Wheat also known as Alkama by the locals in northern Nigeria is the main source of flour production, biscuits and other confectionery in Nigeria. The production of wheat in Nigeria is said to be about 300,000 metric tonnes a year, a sharp contrast to about 4.2 million metric tonnes millers require to keep their factories in operation.
The average grain yield for wheat in the country is above 2.0 tonnes per hectare, although research has shown that this can be easily tripled if proper varieties and crop management is adopted.
The poor production level in Nigeria has put the cost of importation of wheat at a staggering N635 billion (about $4 billion) annually. The federal government through the Agricultural Transformation Agenda (ATA) came with various measures including the inclusion of 10 per cent cassava flour to wheat flour production.
The Wheat Transformation Agenda, which is part of the Agricultural Transformation Agenda of the outgone government, has a major target to increase national production from 300,000 metric tonnes to about 1.5 million metric tonnes per annum by 2017.
The Nigerian Flour Milling industry comprises a large number of players that can be segmented on the basis of their installed capacity. The top two players (Flour Mills and Dangote Flour) have an installed capacity of approximately 11,000 MT per day and control over 65% of the market.
Given the industry’s high fixed cost regime, profitability is largely dependent on the company’s ability to increase volumes.
Shortages of cassava flour coupled with surging wheat prices at the world market are adversely affecting the operations of flour milling companies in the country. In the flour mills industry, almost 90% of the raw materials are imported because Nigeria’s climate is not viable for production of wheat. Rising prices of wheat is therefore a major challenge being faced in the industry as a ton of wheat is currently priced at between $200 and $250.
There are currently 21 flour milling companies in Nigeria. Unfortunately, about 80% of market share is dominated by only 6 of the 21 firms. The six firm includes Flour Mills of Nigeria Plc, Dangote Flour Mills Plc, Ideal Flour Mills Ltd, Honeywell Flour Mills Ltd, Standard Flour Mills Ltd and Crown Flour Mills Ltd.
The Flour Milling industry in Nigeria has a total installed capacity of over 22,000 metric tones with Flour Mills of Nigeria controlling about 38%. Other top producers by installed capacity include Dangote Flour Mills (18%), Honeywell, Ideal Group and Crown Flour with 7%, 14% and 8% respectively.
Keen competition exists only within the various tiers of the market with occasional movements between the small and mid tiers.
Flour milling business in Nigeria has evolved over the last two decades. In the past, Nigeria was largely dependent on flour imported from overseas to meet its growing demand for flour derivatives such as bread, cakes, burgers etc. Nigeria’s dependence on imported flour came at a huge cost to the country as capital flight was the order of the day.
Wheat consumption in Nigeria at 69g per capita is currently among the lowest in the developing economies. With a population of 165 million as well as a projected population growth rate of 5.7%, there is still a lot of room for growth in flour consumption in the immediate future. This to a large extent will however depend on certain exogenous factors such as inflation rate and availability of substitutes among others. Tariff policies and other government regulatory requirements may however hinder the supply capacities required to meet up to the expected increase in demand.
The country’s consumption for wheat remained high reaching 4.1 million tons in 2012/2013. Demand is expected to reach 4.2 million tons in 2013/2014 as consumer demand for wheat based foods continues to climb in response to changing tastes as in domestic supplies of other substitute staple products within Nigeria and neighboring countries is not increasing to match population growth. The market gap is filled by wheat imports and wheat milling capacity was estimated at 6.2 million tons, with capacity utilization at 50 percent in 2012/13.
The existence of seasonal variation is prevalent in the industry. Demand for wheat based foods is usually higher in the dry season (between March and September) while the wet season is characterized by demand for other substitute foods such as maize, groundnuts etc.
These foods are cheaper and are more readily accessible and therefore in higher demand when available. The strategy therefore is to take advantage of the ‘peak periods’ by aggressively growing volumes while reducing their outputs during the ‘offpeak’ periods in line with forces of Demand and Supply.
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