Nigeria’s once-thriving cocoa processing industry is teetering on the brink of collapse, with just five operational plants out of an initial fifteen. This dramatic decline is attributed to a perfect storm of economic challenges, including exorbitant energy costs, a complex tax regime, and unfavorable government policies.
The industry, which once boasted an installed capacity of 250,000 metric tons, now struggles to process a mere 20,000 metric tons annually. This stark reality has prompted calls for a state of emergency.
“It’s an incredibly difficult environment for cocoa processors,” lamented Felix Oladunjoye, Chairman of the Cocoa Processors Association of Nigeria (COPAN). “We need a substantial increase in working capital, coupled with relief from the burden of rising costs.”
The challenges facing the sector are multifaceted. The high cost of energy, a critical input for processing, is eroding profit margins. Moreover, the industry is grappling with a complex tax structure that siphons away valuable resources.
Billions Tied Up in Idle Machinery
The consequences of this crisis are far-reaching. Over N500 billion worth of machinery lies idle due to the collapse of processing plants. The situation is further exacerbated by the proposed NAFDAC export regulations for 2024, which COPAN views as a redundant and burdensome imposition on the industry.
“We’re being strangled by various policies, and now NAFDAC is adding another layer of challenges,” Oladunjoye lamented. The proposed regulations, according to COPAN, will lead to multiple taxation, export delays, hefty penalties, and job losses.
Farmer Preferences and Policy Headwinds
Compounding the problems is the preference of cocoa farmers to sell their beans directly to merchants, who offer higher prices than processors. This trend deprives processors of a crucial supply of raw materials.
Furthermore, the proposed National Agency for Food and Drug Administration and Control (NAFDAC) export regulations for 2024 are seen as a potential death knell for the industry. Oladunjoye described the regulations as a “sheer duplication of efforts” that will lead to increased costs, delays, and penalties for exporters.
Debt and Decline
The cocoa processing industry is deeply indebted, with a total debt exceeding N50 billion. The combination of economic hardships, increased import duties in European markets, and limited access to affordable financing has pushed many processors to the brink.
“We’re spending over 30 percent of our production costs on power alone,” said Sunday Bamikole, Managing Director of Premium Cocoa Products Limited. “This makes us less competitive compared to Ghana and Ivory Coast.”
Bamikole echoed concerns about the proposed NAFDAC regulations, arguing that the agency lacks the capacity to effectively regulate exports.
Missed Opportunities
Despite Nigeria’s potential to be a global cocoa powerhouse, the industry remains underdeveloped. The country has slipped to the world’s fourth-largest cocoa producer, while value addition remains low.
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While the government has pledged to support the cocoa sector, efforts to revitalize the industry have fallen short. The recent surge in cocoa bean exports, driven by rising global prices, masks the underlying challenges facing the processing segment.
If You Ask Me
The cocoa processing industry is in dire need of government intervention. This includes providing access to affordable financing, reducing the tax burden, and streamlining regulations. Without urgent action, Nigeria risks losing a valuable opportunity to create jobs, generate foreign exchange, and diversify its economy.
As the industry faces an uncertain future, stakeholders are calling for a comprehensive rescue package to prevent a complete collapse. The survival of Nigeria’s cocoa processing sector is not only crucial for the industry itself but also for the broader economy.
