Entrepreneurship Zone: 22 February 2022 :: Nigerian businessman capitalises on opportunities in the cocoa industry

Tue Feb 22 10:26:27 CAT 2022

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Entrepreneurship Zone: 22 February 2022 ::  Nigerian businessman capitalises on opportunities in the cocoa industry

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In December 2021, Johnvents Industries, an agribusiness company in Nigeria, commissioned a cocoa factory in Ondo State. Jeanette Clark spoke to group managing director and founder, John A. Alamu, about his journey in the cocoa industry.

It started with microfinance

Alamu’s first entrepreneurial venture was to provide 10 farmers with microloans. He was still working for a non-profit – the International Institute of Tropical Agriculture (IITA) – as a monitoring and evaluation specialist at the time. Those 10 clients eventually grew to a thousand.

Alamu then identified a gap in the market to buy the food crop harvests (maize, soya bean and sorghum) from the farmers – his loan clients – and sell on to the larger buying agents in the region. However, the margins from these trades were limited and he researched opportunities in cash crops (a crop produced for its commercial value rather than for use by the grower). Selling these crops internationally would generate forex, which was an appealing prospect in a country that, in 2016, was struggling with a serious shortage of foreign currency.

Cocoa looked like the answer and after trading the crop for a while, Johnvents seized the moment to expand into processing when he found a local cocoa factory. The previous tenant of the facility (the building with some old equipment belongs to the regional cocoa farming cooperative) was Olam, a Singapore-based agribusiness multinational.

“The acquisition of the processing equipment in the factory was 100% internally funded,” he says. A total of 3 billion naira (US$7.2 million) was reportedly invested in the refurbishment of the factory, which is up and running and preparing for its first exports to a client in Spain.

Unique opportunity for each product

The factory currently processes the raw cocoa into cocoa butter, cocoa cake (a by-product after the butter has been extracted) and cocoa powder.

The butter is used in the manufacturing of chocolate and, for now, is earmarked only for the export market. While there is domestic demand for the butter from local soap manufacturers, it is still quite small. The cocoa cake is pulverised into cocoa powder mixes and can be sold in both the domestic and export markets. “At the moment, the price for cake is very favourable,” adds Alamu.

Johnvents sells its cocoa powder only in Nigeria. The company found it could obtain better margins if it packed the product in smaller sachets for retail sale and invested in a facility for this purpose.

Sourcing raw materials

Before the factory was commissioned, the company was already trading cocoa and had links with farmers from whom it could secure supply, as well as the local buying agents who could provide the factory with aggregated cocoa. The company buys from these channels, paying a premium to make sure it gets the best quality.

To tap into the rising trend of traceability (the ability for an end-consumer to trace and know where a product has come from), Johnvents wants to re-establish a more direct supply relationship with the original 24 cocoa unions in the region that originally founded the factory. Once this is established, the company would be able to have some control over the farming practices of the cocoa.

“Over the medium term, we have contracted a consultant who will be working with these farmers. We will also provide the co-operatives with improved cocoa tree varieties and access to finance to improve their farming practices,” says Alamu. The company is simultaneously working on getting the required certifications to comply with European standards. Once in place, it would be able to cut out the middlemen it is currently selling the butter to. “Ultimately, this will make business more sustainable for us.”

Future acquisitions – chocolate on the horizon

Johnvents is already in talks with local chocolate production companies, hoping to one day make its own chocolate. “There is one factory that is doing well, and we are exploring an acquisition or a joint venture.”

For Alamu, it is important that Nigeria reclaims its place as one of the top three cocoa production nations. “We used to be in the top three but today we are struggling at number four. Indonesia, which is number three behind Côte d’Ivoire and Ghana, produces over 700,000 metric tonnes of cocoa annually, while Nigeria can manage only about 360,000 metric tonnes. Private sector engagements in value addition will support local production and get the youths interested in farming cocoa again when they see a competitive market for their crop.”-Howwemadeitinafrica

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other  Indices quoted herein are for guideline purposes only and sourced from third parties.

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