Nigeria: Tomato paste sector is ripe for investment

Nigeria: Tomato paste sector is ripe for investment

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Among the many soft commodities produced by Nigeria, the country leads sub-Saharan Africa (SSA) in the production of tomatoes. Output reached an estimated 1.57 million tonnes in 2013, representing 24 percent of SSA’s total tomato output. However, Nigeria’s tomato production has been erratic, fluctuating between a peak of 2.08 million tonnes in 2006 and a recent low of 1.49 million tonnes in 2011.
Volatile output reflects the constraints on tomato production which, like other food crops, is cultivated solely by small-scale farmers. Owing to farmers’ lack of access to inputs – fertilisers, pesticides, and seeds – yields are staggeringly low, at less than 6 tonnes per hectare (t/ha), a fraction of the yields achieved in the world’s leading producers, China (50 t/ha), India (20 t/ha) and the USA (73 t/ha). As the vast majority of Nigeria’s tomato crop is not irrigated, it is vulnerable to the weather. Dry weather can severely damage crops, while flooding, especially in the southern tomato-growing regions, can also destroy tomato output.
In addition, tomatoes are prone to diseases and pests. The Tuta Absoluta tomato pest has decimated this year’s crop, particularly affecting key production areas in the North, Kano, Katsina, Sokoto and Kaduna. Given the limited effectiveness of pesticides, it is difficult to control the spread of Tuta Absoluta.
Putting the constraints on yields and production aside, perhaps the most serious challenge facing Nigeria’s tomato sector is the high level of post-harvest losses, which typically reach around half of the crop. This reflects the lack of storage and distribution infrastructure, and poor access to markets. Poor road infrastructure and lack of cold refrigeration, coupled with a lack of processing factories in the vicinity of production zones, cause the tomatoes to spoil and rot before they reach market. Poor use of packaging compounds this problem, as small-holders typically sell their produce in vulgarised 50kg baskets which, lacking air, cause tomatoes to bruise and spoil.
Given the size of post-harvest losses, local output cannot meet rising demand for tomato paste. This is estimated at around 2.3 million tonnes of tomatoes per year, with the shortfall made up with imports, notably of tomato paste. In 2013 Nigeria imported 151,000 tonnes of tomato paste, worth $151million. China is the key source of tomato paste imports (75 percent), followed by Italy (12 percent) and the USA (8 percent). As Nigeria’s population becomes increasingly urbanised, consumers are prioritising convenience foods, such as tomato paste, for use in a wide array of dishes. Given the limitations on local production and the high post -harvest losses, imports of tomato paste are set to increase steadily, building on the average growth rate of 13 percent per year between 2004 and 2011.
Given the strong demand for tomato paste, Nigeria’s leading industrial conglomerate, Dangote, has entered the sector with large-scale investment plans. Earlier this year the company commissioned a 400,000-tonne tomato paste factory in Kano State, worth $25million, which uses an outgrower model that is intended to boost farmer incomes. Vertically integrated operations should help ensure that the Dangote factory exceeds average capacity utilisation rates, which are extremely low at just 33 percent (reflecting the erratic nature of domestic supply and quality issues). However, the factory is already facing significant hurdles, as it was forced to delay operations, owing to the Tuta Absoluta outbreak which has devastated this season’s tomato production.
Under the Central Bank of Nigeria (CBN) circular dated June 23, tomato paste importers will no longer be able to access the FX market, which is likely to curb official imports. While this could help local tomato paste manufacturing take off, the sector still faces several headwinds. Critically, tomato paste manufacturers need to develop strong vertically integrated operations in order to minimize post-harvest losses and guarantee a constant supply of tomatoes. Robust outgrower schemes that provide technical assistance and inputs (fertilisers and seeds) to farmers will help ensure higher yields and contain the spread of pests, especially the Tuta Absoluta pest, which is devastating crops.
Fuel shortages could also be a recurring problem, as it is unclear how local supply will be affected by plans to reform the fuel subsidy regime. Moreover, the CBN’s attempts to save hard currency could lead to a surge in illegal tomato paste imports, as already occurs with rice and many consumer goods, putting pressure on local manufactured goods and potentially causing a crash in local prices.
‘Undoubtedly Nigeria’s tomato paste sector is ripe for investment, but the ability of local manufacturers to scale up production to meet demand will ultimately be determined by the strength of local supply chains,’ said one analyst. ‘Supply will be affected by plans to reform the fuel subsidy regime. Moreover, the CBN’s attempts to save hard currency could lead to a surge in illegal tomato paste imports, as already occurs with rice and many consumer goods, putting pressure on local manufactured goods and potentially causing a crash in local prices,’ the analyst added.
Undoubtedly Nigeria’s tomato paste sector is ripe for investment, but the ability of local manufacturers to scale up production to meet demand will ultimately be determined by the strength of local supply chains.

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