The increase in the prices of diesel and cocoa beans has made it unattractive for Nigeria’s remaining cocoa processing factories to tap export demand for butter, cake and powder.
Farmers now prefer to sell their cocoa beans to merchants who offer to pay more than processors.
The price of Automotive Gas Oil, popularly known as diesel, has soared by almost 178 percent in one year to N800 per litre and the price of cocoa beans has surged by 20 percent year-to-date.
The situation has forced the Nigerian Exchange Limited-listed FTN Cocoa Processors Plc, with an installed capacity of 20,000 metric tonnes (MT) to fully shut down its operation.
The cocoa processor had only processed 1,000MT of beans in the second quarter of 2022, data from the company’s financial statement show.
“The surge in diesel prices and cost of cocoa beans is squeezing our operations. We were forced to recently shut down our factory because of the challenges,” Akin Laoye, executive director at FTN Cocoa Processors said in a phone interview with BusinessDay.
“The challenges for the industry continue to increase daily, making it difficult for us operators. How can we survive with diesel at N800 per litre and a metric tonne of cocoa beans at N1.2 million?” he asked.
Laoye said the company plans to reopen when the main cocoa season commences in late October.
FTN Cocoa Processors reported a loss of N169.77 million in the second quarter of 2022. Its revenue declined 86.6 percent to N16.97 million in the second quarter of 2022 from N127.01 million in the same period of 2021.
Its cost of sales, which is the cost of producing its product, was more than its total revenue for the period. A breakdown of its revenue shows that the cocoa processor did not generate any revenue from its export sales during the period and all revenues reported were generated locally.
Ile Oluji Nigeria Limited, Nigeria’s oldest cocoa processing firm, has also shut down operations, an industry source told BusinessDay.
Multi-Trex Integrated Foods Plc, which was Nigeria’s largest cocoa processing factory, with a production capacity of 65,000MT per annum, has been shut down by the Asset Management Corporation Organisation of Nigeria since the death of its chief executive, Dimeji Owofemi.
The cocoa processing industry in Africa’s biggest economy is heavily indebted, with the Cocoa Processors Association of Nigeria putting the debt at over N50 billion in 2017. The industry has been struggling to survive over the past years owing to a combination of issues.
The harsh operating environment in the country, coupled with higher import duty in European markets and the inability of processors to secure loans at single-digit interest rates, has made it difficult for operators to survive.
“The current economic challenges are hitting Nigeria’s cocoa processing industry really hard. Majority of them cannot cope with the high diesel cost and surging prices of beans and are just shutting down operations,” said Lawrence Afere, chief executive of Tiwa Chocolates in Ondo State.
“The government needs to provide a clear-cut policy direction as to what it intends to do in terms of industrialising the economy through the processing of agro commodities. This will help in addressing some of the issues limiting value addition,” Afere said.
According to him, unless there is a well-defined policy for the processing of agricultural commodities, the country will continue to export its jobs and lose revenue it would have generated through value addition.
Currently, Nigeria’s cocoa industry is operating at less than 20 percent compared with 80 percent in the 90’s, findings show. This has led to a decline in the country’s value-addition in recent years, resulting in over $2 billion annual loss, industry data show.