Privatized Sugar Sector Assumes Production

UNCLAS LAGOS 000664

SIPDIS

USDA FOR FAS /FAA/FAS/RANDY HAGER
USDA FOR FAS /CMP/FRANK LEE
USDA FOR FAS /CMP/HTP/LARRY DEATON

FROM AGRICULTURAL ATTACHE LAGOS

TOFAS 009

E.O. 12958, N/A
TAGS: EAGR NI
SUBJECT: Privatized Sugar Sector Assumes Production



1. Summary. Nigeria is expected to resume sugar production
this year with a modest 40,000 tons after four consecutive
years of depending exclusively on imports. Savannah Sugar
Company, privatized in 2003, is expected to resume milling
operations in May 2006 under a new management. Nigeria's
sugar consumption is increasing steadily in step with growth
in population and industries utilizing sugar as raw
material. At present, the bulk of Nigeria's sugar
requirement is imported raw and refined locally. Brazil is
the dominant supplier of brown and refined sugar to Nigeria.
End summary



2. Prior to 2003, Nigeria had only four government-owned
and government-operated sugar companies. Savannah, Bacita,
Sunti and Lafiaji. Due to the large capital investments
required, private sector investment was limited to a few mid-
sized cane farmers, small mini plants and out-growers for
the estates. Nigeria's sugarcane production was almost
entirely dependent upon these poorly managed government-
owned and operated companies. The companies manually had a
combined installed processing capacity of about 400,000 tons
of refined sugar annually, but had not at any point produced
more than 20,000 tons of sugar per year.


3. In 2003, the long awaited privatization of government-
owned sugar estates commenced with the public sale of
Savannah Sugar Company, Nigeria's largest sugar estate.
According to the GON, privatization of these estates is key
to revamping the sugar industry and increasing local
production. Dangote group, with a long history in sugar
imports and the owner of the only sugar refinery in the
country, emerged as the preferred bidder.


4. The management of the estate was formally handed over to
Dangote industries in late March 2003. In what appears to be
a major success story for privatization, Dangote Group has
completely rehabilitated the cane fields and the mill.
Field visits by the Agricultural Affairs Office to the
facility in Numan, Adamawa State, revealed that the estate
has been completely revamped. Currently, the company has
3,000 hectares of cane fields at varying stages of maturity.
Harvesting and milling operations are expected to commence
in May 2006. Savannah (Dangote Grouup) Sugar Company has a
total of 32,000 hectares of land available with excellent
irrigation facility and plans to expand very quickly to use
all the land.


5. Also, the company in partnership with the National Sugar
Development Council is developing a robust out-grower scheme
to provide economic support to the local community around
the estate. The first phase of the out-grower scheme will
involve 400 farmers with average farm size of two hectares.
Under the scheme, Savannah Sugar will prepare the land,
provide irrigation, seed cane and other inputs on a cost
recovery basis. The other estates in Bacita and Sunti are at
varying stages of rehabilitation under new managements and
could resume milling operations in 2007. Privatization has
undoubtedly improved the management of these estates and
stimulated new investments in the industry.


6. For the last four consecutive years, Nigeria depended
almost exclusively on imports to satisfy growing demand,
estimated at 1.3 million tons. Growth trends in population
and in industrial activity utilizing sugar as input, suggest
that demand for sugar will rise. Industrial usage accounts
for almost 35 percent of the total sugar consumption in
Nigeria. Soft drink production alone accounts for about
half of total industrial usage. The bulk of Nigeria's sugar
requirement (about 80 percent) is imported raw and refined
locally. Dangote is the owner of the only operational sugar
refinery in Nigeria. Another investor is expected to
commission the second refinery in late 2006. Brazil is the
dominant supplier of brown and refined sugar to Nigeria.


7. The GON requires all sugar for household consumption be
fortified with vitamin A. At present, Dangote refinery is
the only supplier of fortified sugar in Nigeria.
Importation of non-fortified sugar is allowed but only for
industrial use.

Browne