Union Dicon’s bold entry into cassava starch industry

Union Dicon Salt Plc, a Nigeria-based company, engaged in the processing of crude salt and manufacturing of iodised edible salt, has finally made bold incursion into Nigeria’s cassava starch industry.

In November 2013, it entered into a strategic agreement with CBO Investment Management Limited, a leading investment and project development firm in Nigeria, as a core investor.

Given the country’s inherent business climate, this entry can only demonstrate that smart firms see opportunities where others see only challenges.

The terms of agreement stipulated that in two phases, CBO Capital would acquire forty-one million shares (41,000,000) of Union Dicon Salt Plc, and at the completion of this, an additional two hundred and forty million shares (240,000,000) will be acquired in order to recapitalise the company.

This decision of CBO Capital to invest in this direction has brought about a turnaround in the Union Dicon, within the first year, resulting in its entry into the agricultural sector. 

Currently, the firm is harnessing opportunities for profitability along the agribusiness value chain that involves cultivation and ownership of assets and resources, as well as, in the area of processing and packaging.

BusinessDay findings have shown that the firm has acquired 15,000 hectares of land in Edo State for the cultivation of cassava and processing of 10,000 tonnes of High Quality Cassava Starch (HQCS) per annum.

Cassava starch is often used in the manufacture of biscuits, confectionery, toothpaste, food seasonings, mosquito coils, batteries, sandwiches and canned fruits. It is an essential raw material for drug production, and vital in the production of caramel, which often serves as colouring agent for food, confectionery and liquor products, according to the Food and Agricultural Organisation (FAO).

BusinessDay has gathered that Union Dicon is currently signing offtake agreements to supply this High Quality Cassava Starch to manufacturers in the food, beverages and pharmaceutical industries across Nigeria.

This will, essentially, impact positively on local input content in the manufacturing sector, which has fallen to 48 percent (from 59 percent), in quantity and quality. This means that manufacturers in the food, beverage, tobacco and pharmaceutical industries that often turn to Europe, Asia, America and other parts of Africa for cassava starch will now find solace in Union Dicon’s product. Moreover, it will eliminate bottlenecks, such as port gridlocks, conveyance bottlenecks and multiple levies, involved in industrial starch imports, experts said.

“Availability of HQCS also means cost reduction and increased bottom-lines for local manufacturers,” said Matthew Ibeabuchi, Chief Executive Officer (CEO) and M.D Services Limited said, in an interview.

To underscore the importance of this investment, the Manufacturers Association of Nigeria (MAN), in its 2013 economic review, said: “Most manufacturers are finding ways of adapting to the use of local raw materials where such are available. The essence is to save foreign exchange for the country and simultaneously save costs.’’

This point was also stressed by Joe Hudson, the then CEO of Lafarge WAPCO,  second largest cement maker in the country. According to him, no manufacturer could continue to look to other countries for raw materials if the inputs were sufficient in the country. He made the statement in reference to the importation of gypsum by cement manufacturers despite its local availability.

This position was equally re-echoed by Keith Richards, chairman, Promasidor Nigeria, who, in his article in BusinessDay, said incessant import of raw materials occurred because of insufficiency and issues around quality.

Hence Union Dicon’s investment into the cassava starch industry would only mean that there would be more high-quality cassava starch in the country to serve various sectors and bridge the insufficiency and low quality gaps in the manufacturing sector.

Incidentally, firms that invest in this sub-sector have both competitive and comparative advantages as Nigeria remains world’s largest producer of cassava.  The country’s cassava output is thrice production in Brazil and close to double the output of Indonesia and Thailand, according to FAO.

Available data show that Nigeria currently imports over 250,000 tonnes of starch per year, and produces less than 20 percent of this quantity locally. This presents a big opportunity for Dicon and beckons on other interested investors to penetrate this billion dollar market and establish a “national champion” in the sector.

Undoubtedly, Dicon Salt is pursuing an import substitution strategy for growth as it aims to ensure that goods imported into the country are replaced and displaced by locally manufactured ones.  This is because, with the depreciation of the naira and the cheaper cost of labour in the country now, it is possible to compete with importers of commodities-based industrial products.

Nigerian food import bills are currently at an unprecedented level of over N1.3 trillion per annum. Growing at 10 percent per year, the inflationary effect is potentially very damaging to the economy and unsustainable. According to the department of fisheries of Nigeria’s ministry of agriculture, annual fish import alone is valued a N125 billion.

      In the cassava segment, the Federal Government took the drastic step to cut down the import volume by initiating the inclusion of 40 percent cassava flour in all bread consumed in Nigeria-the Cassava Composite Bread.

Union Dicon, as an eagle-eyed investor, has already taken advantage of this opportunity to dominate the cassava flour market in the country.

The company is also going into the production of ethanol, a by-product of cassava, which has extensive applications in many industries. Ethanol is used as an industrial raw material in the production of alcoholic beverages and cosmetics, among others.

     Research shows that Nigeria consumes more than twenty million litres of ethanol on an annual basis, and the market provides another ready playing field for the import -substitution strategy of Union Dicon.

“It is extraordinary how inventive one can be with ethanol right now,” said Daniel Howard Yergin, an American economic researcher and Pulitzer Prize-winner, while explaining how critical ethanol is to world’s economy. In fact, ethanol serves as bio- fuel in many countries like Nigeria with huge cassava and sugar potential.

Market watchers say Dicon Salt is on the path to achieving its goal by becoming a streamlined and efficient holding company for several agriculture businesses and fully integrated food production/ processing opportunities.

But commendations must be reserved for CBO Capital’s ingenuity, which, after take-over, revitalised the administrative processes of the firm, hired new staff, motivated available ones, while implementing a new strategy, after board of director’s approval.

This investment is timely as it has the capacity to create jobs and boost the Federal Government’s quest for economic diversification.

ODINAKA ANUDU