NIGERIA LARGEST MARKET FOR U.S. WHEAT/RICE

UNCLAS SECTION 01 OF 02 LAGOS 000665

SIPDIS

FROM OFFICE OF AGRICULTURAL AFFAIRS

USDA FOR FAS /FAA/FAS/RANDY HAGER
USDA FOR FAS /CMP/FRANK LEE, ROBERT REIMENSCHNEIDER, CINA
RADLER,
USDA FOR FAS /OA/GSM/KIRK MILLER
USDOC FOR 3317/ITA/OA/KBURRESS
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS
STATE PASS USTR

TOFAS 007

E.O. 12958, N/A
TAGS: EAGR ETRD PGOV NI
SUBJECT: NIGERIA LARGEST MARKET FOR U.S. WHEAT/RICE
PRODUCTION INCREASES MODESTLY



1. SUMMARY: As the June 2005 - May 2006 Marketing Year comes
to conclusion, Nigeria is presumed to be the number one
market in the world for U.S. Wheat ahead of traditional
front-runners; Japan and Mexico. For the fourth consecutive
year Nigeria is the world's leading importer of U.S. hard
red winter wheat. Nigeria's wheat imports this year are
estimated at 3.8 million tons, up from 3.0 million tons last
year. U.S. Wheat has maintained a market share of between
85-90 percent over the past five years. The sustained
increase in wheat imports is fueled by rapid growth in
bread, pasta and biscuit consumption and cross-border trade
with neighboring countries. Meaningful domestic rice
production is up yet still lags behind demand by two million
tons annually. The GON's protective duty of 100 percent on
rice imports is encouraging large-scale smuggling. GON
efforts to liberalize import tariffs within the framework of
the ECOWAS Common External Tariffs. Many agricultural
imports remain banned. End summary
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AMERICAN WHEAT NUMBER ONE IN NIGERIA
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2. Nigeria's overall wheat imports in the 2005/06 marketing
year may reach a record 3.8 million tons, with the U.S.
holding the dominant market share of roughly 3.3 million
tons (close to 90 percent). The GON imposed a wheat import
ban from 1986-1992. The growth in wheat imports since the
ban's lifting in 1992 has been phenomenal. Since 1995, per
capita wheat consumption tripled from six kilograms to
nearly 20 kilograms in 2005. Wheat imports are increasing
due to greater consumption of bread, pasta, biscuit products
and informal cross-border exports. The growth has also been
helped by a relatively stable exchange rate, competitive
wheat prices, high crude oil prices, modest economic growth,
and the steady price increases for other food staples such
as cassava.


3. New mills are being established, while existing
operators are making sizeable capital investments in new
milling capacity to meet future demand. The entrance of
several aggressive new millers in the past five years has
generated intense competition among millers. Bakery
operations are being modernized and expanded to satisfy
growing demand especially for bread. Should the demand for
flour by biscuit, pasta and noodle manufacturers is
increasing rapidly as they attempt to fill the supply void
created by the GON's import ban on these products. Given
current trends in the market, industry sources predict U.S.
Wheat exports will exceed 5 million tons within the next
three years. Canada and Argentina are our principal
competitors in this market.


4. The GON has directed millers to include ten percent
cassava in wheat flour by July 1, 2006 or face closure.
Although millers are prepared to commence this policy, at
present industry grade cassava flour is not readily
available in the country. Given the enormous resources
required to increase cassava production and upgrade
processing facilities, it is unlikely flour millers will
meet the deadline. In the meantime, millers have responded
to the challenge by jointly establishing a 500-million naira
($3.9 million) empowerment fund to encourage cassava growers
and processors. Industry sources report the cassava
requirement would not affect growth in wheat imports in
marketing year 2006/07.

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GON RICE POLICY AS SOME EFFECT
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5. Domestic rice production continues to trend upward due
largely to incentives under the Presidential Initiative on
Rice. The initiative is the cornerstone GON's efforts to
achieve self-sufficiency in rice production. Also, farmers
are protected by the 100 percent duty on rice imports.
Despite the high duty, rice imports continue to rise because
local output is inadequate to match the growth in overall
consumer demand for rice. The high duty on rice continue to
encourage large-scale cross border smuggling.


6. Nigeria's aggregate grain production in marketing year
2006/07 is forecast to increase five percent. The forecast
is based on the timely arrival of rains in the grain belt.
The GON is promoting increased food production in the
country through a number of new initiatives, namely the
National Special Program for Food Security, Presidential
Initiative on Rice and the Fadama II project (irrigation
farming).


7. Although figures are not readily available, a
significant quantity of grain is exported informally in
cross-border trade with neighboring countries, especially
the Niger republic. A spot visit to the Dawanou
international grains market in northern commercial city of
Kano revealed a minimum of thirty tons is of grains and
other food items leave the Kano market every week for the
Niger Republic.


8. Field visits to northern grain production zones revealed
that despite some benefits from these initiatives, Nigerian
farmers continue to face the dual problems of low
productivity due to lack of basic farm inputs and the
absence of adequate price support mechanisms. Scarcity and
high prices continue to limit fertilizer use. The average
retail price of a 50-kilogram bag of NPK increased to 3,500
naira ($27) in 2005, up from an average of 3,000 naira ($23)
a year earlier. The absence of a buyer of last resort
leaves farmers at the mercy of Nigeria's highly volatile
market environment. The ratio of extension agents to farmers
in the country is estimated at 1: 3000, thus making the
transfer of technology to farmers difficult.
Browne