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Andy: 50% Tariff on Tomato Paste Will Collapse the Industry
Group Managing Director/CEO of Sonia Foods Industries Ltd,Â Nnamdi Nnodebe Andy, in this interview with Raheem Akingbolu, called ongovernment to urgently review the CBNâ€™s foreign exchange policy that currently affects triple concentrate tomato paste importation in to stabilise the industryâ€™s value chain. Excerpts:
Can you explain the value chain involved in tomato paste processing?
The tomato value chain is a highly robust industry which involves tomato farmers, transporters, processors, packaging companies, distributors, retailers and the final consumers. The processors get their fresh tomatoes from the farmers after harvesting, crush the fresh tomatoes and process them into triple concentrate tomato paste (HS Code – 2002, 9011.00) which is the major raw material for the tomato packaging companies. The tomato packaging companies reprocess the triple concentrate tomato paste, convert into consumable double concentrate tomato paste and pack into retailed sizes. The processors and packaging companies assist in the preservation of the tomatoes to avoid the huge wastages estimated to be about 45% of farmersâ€™ harvest in Nigeria. The distributors and retailers assist in bringing the finished tomato products to the consumers.
It is pertinent to add that the tomato value chain will be incomplete and grossly distorted without the involvement of the packaging companies as processors do not produce for direct consumption. The tomato packaging companies play very important roles in the tomato value chain. Whereas tomato farmers produce fresh tomatoes which within a very short time get rotten and wasted due to lack of preservation, we (tomato packaging companies) pack triple concentrate tomato paste (which is raw material for us) into double concentrate, after reprocessing into hygienic, safe and affordable pack sizes preserving the tomato paste products to last for long shelf life extending up to a time duration of one full year. The packaging companies assist in tomato preservation and avoid wastages. Despite the seasonality of tomatoes where the fresh tomatoes are available only during the season for about 90 to 120 days and the associated glut, the presence of packaging companies in the tomato supply chain has immensely assisted in providing tomatoes to Nigerian consumers all year round. Tomato is a seasonal product with high prices at off season periods but packaging companies assist in stabilizing prices by providing the product at all times.
How do you differentiate between tomato paste and triple concentrate tomato paste?
The triple concentrate tomato paste (HS Code – 2002, 9011.00) is the paste made from fresh tomato that has been crushed, processed and compressed into very thick paste and packed in aseptic packaging to last for about 2 years after processing. The finished tomato paste is the product which is reprocessed from the triple concentrate tomato paste into double concentrate tomato paste that is packaged into retail packs and suitable for direct consumption. The triple concentrate tomato paste is the major raw material for tomato packaging companies while the double concentrate tomato paste is their finished product.
Â We understand that the major raw material for the production of tomato paste is the triple concentrate. Is there a company that produces this in Nigeria and if there is none, why?
You are perfectly correct. Â The triple concentrate tomato paste (HS Code – 2002, 9011.00) is the major raw material for the production of finished tomato paste. As I speak today, there is no single company that produces this all-important raw material in Nigeria. I repeat with all emphasis and I want you to underline that there is no single company in Nigeria as at today that produces the triple concentrate tomato paste (HS Code – 2002, 9011.00) which is the major raw materials for over 10 tomato packaging companies in Nigeria that has combined investment of over 30 billion Naira in the Nigerian economy with about 80,000 direct and indirect jobs. The implication is that this all-important raw material is not locally available in Nigeria today!
The major reason why there is no single functional tomato processing plant in Nigeria is due to the low yield of fresh tomato per hectare of land cultivated. Whereas USA, Italy, China, and Kenya respectively have yields per hectare of land of about 82MT, 58MT, 48MT and 22MT, Nigeria has a ridiculous low yield of about 5MT per hectare. The implication of this is that more land is unnecessarily cultivated to get higher fresh tomato production output thereby necessitating higher cost of production including labour, land, and other production inputs and overheads.
Another reason for this is that investment in tomato processing to produce triple concentrate tomato paste is highly capital intensive requiring a lot of planning, research and mechanization. Dangote Farms in Kano which is the only tomato processing plant in Nigeria established over 3 years ago is as we speak unable to produce even 5% of its installed capacity after investing over 2.5 billion Naira.
However, the total capacity of Dangote is not even 8% of the total requirement of the Tomato packaging companies. As I speak, even if Dangote farms runs on its full capacity, it canâ€™t provide more than 8% of the total requirement.
What are the likely challenges militating against the establishment of a company solely for the production of triple concentrate as regards funding and other related matters?
Â Apart from the issues of low yield and capital intensive nature of investment in tomato processing business that I earlier mentioned, there are many other challenges that impede establishment of companies to produce triple concentrate tomato paste.Â These include the high cost of doing business in Nigeria occasioned by poor infrastructure (including power, roads, water), multiple taxation, high cost of legal documentation of credit facilities, bureaucracy in obtaining title to land including Certificate of occupancy, uncertainty and inconsistency in the policy environment, growing insecurity, power supply challenges. I must not fail to mention the large-scale importation and smuggling of finished retail tomato products as well as low investment in research and development in tomato farming capable of fundamentally increasing yield.
Nigeria has a large arable land mass of which tomato can be grown.Â Can the tomato species grown in Nigeria be used to produce triple concentrate sufficient enough to, service the entire tomato paste industry?
Let me answer your question by first and foremost saying that though Nigeria has large expanse of arable land for agriculture, only 12 out of the 36 states of the federation, which are mostly in the north, are reasonably good for profitable investment in tomato farming. In any case, Nigeria has actually been cultivating more land to increase production but the result has been very low yield of tomato per hectare of land cultivated. We donâ€™t need to cultivate so much land unnecessarily using excessive energy and resources if we have the right high yield tomato species. The honest truth is that the specie of tomato currently grown in Nigeria cannot give the desired result of massively producing triple concentrate tomato paste because it is highly watery and less fleshy. We therefore need to execute thorough scientific researches and development aimed at getting better and high yield tomato species that will increase production output of triple concentrate tomato paste in Nigeria.
Some indigenous producers of tomato paste have alleged that imported tomato pastes are not only substandard but also hazardous to the health of Nigerians? Whatâ€™s your take on this?
Â Let me begin by emphatically stating that we are strongly against the importation and smuggling of finished tomato products in retail packs, standard or sub-standard. You know, as I earlier explained, there is a clear distinction between our raw material, triple concentrate tomato paste which come in bulk packs and the finished tomato products which come in retail packs. The triple concentrate tomato paste we import majorly come from Morning Star and Boswell of the State of California in the USA with limited quantity from Cofco and Chalkis who are the world renowned tomato producers based in China.
Apart from being ISO and NAFDAC certified, our products are of top quality standards and offer extra food value to our customers retaining the freshness of the fresh tomato and additionally provide the needed extra thickness in stews and soups unavailable in fresh tomatoes. We maintain very high world-class standard in our state-of-the-art factories with modern facilities including quality assurance laboratories for analysis of our products and packaging materials embracing strict good manufacturing practices (GMP) and hygiene compliance. The records are there, we have never been found wanting by NAFDAC and SON or any food regulatory body or agency.
This unsubstantiated claims of substandard and hazardous tomato products is a figment of imagination which cannot be divorced from business maneuvering and propaganda by one or two prospective tomato producers meant to run down the real market leaders in the tomato sector so that their business will thrive. Tomato paste has for generations been a food necessity of every family and home in Nigeria and there is no home that tomato is not consumed. The nutritional and health values of tomato consumption cannot be over-emphasised.
Â First, there was a ban on 41 items including triple concentrate tomato paste from accessing foreign exchange by the CBN. Now the government have slammed 50% import tariff on tomato paste. What are the implications of the tariff on manufacturers?
Â In June 2015, the Central Bank of Nigeria (CBN) through its circulars with references TED/FEM/FPC/GEN/01/010 and TED/FEM/FPC/GEN/01/011 respectively dated June 23, 2015 and June 30, 2015 invalidated the allocation of foreign exchange for the importation of 41 items including triple concentrate tomato paste (HS Code – 2002, 9011.00) which is the major raw material for the tomato paste packaging companies. This new policy of CBN has adversely affected the Tomato paste packaging Industry leading to the shutdown of several companies and loss of jobs as well as forcing consumers to pay more due to lower supply.
The recent increase of import tariff on triple concentrate tomato paste will demotivate packaging companies that are planning or already pursuing backward integration. This increment couple with the imposition of additional levy of USD1500/MT will finally collapse of tomato packing industry.
Were stakeholders in the sector consulted before the new policy?
Â Stakeholders were not consulted before the CBN forex policy. However, the Government through the Federal Ministry of Industry, Trade and Investment later held a reactive meeting with us to design a roadmap for the tomato industry and this new policy is a far cry from the resolutions reached.
What do you think could have been done by the government instead of this tariff?
Government should protect the investments already done in tomato sector and find possible ways of increasing tomato yield which is around 6-8MT/hectare as against 50-100MT/hectare in key global countries such as china and USA. The quality needed for processing is different from fresh. Again it is possible to achieve with right kind of interventions by both government and private sector over next five years. It will take years to change habits of farmers. While there are significant production and post-harvest losses in the entire supply chain of tomatoes still Dangote farms not able to procure the tomatoes.Â This is happening because in Nigeria the farmers have small holdings. While we look at gross number in post-harvest losses it is difficult to reach these small farmers. With cooperatives, contract farming etc this challenge can be minimized to a large extent.
Speaking of backward integration agenda, how far have you have gone with this agenda?
Some of our members like Sonia Foods Industries LtdÂ had already commenced the processes of backward integration programme in Gusau, Zamfara State and we are hopefulÂ of getting high yields tomatoes for our processing plant; same for Conserveria Africana Ltd.Â We have even made a presentation of our backward integration plan to Government and need to be encouraged instead of being shut down through this new policy.
How do you think the value chain of tomato processing can be stabilised?
Â There is no doubt, an uneasy calm in the tomato industry today with high level of displeasure, uncertainty and volatility requiring the Nigerian Governmentâ€™s intervention to stabilize the sector. What the current CBN forex policy has succeeded in doing is to strangulate the tomato packaging industry and disconnect it from the tomato value chain thereby breeding the instability we are presently experiencing in the sector. Our prayer to the CBN and Nigerian Government is that they should provide a level playing field for all players in the tomato industry. Every player in the tomato value chain is key in the transformation of the tomato paste industry in Nigeria. With our clear and tangible commitment to tomato industrial transformation, we are sincerely committed to an aggressive backward integration program. However, this cannot be achieved overnight given the complexity, monumental scale and funding required, as it has to be a time bound and scientifically systemic and step approach. Moreover, our sincere efforts towards backward integration will be truncated if the lifeline of our capital resource which is our packaging arm is terminated with factory shutdown that may result from the current forex policy of the CBN.
To stabilise the tomato value chain, Government should urgently review of the CBNâ€™s foreign exchange policy that currently affect triple concentrate tomato paste importation till Nigeria bridges the wide gap between local tomato production and the level of consumption while we aggressively work on backward integration in tomato production which we anticipate will be achieved in the next couple of years. Government should also encourage and support our backward integration efforts which will in the nearest future result to massive tomato paste production sufficient for local consumption and export.