Nigeria's cocoa grinding capacity has slumped over 75 percent to about 25,000 tonnes per annum in the last two years due to falling demand for processed products from Asia and the West, an industry body said on Thursday.The Cocoa Processors Association of Nigeria (COPAN) said capacity utilisation has dropped from over 100,000 tonnes since 2008, with only eight factories partially operational.
The world's fourth-biggest cocoa grower had about 18 grinders processing around 230,000 tonnes a year in 1986 when the sector was deregulated, but the industry has since fallen on hard times.
Before the global economic meltdown, the biggest problems cocoa processors in Nigeria faced were erratic power supply from the national grid and the high cost of fuelling generators.
"Nigeria's processing capacity is now down to about 25,000 tonnes per annum due to a lot of issues, including the bad global economy," COPAN secretary Felix Oladunjoye told Reuters in an interview.
The global credit crisis had led to a big cut in demand for cocoa products -- butter, liquor, powder and cake -- from Western and Asian markets, Oladunjoye said.
He said most European chocolate makers had changed their buying strategies. Instead of stockpiling products as in the past, they now prefer to buy raw beans to crush in their own factories.
"Most factories have now changed their buying strategies because there is not enough money to tie down stocks. This is affecting demand for products and also international orders," Oladunjoye said.
Lack of EU trade hits sector
The failure of Nigeria to sign a trade deal with the European Union since 2008 has also all but crippled local processing, he said.
The EU imposed tariffs on cocoa products and other exports from Nigeria after Africa's top oil and gas producer declined to sign an economic partnership agreement, EPA, by a Dec 31, 2007 deadline.
This has badly hit the Nigerian cocoa sector's ability to compete with regional rivals Ivory Coast, Ghana and Cameroon, all of whom had signed trade deals with the European trade bloc to maintain preferential access for their products.
Local processors are losing a minimum of $400,000 (N60million) monthly or nearly $5 million a year in duty liabilities, a burden Oladunjoye said was too heavy for COPAN members to carry.
Nigeria has held fast in its refusal to sign an EPA, which the EU demanded to make its long-preferential trade with Africa, Caribbean and Pacific former colonies compliant with the World Trade Organisation.
Nigeria argued that its fragile manufacturing industries were simply not ready to compete on a more equal basis with imported European goods under EPA.
But the Common External Tariff of the Economic Community of West African States (ECOWAS), which allows duty-free cross-border movement of goods, seems to have eroded whatever benefits Nigeria had hoped to derive by rejecting the EPA.
Another factor that has nearly killed domestic cocoa crushing is the long delays in the payment of the Export Expansion Grant (EEG) by the government, Oladunjoye said.
The EEG is an export promotion incentive that seeks to promote local industry by offsetting 30 percent of production costs on all processed exports.
"The late payment of the EEG is causing a lot of problems. That of 2008 has just been released, nobody knows when that of 2009 will come, not to talk of 2010," Oladunjoye said.
The COPAN secretary said because of the numerous challenges confronting the sector, most Nigerian grinders had turned to the export of raw cocoa beans, which is more profitable.
REUTERS
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