food + bev tec Nigeria

Nigerian imports of food processing and packaging machinery and equipment
(in million Euro)

Source: VDMA / Graph: fairtrade 2017

Range of exhibits

PROCESS TECHNOLOGY

  • Aroma-, essences- and spice-technology
  • Bakery technology
  • Beverage technology
  • Confectionery technology
  • Dairy technology
  • Delicatessen and convenience food technology
  • Fish processing technology
  • Ice cream technology
  • Noodle technology
  • Screening machines
  • Slaughtering and meat processing technology
  • Vegetable and fruit technology

PACKAGING TECHNOLOGY

  • Packaging machines
  • Packaging materials

REFRIGERATION AND AIR-CONDITIONING TECHNOLOGY

  • Refrigeration installations
  • Ventilation, air conditioning and heating technology

CONVEYING, TRANSPORT AND STORAGE INSTALLATIONS

INGREDIENTS AND AUXILIARY MATERIALS


Expenditure in Nigerian food and beverage sector up 16.4% to €80.69bn in 2013

F&B sector is the largest segment of the Nigerian manufacturing industry estimated at €16.5bn in aggregate output and generating 1.5m jobs

Increasing demand for packaged food products

The Food & Beverage Sector in Nigeria

Nigeria has a young and growing population of about 170m people. The Nigerian consumer market is estimated at €130bn and has been thriving on the market demand stemming from a robust demography. According to the Economist Intelligence Unit, household goods constitute 3.6% (approximately €4.75bn) of total consumer expenditure in Nigeria. As a result of a growing population and an emerging middle class, there is a growing demand for fast moving consumer goods (FMCG) in the country.

Growth in the FMCG sector is driven by key factors that have been instrumental in the growth of the Nigerian consumer market in general, these include:

  • Rising disposable income
  • Robust economic growth
  • High population growth and urbanization
  • Emerging middle class
  • Increased levels in trade
  • Technological innovation

The food and beverage (F&B) sector is the largest segment of the Nigerian manufacturing industry comprising 22.5%. It is estimated at €16.5bn in aggregate output and constitutes 4.6% of GDP, and 66% of total consumer expenditure. In 2013, total consumer expenditure in the food and beverage sector amounted to €80.69bn, compared to €72.18bn in 2012 and posted a growth rate of 16.4% after rebasing of GDB. The sector generates over 1.5m jobs in the country and thus employs 5% of the Nigerian workforce.

The Nigerian food and beverage sector has an oligopolistic market structure: about 15% of the market players control 90% of the sales volume, while the remaining 85% are small and medium sized enterprises (SMEs) and account for only 10% of total sales volume. Foreign investment is greatest in the soft drinks and beer industry. The soft drinks and beer companies invest about €1.13bn annually in capital expenditure, with about 60% of the total invested in machinery and equipment. Multinationals such as Coca-Cola, Nestlé, Heineken, Guinness and Cadbury have established themselves in the country many years ago. Nigerian companies are concentrated in the wheat flour, poultry, meat, bakery and confectionery industries. Recently, there has been a marked expansion in biscuits, fruit juice and pasta.

There are more than 20 food and beverage companies quoted on the Nigerian Stock Exchange (NSE), mainly captured by the fast moving consumer goods (FMCG) asset class on the NSE and with an approximate market capitalization of €13.5bn (23.5% of total market capitalization). In addition to quoted companies, many privately owned and unlisted companies exist. Investors in this sector have benefited from protective government policies, such as import bans and restrictions, high import tariffs and levies that are meant to protect infant industries and encourage local manufacturing. In addition, start-up businesses in the sector enjoy tax holidays, as they are considered to be “pioneers”.

In the food sector, vegetable oil/fat, dairy, baked goods, cereal and chilled foods are the most important products. Most of these products are imported, while local manufacturing is concentrated with the large multinational companies and a few local firms.

Packaged food in Nigeria is fragmented and produced by multinationals and domestic companies. Notable players in the industry include Cadbury Nigeria Plc, Nestlé Nigeria Plc, UAC Foods, De-United Foods Indus-tries, Dangote Industries Ltd, HJ Heinz Co. and Friesland Campina Wamco Nigeria Plc. While multinational firms account for 65% of total revenue in this sub-sector, it is common for them to form alliances with Nigerian companies to repackage and/or market their products in Nigeria. This lowers market entry risks and enables the international company to benefit from existing marketing and distribution channels of their Nigerian partners.

Most players in this industry have increased their capacity much faster than the market growth rate warranted for, but the value growth of packaged food remains strong and it is expected that the added production capacity will be easily be absorbed by the market. The young and dynamic Nigerian population which is experiencing growing per capita incomes shows an increasing demand for packaged food products. Other factors include improved product quality, growing sophistication of Nigerian consumers, increased advertising activities of companies and improved economic conditions leading to higher disposable incomes. The entry of numerous new players and products has made packaged foods one of the most dynamic industry sectors in Nigeria. There have been creative innovations in various packaged food categories, (noodles, dairy, bakery) as well as strong below-the-line and above-the-line marketing activities, with direct distribution being the key to companies winning over consumers.

The beverage sector is composed of alcoholic and non-alcoholic beverages:

a. Alcoholic beverages include:

  • Brewed alcoholic: Stout, Lager
  • Ready to drink (RTD) alcoholic: alcopops such as Smirnoff, Kiss Mix
  • Spirits: imported and smuggled, such as vodka; locally distilled spirits such as local Schnapps

b. Non- alcoholic beverages include: brewed non-alcoholic (malt), RTD non-alcoholic (Alvaro)

c. Carbonated drinks: Coca Cola, Fanta, Pepsi Cola, 7Up

d. Water

The major players in the beverage industry are subsidiaries of Diageo, Heineken and SAB Miller (primarily in the beer and malt markets); franchises of Coca Cola and Pepsi Cola in the carbonated beverages market; and local players such as International Distillers Limited and Nigerian Distilleries Limited for spirits.

The Nigerian beverage industry is experiencing consolidation with the major players acquiring the smaller ones, especially in the brewery segment. For instance, Heineken bought Consolidated, Sona and Champion Breweries; Diageo bought Dubic; SAB Miller bought International Breweries. As a consequence brewing capacity has increased overall, leading to a price war among the major players.

Industry Potential and Attractiveness

  • Nigeria’s population of approximately 170m offers a large and growing market for food products.
  • Commercially processed food is fast becoming a trend amongst the emergent middle class
  • Favorable government policies: Nigeria is a main exporter of consumer goods into the neighboring countries. Since 2002, the government reimburses 40% of the export value for agricultural products upon application and proof of export. The 40% rebate on agricultural exports, a government incentive to help exporters become more competitive, has motivated local producers and firms to improve product quality and packaging to meet international standards.

The 2014-2017 outlook for the Nigerian food and beverage sector is highly positive. Higher disposable in-comes and increasing company advertising are expected to boost value growth. The average Nigerian is expected to spend more on food, especially on items that were previously regarded as luxury goods. Value growth will also benefit from the rising sophistication of the Nigerian consumers and improving product quality. Food items that are fast and convenient, such as pasta and instant noodles will also continue to boost dynamic value growth.

Growth in the beverage sector will remain dependent on real economic growth, especially disposable in-come growth. The market will see increased investments by major players as competition intensifies.

The Packaging Sector in Nigeria

The Nigerian plastics and packaging sector has been in existence since the 1960s, and started with about 50 plastics companies. Over time, this sector has grown in size, to over 3,000 companies, and has become increasingly sophisticated with new technologies introduced to the market. The plastics and packaging sector comprises of different subsectors, which include plastics, plastics flexible packaging and polythene bags.

The packaging industry in Nigeria is fairly developed and tends to mirror the trend in the local fast moving consumer goods (FMCG) industry. The materials used in packaging products include plastics (flexible & rigid), glass, cartons, aluminum, caps, corks etc. The most commonly used material is plastic.

Bottles for cosmetics, detergents, pharmaceuticals, domestic containers and general hollow items produced in Nigeria are made mostly from polypropylene, polyethylene and polyethylene terephthalate (PET). The method of processing employed is extrusion blow-molding. Plastic manufacturers are heavily reliant on the upstream petrochemical sector as well as imports for resin raw material.

Flexible packaging includes products such as bags and sachets made of easily yielding materials such as foil, paper or film, which when filled and sealed acquire a flexible shape. The manufacturers of these products act as suppliers to different industries, which include but are not limited to food and beverage, healthcare, textiles, etc. Companies that make use of products from the flexible packaging industry include Cadbury, Nestlé, Guinness, PZ Cussons, Unilever, etc.

Plastics packaging has become very popular in Nigeria and is increasingly being preferred to glass, especially in the pharmaceutical and cosmetics industries. One of the leading drivers of growth in the industry is the demand for plastic packaging by pharmaceutical and FMCG companies. Examples include packaging for snacks such as cashew nuts, groundnuts and beverages in plastic containers. Another major driver for plastic packaging is the growing sophistication of the middle class and their demand for well packaged local products.

Another popular form of plastic packaging is low density polyethylene (polythene). According to Foraminfera, a market research firm, the demand for polythene material in Nigeria currently stands at 80m metric tons representing a 30m metric tons increase over a 5 year period.

The packaging subsector is faced with challenges peculiar to the manufacturing industry, which increase the cost of production. These challenges range from irregular power supply, delays in clearing goods at the ports, logistical issues (transportation of goods is mostly by road, with many roads being in a dilapidated state) and multiple taxation at the federal, state and local government levels.

Raw materials employed in the packaging subsector are mostly imported; however, the level of dependency varies depending on the product. For paper and board packaging, raw materials are currently sourced through imports. The same applies for metal raw materials, due to the absence of tin plate manufacturing companies in the country. Imported plastic packaging and plastic resins attract 5% import tax. Plastic films and laminates come in pre-printed and attract high import duties (50%) to encourage domestic production. Glass on the other hand, has most of its raw materials sourced locally.

The activities of the packaging subsector are regulated by the National Agency for Food and Drug Administration and Control (NAFDAC), Standard Organization of Nigeria (SON) and Weight and Measures Department of the Ministry of Trade.

Sector Outlook and Trends. Growth in the plastics and packaging sector has been driven by the increasing sophistication of the Nigerian middle class. According to McKenzie & Company the plastics subsector is expected to grow by 7% over the next 10 years. Packaged foods have seen increased demand following the 40% growth of organized retail outlets evidenced in the last 5 years. In addition, rapid growth in the FMCG sector has been a major driver; a trend which is expected to continue.

Soft drink manufacturers and bottling companies have continued to embrace PET bottles over glass. Most of the large plastic companies are engaged in juice, table water and alcoholic beverage bottle production. Companies are also increasingly packaging commodity based products in household plastics.

A positive outlook is projected for the packaging industry due to increased market demand and sophistication of the Nigerian consumers. Plastic products used for packaging will eventually become less common as new technologies and growing industrialization are shifting to more advanced and sophisticated means of packaging. Nonetheless, other uses of plastics aside from packaging (e.g. domestic ware) will continue to experience growth as consumer disposable incomes continue to rise.

Source: Aussenwirtschaft Austria, Branchenreport Nigeria – June 2014