Private sector plans to expand Nigerian sugar cane production
11 November 2012
An interview with Mr Abdullahi Sule, Managing Director of Dangote Sugar Refinery Plc, published in September 2012, suggests that moves are under way to increase local sugar cane supplies to the Nigerian sugar refining industry. Dangote Sugar, which currently supplies between 70 and 80% of the Nigerian sugar market, has acquired Savannah Sugar Ltd. The expansion has meant that the company has ‘been able to do all the farming and harvest of the sugarcane locally’, thereby reducing dependence on raw sugar imports from Brazil. Mr Sule stated that the company’s long-term plan ‘is to ensure that Nigeria is self-sufficient in sugar production’.
Dangote Sugar, however, is facing increased competition from other sugar refiners, notably the BUA Sugar Refinery, which has some 50% of the capacity of the Dangote Refinery, and ‘the new Golden Penny Sugar Refinery, which belongs to Flour Mill Nigeria Plc’. Rather than being concerned at the competition, Mr Sule however cited Dangote’s advantages of location at the country’s premier port and established brand name, as well as speaking about Dangote’s export plans. He reported that the company is expanding its refining capacity from 1.4 million to 2.5 million tonnes, with the aim of exporting to regional markets. Dangote’s strong brand identity in West Africa is seen as assisting penetration of regional markets, particularly for retail-ready packaging.
Editorial comment
Raw sugar imports as a proportion of Nigeria’s total sugar imports have increased from 20% in 1995 to over 90% in 2011, largely due to the tariff structure applied (5% for raw sugar, compared to 30% for refined sugar). This tariff structure has also encouraged major investments in sugar refining: installed refining capacity is now some 2.3 million tonnes and expanding, compared to national sugar consumption of around 1.4 million tonnes. However, moves towards establishing a common external tariff at the regional level of 35% for both raw and refined sugar could transform the attractiveness of investment in domestic cane sugar production. This may well be a contributing factor to the decision of Dangote Sugar to expand its own cane-growing operations.
Any expansion of Nigerian sugar refining capacity, whether based on expanded national sugar cane production or imported raw sugar, will require the development of export markets. These are likely to be sought in neighbouring West and Central African countries (the EU is ruled out due to absence of duty-free, quota-free access for Nigeria).
While currently Africa accounts for only around 15 million tonnes – 9% – of world sugar consumption, sugar consumption is closely correlated with growth in GDP. African demand for sugar is currently growing at around 3 to 4% annually. However, in exploiting regional markets under preferential trade regimes, a critical issue will be the rules of origin applied to refined sugar products. Will these apply a ‘single-stage transformation’ requirement, or will they require use of domestically produced sugar cane for refined sugar products to benefit from intra-regional tariff preferences?
