The Chief Executive Officer, Consumer Goods Business, Tolaram West Africa, the parent company of De United Food Industries Limited, Pawan Sharma, speaks on government support for the manufacturing sector and the group’s continuous effort to boost backward integration. Raheem Akingbolu brings the excerpts.
As this administration set to begin a fresh four years, what are your expectations for the manufacturing sector?
Government has been very supportive, especially in the free trade zone and provision of funds from the Bank of Industry (BoI). In this regard, one should commend the fact that it is giving tax free import allowance for those in Lekki Trade free zone. The other thing is the prohibition list of some raw materials that are not locally available, like the crude palm oil. I believe policies as such should be implemented in phases by pushing for plantations before removing access to forex. The country does not have the plantation size yet. Another area government can support the agriculture sector is in palm oil plantation. This is in banned list as government does not provide forex for its importation. We should push for the plantation and once the plantation is going, then slowly the product can be banned. But if the banned continues, how will the requirement be fulfilled. The ban can be done in phases. Having stated this, I think on the average, government is doing its best for the manufacturing sector.
Looking back at the years you have operated in Nigeria, can you give insight into the group’s backward integration plan?
This business started in 1996 from Otta, Ogun State. Our first factory was erected in 1996 and since then, we have been involved in a lot of backward integration. As of today, we have more than 15 manufacturing plants all over Nigeria. Out of those plants, only three are producing noodles. We have factories designed to produce packaging materials, refined crude palm oil and flour. We are working with three flour mills. One is in Apapa, another in Aba and Port-Harcourt. In recent time, we are exploring backward integration in terms of palm oil plantation.
As we know, government is giving a lot of push on going into agricultural products and reducing imports. Today, some of us in Nigeria including other players are importing the crude and refining it here and using it. Government is giving us a lot of support to put up plantation in the country to have our own crude oil rather than importing it. To this, end, we have taken a large piece of land in Edo State to plant palm oil trees and government is helping in that direction in providing low interest loans from Bank of Industry for this purpose. Nigeria can go back to the old glory days of being the largest palm oil producer with the help of government if all industries will come together and work as a team.
What is the present percentage of local raw materials sourcing?
As of today, the only raw materials we are importing is wheat. This is because Nigeria does not produce wheat as against what it consumes. Nigeria consumes four million tonnes a year in terms of biscuit, bread, noodles and any other thing you can imagine made from wheat flour. But the country produces only 100,000 tonnes of wheat in a year. Can you imagine the gap between demand and supply? In wheat production, there is a challenge because of the certain temperature requirement needed for it to grow. In Nigeria, the cold weather is not there except you go to the Northern side — Jos or Plateau State and that is also for a very short period. So, even if there is an intention to grow wheat in Nigeria, it is very difficult to reach 4million tonnes a year. Government needs to do more to support the industry if they want wheat to grow in Nigeria. Scientists may also come up with new solutions. So, it depends on how you see it. As a manufacturer, I buy my flour from Flour mills of Nigeria, even though Flourmills imports its wheat and mills it locally before selling. If I am buying my flour from Nigeria, that shows that I am sourcing locally even though the millers are importing it. Directly, I am sourcing locally but indirectly, I am importing my raw materials.
So, I could say we are sourcing all our raw materials locally due to our investment in backward integration. However, if we consider that the major raw material—flour, is imported for milling in Nigeria, I could say that our local sourcing is 30 per cent.
What are the challenges experienced while embarking on backward integration?
We are not facing much challenges because we have already tackled most of the initial challenges. That was why we invested in the different value chains like packaging, palm oil refinery and flour milling. Our core business is to produce noodles but these are all raw materials that we need. All these backward integration efforts help us to become cost leader in the market. Attaining cost leadership in the market has helped us, as our product is one of the products that we have taken least consumer price increases in the last 20 years that we have been in operation. Even if you compare with the local food like Garri in the last 20 years, the price of noodles is not as high as that of Garri or any other product. The reason we are able to achieve this is backward integration.
Could you kindly share the investment profile of your backward integration so far?
We cannot treat this in isolation because different subsidiaries in our group have different profiles. For instance, the ton of palm oil refinery has been expanded from 500 to 1,500 and we have invested more than $40 million (about N5 billion). We also put up the flour mills that was worth N2.5 billion. Our packaging plant where we produce wrappers is another N2 billion investment. In the last 10 years, like I stated, we have put up a palm oil refinery that was expanded from the 500 tonnes a day to 1,500 tonnes. We invested more than $40 million. These are our investments in backward integration.
Movement of goods appears to be challenging for many businesses considering the state of many roads and gridlocks. How are you dealing with it?
It is very difficult to transport your goods from one place to another, especially if your shipping from Otta factory to a long distance. The situation with the road network is not that great and the kind of volumes we move; we cannot depend on any third-party transporter. What we did was to backwardly integrate that aspect of the business by having our own haulage company in the name of Blackwood House Nigeria Limited. That is our logistics arm. We have about 1,200 trucks in that arm that does our logistics business, moving the goods from factory to the markets.
What informed your acquisition of land for palm oil?
We are compelled to go into agriculture sector to aid raw material sourcing. We are a heavy user of palm oil products but the country does not have enough crude palm oil because no one else is doing new plantations because of the tenor. In terms of economic impact, palm oil consumption in Nigeria is about N700 billion or $2 billion a year. Out of the two million tonnes consumed locally, the country can only produce 600,000 tonnes and that brings a shortfall of 1.4million tonnes. The bulk of that deficit is being smuggled into the country and government is losing revenue on that. If different industries can come with the plantation exercise, then, we don’t have to import anything and government will save foreign exchange on it, even as it becomes raw materials for many industries. We have taken about 18,000 hectares of land and we will be doing plantation in phases.
How many tons will your farm add to the industry?
We have taken 18,000 hectares of land and we will be doing plantation in phases. Firstly, we will cultivate 5,000 hectares, then other hectares.
Dufil is known for its innovation, what should consumers of your products expect in 2019?
Recently we launched Indomie Relish based on consumer demand who want ingredients already in the Indomie. All flavours have their special ingredients and this gives the complete taste and consumers don’t feel like adding something else.
You have successfully held Indomie Heroes Award for 13 years, what impact has this created in the society?
We choose children of certain age who have done something bravery which is a selfless act and we reward them. This will inspire other children and create a community of selfless people. Our objective in this award was to make big impact on children because Indomie is a brand which is all about children. The impact is that as children grow up, they need to think selflessly and understand that it is their duty to contribute to the society. Further in CSR, we play major part in education, health and community development projects.
You acquired Dangote Noodles and May and Baker Noodles, what is your intention on these acquisitions and what have you done with them?
We did not buy Dangote brand, what we bought was Dangote machinery. The arrangement was that the company had machinery for production of its noodles and they want to get out of the business. They also gave us permission to use their brand name for 2 years. For couple of months, we were using the brand name and based on the agreement, we have to get out. Our intention was not to kill the brand. In case of May and Baker, we acquired the brand
Finally, if Olam succeeds in acquiring Dangote Flour mill as being speculated, what will that portend in the market considering competition?
I think it will not make much change as it is a consolidation exercise. There are other players in the flour business and I don’t think the move will be a game changer. Olam and Flour Mill are two big players but none of them is utilising full capacity.