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Business News of Sunday, 8 January 2023


2023 Outlook: Over-reliance on importation of sugar to linger driving up costs

Sugar Sugar

Analysts at Meristem Securities have said that domestic players will continue to rely heavily on sugar importation.

The analysts stated this in their 2023 Annual Outlook tagged ‘Dark Clouds On The Horizon …Any Silver Lining? and obtained by Nairametrics.

Challenges: According to the analyst high inflationary pressures and other existing structural challenges will continue to depress the domestic production of sugar in the country.

“In the near term, we do not envisage improved domestic production. While the recently approved plans address one of the challenges plaguing the industry (land acquisition), other existing structural challenges will continue to constrain domestic production. Hence, the domestic players will remain heavily reliant on importation.

“The decline in global prices of sugar is expected to result in a decline in the cost of raw materials. However, foreign exchange challenges are expected to pose a risk for domestic players,” they said.

Global price decline: The analysts noted that amidst the high global inflation, the global sugar prices in Q3:2022 declined to USD0.40/kg (vs USD0.43/kg and USD0.42/kg in Q2:2022 and Q3:2021, respectively).

They added that the decline in price was mainly propelled by increased production from Brazil, China, and Russia.

According to them, the cost of production for the domestic sugar industry remained elevated owing to foreign exchange volatility and logistics challenges.
They noted that, in Q3 2022, Dangote Sugar and BUA Foods production costs grew by 52.09% YoY and 32.43% YoY, respectively.

Efforts towards an increase in production: They stated however that strides to increase sugar production in Nigeria are also underway.

“The Federal Government of Nigeria (FGN) approved phase two of its National Sugar Master Plan (NSMP) from 2023-2033 as the first phase failed to achieve the objective of increased raw sugar production in Nigeria.

The first phase also attracted some private partners like Flour mills in Nigeria who went on to introduce the first brown sugar in Nigeria.

Further to the approval of the second phase of this plan, Oyo State Government launched the Brent Sugar Plantation and Mill. This is expected to generate 30 megawatts of electricity, as well as 300,000 liters of ethanol,” the analysts noted.