SENSITIZATION WORKSHOP ON NIGERIAN SUGAR MASTER PLAN (NSMP)

A ROAD MAP FOR LOCAL SUGAR PRODUCTION

ORGANIZED BY: NATIONAL SUGAR DEVELOPMENT COUNCIL HOLDING ROYAL PARK LANE HOTEL & SUITES, AKURE, ONDO STATE ON 9TH NOVEMBER, 2010

BY:

SONG ABUBAKAR AHMED

NORTHERN REGION SENSITIZATION WORKSHOP ON NIGERIAN SUGAR MASTER PLAN (NSMP) National Sugar Master Plan: A Road Map for local sugar Production Holding at Akure on 9th November, 2010 Introduction The Nigerian Government recently, through the National Sugar Development Council assembled a team of experts to develop a National Sugar Master Plan which will provide a road map for achieving the production of at least 70% of the national sugar demand in the shortest possible time. The Plan traced the historical development of the sugar industry, assessed the current situation of the industry and identified the existing potentials in terms of water and irrigable land available in the country. Taking into account the technical viability the plan worked out the details on how to develop and increase local production of sugar in the country. The Road Map also undertook a Swot analysis identifying strength, weaknesses, opportunities, threats, risks and responses to facilitate the implementation of the Plan. Policies and their making process were also analysed and recommendations made for government consideration. As a road map for local sugar production the plan was dovetailed in to the recently drawn National Vision 2020. The Key note address therefore attempts to high light some of the major issues to promote local production of sugar in Nigeria for your consideration. First all I want to thank the Federal Government of Nigeria for taking the bold step to prepare this master Plan. The recognition and classifying of Sugar as item number three in order of priority in the food security document is a step in the right direction worthy of commendation. What is central is a sustained political will to achieve the set objectives of the plan. The question is why the Road map and how do we achieve the goal of increasing Local Production of Sugar in the country?
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General Overview World sugar production reached a record 170.4 million tonnes in 2007/2008, 3.4 million more than the 167 million tonnes produced in 2006/2007. European sugar continued to drop while African, North and Central American and Oceanias sugar production hardly changed on the year. Global sugar consumption has risen at a rate of about 2.4% in the last ten years. However, world sugar consumption grew by an average 2.9% per annum over the past three years, which was well above the ten-year average. Thus global demand was expected to rise to 156.9 million tonnes in 2007/2008 compared with the 151.4 million tonnes in the previous year. The major contributor to the continued growth in sugar demand is the continued growth in the Asian economies (namely China and India). African sugar production was put at 10.3 million tonnes by 2007/08, unchanged from the previous year. African output is expected to grow steadily over the next few years as LDC countries will have free access to high-priced EU market from October, 2009. Countries such as Mauritius, Mozambique and Zimbabwe have therefore announced plans to expand capacities to be able to ship larger quantities to the EU and satisfy growing domestic demand at the same time. The four largest African producers however are South Africa, Egypt, Sudan and Mauritius. Nigeria has potential in terms of land and water resources to become the largest producer in Africa within a short time (by 2020) Nigeria sugar consumption Sugar consumption in Nigeria multiplied ten folds within 30 years, from about 43,000 tons in 1955 to more than 450,000 in 1974. This again more than doubled within six years to one million tonnes in 1980. Production dwindled from about 80% self sufficiency in the early 60s down to less than 2% today. The government in 1984 introduced a backward integration strategy that required the corporate consumers of sugar to produce part of their sugar
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locally. By early 1985 the policy saw a surge by companies like Coca Cola, the Nigerian Breweries, Pepsi Cola, Flour Mills of Nigeria, etc acquiring large tracks of land to establish sugar estates. The Government policy suddenly changed in 1986 in favour of complete liberalization which saw the return to mass importation again. It was after this that the issue of backward integration was modified to allow for the establishment of sugar refineries that would import raw sugar as raw material. This was to be followed by production of the raw sugar locally. It was also expected to reduce the importation of refined sugar and save foreign exchange. Entrepreneurs wishing to import raw sugar to refine were given generous tax holidays on condition that they would establish sugar estates to produce the raw sugar locally for refining. So far only one entrepreneur started producing sugarcane for sugar production. Dangote Industries Limited (DIL) which acquired Savannah Sugar Company Limited (SSCL) produced 12,000 tons of sugar during 2008/09 cropping season. Due to the enormous profit being realized from refining sugar attention is now focused on 100% importation of raw sugar for refining. Two refineries, i.e. Dangote and BUA in Lagos have already achieved more than 100% of local consumption. Two additional refineries, have reached advance stages of establishment in Lagos and Port Harcourt by Golden Sugar Company and BUA Sugar Company respectively. More refineries are springing up daily with no viable effort to respect the Government policy of backward integration. Sugar refining is not sugar production. Refining is less than 5% of the sugar manufacturing process. The value added by refining is very low. The refineries can be of great help if they are refining locally produced raw sugar. The negative effects of the refineries on the economy could be assessed from the following: The two operating refineries are already refining a total of 1,850,000 of sugar per annum as reported by them and the NSDC.
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 If this sugar is to be produced locally the amount of cane required will be 18,500,000 tonnes at 10 Tonnes cane for one ton sugar. This cane can be produced from 231,250 ha taking a yield of 80 TC/ha. This area is 12 times the combined sizes of Savannah and Bacita at their installed capacity. Both companies were employing 3500 permanent and 10,000 seasonal staff even before reaching their installed capacity. The number of people to be employed if the refined sugar is to be produced locally will be 42,000 permanent and 120,000 seasonal staff. With an average Nigerian worker supporting at least 8 persons the number to be directly affected will be 1,296,000. This is a far cry from the 1250 employed by the two refineries. The construction of the factories and irrigation infrastructure for 231,250 ha will engage thousands of people and billions of Naira that will have positive effect on the economy. The ethanol from this cane will be 162 million litres valued at $56.7 million. The electric power that could be co-generated from the cane using bagasse and efficient boilers and turbo-generators will be 414 MW. The fertilizer to be applied to grow the sugarcane is 120,000 tonnes or 4,000 truck loads annually. The plastic bags needed for the fertilizer is 2,400,000 and for sugar 37,000,000 valued at $39.4 million. This calls for the establishment of a factory to produce the sacks. The multiplier effect of the industry is evident in backward; forward; upward and downward linkages. The social programs and the government/private sector joint projects that have been facilitated and implemented by the sugar industry in all sugar producing sites the world over bear testimony to the industrys conscious commitment to the socio-economic and welfare of rural communities. The Necessity for a Plan and a Road Map
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Nigerias commercial sugar production has declined from a total of 55,000 tonnes of white refined sugar in late 1970s to approximately 40,000 tonnes by 1990 while the annual consumption was about 1million tonnes. In line with the recent FGN policy to divest itself from direct production and allow private sector takeover for improved performance, the governments own two large sugar estates, Nigerian Sugar Company (NISUCO) at Bacita and Savannah Sugar Company Limited (SSCL) at Numan, were privatised between 2003 and 2004. By 2008, the Government realized that sugar production had stalled despite the privatisation. The only functioning company, SSCL produced approximately 12,200 tonnes in 2008/2009 production season while the countrys annual consumption stood at about 1.3 million tonnes. The total dependency of the countrys source of sugar on imported and refined sugar (Nigeria being the 9th largest world importer of sugar) has made the production of sugarcane a resource for sugar production to be abandoned. Sugar cane is no longer considered as a mere food item for chewing and sugar production. It has other potentials that make it a multipurpose industrial crop the development of which calls for proper integration. These include; renewable energy, power co generation, food, fertilizer, wood product, substitutes such as clip boards, particles boards, ceiling boards as well as a tool for industrialization and sustainable rural development. Enhancing and Sustaining Local Sugar Production Going down memory lane, it would be easy to note that government at various times made attempts to establish government owned sugar companies, to promote the production of sugar locally. After failing to achieve any success, then government came up with the idea of full privatization of government owned sugar companies. The main excuse given was that government was never a good business man. It is today seven years after privatization. None of the private companies have made any impact. In fact, only Savannah Sugar Company Limited (SSCL) owned by Dangote Industries
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Limited (DIL) has been able to be in production at all with an output of 18,000 tonnes of sugar or 36% of its installed capacity during 2009-2010 cropping season. Therefore, it still remains squarely on the shoulders of the Federal Government to create not only the necessary condition but also sufficient conditions that would promote and sustain local sugar production. Happily, the National Sugar Master Plan being discussed today has provided the road map for boosting local sugar production not only to achieve 70% by 2020, but to also ensure self sufficiency and surplus for export, in not too distant future. As a start, the master plan identified 28 existing and potentials sugar estates and sites which can be accessed for development. The best approach is to develop integrated sugar estates that ensure the production of sugar, ethanol and co-generation of electricity. It is very clear that most sites have to establish irrigation facilities with complementary mechanization operations of the cane fields. This makes out grower farmers participation not attractive at the initial stages, but in most countries, cane production is separated from milling. To enhanced rural development, the outgrower participation should be the rule eventually. Sugarcane Outgrower Scheme To achieve the goal of increased local production, and rural development, the outgrower scheme should be gradually introduced when large estates are being established. In many of countries there is a separation between sugar milling and sugarcane production. In some countries such as India, Pakistan, Brazil, the Americas farmers assume total responsibility for the growing of cane which they (sell under specialized arrangements) to millers. This situation is achievable mainly because of these reasons:(i). Most of the cane production is rain fed. (ii). Where irrigation is required, the Government (as in India and Pakistan) has provided for conveyance across farmers fields such that the farmers could irrigate without such being provided by the miller.

(iii). The millers locate their mills at intervals to give each a catchments area that would supply sugarcane to it (India). Due to the various advantages derived from participation of farmers as outgrowers in sugar estate, most complexes today prefer concentrating in managing the mill for optimal production and leave sugarcane growing to farmers as out-grower to the mill. The advantages of this arrangement are as follows:1. In rain-fed sugarcane production it gives the miller a large quantity of sugarcane beyond its area of official land holding. 2. In a number of cases the yield per hectare in the small holder fields is equal to and in fact higher than the yield in the nucleus estate. This has been found to be so in Kenya where rain fed production prevails and even in Swaziland where a highly mechanized irrigation infrastructure is the rule. 3. As the out-grower programme can arrange for its financing through development banks e.t.c. the miller is saved from the responsibility of financing sugarcane growing. 4. Due to adequate attention given to small holdings by farmers operating an out-grower programme, the quality of cane they produce is usually very high.

Sugar as a Political and Strategic Product Most of the world sugar production is consumed in the countries producing it. Only about 15% is sold in the open world market. The rest is traded through bilateral arrangements. It is still one of the most heavily subsidised products. It is usually rural based and forms a good base for infrastructural and economic development of rural communities. The food security programme of the present administration is promoting the production of sugarcane as a strategic industrial crop not only for import substitution but for the broader rural development, rapid industrialization and poverty alleviation. For sugarcane and sugar production, the food Security
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programme has been planned to be executed through full participation of outgrower farmers. The expectation is that 50% of the fields will be cropped by out-growers. From the above it is clear that Nigeria has identified the necessity to increase local production and benefit optimally from the sugar production. However, the out-grower scheme must be properly defined and organized especially now that various agencies are trying to go into sugar production. For example in Kenya, 85% of sugarcane produced is by local out-growers, while that of Mauritius and South Africa is 27% and 20% respectively. It is that the existing companies in Nigeria will have to be made to comply with serious involvement of out-growers. The immediate benefits will include:(i). A year around employment opportunities to farm families in sugarcane producing areas. (ii). Giving the local community a sense of belonging to the sugar industry thereby reducing conflicts between their communities and the company. (iii). The possibility for expansion of cane fields beyond the holding of the company where the sugarcane cultivation is under rainfed conditions. (iv). The flow of funds into the community is improved thereby alleviating poverty. The expectation of the Food Security Program that 50% of fields be cultivated by out-growers can only be achieved gradually, because it would require time to mobilize and organize the farmers for full participation. The Master Plan as the Road Map As a Road Map, the plan considered the details above and the Nigerian Current Consumption of Sugar (1.3 million tons of sugar) and technically computed the required land for irrigation by say 2020 A consumption rate of 2.5% is assumed. To achieve 70% local production the land area required is put at 120,000ha after removing already identified areas of existing sugar estates. Source of sugar to meet the current consumption should be thoroughly examined

Basic Assumptions To realized the 70% self sufficiency in the NSMP, some basic assumptions have been made such that the area to be cultivated, expected yield per hectare, possible sugar yield and time frame of operations will be well understood at take-off. The entire project becomes one that can be measured and effectively monitored and reviews carried out during the nine years of execution. These details are well spelt out in the NSMP(see annex 1). To arrive at requirement for 70% self sufficiency some basic assumptions were made such that expectation and progress can easily measured and adjustment made during the nine year of implementation. These include items like yield/hectare TCTS and consumption growth rate. Vision20: 2020 and the NSMP Happily the vision 20:2020 programme recently concluded has recognised the sugar industry in the Food, Beverages & Tobacco sub-sector as one of the high-potential sub-sectors for the speedy achievement of vision objectives and goals for the manufacturing sector. It went further to project the estimated sugar consumption and production from 2008 to 2020 The sugar production projections assume a yearly increase of 150,000 tonnes of sugar without giving due consideration for the realisation of the raw material which is sugarcane. The production of 150,000 tonnes of sugar would involve the provision of irrigation infrastructure and the establishment of the cane fields estimated at about 19,000hectares. This may be achievable over a period of nine years through the development and establishment of about 2,000 hectares every year. An alternative to the yearly development of 19,000 hectares is through the development of 2,000 hectares simultaneously in nine sugar estates within the year. For all practical purposes these two alternatives are realisable with a lot of determination and hard work. However the projection did not take into cognisance the time necessary for land acquisition, feasibility studies, survey and design, provision of irrigation

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infrastructure as well as design and erection of the factory which very often would take a minimum of 4 years. In conformity with the Vision 20-2020 requirement, the NSMP target of 70% self sufficiency in local sugar production can be achieved by the year 2020. Implementation Strategies The road map for the realization of the objectives of the Master Plan should include the legal frame required, new policies, funding and restructuring of the existing NSDC to facilitate the achievement of the target of 70% self sufficiency in local sugar production in the shortest possible time (2010- 2020) Based on the proposals in the Plan, a SWOT analysis was conducted to lay the ground for a comprehensive implementation strategy to meet the NSMP objectives. The strengths, weaknesses, opportunities, and threats for the NSMP were identified and assessed. Based on that it is imperative that the following measures are put in place: Legal Frame work Considering the contents of Decree number 88 of 25th August 1993 establishing the NSDC, it appeared to have covered the functions required for the development of the sugar sector. What is missing is the enforcement mechanism. An enforcement mechanism is a necessary requirement for the success of the NSMP. Policies Far reaching policy recommendation has been put into NSMP. These policy recommendations have been well thought out and are required for the success of the NSMP. The details are as given in the annex 2. What is required now is for government to exhibit the POLITICAL WIL to implement the recommendations.

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Technology and Know How Transfer Considering the insufficient local know how on the sugar sector, the country shall focus on the different streams and techniques to transfer adequate technology and knowhow. Building the internal capacities of the professionals and ensuring the knowhow is transferred is a corner stone for the success of the NSMP. Finance All proposed projects should go through an intensive cost/benefit analysis to ascertain their variability. The analysis shall include the technical, social and environmental due diligence. The source of funding available to the Council as contained in the policy document is the levy on all imported sugar. The proceeds of the levy were supposed to be domiciled in the Councils account in designated banks for easy accessibility but this has never been done. It is hereby recommended that Government should ensure that the 40% levy being recommended is made available to the Council as required by this policy. The Council should also be authorized to source for funding locally and internationally to enable it garner enough resources to achieve objectives of NSMP. Government should provide SEED FUND estimated at $310 million for the implementation of the Master Plan to enable NSDC carry out the preparatory work and studies for the potential sites to provide information to prospective investors. The banking system shall support the sugar sector in implementing the NSMP by providing the necessary funds with special favourable terms and conditions. Government shall provide the required guarantees for the lenders and investors in the sugar sector. As we expect a paper from a development bank additional details will be made available to meet your expectations
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the

Recommendations All the policies stated above should be adopted by the Federal Government and accordingly implement them. The total amount required to execute the Plan and achieve the target of 70% self sufficiency in local sugar production by the year 2020 is about $3.1 billion. It is recommended that the mobilization process to raise this fund is commenced soonest by government. Government should provide the SEED MONEY estimated at $310 million being 10% of the total investment to facilitate the preliminary works and studies. All existing Nigerian policies related to sugarcane and sugar should be coordinated, structured and focused by the NSDC in association with all relevant agencies involved. For further encouragement of setting up of integrated sugar projects Government should ensure that no ethanol is imported. Embark on public enlightenment on the new government policy on sugar development for the country to mobilise the private sector to invest in local sugar production. Accordingly the new policy on funding of projects, availability of credit facilities, grants for infrastructural development etc should be made the focus of the campaign. Ensure the participation of all stakeholders including the Federal, States and Local Governments, Government agencies involved, the organized private sector, local communities and individuals. Ensure strict adherence to the timeline as contained in the Plan. Government should allow and encourage competent and qualified foreign contractors to undertake the specialized infrastructural

development of sugar estates. In this regard such contractors should be allowed to bring in equipment freely for such jobs with a view to repatriating them after the execution of the projects. Government should ensure that the preliminary activities for sugar estate development such as land acquisition are simplified. In this
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regard States and Local Governments should be fully sensitized to speed up the processes. After approval of the NSMP NSDC and its parent Ministry should notify all the States and Local Governments where the potential sites in each Group have been identified. I thank all of you for the attention given and assure you that as the workshop continues much greater details will be made available from experts in various field as indicated in the programme. Annex 1 Basic Assumptions Present annual national sugar consumption 1,300,000 Tonnes

National consumption for the next 10 years @ 2.5 growth rate 70% of the annual national sugar consumption

1,664,000 Tonnes

1,164,000 Tonnes

The quantity of cane needed to produce the 70% @ 10 TC/TS The area needed to produce the cane for 70% @ 80 TC/Ha

13million Tonnes

160,000 ha

land with infrastructure (SSC 13,000 ha, Bacita 8000,)

21,000 ha

Land available Lafiagi 8,000, Sunti 22,000 Hadeja 7,000)

37,000 ha

Actual land needed for new sites( 160,000- 58,000)

100,000 ha

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Source: The Sugar Master Plan

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Annex 2 Policies Government should make a policy to protect the local sugar production by ensuring that refineries already importing raw sugar are tied to a time table to substitute the quantity imported with locally sourced raw sugar in a reducing balance every year such that the target set by Government for local production is met. All industrial users of sugar must source their raw materials locally. Approval for establishing new sugar refineries should stop

henceforth. Already the existing sugar refineries have been importing and refining more than the national requirement (1.8 million tonnes as against 1.3 million tonnes). To achieve 70% self sufficiency by 2020 Government should impose 80% tariff and 40% levy on both raw and refined sugar. Government should pass anti- dumping act. In the interim only those that have demonstrated verifiable effort in sugar cane development for local production that should be allowed to import the short fall in sugar demand. There should be a policy of Government that only Mini Sugar Plants with the capacity of 200 TCD and above that should be promoted and supported. Government should provide an investment act to take care of concessions, tax holidays, land acquisition, nominal lease and compensation rates and water accessibility for investors. Encouraging the Localization of equipment manufacturing. Establishment of Independent Power Producer Act to encourage the sugar sector establishing their own bagasse based power plants and exports the excess power to the national grid. The NSDC shall be the custodian of the NSMP. The NSDC should be restructured and strengthened to enable it meet the current challenges of the implementation of the NSMP.
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For the NSDC to function as an effective regulator those to be regulated should not be members of the Governing Board of the Council.

Source: The Sugar Master Plan

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