COCOA: stakeholders call for Introduction of Commodity Exchanges, Govt Intervention

0

Steady Decline in Cocoa Production:
Ayodeji Calls for Introduction of Commodity Exchanges,
Says National Emergency Intervention Needed as
AFEX Discusses Cocoa as the Future for Nigeria

In the past week, AFEX Commodities Exchange Limited (AFEX) started up conversations about the potential of cocoa as the future for export markets in Nigeria juxtaposing the insights on the opportunities to be harnessed in the cocoa value chain against the grim realities of a crude-oil dependent future.

AFEX Discusses Cocoa as the Future for Nigeria
AFEX Discusses Cocoa as the Future for Nigeria

Cocoa stands as the second largest foreign exchange earner for Nigeria next to crude oil, and was until the mid-80s the highest earner. It remains Nigeria’s leading agricultural export with Nigeria being the fourth largest producer of the commodity and the third largest African exporter. Although these statistics for cocoa still seem favorable, they become a little bleaker when considered through the lenses of our history. Nigeria was formerly the largest exporter of cocoa, and now produces only a fraction of what we did two decades ago. Cote D’Ivoire, which now stands as Africa’s largest exporter of the commodity, has in comparison increased its output by over five folds.

Nigeria dissolved the cocoa marketing boards in 1986, a move intended to give way for the liberalization of the trade and marketing of cocoa, but according to Ayodeji Balogun, Country Manager for AFEX, the unstructured transition from a state led monopoly to a liberalized private sector driven sector led to the weak and inefficient value chains that we have today in Nigeria. Answering questions during the course of the online chat he said, “Early in my career I learnt the difference between delegation of responsibilities and abdication of responsibilities. When you dissolve a marketing corporation and you nurture private enterprises and build regulatory capacity, then you can liberalize trade and create a new industry. That was not what Nigeria did in 1986. What was done was an abandonment of our responsibilities, and we still suffer that toll today.”

READ MORE: FG welcomes partnership that’ll make Nigeria world food basket —Osinbajo

The current cocoa value chain in Nigeria is defined by declining yields per hectare with aging cocoa trees requiring a national intervention to incentivize farmers, researchers, exporters and processors to take steps to rejuvenate the industry. A group known as the cocoa farmers Nigeria group echoed these sentiments in the course of the conversation, pointing out that “a lot is needed to be done to increase our production per hectare (which is less than 300gms), broken infrastructure around cocoa communities, and also to address climate impacts on our cocoa farms.”

Mutually beneficial relations, transparency and more quality control were three measures spoken about in the chat with AFEX that would work to strengthen the cocoa industry in Nigeria. Speaking specifically to marketing cocoa to global markets, Ayodeji Balogun insisted that the power imbalance between the producer and buyer of cocoa must be reversed, and tilted in favor of the producer. He said, “I see an increase in value appropriated by the producer from the current 5% of global chocolate trade value to somewhere between 8 and 10%. That will put more food and more children in school for over 50,000 households in West Africa…”, continuing, he rejoined that “This can only be achieved through the introduction of Commodities exchanges in the country of origin. When we trade our cocoa from West Africa on our future exchanges, the world will be forced to buy through it.”

Ayodeji Balogun, Country Manager, AFEX Commodities Exchange Limited. (AFEX Discusses Cocoa as the Future for Nigeria)
Ayodeji Balogun, Country Manager, AFEX Commodities Exchange Limited.

A need to focus on cocoa at the highest level of policy to gain its attendant benefits of inclusiveness and wealth creation was the resolution of the online chat, with AFEX poised to continue sensitization on the issues, while buckling down on its activities in the industry that range from strengthening primary production through trainings and providing secure storage through AFEX operated warehouses, to enabling farmers to access finance/ inputs and issuing forward contracts to cocoa producers on the CBN Anchor Borrowers Programme.

Excerpts:

We have witnessed the crippling powers of a drop in oil prices. What do you think the future holds for cocoa production as an alternative?

Agriculture needs to do three things for any developing economy like Nigeria

  1. Help create dignifying jobs – Agro led industrialization
  2. Help with food security
  3. Help earn Fx through commodity export

Cocoa is Nigeria’s second largest foreign exchange earner, next to crude oil, and used to be the highest until the mid 80s.

There are many reasons we need to focus back on Cocoa at the highest level of policy – fiscal, monetary and agricultural policies for that matter.

  1. Crude oil is a finite resource and not renewable, so our crude reserves are estimated to last another 35 years. So by the time I am retiring, and have my grandchildren, they will not say Nigeria used to export crude oil! Where do we go from there
  2. The crude industry is exposed to disruptions, with so many other sources of renewable energy and the move by countries and cities in the world to embrace clean energy, it is certain that prices will continue to tank over the next decades. Countries with government earnings completely reliant on this resource will face significant fiscal challenges
  3. Nigeria is a crude oil poor country per capita. Saudi Arabia with 5mill (check data) people produces 10mbpd (million barrels per day), while Nigeria with 200mill people produces 2mbpd. If Nigeria’s total revenue (not net income) for a year was to be shared to all Nigerians equally, every Nigerian will bet a little above $100 every year, which is about N100 every day. In Saudi, each citizen will get $50,000 a year, that is N500,000 daily.

We are crude oil poor per capita.

  1. Lastly, the crude export process creates extremely very little number of jobs and had almost no economic multiplier effect, while sectors like agriculture are inclusive, create wealth and help build new cities.

Cocoa is Nigeria’s leading Agricultural export; Nigeria is the world’s 4th largest global producer of Cocoa, and the 3rd largest African exporter. What ways can we capitalize on this statistic?

It is unfortunate that we have dropped from world largest exporter of almost all commodities to the world’s largest importer of the same commodities we used to sell to the world. Oil Palm is one extremely sad example, but there are many others. Rubber is another one.

Nigeria used to be the largest exporter of Cocoa, and now, we produce and trade only a fraction of what we did two decades ago. In the same time horizon, Cote D’Ivoire has increased their output by more than five folds.

With the declining yield per hectare, and the age of our cocoa trees, if a national emergency intervention is not activated, it will be told as history that Nigeria export Cocoa by 2035. We need to embark on an aggressive tree planting exercise, provide the right incentives for farmers and researchers, exporters and processors and allow the industry rejuvenate.

Switzerland produces almost no cocoa, but they lead in the Chocolate industry. Do you envision Nigerian companies dominating the chocolate production market?

We are a very long way from dominating the chocolate Industry by value or by volume. We can however be a significant exporter of chocolate raw materials to the developed countries, if we focus on the right structures to actualize this. The AfCTA could help us position ourselves to achieve this, but only if we have functional logistics, affordable power and an efficient port.

From Chocolates to coffee; from crude oil to liquefied natural gas, many would agree that Nigeria suffers from the Dutch disease. What is your stance on this? Does the economy suffer due to an overabundance of resources?

I think otherwise. I think we suffer from a lack of visionary leadership and abundant lazy followership. We have become a nation that lacks accountability and values affluence over influence.

The World Bank ranks Nigeria as one of the 8 nations in the world that its per capita income has declined in the last two decades. We now have more poorer people that India, and fewer millionaires than an average street in New York. I do not see how we are a resource rich country.

In 1986, Nigeria dissolved the cocoa marketing boards, giving way for liberalization of trade and marketing of cocoa. However, trade has not yielded the anticipated results. How do you think this luck can be turned around?

AFEX Discusses Cocoa as the Future for Nigeria
AFEX Discusses Cocoa as the Future for Nigeria

Early in my career I learnt the difference between delegation or responsibilities and abdication of responsibilities. When you dissolve a marketing corporation and you nurture private enterprises and build regulatory capacity, then you can liberalize trade and create a new industry. That was not what Nigeria did in 1986. What was done was an abandonment of our responsibilities, and we still suffer that toll today.

The weak and inefficient value chains we have in Nigeria today was as a result of the unstructured transition from a stage led monopoly, to a liberalized private sector driven sector.

What are the value chain processes required to get our cocoa viable for export?

Some of the critical steps required to get our cocoa viable for export include but not limited to;

  1. Organize the process of engagement and safeguard the traceability of cocoa beans. This is one of our strong contributions as a supplier and processor at origin. This degree of control and information gives credibility to the supply chain. Traceability is a common bottleneck in cocoa and other commodities, and not easily solved from a distance. Therefore, experts need to get involved at the farmer level.

Know the intrinsic quality of the cocoa variety; this is an essential element to produce and aggregate high-quality beans and is the first point of attention for cocoa buyers, for example chocolate makers in the specialty segment will always be interested in fine favour cocoa beans.

Maintaining cocoa bean quality through the production chain is linked to your pre-harvest, harvest, post-harvest and processing methods. The proper handling of the material is essential to bringing out the best out of the cocoa beans’ intrinsic quality. Some of this critical control points include;

Pre-harvest; monitoring of environmental conditions and applying adequate methods of cultivation with regard to planting material, pest and disease control, and cadmium uptake mitigation.

READ MORE: AFAN Charges FG For Better Structures Before Tomato Importation Ban

Harvest; harvest cocoa pods at the right ripening time. Beans from immature, overripe or damaged/diseased pods may lead to food safety issues during fermentation and drying (post-harvest).

Post-harvest;

Establish physical parameters for fermentation (5–7 days in wooden boxes), drying and defects.

Ensure that the fermentation method is appropriate to the variety, climate, quantity of beans and locally available technology. It is possible to experiment with different fermentation methods and fine-tune them upon feedback and cooperation with partnering chocolate makers.

Use correct methods for drying cocoa beans. Drying is ideally be done in panels, using natural sunlight and avoiding contamination by smoke or fumes. The moisture content of the beans should be kept low (<8%), with a minimum drying time of six days and protection from rain and dew.

Processing; in terms of further processing, it is important to consider which business model best suits you. Processing cocoa at origin entails two options:

Acquiring and using your own processing equipment, if the cost structure of these operations is indeed profitable.

Using the facilities of an external processor in the region. Cocoa-processing facilities often operate under their full capacity, so could accommodate extra batches. Processing costs can be negotiated as a fee per kg. In the long run, the supplier might prefer to acquire their own processing equipment.

What level of the value chain do you think will be most attractive for people who are interested in investing into cocoa?

Of numerous opportunities in the Cocoa VC, a lot of people will naturally focus on quick wins which are completely opportunistic and lack offering long term impact. Unfortunately, as you know the challenges we face are huge and translates across the VC not minding your entry point. In any case, some easy entry points for interested investors are;

  1. Input sales and Agric-services provision; including extension, financial services (savings and loans), Insurance services etc.
  2. Primary production activities; owing cocoa estates, regeneration and maintain cocoa farms.
  3. Fee based maintenance services; pre-harvest, harvest and post-harvest services.

What will be your best approach for packaging cocoa to make it easier for exportation?

Generally, packaging is a vital component of export success. Products need to be preserved and protected in order to reach their destination in perfect condition. This among other things include selection and use of appropriate packaging material, labelling and security tags declaring grade and standard. Luckily, in Nigeria and as in other producing countries use of Jute bags is largely recommended because of little or no impact on the quality of the content, also in the HSE context of WTO agreements and the importing countries requirements.

What is on the front burner now with regards to packing of cocoa is debate on what is idea vs average bag weight; today 64Kg a Bag = 15.6Bags make a ton. A group have argued that there is an excess which is not well accounted for and the need to standardize as 50Kg a bag which ultimately influences the count of bags per containers and not necessarily the weight in my opinion.

Packaging also helps to position and differentiate the product.

Unlike the stock market, not much is known about the commodities market out there, how can investors access the market?

We’re currently building a first of its type Commodities Exchange Trading platform at AFEX which will be launched soon, this will give investors the ability to access the market easily. #CocoaVC

READ MORE: NIRSAL Educates Kano Agro-Stakeholders On Value Chain Advantages

We also introduced the first-ever education platform for The Commodity Market called EDEX. There you can get more access to info on how to participate in the Commodity market more efficiently. You can find a few of our videos on YouTube https://yt.vu/c/UCZ9AneGAI8uQEJ1Fc0hWb3A #CocoaVC

What proposal do you have for the Ministry of Agriculture to incentivize local investors and private sector participants in the cocoa industry to encourage investments and activities?

AFEX Discusses Cocoa as the Future for Nigeria
AFEX Discusses Cocoa as the Future for Nigeria

Our intervention to revitalize the Cocoa sector needs to be inclusive, wholistic and urgent. There had to be a simultaneous focus on the three core elements of the value chain:

Production – sustainable production of new fields had to be at a massive scale to close the gap that exists today, and ensure we can sustain or grow our output over the next decade. The Cocoa Research Institute also has to be revitalized and funded. They need to be a link with international and regional research institutions for sharing of best practice and knowledge.

We need to roll out a ten million trees in three years campaign across all cocoa producing states, at the minimum.

Aggregation and Grading – a lot of value erosion and disincentive to producers emanate from the weak supply chain right after the farm gate. State governments need to invest in cocoa processing clusters, dryers, grading sheds and bonded warehouses at state level. With this, we will increase the quality of crops of Nigerian origin, hence fetch higher value, there will be more transparency in the process, and the states can increase their produce tax earnings, and buyers – processors and exporters will have the right quality for onward processing or trade.

READ MORE: Central Bank Plan Aggressive Push Of Tomato, Cocoa, Palm oil Production

Marketing – Africa needs to set prices of Cocoa, and not be a price taker in a commodity it produces. The power imbalance between the producer and buyer of Cocoa must be reversed, and tilted in favor of the producer. This can only be achieved through the introduction of Commodities exchanges in the country of origin. When we trade our cocoa from West Africa on our future exchanges, the world will be forced to buy through it.

Despite all the challenges, the longer-term prospects remain promising due to global demand. What are your medium-term projections for the world cocoa industry?

I see an increase in value appropriated by the producer from the current 5% of global chocolate trade value to somewhere between 8 and 10%. That will put more food and more children in school for over 50,000 households in West Africa.

With the immense opportunities available in the cocoa value chain, how best can Nigerian Investors position themselves to benefit from them.

Commercial opportunities in the Cocoa VC include but not limited to;

  1. Input sales and Agric-services provision; including extension, financial services (savings and loans), Insurance services etc.
  2. Primary production activities; owing cocoa estates, regeneration and maintain cocoa farms.
  3. Fee based maintenance services; pre-harvest, harvest and post-harvest services.
  4. Toll Processing
  5. Warehousing and Export facilitation
  6. Trade financing

Share your story with us: +2348135229228 (call and SMS only) Email: [email protected],Complain about a story or Report an error and/or correction: +2348135229228DISCLAIMER: Comments on this thread are that of the maker and they do not necessarily reflect the organization's stand or views on issues.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.