Nigeria’s FTN Cocoa Processors Plc is grinding beans at just 4 percent of capacity as a weaker naira boosts cocoa prices and makes it harder for the firm to buy the chocolate ingredient.
The currency’s slump against the dollar in the past two years increased cocoa farm-gate prices to 1.2 million naira ($3,800) a metric ton from 450,000 to 650,000 naira, according to Executive Director Akin Laoye. Operations at the firm’s Lagos plant, which can grind about 20,000 tons of cocoa a year, has fallen from about 9 percent of capacity last year, he said.
Nigeria abandoned a 16-month currency peg in June that was blamed by analysts for starving firms of foreign exchange, sending the economy to the brink of recession and inflation to a decade-high of 18 percent. The naira was at 315.17 per dollar on Tuesday, though the rate is about 30 percent weaker on the black market as businesses struggle to access foreign exchange.
The currency’s decline is making it more expensive for the country’s farmers to import fertilizers and pesticides. To help counter the increased cost, growers are selling cocoa to local processors at a black-market rate of about 460 naira per dollar, 20 percent more than what grinders can get from exporting cocoa products, Laoye said. That’s further hurting firms already contending with higher power and packaging costs and interest rates, he said.
“As cocoa processors we are worried,’’ Laoye said in interview at the company’s headquarters in Lagos last week. FTN is part-owned by the U.K.’s Transmar Group Ltd.
Bean grinding yields cocoa butter, which accounts for about 20 percent of a chocolate bar, as well as cocoa powder used to make other products such as cookies. Only three Nigerian cocoa processors are currently operating, down from eight in 2014, and at least two of those are only surviving because they’re owned by or affiliated with foreign companies, Laoye said.
“Anybody that must survive in cocoa today must have a foreign ownership or partnership that gives it funding advantage, market advantage’’ and access to dollars to help fund imports, he said.
Transmar bought a 40 percent stake in FTN in 2014 and the U.K. firm invested more than 1 billion naira in the business, according to Laoye. FTN had planned to boost capacity to more than 65 percent by 2017, from 45 to 50 percent in 2014, before the currency’s drop sapped the company’s working capital.
The processor has applied for a 1.5 billion naira export facility from banks to enable it to buy more cocoa and expand grinding capacity to more than 50 percent by next year, a level needed to generate profit, Laoye said.
The company’s loss in the nine months through September increased 70 percent from a year earlier to 263 million naira, it said in a Nov. 1 filing to the Nigerian Stock Exchange. Revenue dropped 2.5 percent to 842 million naira.
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