The Nigerian Cocoa Value Chain

The Nigerian Cocoa Value Chain

Cocoa is the key ingredient in chocolate and chocolate confections. It is Nigeria’s top agriculture export accounting for 21% of Nigeria’s agricultural exports according to CBN (2015) Annual Report. Before the discovery of crude oil in Nigeria, cocoa was a major foreign exchange earner for the country and Nigeria was the second-largest producer of the crop in the world after Brazil. As at today, according to FAO statistics, the country is the sixth-largest producer of cocoa globally, behind Cameroon, Brazil, Indonesia, Ghana, and Ivory Coast, with a production volume of 248,000 tonnes of cocoa beans. The largest producing countries by volume are Ivory Coast and Ghana, which over the past years have contributed more than 60% of global supply.

Typically, a cocoa bean value chain system involves cocoa bean production, sourcing and marketing, processing of powder and butter, manufacturing and distribution of industrial chocolate, and retailing to the final consumers. Like in other African cocoa exporting countries, the Nigerian cocoa value chain activities are focused on production, sourcing and marketing of cocoa beans. Majority of the processing of cocoa beans produced in the country into powder and butter, or the manufacturing into chocolate is done in Europe. Europe alone consumes around 40% of the world’s cocoa per year, 85% of which is imported from West Africa.

The Nigerian cocoa value chain includes small and medium scale farmers, Local Buying Agents, cooperatives, merchants, processors and few local manufacturing firms that produce beverages. Cocoa farming in Nigeria is highly subsistent and consist of small and medium scale farms with an average size of plantation about 2.5ha. It is grown by an estimated 30,000 farmers in fourteen states across Nigeria, which include Ondo, Ogun, Ekiti, Osun, Oyo, Edo and Cross River. According to NBS 2010/2011 statistics, Ondo accounted for 24 % of total production in 2011, followed by Osun (22 %), Cross River (18 %), Oyo (10%), Ogun (9%) while other state accounted for the remaining 17 %.

Based on a PWC report After harvesting, about 90 % cocoa beans are sold by farmers to Local Buying Agents at farm gate while the remaining are sold to cooperatives. The Agents and cooperatives then sell to merchants and processors. The cocoa value chain in Nigeria is highly underdeveloped. According to PWC analysis, only 30% of the cocoa beans produced is processed into derivatives such as cocoa powder, butter, and paste, with the remaining 70 % exported as beans by merchants. Further still of the 30% of the cocoa beans processed into derivatives an estimated 90 % is exported, with remaining utilized by local beverage manufacturers.

Cocoa beans processing is the highest value-adding activity in the cocoa value chain, with the potential to generate significant export revenues. The low level of value-adding activities at the processing level in Nigeria results in the country losing billions of dollars annually. For instance, Nigeria generated only US$ 144 million from the exportation of cocoa derivatives in 2014, while the Netherlands, a non-cocoa producer which buys 58% of cocoa exported by Nigeria generated US$ 4.2 billion from the processing and exportation of cocoa derivatives such as cocoa butter, cocoa biscuit, cocoa liquor, chocolates, etc. in 2016.

Local cocoa industry entrepreneurs and the governments of African countries like Ghana, Côte d’Ivoire, Cameroon, and Nigeria must invest further up the value chain in segments such as chocolate manufacturing, to make more money from the industry and reduce their exposure to the fluctuations of commodity prices. The government can encourage local investment in further processing of cocoa and exportation of cocoa derivatives (powder, butter and paste) and discouraging the exportation of cocoa beans export through cocoa beans export tariff. This could shift more cocoa beans to the processing segment of the value chain.

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