Dreaded by many, some Nigerian companies are treading the narrow path of partnering with local entrepreneurs and farmers to harness huge value chain from backward integration policy
By Chuks Anuma
The present economic challenges have forced many companies into the ‘narrow path’ of backward integration and local sourcing of raw materials.
With low growth rate of 1.5%, the International Monetary Fund (IMF), as well as the Central Bank of Nigeria (CBN), agrees that Nigeria’s economy may not regain stability until after 2017
In the 1960’s, agriculture was the main base of Nigeria’s economy in terms of GDP, foreign exchange earnings, and employment. Today, Nigeria spends about $10 billion a year on the importation of agricultural products
Following the Structural Adjustment Programme (SAP) of the 1980s, the Federal Government, in an effort to conserve foreign exchange earnings, and enhance domestic commercial production, started restricting importation of certain goods.
Consequently, some Nigeria’s agro-industrial businesses and Fast-Moving Consumer Goods (FMCG) Companies started investing millions of dollars in backward integration projects which requests manufacturers to substitute some imported raw and packaging materials with local alternatives.
For instance, Nigerian Breweries Plc, the pioneer and largest brewing company in Nigeria, has specifically reaffirmed its commitment to backward integration and in the process, mapped out strategic plans to achieve this some years back.
Currently, the company is consolidating its local sourcing of inputs for its operations and has fast-tracked its plan to attain 60 per cent local input sourcing to 2018 as against the initial 2020 target.
The strategy, according to Patrick Olowokere, the company’s Manager, Corporate Communications and Brand Public Relations is to identify individuals and organisations that can produce ancillary products as inputs for its business. These organisations will be supported with necessary logistics and guarantee of a ready market for their products. These value chain models have been successfully experimented in the areas of Packaging Development Value Chain, Sorghum Development Value Chain and Cassava Development Value Chain Model.
For instance the company has created massive new jobs through the successful introduction of two innovative hybrid sorghum seeds to Nigerian farmers.
Investigation also revealed that in 2015, the company made progress in increasing the supply of sorghum used for some of its beverages as more than 100, 000 tonnes of the cereal were purchased during the year. Progress was also made in the commercialization of the new hybrid sorghum varieties – CSR-03H and CSR-04H, which were developed through a special intervention by the company
Currently its product packaging is 95 per cent locally sourced, opening wide opportunity to clusters of local entrepreneurs.
Speaking at the recent commissioning of three newly upgraded facilities at its Ota Brewery located in Ota, Ogun State, Chairman of the company, Chief Kola Jamodu noted that “our product packaging is 95 per cent locally. From bottle makers, can manufacturers, crown cork producers, shrink wrap providers, preform makers for our PET lines, labels, crate-makers, distributors, wholesalers, retailers, hoteliers, etc., we have so many companies in our value chain based in the state with multi-billion naira revenues who are also creating employment and paying taxes to the government.”
Similarly, the company has since 2015, been working with a local cassava processing company to optimize the cassava value chain in the country by providing industrial quality cassava starch to extract maltose syrup for use in its brewing process.
This perhaps is the biggest revelation coming out the backward integration gospel. Psaltery Farms, run by Mrs. Oluyemisi Iranloye has turned Alayide Village, Ado Awaye in Iseyin Local Government of Oyo State to a huge backward integration story.
According to Iranloye who abandoned a lucrative job as a bio chemist in Lagos five years ago, Psaltry has created a supply chain involving up to 5,000 farm families which include more than 2,000 registered and unregistered out grower farm families, marketers, the labourers, the traders, the transporters, the retail input suppliers.
She established the 20-ton/day starch factory in 2012 and an additional Production Line of 30 tons/day capacity in 2015 to meet more Customer demands and satisfaction
The company’s asset base is about $5million comprising its factory, farm land and equipment and has saved the nation more than $7million in forex in the past two years. The company has provided employment for over 300 people including 200 permanent staff and 100 temporary staff.
In March 2014 BoPInc facilitated initial contacts with Heineken International B.V. As a large buyer of crops and a manufacturer and brewer in Africa, Heineken plays an important role in the economic empowerment of hundreds of thousands of farmers, their families and their communities.
In Nigeria, this target is embraced by its subsidiary, Nigerian Breweries, the largest brewing company in Nigeria that markets well-known brands of beers, malt drinks and minerals.
To this end, Nigerian Breweries Plc – Nigeria’s leading brewing company, Psaltry International Company Ltd, a Nigerian cassava processing company and, the International Fertilizer Development Centre, IFDC, through its Towards Sustainable Clusters in Agribusiness through Learning in Entrepreneurship project (2SCALE), have signed a Partnership Agreement to optimize the cassava value chain in Nigeria and improve agribusiness for Nigerian smallholder farmers.
The Partnership Agreement is a collaboration between the Parties to improve output of smallholder farmers and consequently support economic development as well as promote inclusive growth in Africa. The partnership will enhance farmer productivity and increase supply of high-quality cassava roots to Psaltry who will, in turn, provide industrial quality cassava starch for Nigerian Breweries to extract maltose syrup for use in the brewing process.
This Partnership Agreement succeeds the Memorandum of Understanding signed by the partners in June 2014 which formed part of the 2SCALE programme, a Dutch-funded initiative aimed at improving rural livelihoods and food security in Africa. The partners agreed to support small-scale farmers in the production of more and better cassava through technical assistance, training and easier access to finance. This will enable more smallholder farmers to participate in the market for processed cassava byproducts required for large industrial purposes.
The partnership also enhances Nigerian Breweries socio-economic contribution via the agricultural sector and supports the progress the company is making, towards the achievement of HEINEKEN’s ambition to source 60% of its raw materials in Africa locally by 2020.
Nigerian Breweries, according to Mr. Kufre Ekanem, the Corporate Affairs Adviser, is interested in strengthening and expanding its local business activities and market share in Nigeria, particularly in the local procurement of cassava-based inputs; and therefore identified Psaltry, as a supplier of high-quality cassava starch.
Ekanem explained that the initiative is part of the company’s “winning with Nigeria” project and in line with the current economic diversification process.
The impact of all these has been massive on the nation’s economy and the lives of the farmers. Alayide village has changed its status as the community now boasts of electricity, bore water and a farm house to help migrant farmers. The youth of the community are back at home to be part of the new agric revolution. Chief Busari Amusa, Baale of Alayide was full of gratitude for the new transformation that has come upon his community. “It is a dream come true. My story has changed. Today, and less than two years of this cassava business, I have a new house, a car and four of my children are in higher institutions of learning. This is unbelievable”, he told a group of journalists on tour of the community recently.
Other organisations on the backward integration route include Unilever, Nestle, Promasidor and many others, drawing huge value chains in terms of massive job creation, social transformation and foreign exchange conservation.
Former President Olusegun Obasanjo, at the commissioning of the upgraded Ota Brewery recently described the private sector as the engine room of economic growth and called on other corporate organisations to hasten their journey toward the backward integration destination.
The same sentiment was shared by Governor Ibikunle Amosun of Ogun State who noted that “it will be in our collective interest for companies and even the entire country to source their materials locally. Backward integration and import substitution is the master key to a self-sustaining economy”.
With reports from Iyanu Oluwajomiloju