Report: Wheat-based consumer foods in Nigeria
Increasing urbanisation and population growth have boosted the growth in Nigeria’s fast moving consumer goods (FMCG) sector. Food and beverages, personal care and home care are the primary segments of the sector. The outlook across the segments appear stable and positive, despite Nigeria’s challenging economic environment (0.36% GDP decline in Q1 20161).
The food segment is expected to witness strong growth driven by the growing middle class and the expansion of mass grocery retail channels in the urban areas. Food sales cumulative annual growth rate (CAGR) is forecast at 10.4% from 2015 to 2020, according to BMI Research. As the country grapples with the slow down in the economy and weakening local currency amidst low global oil prices, the government is seeking to diversify the economy. With increasing demand for wheat products (flour and flour-based foods), wheat has arguably become one of the most important agricultural commodities in need of accelerated local production. As at 2015, Nigeria imported about 4.3 million metric tonnes of wheat (MMT)2, at a cost in excess of $3 billion. However, given the restrictions on the access to foreign currency, 12-month importation of wheat as at May 2016 declined by 5% to 4.1 MMT2, while local production remains low at 60,000 tonnes2.
The wheat industry, primarily comprising flour milling companies is an integral part of the country’s food chain, producing flour for low cost convenient staple and baked foods.
Wheat milling capacity was estimated at about 8 million tons in 2012/2013, up from 6.6 million tons a year earlier, with average capacity utilisation at 50%3. The industry is highly competitive, with the top players controlling over 70% of the market, reflecting an oligopolistic market structure. From a deals and investment perspective, the sector is expected to remain vibrant, as industry players implement various strategies aimed at maintaining competitiveness amidst declining margins. The various foreign exchange and import restrictions imposed by the Central Bank of Nigeria (CBN) in recent times, including the expected modalities of the proposed flexible exchange rate regime, continue to be a key consideration for the next course of action for the industry.
The previous administration under the Agricultural Transformation Agenda (ATA) by the Ministry of Agriculture, developed the country’s Wheat Transformation Agenda (WTA). Amongst other initiatives, the WTA adopted a range of policies, aimed at reducing local wheat consumption. These consisted of the inclusion of cassava in bread flour, implementation of 15% levy on wheat importation as well as agricultural incentives aimed at spurring local wheat farming. The WTA target for local production of wheat is 1.5 MMT production by 2017. The Government also expects to reduce wheat importation by 50% by 20174. Annual growth rate from 2017 onwards is projected at 20%.
The aim of the report is to provide the analysis of the wheat-based consumer foods segment, including size of the market, value chain and key players. In subsequent sections, we explore the outlook for the segment, including capacity, production and M&A and end with the overview of the major wheat-based products (biscuits and bread).
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