1

DEVELOPMENT OF SUGARCANE VALUE CHAIN IN NIGERIA; AN

IMPORTANT TOOL FOR REAL ECONOMIC GROWTH.

AUTHORED AND PRESENTED

BY;

ABDULLAHI HABIB ILYAS

PRESENTED

AT

THE NATIONAL ECONOMIC AND POVERTY ERADICATION CONFERENCE

HELD AT

STATE SECTERIATE COMPLEX CONFERENCE HALL, KATSINA,

KATSINA STATE

ON
4TH MAY, 2016
ahabeebb4u@gmail.com/+2348133835092

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DEDICATION

To the Memories of my grandmother, Hajia Saratu Usman (Atu)

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DEFINATION OF KEY TERMS

SUGARCANE; This is one of the several species of tall perennial true grasses of
the genus Saccharum, used mainly as raw material for sugar and ethanol
production.
VALUE CHAIN; Value chain is a high-level model of how businesses receive
raw materials as input, add value to the raw materials through various
processes, and sell finished products to customers.

BACKWARD INTEGRATION; Type of vertical integration in which a consumer

of raw materials acquires its suppliers, or sets up its own facilities to ensure a
more reliable or cost-effective supply of inputs.

FORWARD INTEGRATION; Forward integration in business is when a

manufacturer decides to perform distribution and/or retail functions within
the distribution channel. This is commonly referred to as "eliminating the
middle man," as manufacturers may cut out the wholesaler to sell directly to
retailers or the retailer to sell directly to customers.

GVC; Global Value Chain

NSDC; National Sugar Development Council
NSMP; Nigeria Sugar Master Plan
UN; United Nations
ECOWAS; Economic Community of West African States
SME; Small and Medium Scales Enterprises
BOA; Bank of Agriculture
BOI; Bank of Industry
R&D; Research and Development
USDA; United State Department of Agriculture
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SON; Standard Organization of Nigeria

NAFDAC; National Agency for Food Drug Administration Control
NBTI; National Board for Technical Incubation
RMRDC; Raw Materials Research and Development Council

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KEY POINTS
• The rationale for Sugarcane value chain development in Nigeria is premised
on several grounds that include: viability as a lever for guiding the country’s
economic transformation; creating huge number of job opportunities; raise
local production to attain self sufficiency; contribute in the development of
sugar by products i.e molasses and bagasses; stern the tide of unbridled
importation; potency for addressing the growth inclusiveness challenge facing
the country; and effectiveness in driving sustained growth through delinking
the economy from fluctuations in commodity prices and weather conditions.
• To take advantage of these benefits, Nigeria needs to take advantage of its
vast potentials in wide array of activities that include agricultural commodity
(sugarcane for this paper) and similar activities.
• Structural transformation of sugar sub sector is possible in Nigeria through
Global Value Chain development via industrialization, technology upgrade,
emergence of new ancillary activities, export diversification, and inclusive
growth promotion like Vertical Integration (Backward and Forward
Integration Programmes)
• The current active support of the government through the Economic
Transformation Agenda, specifically the Implementation of Nigeria Sugar
Master Plan under the coordination of the National Sugar Development
Council is creating a momentum leading to emergence of some Sugarcane
Value Chain firms.
• To consolidate these gains and tackle the remaining challenges, there is need
to articulate a national policy on value chain development, deepen reforms to
further improve the business and regulatory environment, focus on areas of

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comparative and competitive advantages, promote public and private R&D

investment, and champion intra-ECOWAS cross border trade

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INTRODUCTION

The Nigerian economy faces the challenge of limited economic transformation

and diversification. This is evident from the country’s specialization in less
dynamic and low value added domestic activities and trading in the global
system. While the economy was relatively diversified in the 1970s with
building and construction, wholesale and retail playing major roles in
economic activities, there has been a reversal since 1980s. Even the results of
the rebased GDP from 1990 to 2010 have not shown any significant
diversification away from reliance on the natural resource sectors5 even
though it points out to the potentials the economy has to achieve this. Indeed,
the issue of economic transformation through effective diversification into
industry, manufacturing and processing has taken a center stage in the
country’s economic policy discourse for a long time. However, this has not
materialized despite the significant progress made in economic growth that
has averaged almost 7% in the past decade5. Despite the huge potential for the
production of sugar, Nigeria produces less than two per cent of its
requirement, estimated at 1.7 million tonnes, according to the United States
Department of Agriculture (USDA).

Data obtained from the National Sugar Development Council (NSDC) indicates
that sugar consumption in 2012 was 1.1m tonnes against the domestic
production of 10,843 tonnes.

Within the period, 1.1m tonnes was imported at $517.2 million5. To address
the shortage, the Federal Government has come out with a policy to increase

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local production. The policy aims at instituting mini sugar plant technology
and a package of incentives.

But industry watchers, who applaud the policy, said with a landmass of over
500,000 hectares suitable for cane and capable of producing over five million
metric tonnes of sugarcane, the nation had no business importing sugar4.
Nigeria produces two per cent of its requirement, importing 98 per cent of the
commodity3. Due to challenges faced by sugar cane farmers, which have made
the commodity highly unexploited, key players have remained in the business
by importing from Brazil.

There are five major players in the industry: Dangote Sugar Refinery (DSR),
BUA Sugar Refinery, Savannah Sugar and Josepdam Sugar Company, and Flour
Mills of Nigeria. Dangote Sugar produces 1.44 million tonnes. BUA adds
720,000 metric tonnes8.

Dangote Refinery, which supplies 70 per cent of the local market requirement,
plans to spend $1.5 billion to increase output over the next five years. 8

It is expected that Nigeria should be able to produce 1.5 million metric tonnes
locally, from around 50,000 metric tonnes now5

To revamp the sector, the Federal Government has initiated incentives for an
enabling environment for investors.Among the incentives are zero per cent
duty on machinery and spare parts by companies, as well as 10 per cent
import duty and 50 per cent levy on imported raw sugar. There is equally a 20
per cent duty and 60 per cent levy on imported refined sugar 5.

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The government has also begun a credit support scheme for sugarcane
growers through the Central Bank of Nigeria (CBN) and commercial banks; in
addition to provision of infrastructure, such as access roads, boreholes, power
lines, land acquisition, and health care facilities for new sugar estates.8

To reinforce its commitment, it has banned refined sugar in retail-ready

packets into the country7.

According to industry watchers, privatisation of sugar estates has improved

the subsector; it is now better managed. This, to them, can be attributed to the
Nigerian Sugar Master Plan (NSMP) of the National Sugar Development
Council (NSDC)

But the challenge remains evolving strategies to meet the demands of about
168 million consumers and prevent huge spending on imports.

Industry players contend that there is an urgent need to establish mills where
sugarcane can be crushed. They also add that sufficient portions of land
should be made available to grow the plant. Sugar cane farmers complain of
dearth of industrial buyers which leads to immense post-harvest wastage.

States as Katsina, Zamafara, Jigawa, Imo, Ogun, Kwara, Kogi, Edo, Cross River,
Benue,Oyo, Taraba, Ogun, Plateau, Ondo, Anambra and Adamawa.have the full
potentials to utilize sugar as one of its major source of revenue on which along
the value chain will provide them with huge job opportunities as well as
industrialization and market that will boost their respective economies5. Sugar
industry is a promoter of investment, job and wealth creation and a tool for
rapid rural development as it creates communities that are self-sufficient. For

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example, in India, sugar industry employs one million people directly and six
million indirectly and that is very much applicable in Nigeria. This will stem
the tide of importation and enhance the production of ethanol and electricity
generation.

Painfully, Nigeria produces two per cent of the 2.5 million metric tonnes of
sugar required for its 170 million population while over 75 per cent of raw
sugar is imported and granulated by a few investors in the sugar sector8. Thus,
the country is the lowest producer in the region, in spite of abundant raw
materials for sugar production across the country3.

For instance, Benin Republic produces 25.6 per cent of its sugar requirement;
Burkina Faso, 47 per cent; Cote d’Ivoire 54 per cent; Senegal, 48 per cent and
Mali, 28 per cent5

It is noteworthy, though, that issues relating to value chain development in

Nigeria mirrors developments in other African countries where there is
growing global participation in global value chain (GVC). Value chain involves
a procedure for bringing together producers, processors, buyers and sellers in
an inter temporal framework with a view to adding value to the goods or
services being exchanged as it passes from actors involved along the spectrum
from conception to the final consumer in the domestic, regional, and global
markets . Also involved in these chains of value added activities are the array
of technical, financial, business and other service providers along the
backward and forward spectrum of the chain. The importance of value chain
development and global integration is numerous and compelling. First, it has
been proven to contribute to higher national economic growth since the mid-

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1990s8. It is, thus, associated with higher productivity gains, expanded

economic activity and higher economic growth. Second, it has significant
transformative effect on the economy. Third, it builds competitiveness through
improved logistics. Fourth, it has high positive effects on industrial
development, technology transfer and skills upgrade. Fifth, value chain
activities increases job creation, not only for activities directly connected to
the chain but also to other peripheral remotely related activities. Sixth, GVC
breaks the barrier of trade protectionism and promotes regional economic
and trade integration. Seventh, it helps improve logistics performance that has
been empirically proven to reduce trade costs, on the average, ten times more
than the equivalent reduction in tariffs. Lastly, it strengthens the trade
investment nexus.
This paper examines the state of Sugarcane Value Chain in Nigeria, focusing on
the challenges and abounding opportunities for its development. The paper
also notes that there is an ongoing momentum to jump-start Sugarcane Value
chain and even connect it to Global Value Chain through reforms in the
agriculture and manufacturing sector in Nigeria3.

Sugarcane Value Chain Development and Global

Integration in Nigeria

Nigeria is highly endowed with basic inputs and commodities that would
normally form the foundation for GVC. The country is rich in sugarcane which
holds a high potential for significant value chain processes that remain largely
untapped. The lackluster performance has deprived the country of all the

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benefits derivable from a vibrant sugar sector. Chief among these are the
annual drain on the nation's foreign exchange earnings put at N101.9 billion in
20115, the loss of hundreds of thousands of employment opportunities for
skilled and semi-skilled labour and food insecurity arising from sugar import
dependence. Recently, several efforts are being made to improve the Value
chain and integrate it to the Global Value Chain. Thus;

EFFORTS BY GOVERNMENT TO IMPROVE THE SUB SECTOR OF SUGAR

In 2008, the Federal Government of Nigeria directed the National Sugar

Development Council (NSDC), to develop a road map for the attainment of
self-sufficiency in sugar within the shortest time possible. In compliance, the
Council came up with the Nigerian Sugar Master.Plan (NSMP)5

The Plan has estimated that Nigeria’s demand for sugar would breach the 1.7
million metric tonnes (MMT) mark by 2020. To be able to satisfy this from
domestic production, need to establish some 28 sugar factories of varying
capacities and bring about 250,000 hectares of land into sugarcane cultivation,
over the next 10 years. The bulk of the investment capital will come from
private investors.5

Secondly, several new cubing/packaging facilities and factories were

established and five new local sugar brands launched. Again, total jobs created
by the sugar industry increased to 10,1508.

The implementation of the NSMP has been making steady progress with 17
sites already earmarked for development – 10 sites with pre-feasibility studies
ongoing or concluded and three green field projects ongoing. There was also

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the commissioning of 4500 tcd plant, which started under NSMP to be carried
out in the second quarter of 2016; two new 12,000 and 9,000 tcd major plants
ordered and to be test-run by 2017, bringing total installed capacity to nearly
30,000 tcd or about 500,000 tonnes sugar per annum8.

For the first time in over 30 years, the industry was able to attract fresh
investment, with $3.16 billion pipeline investment commitments. There has
been a total of N15 billion funds created with BOI and BOA under Managed
Fund Agreements, leveraging on the sugar levy accruals, achieved, with
smuggling reduced to the barest minimum, through the administration of a
sugar import quota regime and a robust monitoring and evaluation
framework3.

Furthermore, two new bio-factories with cutting-edge tissue culture and

micro-propagation techniques were established, with total aggregate output of
two million seedlings per annum to satisfy some of the cane-seed
requirements of the industry8.

For the first time as well, the implementation of the NSMP is being done in
collaboration with officials from different government agencies – National
Sugar Development Council (NSDC ), Federal Ministries of Finance,
Agriculture, Works, Power, NAFDAC, Standards Organisation of Nigeria,
Customs, and the Manufacturers Association of Nigeria, among others, which
constitute the technical committees working together to oversee NSMP
implementation with over N4.5 billion already paid up. Domestic stability in
sugar market prices have also been together to oversee NSMP
implementation5.

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BENEFITS OF FULL AND REAL SUGAR VALUE CHAIN

The sugar value chain includes many stages: the production of sugarcane on
farms; the processing of sugar, ethanol and derivate products in mills;
research, technical assistance and financial services; transportation;
commercialization; and exports. All of these links build a network around
sugarcane will no doubt enhance economic growth. The output of a mill
depends on the supply of sugarcane and capital goods4. The main products
(ethanol, sugar, and energy) are sold to fuel distributors, the food industry,
wholesalers, retailers, exporters and electric energy distributors. Byproducts
are destined to other industries, wholesalers and retailers of other sectors
such as orange juice and animal feed. In addition, sugarcane mills use
residues, such as vinasse and cake filter, as biofertilizers4.

There are different institutional arrangements governing the transaction

between sugarcane producers and the mills, from spot market to vertical
integration. The supply of sugarcane accounts for almost 70% of a mill’s
production cost and the sugarcane transaction with the mills is complex due
to the need of relationship-specific investments4. Vertical integration is
observed when sugarcane is grown in farmland owned by the mill. Farmland
leasing for sugarcane production using the mill’s farm equipment and labour
is the next governance option. Less integrated options include partnerships,
long-term supply contracts and spot market relationships with independent
producers.
Vertical integration has historically been the dominant governance mechanism
in the industry. But there is a trend towards less vertical integration and
increasing use of contracts with suppliers. Leal (2006) estimates that 65% of
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the area cultivated with sugarcane is either owned or leased by mills while
35% belongs to independent producers – mostly under some form of contract.
The following are identified as the major benefits;

 A first potential benefit is the amount of jobs generated in all stages of

the sugar and ethanol chain, from equipment suppliers to distribution
systems, but also including allied industries such as research, trade and
services.

 Ethanol as a product of sugarcane reduces dependency on foreign oil –

particularly as the oil industry generates increasing negative
externalities and is fraught with geopolitical risks.

 One of the most important potential benefits for the Nigerian people is
the immediate reduction in pollution at large cities. As compared to
gasoline and diesel, emissions from engines run on ethanol are
increasingly smaller with considerable improvements in air quality and
thus quality of life.

 Another benefit through the products of sugarcane is in increase

economic relationships and trade with important emerging partners
among ECOWAS and other nations and also with other emerging
economies such as Brazil, China and India.

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 From a business perspective, both sugar and ethanol can generate

opportunities for foreign direct investment for Nigerian companies,
selling products and making profits outside and repatriating these
resources to help the development and income distribution in the
country.

 These investments will also allow Nigeria to have access to world-class

technology that is currently along the value chain.

 Using the bagasse (a byproduct) thermal electricity can be generated

and these can be used to at least power the mills or even contribute in
the national electricity grid.

 Its use also cut across so many industrial sector such as

pharmaceuticals, soft drinks, confectionary, food and beverages, diaries
etc

 Producing countries make huge savings in foreign exchange that would

otherwise be spent on sugar importation.

 Poverty reduction, social infrastructure, rural industrialization etc are

other benefit of vibrant sugar sector.

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CHALLENGES

The observed weak sugarcane value chain development and global integration
in Nigeria despite the high potentials hinges on several identifiable challenges.
Thus ;
i) There is weak local technological and skill capacity in key areas that
could strengthen sugar value chain development and global
integration. For example, the country’s industrial and manufacturing
base is yet weak with limited capacities in important areas like
fabrication and metallurgy for simple crushers to be used in open
pan technology3.
ii) Weak regulatory and institutional framework for domestic
production of quality sugar that would meet the minimum acceptable
specifications in global developed markets. Existing regulatory and
institutional frameworks are duplicative, and with overlapping mandates that
evoke confusion among market players.
iii) Weak state of sugarcane and sugar infrastructure. Over the years, the
state of infrastructure in Nigeria has ranked below average. In 2010,
for instance, Nigeria ranked 100 out of 155 countries in
the Global Logistics Performance Index1. The good news is that the situation
has gradually improved over the years with a peak ranking of 75 out of 160
countries in 2014. Despite this improvement, challenges remain high in
logistics and infrastructure1,
iv) Though the NSDC’s Backward Integration Programme (BIP) is
contributing a lot in providing proper linkages i.e the outgrowers of
sugarcane and the processors, Yet, there is insufficient coordination
mechanisms as the scheme is yet to cover the whole country and also
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NSDC are from time to time facing weak compliance from the side of
some investors. In some areas, for instance, there is no effective
coordination among farmers, farm gate buyers, processors, and
sellers. Buyers and suppliers do not have code of standards that
would compel farmers to comply with given quality criteria.
v) Weak overall global competitiveness. The performance of the
Nigerian economy in the global indices measuring competitiveness
has not been sufficiently satisfactory. For instance, the World
Economic Forum ranked Nigeria 115th out of 144 countries in its
2013 Africa Competitiveness Report9. Similarly on the World Bank’s
Doing Business, the country has not been faring too well, sliding in its
global ranking from 138 out of 189 countries in 2013 to 147 in
20149.
vi) Limited support to local producers and processors in facilitating
their participation in sugar value chains. The production and
processing of sugarcane and sugar that could be integrated into the
global value chain is undertaken predominantly by NSDC, individuals
and SMEs without significant active support from the State
Governments.
vii) Inadequate or lack of electricity continues to be a big factor militating
against any industrial development in Nigeria, Sugar sub sector
cannot be an exception.

Suggested Policy Actions

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To effectively develop and integrate Sugar value chain in Nigeria into the GVC
and avoid the current marginalization in GVC trading activities,
implementation of some salient policy recommendations are necessary.
a) Articulate a clear National Policy on Value Chain Development that is
effectively integrated with the national trade, industrial development
and competitiveness strategies. This should provide streamlined
approach to, not just domestic value addition, but also GVC integration.
The policy should be effectively aligned with the country’s Industrial
Development Policy and the Vision 20:2020.
b) Deepen policy to further improve sugar and ethanol business and
regulatory environment to make investment in GVC attractive to
domestic industries and globally successful transnational corporations.
c) The provision of basic infrastructure such as electricity, water, transport,
ports and logistics should be given more attention. Existence of these
basic infrastructures will improve sugarcane value chain development
and global integration in several activities including ethanol bagasses
and molasses.
d) There is also need to improve access to credit for local businesses,
especially SMEs.
e) The state and local governments needs to redirect their policies towards
the improvement of Sugarcane, processing it, and it’s marketing. These
will no doubt create huge economic activities within their respective
states.
f) Facilitative role of government is also required to improve access
to land for commercial agriculture and building factories. This will require a
reform of the current land titling system. Regulatory agencies such as

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National Sugar Development Council (NSDC), the Standards Organisation of

Nigeria,(SON) and National Agency for Food and Drug Administration
and Control (NAFDAC) should be strengthened to develop a strategy for
meeting the global products standardization and certification requirements
and provide targeted sector- and activity-specific support to individuals and
firms to meet these standards.
g) Government at all levels and private sector players should be more
active in R&D investment with a view to achieving technology and skills
upgrade. No doubt, sugar is a key sub-sector where Nigeria has strong
comparative advantage that can be turned into competitive advantage.
To fully understand this, it may be important to undertake skill audit in
these selected sector with a view to identifying the skills gap.
h) Relevant government agencies should be empowered to provide
pertinent market information for this prospective value chain firms and
individuals. Some of the agencies include Nigerian Export Promotion
Council, Nigerian Investment Promotion Commission, Nigeria Export
Processing Zones Authority, NBTI etc. The focus should be to provide
relevant and timely information on the requirements from foreign
countries the standard sugar or ethanol to enter into their markets.
Information on contracting opportunities should also be
shared.Following this, these agencies should provide technical
assistance on developing the capacities of these prospective market
players on how they could meet these requirements and successfully
enter the markets
i) Nigeria should champion border measures for promoting GVC in the
ECOWAS region through the ECOWAS Common Industrial Policy. The

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country stands to benefit most from such policy development and

intervention given its market size and potentials.

Conclusion

Sugarcane Value chain development and global integration should be seen as

one of the very few options available for developing countries such as Nigeria
to gain access to larger markets and new technologies and ultimately attain
economic diversification and structural transformation. This process of
structural transformation can be achieved mainly through product upgrading,
improved technological capabilities, and increased competitiveness that are
made possible through value chain activities. Given its high resource and
human capital base, Nigeria has very high potential to succeed through this
strategy. These opportunities, especially sugarcane-based exist and needs to
be seen and effectively utilized.
Sugarcane Value chain development and global integration offers opportunity
for Nigeria to deal with the challenge of limited growth inclusiveness. It offers
a major channel for creating sustainable jobs and pulling a large number of
Nigerians out of poverty. Nigeria has several sugar potential areas that could
form the nucleus of the product upgrade through value chain development
and global integration. The need for public capacity building for policy
formulation and implementation, strengthening the infrastructure and general
business environment, improving regulatory oversight of the public agencies
responsible for checking standards, stepping up investment in R&D in defining
the research priorities and disseminating research results to small- and
medium-sized enterprises cannot be overemphasized. Challenges exist,

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though. Therefore, targeted government policies are required to leverage the

existing opportunities and mitigate perceived risks. Private sector also has a
critical role to play in this and so are multilateral agencies

AKNOWLEDGEMENT
1) I thank the Departments of Policy Planning Research and Statistics
(PPRS) and Technical Services (TS) of NSDC for the Research works that
generated this paper. I acknowledge all the efforts done by the people
and establishments I used as references.
2) I acknowledge the generosity of the Central Organizing Committee of
the National Economic and Poverty Eradication Conference (NEPEC) for
this opportunity.
3) Continuous appreciation to my parents, Alhaji Habib Ilyas and Haj.
Fatima Ibrahim

REFERENCES.
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1) F.O Lights (2015). World Sugar Statistics. , www.agra-net .com

2) IFAMA, International Food and Agribusiness Management Review Volume
15, Issue 1, 2012
3) National Sugar Development Council, National Survey of Sugar
Consumption in Nigeria (2014),www,nsdc.gov.ng
4) Leal, M.R.L.V. (2006). O teor de energia da cana-de-açúcar, NIPE, Núcleo
Interdisciplinar de Planejamento Estratégico. UNICAMP -Universidade
Estadual de Campinas. In: F.O.Licht’s 2nd Sugar and Ethanol Brazil. March,
São Paulo. www.nipeunicamp.org.br.
5) Nigeria Sugar Master Plan (2014),www. Nsdc.gov.ng
6) NSDC Quartely Journal (2015). www.nsdc.gov.ng
7) Poschen P. 2007. Green jobs and Global Warming. International Labor

Office. Online:
http://www.ilo.org/global/About_the_ILO/Media_and_public_information/
Feature_stories/lang--en/WCMS_087408/index.htm
8) Quartely Report(2015), National Bureau of Statitics.
9) Quarterly Report(2014) Africa Competativeness Report

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