Chief executive officer, Consumer Goods Business, Tolaram West Africa, a subsidiary company for De United Food Industries Limited, Pawan Sharma, in this interview with OLAJIDE FABAMISE, speaks on federal government’s support for the manufacturing sector and the group’s continuous effort to boost its backward integration.
As this administration sets to begin a fresh four years, what are your expectations for the manufacturing sector?
The federal government has been very supportive, especially in the free trade zone and provision of funds from 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 foreign exchange (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 ongoing, then slowly the product can be banned. But if the ban 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 times, we are exploring backward integration in terms of palm oil plantation. As you know, government is giving a lot of push about going into agricultural products and reducing imports. Today, some of us in Nigeria including other players are importing the raw palm oil and refining it here and using it. Government is giving us a lot of support to put up plantations in the country to have our own palm 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 helpaing 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 four million 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 Flourmills 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 many 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, our ton of palm oil refinery has been expanded from 500 to 1,500 tonnes and we have invested more than $40 million (about N5 billion). We also put up the flour mills that is 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 you’re 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.
You acquired Dangote Noodles and May & 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 two 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 & Baker, we acquired the brand.
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