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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