Monday, 8 September 2014

China’s low price offering threatens cassava business

The low price tag put on Nigerian cassava chips by China is frustrating Nigerian exporters of the commodity. This development is impeding the successful
   execution of the cassava chip export contract entered by Nigeria and China.

Cassava Tubers
Chinese importers, it was learnt, are offering Nigerian exporters $250 per tonne instead of $400 it goes for in Europe and $350 in Israel. Business advisory services officials at the Bank of Agriculture have advised Nigerian cassava chips exporters that if the contract price is less than $400 per tonne, the business will not be viable.
Financial Vanguard gathered that the Bank of Agriculture team suggested that exporters should explore European markets that offer $400 or Israel that offers $350 as against China’s $250 offering.
The contract for the export of cassava was negotiated by the Obasanjo regime in his cassava initiative and is being undermined by the Chinese.
This aside, indications are also that the desire of the Federal Government to develop a viable value chain in the agricultural sector is being hampered by the current regime of interest rate of 22 per cent among other factors.
Operators in the cassava end of the value chain, especially cassava chips processors are labouring in pain as a result of high interest rate and the farm gate price of raw cassava tubers.
They also said that high cost of internal logistics (transportation), high cost of shipping, hurdles in documentations with Customs, finance needed for capacity-building, are among the numerous challenges facing value added production in the country.
According to submissions by various stakeholders at meetings with government functionaries, bankers and export financing agencies, which Financial Vanguard sighted, the challenges of cassava chip processors and the cassava industry are that in Nigeria, most cassava peasant farmers do not make profit and in actual fact, are suffering.
Processors said that the Bank of Agriculture (BOA) does not pay attention to them and it has been difficult for them to access credit facilities and that the bank’s claims of financing 8,000 cassava farmers’during last year’s planting season was a gimmick.
According to their submission to government, for the average cassava farmer, it costs N200,000 per hectare from clearing to harvesting of cassava. Nigerian peasant farmers currently plant cassava varieties that yield 12 tonnes to 15 tonnes per hectare saying that in their calculation, they operate at a loss.
Their submission at the stakeholders’ meeting also pointed out that agriculture in Nigeria currently employs 70 per cent of the nation’s population and contributes only 0.5 per cent to non-oil export. This, they argued, is what is playing out in the level of poverty in the country.
They said that earnings of Nigerian farmers as compared to other nations with less employment in agriculture and high export contributions or earnings like South Africa, are very low.
Their situation, they said, is further worsened by the activities of middlemen, cassava merchants, who buy from the farmers at a cheap rate and sell to processors at a high rate pinning the cost differential on high transportation cost from the farms to the factories.
They said that last year, a pick-up truck load of cassava tubers from different locations in Nigeria, which does not meet the correct measurement of 2.5 tonnes, was going from N50,000 to N65,000 depending on location.
According to them, the international commodity market price of cassava chips is fixed. Nigeria has other competitors in cassava products such as Thailand, Vietnam, Brazil etc. To be cost effective, they said that processors want to buy raw cassava tubers for N8,000 per ton knowing full well that the international market price for cassava chips is fixed.
They said that when processors are processing, they work with the ratio of four tons of raw tubers to produce one ton of cassava chips with diameter 3mm to 5mm (peeled).
They claimed that the cost of transportation of a 30 tonnes truck from Lagos to Sokoto is about N300, 000; this is further compounded by the high shipping cost in Nigeria as compared to the rest of the world.
Also cited as hampering the bid to increase non-oil export through cassava chips export is the bottle necks in Customs, bribery, and fumigation.
They claimed that government officials make exporters to buy materials that will be used for fumigating the containers and the documentation hurdles that follow.
Counting their woes, they said that lack of adequate finance to build capacity is also hampering cassava chip production in Nigeria.
As a result of lack of financing, producers are not able to meet production targets, buy more machineries and mop up dry cassava chips around Nigeria i.e. states like Taraba, Nassarawa, Benue, Kogi and Sokoto.
Some cassava peasant farmers allow their cassava crops to stay over two years and above as a result of no buyers, no access roads to their farms to evacuate the products and the tubers rot away.
Some dry their cassava in certain areas i.e. Akwanga, Nassawara State and use as fire wood as a result of lack of buyers.
These, they said, are some of the challenges faced by cassava chips processors and exporters and the main reason why Nigeria, after signing a contract with China to export 3.2 million metric tonnes of cassava chips annually, is yet to execute the contract.
A cassava chips processor said that the offering price of the Chinese with which the Federal Government signed a contract for cassava chip export is a big issue, when compared with the Nigerian cassava raw tuber price processing and exporting. BOA at the stakeholders’ consultation forum informed that if the contract price is less than $400 per ton, the business will not be viable.
The team suggested that the exporter explore European markets that offer $400 or Israel that offers $350 as against China’s $250.
They said that they were taken aback by the mere fact that the credit line open for them by Afrinexim bank has not been disbursed.
Explaining the rationale for approaching Afrinexim for credit facility, officials of the Ministry of Agriculture said: “The main reason of going to Afrinexim for the loan facility by the ministry is as a result of the high cost of lending by Nigerian banks, 22 per cent per annum, how do processors and exporters survive?
However, two options were opened to the processors and exporters – either to access the $40 million loan directly with the Afrinexim Bank or go through the Bank of Industry and BOA
Only Thai Farms International Limited at the meeting opted to deal with Afrinexim Bank Egypt directly.
The representative of Flour Mills Nigeria left the meeting on sighting BOA and Bank of Industry representatives, complaining that they are slothful in their dealing and commercial banks are better off.
Other processors, exporters present at the meeting said that the Bank of Agriculture had already taken their applications.
The ministry promised to look into the request that the use of railway lines to convey products from locations to the ports will be cheaper and promised to liaise with the Federal Ministry of Transport to work it out.
They were also promised that government will look into shipping cost, bottlenecks of other agencies i.e. Customs, inspection, quarantine; their ministry will liaise with the agencies involved.
Financial Vanguard learnt that a private meeting session was held between the banks (BOI, BOA), some ministry officials and Afrinexim representative, the Federal Ministry of Agriculture officials, Afrinexim Egypt representative, likewise the processors and exporters.
The exporters at the meeting include Thai Farms, Sajaab Farms, Flo Mulvina Nig.
The exporters’ presentations were on their success in dry chips export to countries like Israel and China. Basically, their presentations were skewed towards the numerous challenges they faced in the course of exportation.
The summary of their challenges include: Fluctuating prices of cassava tubers; competition with garri producers, overarching bureaucracy at the ports; low demand price for chips in the booming Asian countries; need for support in increasing their own production channels; and logistics problems.
Mrs. Ada Osakwe and Chief Awoniyi briefed the meeting on their trip to Egypt to secure $40 million loan and what was discussed and agreed.
Processors who had put in their applications were said to have made the following request to have their own farms apart from outgrowers attached to them, trucks, more machineries, advance drying techniques among others.
A time frame, it was learnt, was picked and processors and exporters were made to know that the BOA 8will put in their own charges. Since cassava chips has the dry season as its season in the world for mass production, the BOA agreed to submit the loan request to Afrinexim on time and once given the green light, will release money to processors, exporters.
Bank of Agriculture also promised that by April this year, they would have attended to all who put in their applications.
According to the processors, up till now, nothing has happened, their books has not been okayed by Afrinexim Bank Egypt.
The cassava processors alleged that officials in the Federal Ministry of Agriculture and Rural Development overseeing the BOA are not doing anything about it and processors/exporters are left to their fate.
They said that it was also agreed that once these frontline processors/ exporters are given the money applied for and they are judiciously utilised and repaid, others will come on board.
But this is yet to happen as the books of BOA are not properly kept and it is affecting processors/exporters denying them from accessing the loan, since they are passing through the BOA.
The cassava bread intervention, they claim, has suffered the same fate.
While revealing Afrinexim partnership profile with Nigeria, Mr. Adomakoh listed successful projects like the Indorama fertilizer plant and Notore’s cocoa processing plants and advised that to succeed in these projects, there must not be an overarching government influence on the cocoa and starch exports of the past.

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