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Troubled Global Sugar Business

Nigeria has made some gains in the sugar industry over the years, but a lot more needs to be achieved, and the mandate of achieving self-sufficiency is a future that can only be seen if the Backward Integration Program (BIP) is successfully implemented.

Siaka MOMOH

Global Sugar market  is in trouble, according to Proshare  recent report. The report says  the 2023 global sugar crisis has resulted in the unsweetened tale of the rising cost of confectionaries worldwide, that it tells a tale of tightening supply realities and difficulties in global logistics that have spilt into 2024.

The report states more: ‘In India, the world’s second-largest sugar producer, the 2023 monsoon rainfall was at a five-year low since 2018, impacting harvest and sugar production for domestic and global markets. Deteriorated climate conditions resulted in limited supply and higher sugar prices, which was immediately felt in the Indian economy as sugar producers chose the dollar over the Indian rupee by exporting more of their output than they supplied to the domestic Indian market. The Indian government immediately moved to cut sugar exports in a bid to cater to domestic demand and control rising domestic sugar prices. Note that India accounts for over 20% of the global sugar supply.

Turning to Thailand, the world’s second-largest sugar exporter, the government classified sugar as a controlled commodity (a commodity with a highly regulated and controlled price by the government) following poor climate and harvests in the 2023/2024 season. The increase in sugar prices in the global markets is driven by irregular rainfall during planting season (El Nino), a drop in international market supply over demand, and FX instability for sugar-importing nations at high global prices.

Brazil, Nigeria’s principal source of cane sugar imports and the world’s largest exporter of sugar, was pivotal in the unfolding narrative despite the convergence of factors that limited output in major cane sugar-producing countries. According to the International Sugar Organization (ISO), Brazil exported a record 31.38MMT (million metric tons) of sugar in 2023, up 15% year-on-year (Y-o-Y), including 27.04MMT of raw sugar and 4.34MMT of refined sugar, up 12% and 38% respectively.

According to projections from the International Sugar Organization (ISO), global sugar consumption is anticipated to surpass production by 1.6MMT in the 2024/2025 season. Concurrently, the World Meteorological Organization (WMO) has projected that the El Niño weather phenomenon will persist until April 2024, potentially affecting agricultural yields and leaving global prices at hawkish levels.

 The Nigerian “Sugar Palava”

Nigeria’s “Sugar Palava” is multifaceted. Beyond the difficulties of securing an adequate global sugar supply for domestic refining, producers are navigating a labyrinth of macroeconomic adversities. Foreign exchange rate devaluation, rampant inflation, pervasive insecurity, infrastructural shortfalls, and erratic power supply form a daunting gauntlet.

Additionally, cane sugar for sugar refineries was among Nigeria’s leading import products in all four quarters of 2023.  This confluence of unfavourable factors strongly influenced the higher operational costs of sugar refineries, with repercussions rippling through to the market prices of various products that require sugar as an input .

 In each quarter of 2023, Nigeria’s import of cane sugar rose while the exchange range fell.

 The high dependence on imported cane sugar for Nigerian sugar refineries hurt sugar producers’ net earnings in 2023, as FX losses rose due to the naira depreciation against the dollar .

The Nigeria Sugar Master Plan: A Decade of Illusion, Hope, and Despair

In 2008, the Nigerian government began a visionary journey to harness the potential of the country’s sugar sector. The strategic initiative resulted in the Nigeria Sugar Master Plan (NSMP); a ten-year blueprint approved in 2012 spanning from 2013 to 2023. The plan’s commencement in 2013 was marked by a set of ambitious objectives:

  • Elevating domestic sugar production to achieve self-reliance.
  • Curtailing the rampant influx of imported sugar.
  • Generating a substantial number of employment opportunities.
  • Augmenting the production of ethanol and contributing to power generation.
 

As the NSMP’s ten-year sunset approached in 2023, the country saw slow but incremental progress in refining capacity. However, the broader vision of self-sufficiency in sugar production remained elusive. The nation continued to rely heavily on imported cane sugar to feed its refineries as it sourced over 95% of its sugar needs through imports, according to the United States Department of Agriculture (USDA).

 The difference between the NSMP’s lofty aspirations and the stark reality of refined domestic sugar production leaves analysts with a severely sour taste. Sugar’s self-sufficiency has not been realized, and the government has not communicated a monitorable set of solutions.

Former President Muhammed Buhari inaugurated a second phase of the NSMP in 2022, with a timeline extending for another decade from 2023 to 2033. Whether this will come as another concrete action in policy development is yet to be seen. However, it appears clear that the core objectives of the second phase of the NSMP mirror those of the initial phase. Specifically:

  • To produce around 1.7 to 1.8 MMT of sugar a year.
  • To create 110,000 jobs.
  • Reduce importation of raw sugar.
  • Providing 300,000 hectares (ha) of irrigated land in 9 states of the Federation, including Nasarawa, Kwara, Adamawa, Oyo, Niger, Taraba, Ondo, Sokoto and Bauchi.
  • Encourage backward integration programmes (BIP).

This requires reflection—was 2013 to 2023 a wasted decade? Not entirely, but it fell well short of national expectations. 

Closing Thoughts: Understanding A Gap

Nigeria has made some gains in the sugar industry over the years, but a lot more needs to be achieved, and the mandate of achieving self-sufficiency is a future that can only be seen if the Backward Integration Program (BIP) is successfully implemented.

Nigeria’s current sugar consumption requirement is 1.7MMT per annum; however, this is projected to fall to 1.6MMT per annum in 2024 following increasing inflationary conditions and the sugar tax’s contribution to higher non-alcoholic carbonated beverage prices. The country’s refining capacity stands at about 3.5MMT per annum, suggesting Nigeria’s capacity to become a net exporter of sugar.

Concerns linger on the illusion of implementation and call for policy implementation alignment with the strategic provisions of the Nigerian sugar industry plan. Adopting a forward-thinking approach to the sugar industry’s potential production capacity would relieve foreign exchange pressures. Adaptation and adjustment of the plan should be reviewed semi-annually over the next 10 years. Sweetening Nigeria’s sugar story should be a clear goal of the government; as one observer noted, ‘A morning cup of tea has become just as common on the Nigerian breakfast table as a ‘cuppa’ in the UK. If that is the case, the busier the government should get in ensuring the indigenisation of sugar refining in Nigeria, so that the sweeter the breakfast table is for everyone, whether you are a tea, kunu, or eko lover’. 

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