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Nigeria’s food and beverage industry sustains robust growth

Source:Ringier Food

Date Published:1/29/2015 12:01:31 PM

The sector yields about $20.55 billion in aggregate output 

NIGERIA’s food and beverage sector is forecast to remain on an upward trend through 2017 on the back of a healthy economy and a more affluent middle class with higher disposable incomes.

The country’s growing population and urbanisation present opportunities for the industry as a whole. This is matched by companies’ sustained technological innovations and heightened marketing activities targeted at increasing product value. 

Support from the government will boost this line, and the overall food and beverage market. To nurture the country’s exports, the government reimburses 40% of the export value for agricultural products upon application and proof of export. This has encouraged local producers to continue raising product quality and packaging to comply with international standards and therefore bolster sales.

To strengthen the food and beverage industry further, the country will play host next year to the 1st International Trade Show on Agriculture, Food, Beverage & Packaging Technology and Food, Beverages & Hospitality (agrofood Nigeria 2015), which will be held from 28 to 30 April  at the Landmark Convention Centre in Lagos.  

Frozen food shelves

The packaged foods sector is currently one of the most dynamic segments in the industry due to the influx of new players and products
Frozen food shelves © 
Niloo138 |

Strongest segment in manufacturing industry

Representing 22.5% of Nigeria’s manufacturing industry and 66% of total consumer expenditure, food and beverage remains the largest sector in the industry. Its aggregate output is valued at about $20.55 billion, equivalent to 4.6% of gross domestic product (GDP). 

The sector generated $100.49 billion in total consumer expenditure last year, higher than the $89.8 billion achieved in 2012 or 16.4% growth after GDB rebasing. 

The bulk of the companies in the segment, or about 85%, are small and medium enterprises (SMEs) that absorb only 10% of total sales volume. About 90% of sales go to F&B market players, which make up 15% of the supplier population. Across the different manufacturing groups, the industry generates more than 1.5 million jobs in Nigeria, employing 5% of the local workforce.

According to Michel Arrion, head of delegation and ambassador of the European Union – Delegation to the Federal Republic of Nigeria and to the Economic Community of West Africa States, 

Nigeria will continue to experience growing demand for packaged and ready-made food products amidst a market exceeding 100 million consumers and a constantly expanding population.  He added that the country’s food manufacturing and agribusiness industries can benefit from collaborative efforts with European suppliers, which can provide machinery, equipment, and technological know-how on par with food safety and other international standards. 

Leading categories

Vegetable oil/fat, dairy, baked goods, cereal, and chilled foods are the key product categories in the food sector. A fast-growing trend amongst Nigeria’s emerging middle class is processed food. This category is, therefore, expected to enjoy continued uptick in the months ahead.  

The local manufacturing industries consist mostly of large multinational companies. Very few local firms are active as most of the products ship from overseas.

The agricultural segment contributes 22% to the country’s rebased GDP and employs 70% of the labour force, making it an important contributor to the economy. Developments in the sector as well as in the pasta and noodle market, and the fast food, and dairy industries were highlighted in the 2014 Industry Reports released by Agusto & Co.  

In the poultry industry, improved raw inputs will help meet demand, in particular food safety requirements, and fuel market expansion. The rising population will feed greater household demand for chicken, especially during holiday seasons, whilst the rising “eating out culture” will boost orders for poultry products in quick service restaurants (QSRs). At the same time, government support and stronger industry associations should ensure availability of credit and quick access to market. Companies will also benefit from good storage facilities, efficient supply chain management, and better administration of quality vaccines.

In the pasta and noodles market, government policy contributed to growth. Local manufacture and consumption of locally produced food rose as a result of the government ban on the importation of pasta and noodles. Even with this development, however, local production of wheat, which is the main ingredient in making pasta and noodles, remains low. As a result of the small local wheat supply, the country still imports N634 billion worth of wheat a year.

Improved poultry and egg raw inputs

In the poultry industry, improved raw inputs will help meet demand, in particular food safety requirements
Egg farm © 
Spflaum |

Enhanced operational efficiency and service delivery enable players in the highly competitive fast food industry to boost sales. The Agusto report said that more companies will have to learn to adopt new technologies such as mobile and online order-taking to secure revenue growth and productivity. 

Nigeria’s fast food market will also benefit from improving industry regulations. The National Agency for Food and Drug Administration and Control ensures the safety of all consumer products such as food, drugs, and other regulated products manufactured, imported, exported, distributed, advertised, sold, and used within Nigeria. The Standards Organisation of Nigeria oversees industrial standards for products and processes in the country. Both have introduced policies and programmes to safeguard food safety during and after preparation. 

Dairy, the second-largest segment in Nigeria’s food and beverage industry, has been posting an 8% CAGR over the last three years. It generated $2.02 billion (N347 billion) in revenue in 2013. The industry has six major categories, namely milk, yoghurt, cheese, ice cream, butter, and infant formula. 

The packaged foods sector is currently one of the most dynamic segments in the industry, owed mostly to the influx of new players and products. Improvements in product quality and innovations in various categories, including noodles, dairy, and bakery goods, have been key to meeting the growing sophistication of local consumers. Heightened advertising efforts with strong below-the-line and above-the-line marketing activities coupled with direct distribution boost competitiveness further.  

Multinational firms account for the lion’s share of the packaged foods category in Nigeria with a 65% share of total revenue. Most of these companies partner with local firms for repackaging and marketing requirements. This strategy also lowers their market entry risks while allowing them to leverage the existing marketing and distribution channels of local players.  

In anticipation of rising demand, most companies expanded capacity faster than market growth. They remain confident, however, that greater demand, in particular from the middle class, will absorb the added manufacturing capacity.  

Industry challenges 

Rising raw materials costs is one of the most pressing concerns in Nigeria’s F&B sector. Import bans on items such as meat, live or dead birds, including frozen poultry, have pushed up prices of raw materials. About 45% of the industry’s costs now come from raw materials alone.

This is true in particular in the fast food industry, where most raw materials except for perishables such as vegetables are imported. Because of the government ban on some imported raw materials, companies incur high tariffs for some items and are hard-pressed to find alternative inputs for key imported goods that are restricted entry. 

The weak local agribusiness that yields insufficient and expensive foods exacerbates the situation. The practice of some companies to cut corners to stay afloat compromises product quality.

Unstable power supply and health and hygiene standards need to be addressed as well. For food business owners, taxation and undue interference by the local government present bumps on the road.

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