Agricultural yields in Nigeria rise as global cocoa prices slip

As the world’s fourth-largest producer of cocoa – a crop that may have greater importance on a global scale in the coming years due to a projected shortage – Nigeria has seen growing domestic yields in 2014, albeit at a smaller rate than expected. Cocoa farmers in the country face a number of challenges, including volatile weather, disease and pests, and export difficulties, while processing facilities have been operating well below capacity and remain constrained by a lack of access to financing.

However, the government’s Agricultural Transformation Agenda (ATA), launched in 2011, has already had some success in improving the situation. The Cocoa Transformation Agenda was launched under the auspices of the ATA, with five targets for the industry including increasing production to 500,000 tonnes per year in 2015 building capacity for 250,000 farmers, creating 390,000 new jobs in the cocoa value chain, increasing local consumption of cocoa to a minimum of 5% of annual production, and creating a sustainable public-private partnership platform.

While the targets are ambitious, rising production levels indicate that a host of new initiatives — including fertiliser subsidy reforms, government-subsidised pest-resistant seeds and a renewed emphasis on establishing processing facilities, along with a projected global shortfall in supply — should see the crop’s revenue-earning potential increase in Nigeria.

Drowned Out

Although cocoa is Nigeria’s single-largest non-oil foreign exchange earning commodity, with the Federal Ministry of Agriculture and Rural Development (FMARD) reporting the crop comprises 35% of non-oil GDP and employs 22m people, cocoa farmers are largely dependent on rainfall, placing the country’s yield forecasts at the mercy of the elements.

In January 2014 the Cocoa Association of Nigeria (CAN), established in 1986 to replace the Nigeria Commodity Board, initially forecast a 10% jump in production; however, with excess rainfall threatening the cocoa pods, the group revised its annual projections downwards in June 2014, and is now expecting only a small increase for the year. This puts additional pressure on achieving the government’s goal of reaching annual production of 500,000 tonnes by 2015.

Production

Nigeria’s two cocoa harvests include the main crop, from October to December, and the smaller mid-crop, from April to June. About 40% of Nigerian cocoa comes from Ondo State in the country’s south-west, with another 30% sourced from Cross River State, the easternmost coastal province. The remaining 30% comes from the states of Ekiti, Oyo and Ogun, also located in the south-west.

While the 500,000-tonne objective may be a challenge this season — following a bout of black pod disease and dry winds from the Sahara Desert, known as Harmattan, limiting output — the country has nonetheless seen promising results following the implementation of the Cocoa Transformation Agenda.

Citing data from the Federal Produce Inspection Service, the FMARD reports that the country produced 350,000 tonnes of cocoa in 2013, while CAN put this figure lower at 295,000 tonnes. Both figures represent an improvement over 2011 levels, which stood at roughly 250,000 tonnes, although Nigeria continues to lag behind neighbouring Côte d’Ivoire, the world’s leading producer, which saw output reach 1.4m tonnes in the 2013 season, and Ghana, which produces 850,000-900,000 tonnes annually, and is targeting 1m tonnes over the next few years.

In September 2014 the minister of agriculture and rural development, Akinwumi Adesina, said the ministry expects cocoa production in Nigeria to reach 800,000 tonnes over the next three years, as inputs provided under the recently created Growth Enhancement Support Scheme (GESS), which reformed the existing fertiliser and seed subsidy system (see analysis), expected to support ongoing production growth.

Inputs

Higher yields have been due in part to increased support services to farmers under the Cocoa Transformation Agenda, including a series of reforms to the fertiliser subsidy system, which has helped cut out unscrupulous middlemen and expanded the availability of fertiliser for farmers. The reforms have also promoted the adoption of new beans, which are more resistant to disease and mature more quickly than traditional cacao trees. The new beans reach maturity within 18 months – a fraction of the conventional four months – to five-year maturity.

In an ATA progress report from January 2014, the FMARD reported that in 2013, 23,392 farmers were able to redeem GESS cocoa inputs from 103 redemption centres in 12 states. The inputs included 323,407 improved hybrid pods distributed for the 2013/14 nursery season. Over 2.4m sachets of fungicides were provided, as well as 394,815 sachets of insecticide, while 23,781 50-kg bags of fertiliser, 2000 chemical pumps and 500 knapsack sprayers were distributed.

While the industry has received support in the form of fungicides, excess rainfall has nonetheless exacerbated black pod disease, a fungus that rots cocoa pods and thrives in wet and humid conditions, and which reduced output projections in 2014. Since farmers require air and sunshine to dry their crops following the rains, many faced a dilemma last year: risk over-ripening by the leaving pods on trees until the rains passed, or harvest them and risk mould levels exceeding the maximum allowed on the market.

Training

To help farmers better manage their crops and reduce black pod disease losses, the FMARD is also working to train farmers in establishing warehousing and storage facilities, including creating shared drying spaces covered in plastic sheets, which allow sunlight to hit the pods but keep rain out.

In its 2014 ATA progress report, the ministry reported that it had trained almost 11,000 farmers at its Farmer Field Schools, which are spread across 270 communities in seven states, in addition to providing 12.5m polythene bags to farmers and processors.

Price Movements

With Nigeria scrapping its cocoa board in 1986, farmers bear price risks themselves, although global cocoa prices have surged from less than $1000 per tonne in 1986 to a high of $3500 in 2011. Prices rose both in Nigeria and internationally in early 2014, despite a moderate decline during the latter half of the year. Farmgate prices in Nigeria stood at about $2779 per tonne as of September 2014, up nearly 50% from 2013, while global markets also saw cocoa futures climb to $3371 in late September – a three-and-a-half-year high on the US ICE Futures exchange. However, prices had dropped by 14% to $2899 by the end of October that year before falling further to around $2800 in mid-November. Cocoa had rebounded somewhat as of early December, to $2929.

Helping push prices up is a global cocoa shortage, which is expected to rise in the coming years. The gap measured 70,000 tonnes in 2013 and is expected to surge to 1m tonnes by 2020, according to US Mars and Swiss-based Barry Callebaut, two of the world’s largest chocolate manufacturers. The shortage has come in part because of planting disruptions caused by the civil war in Côte d’Ivoire. Cocoa trees have a productive lifespan of about 25-30 years, meaning the civil strife prevented the planting of saplings that would otherwise be bearing fruit now. However, Nigerian beans are not generally used in making chocolate, as their high moisture content makes them more suitable for use in cake, butter and soap products.

Indeed, Nigerian farmers have historically been frustrated with what they see as low profit margins relative to international buyers, who source beans from grower countries and then process them into chocolate in end-user countries. Exacerbating the problem, Nigeria is the only country in West Africa yet to sign the economic partnership agreement protocol on free trade by the EU and African, Caribbean and Pacific countries, with farmers facing 30% inflation on EU export costs as a result, according to Felix Oladunjoye, executive secretary of the Cocoa Processors Association of Nigeria (COPAN).

Value Chain Support

These challenges have resulted in the government offering support for developing new processing facilities and factories in-country, which will improve value addition and boost quality and prices. The main growing region in the south-west of the country holds eight processing facilities with a combined capacity of 150,000 tonnes annually, although COPAN reports that these facilities have run at just 25-27% of installed capacity since 2011 due to a shortage of raw materials and poor infrastructure.

A lack of access to credit has also been cited as a primary obstacle facing upgrades and the establishment of new facilities. The government has moved to address these challenges, introducing a host of new finance schemes aimed at improving all segments of the value chain, including the recently launched Fund for Agricultural Financing in Nigeria.

These efforts saw some forwards movement in 2014, when the FMARD told Reuters that the ministry was in discussion with US chocolate manufacturer SPAGnVOLA to establish a chocolate factory, for which the government would provide $31m worth of investment.