employing over 5 million people nationwide. Southwest Nigeria accounts for 70% of the country’s cocoa production. Majority of the product (>90%) is exported annually.

National cocoa production and export value has grown over the years by an average of 40% year on year, and a cumulative of 280% from $215m in 2006 to $822m in 2010 according to the National Export Promotion Council (NEPC). The agricultural industry, specific to crop production, contributed 27% to 2010 GDP and grew to 34.5% as at 1Q 2012. Crude oil, the major driver of GDP, constituted 43% of GDP (2010). Judging from these statistics, it is clear that the Nigerian government, both at Federal and State levels, has no need of a crystal ball to foretell where national wealth should be created and harnessed. The agricultural sector holds such strong potential for job creation and mass employment.

With an available market and fair economic potential, cocoa expansion should be central to the economic master plan of these Nigerian states. Majority of the producing farmers in Nigeria are said to run small-scale operations, via family farms. Cocoa is a delicate crop especially in its tender years, requiring much care and shelter from the sun and wind. How do these farmers expand their production without well structured, low-cost financial support? Favourable environments must be created for lenders to invest, thus providing customer-friendly, long term financial products to support expansive cocoa production. These products should target all sectors of the production chain – upstream farmers, mid, downstream transporters, marketers, shippers and processers.

Downstream, opportunities remain to be exploited. Chocolate, a cocoa-centric product, is heavily imported into Nigeria from Europe and the US. This is ironic for the obvious reason – cocoa is grown in Nigeria, packaged and exported for processing into chocolate and other by-products, which in turn are imported to Nigeria. Yet, according to Fairtrade Foundation, the downstream sector currently earns 17% share of a chocolate bar value, while processing factories earn the majority 70% share. The residual share is accruable to the upstream producing farms. As such, cocoa producing states must begin to lure the private sector to invest in cocoa processing firms within their regions. The challenges of power supply and security notwithstanding, innovative means must be explored to incentivise such in-country investments. Manufacturing firms will always require skilled and unskilled labour, ultimately driving employment rates up. Corporate taxes on the other hand will boost the states’ fiscal position.

The old Western Region holds a historical example in this regard. Under the leadership of Chief Obafemi Awolowo, cocoa was the mainstay of the regional economy with resultant visible infrastructural developments. The establishments of Cocoa House (the first skyscraper in tropical Africa), Western Nigeria Television (the first television station in Africa), Liberty Stadium, and the introduction of free primary education, were all based on cocoa proceeds.

Indeed, there is a cocoa alternative which Nigerian states, through their public and private sectors need to aggressively embrace and exploit. The next three years will tell.

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Discussion

10 thoughts on “The Cocoa Alternative

  1. Great post. The issue with cocoa is the same with all our other natural resources: extraction, with little or no ability to refine. It is not just a Nigerian problem. It is a Third World problem.

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    Posted by Joachim MacEbong | July 19, 2012, 7:23 am
  2. Thanks for this KD! I’ve repeated this often… leave the oil for the Niger Delta region. Let the South West return to cocoa. Let the rubber and groundnut and other regional niche products return to the respective regions. Let every region blessed with natural resources develop them too. Invest heavily in tech and human capital. Let everyone give a fair percentage to the centre. And while at that, make governance less attractive to money-seekers. All the resources and cash cows will provide enough money for our development, but not the greed of the few that milk any formula that Oil Derivation rests with.

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    Posted by gbengasesan | July 19, 2012, 6:08 pm
  3. “Crude oil, the major driver of GDP, constituted 43% of GDP (1Q 2012)” i think this statement is wrong. Crude Oil contributed 15.80% in Q1 2012 Infact in terms of GDP, crude oil plays second fiddle to Agric and has been for the past 10years or so. Last year agric contributed 40% to our GDP as opposed to 18% from Crude Oil. I think you misinterpreted GDP/Foreign revenue. GDP is different from foreign revenue Crude oil is a big source of foreign revenue but second to Agric in GDP terms. Otherwise a fine article (All figures from the NBS)

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    Posted by walesmit | July 20, 2012, 11:45 am
    • I agree with you, Agric has hovered between 40 – 43% contirubution to the GDP in the period mentioned. Kunle nice article. I think the agric minister ought to read this as well, so that he can now include cocoa to the list of transformational crops his ministry is focusing on. The situation with importation of chocolate is a real big irony. In the days of my grandfather who was an avid cocoa producer and merchant, a 50kg of cocoa beans was exported for N1.00 but a bar of chocolate was imported for 10 pounds…..

      We need to begin to apply the value-chain approach to cocoa, the NIRSAL project needs to embrace cocoa as we go with its implementation, that is when farmers can access the type of financing and insurance cover required to make this country the number 1 cocoa producer in the world.

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      Posted by Kunle O. | July 24, 2012, 2:12 pm
    • Wale, thanks for reading…you may need to click the hyperlink on the GDP contribution to see the source though. Cheers

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      Posted by kunledurojaiye | July 25, 2012, 11:05 pm
  4. One thing most of us may not know is that cocoa production stagnated for a long time prior to 1986. Before that date, the govt set the price of cocoa and the govt owned Cocoa Board was the monopoly buyer of all cocoa beans in Nigeria. Production kept going down because farmers didn’t like govt dictating their prices. People were being thrown in jail for SMUGGLING cocoa to higher price markets like Benin Republic.

    One of the first measures introduced under IBB’s SAP was the DEREGULATION of cocoa prices. That is what has led to the steady rise in cocoa production.

    This scenario is directly applicable to fuel in Nigeria. Until the market prices are DEREGULATED, there will always be scarcity, smuggling and corruption.

    http://www.csae.ox.ac.uk/conferences/2011-EDiA/papers/417-Ajetomobi.pdf

    The whole thing about cocoa processing is another matter. Infrastructure has something to do with it, for one.

    Anyway, nice blog.

    Like

    Posted by Obugi | July 21, 2012, 1:50 am

Trackbacks/Pingbacks

  1. Pingback: What is killing the Investments of Cocoa business in Nigeria | NAIJA INVEST - August 27, 2012

  2. Pingback: What is killing the Investments of Cocoa business in Nigeria | Naija Invest - May 22, 2013

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