Commodity Trading as an Investment Option in Nigeria: Trends and Insights
Commodity trading is the buying and selling physical goods such as agricultural products, energy products, metals, and minerals on organised markets. Commodity traders aim to profit from price fluctuations, supply and demand dynamics, and arbitrage opportunities in the global commodity markets. Commodity trading can offer investors a way to diversify their portfolios, hedge against inflation and currency risks, and access emerging markets.
As Africa’s largest economy and the most populous country, Nigeria has a huge potential for commodity trading, especially in the food and energy sectors. Nigeria has a large domestic demand for food products such as spaghetti, sugar, salt, flour, and fertiliser and a growing export market for oil and gas. However, Nigeria also faces many challenges in its commodity sector, such as low domestic production, high import dependence, poor infrastructure, volatile prices, and policy uncertainties.
We will explore some of the trends, opportunities, and risks in the commodity trading of spaghetti, sugar, salt, flour, and even fertiliser in Nigeria and globally and provide some insights for investors interested in this market.
Spaghetti
Spaghetti is a pasta made from wheat flour and water and is widely consumed in Nigeria as a staple food. According to Statista, the pasta market in Nigeria was worth $4.57 billion in 2023 and is expected to grow at an annual rate of 13.16% until 2028. The main drivers of this growth are the increasing urbanisation, population, and income levels of Nigerians, as well as the convenience, affordability, and versatility of pasta products.
However, Nigeria relies heavily on imported wheat to produce pasta, as its domestic wheat production could be higher and more to meet the demand. According to the USDA, Nigeria imported 5.4 million tonnes of wheat in 2018-19, mainly from the US, Russia, and Canada. The import dependence exposes Nigeria to the risks of global wheat price fluctuations, currency devaluation, and trade disruptions. Moreover, Nigeria faces competition from other African pasta-producing countries, such as Morocco, Egypt, and South Africa, which have lower production costs and higher quality standards.
Nigeria needs to invest more in its domestic wheat production, processing, and storage capacity and its quality control, branding, and marketing of pasta products to reduce its import dependence and increase its competitiveness. Nigeria must also diversify its wheat supply sources and explore new pasta export markets, such as the African Continental Free Trade Area (AfCFTA).
Sugar
Sugar is a sweetener and preservative widely used in the food and beverage industry. Nigeria has a high demand for sugar for domestic consumption and industrial use, such as soft drinks, confectionery, bakery, and pharmaceutical products. According to Expert Market Research, the sugar market in Nigeria was worth $1.24 billion in 2015 and is expected to reach $5.25 billion by 2025, growing at a compound annual growth rate (CAGR) of 14.39%. The main factors driving this growth are the increasing population, urbanisation, income, and preference for packaged food and beverages in Nigeria.
However, Nigeria also faces a huge supply gap in its sugar market, as its domestic production is far below its demand. According to the Federal Ministry of Agriculture and Rural Development, Nigeria produced only 60,000 tonnes of sugar in 2018-19, while it consumed 1.62 million tonnes, resulting in an import dependence of 96%. Nigeria imported most of its sugar from Brazil, Thailand, and India, spending about $600 million annually. The high import dependence exposes Nigeria to the risks of global sugar price volatility, currency depreciation, and trade barriers. Moreover, Nigeria faces competition from other African sugar-producing countries, such as South Africa, Kenya, and Ethiopia, which have lower production costs and higher quality standards.
To achieve its self-sufficiency and export goals in sugar, Nigeria needs to implement its National Sugar Master Plan (NSMP), which aims to increase its domestic sugar production to 1.7 million tonnes by 2023 and create 117,000 direct jobs and 411,000 indirect jobs. The NSMP also provides incentives and support for private sector investment in the sugar industry, such as tax breaks, import duty waivers, land allocation, and infrastructure development. Nigeria must also improve its sugarcane cultivation, processing, and storage capacity and its quality control, branding, and marketing of sugar products. Nigeria must also leverage its regional trade agreements, such as the AfCFTA and the ECOWAS Trade Liberalisation Scheme (ETLS), to access new markets for its sugar exports.
Salt
Salt is a mineral essential for human health and is widely used in the food, chemical, and pharmaceutical industries. Nigeria has a significant demand for salt for domestic consumption and industrial use, such as in oil and gas, soap and detergent, textile, and leather products. According to IndexBox, the salt market in Nigeria surged to $X in 2022, growing by 51% from the previous year. The main drivers of this growth are the increasing population, urbanisation, income, and preference for processed food and beverages in Nigeria.
However, Nigeria also faces a significant supply gap in its salt market, as its domestic production is much lower than its demand. According to the Federal Ministry of Mines and Steel Development, Nigeria produced only 450,000 tonnes of salt in 2018, while it consumed 1.5 million tonnes, resulting in an import dependence of 70%. Nigeria imported most of its salt from Brazil, Namibia, and Morocco, spending about $100 million annually. The high import dependence exposes Nigeria to the risks of global salt price fluctuations, currency devaluation, and trade restrictions. Moreover, Nigeria faces competition from other salt-producing African countries, such as Ghana, Senegal, and South Africa, which have lower production costs and higher quality standards.
To reduce its import dependence and increase its competitiveness, Nigeria needs to invest more in its domestic salt production, processing, and storage capacity and its quality control, branding, and marketing of salt products. Nigeria has abundant salt resources, such as rock salt deposits in Ebonyi and Benue states and solar salt production from seawater and brine in Lagos, Ogun, Ondo, and Akwa Ibom states. Nigeria also needs to diversify its sources of salt supply and explore new markets for its salt exports, such as the AfCFTA and the ETLS.
Flour
Flour is obtained from grinding cereal grains, such as wheat, maise, rice, and sorghum. It is widely used in the food industry, especially bakery, pasta, and confectionery products. Nigeria has a large demand for flour for domestic consumption and industrial use, such as in noodles, biscuits, and animal feed. According to Euromonitor, Nigeria’s rice, pasta, and noodles market was worth $6.4 billion in 2020 and is expected to grow at a CAGR of 7.6% until 2025. The main drivers of this growth are the increasing population, urbanisation, income, and preference for convenient and affordable food products in Nigeria.
However, Nigeria also faces a bulk supply gap in its flour market, as its domestic production is insufficient to meet the demand. According to the USDA, Nigeria imported 5.4 million tonnes of wheat in 2018-19, mainly from the US, Russia, and Canada. The import dependence exposes Nigeria to the risks of global wheat price fluctuations, currency depreciation, and trade disruptions. Moreover, Nigeria faces competition from other flour-producing countries in Africa, such as Morocco, Egypt, and South Africa, which have lower production costs and higher quality standards.
To reduce its import dependence and increase its competitiveness, Nigeria needs to invest more in its domestic flour production, processing, and storage capacity and its quality control, branding, and marketing of flour products. Nigeria can potentially increase its domestic wheat production, as it has suitable agro-ecological zones, such as the savannah and the highlands, where wheat can be grown as a dry-season crop. Nigeria also needs to diversify its sources of wheat supply and explore new markets for its flour exports, such as the AfCFTA and the ETLS.
Fertiliser
Fertiliser is a substance applied to soil or plants to enhance their growth and yield. Fertiliser is essential for improving the productivity and profitability of agriculture, which is the mainstay of Nigeria’s economy, contributing 25.8% of its GDP in 2021. Nigeria has a large demand for fertiliser for domestic consumption and export to other African countries. According to the Food Security Portal, the fertiliser market in Nigeria was worth $1.2 billion in 2019 and is expected to grow at a CAGR of 3.5% until 2027. The main drivers of this growth are the increasing population, urbanisation, income, and demand for food security in Nigeria.
However, Nigeria also faces a significant supply gap in its fertiliser market, as its domestic production is inadequate to meet the demand. According to the Federal Ministry of Agriculture and Rural Development, Nigeria produced only 1.6 million tonnes of fertiliser in 2019, while it consumed 2.5 million tonnes, resulting in an import dependence of 36%. Nigeria imported most of its fertilizer from Morocco, China, and Russia, spending about $400 million annually.
As you can see, Nigeria has a huge potential for commodity trading, especially in the food and energy sectors. However, the country also faces many challenges, such as low domestic production, high import dependence, poor infrastructure, volatile prices, and policy uncertainties. Despite these challenges, Nigeria has the potential to become a major player in the global commodity markets if it can address its challenges and implement the right policies.
