Nigeria cocoa grinders mull relocation to cut costs

* High cost of beans, power outages threatens grinding

* Processors mull relocation to nearby countries

* Lack of government incentives adds to woes

By Tume Ahemba

LAGOS, March 4 (Reuters) - The high cost of raw beans and crippling power shortages in Africa's top oil producer may force its cocoa grinders to relocate to neighbouring countries with an easier business climate, an industry association said.

Scores of firms in other industries have already relocated from Nigeria in the last five years citing poor infrastructure, erratic power supply, excessive bureaucracy and multiple taxation among the factors that make business uncompetitive.

Nigeria's cocoa processing capacity has slumped by about 90 percent in the last two years due to these problems and a weak global demand for products, the Cocoa Processors Association of Nigeria (COPAN) said at a news conference late on Thursday.

The world's number four cocoa grower had about 18 grinders crushing over 200,000 tonnes a year in 1986 when the sector was deregulated, but only a few are now partially operational, processing less than 40,000 tonnes.

Many have closed due to the rising cost of beans, which have hit an all-time high at the farmgate of 550,000 naira ($3,570) a tonne, compared to $3,775 in the international market on Friday.

Nigerian industry depends largely on generators because power supply from the national grid is at best unpredictable. The price of gasoline has also climbed 33 percent to 150 naira a litre in the last three months.

Cocoa processors have invested over 100 billion naira in the Nigerian sector over the last five years, industry experts say, but the return on investment has been weak. Cocoa is Nigeria's biggest non-oil foreign exchange earner.

"The Nigerian cocoa industry faced its worst moment in 2010. But we have gone from bad to worse in the last one year," COPAN national chairman Akin Olusuyi said.

"In my factory, we've been on generators since Monday last week. There has not been a minute of public power supply," said Olusuyi, adding the same applied to other cocoa plants.

WHY PROCESS COCOA?

Olusuyi said though his plant can crush 10,000 tonnes of beans a year, he only managed to process 4,000 tonnes last year and will be lucky to grind a few hundred in 2011.

"When you factor in...that the cost of your raw materials is not determined by you and the cost of your final product is not determined by you either, then you ask yourself why are you in operations at all," he said.

COPAN blamed the sharp rise in domestic cocoa bean prices on deregulation, which has allowed exporters to buy beans directly at the farmgate where they out-price local crushers, who have to pay interest rates of up to 22 percent to borrow at local banks.

Another major obstacle stifling the sector is long delays in the payment of the Export Expansion Grant (EEG) by the government, Olusuyi said.

The COPAN chairman said grants for 2007-09 had not been paid, while applications for 2010 have not even been processed, denying the plants much-needed funds.

The EEG is an export incentive that seeks to promote local industry by off-setting 30 percent of production costs on all processed exports.

Three years ago, top producer U.S.-based Cargill CARG.UL became the first cocoa firm to relocate from Nigeria to nearby Ghana, the world's number two cocoa grower, where it has set up a 50,000 tonnes per year plant, COPAN said.

More grinders are mulling relocation unless the government intervenes, COPAN vice chairman Akin Laoye said.

"The way things are, if care is not taken, people will be inclined to get out of the country. The government must realise that the way cocoa machines are, they can migrate. You simply pack them in boxes and relocate," he said.

(Source: http://www.reuters.com/article/2011/03/04/cocoa-nigeria-grinders-idUSLDE7230LT20110304?pageNumber=2)