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Enhancing Food Security Through Emergence Of Big Players

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The World Bank, in its recent report, puts Nigeria’s population at a little over 206 million as of 2020. Yet the country’s population will continue to balloon very quickly.

According to United Nations (UN),  Nigeria is among the ten largest countries worldwide, and “growing the most rapidly.” Its population is predicted to surpass that of the United States and become the third largest country in the world shortly before 2050.

A report by PwC equally revealed that feeding Nigeria’s current and future population is a critical challenge. Nigeria’s population is growing at an approximate 2.7 percent annually with a fertility rate of 36.9 births per 1,000 people, but unfortunately, food production is not growing at the same rate. Given this and a host of other reasons, the concern about food insecurity in Nigeria is growing.

For Nigeria, increasing food production and manufacturing at this time and in the near future, is not just about exporting to improve GDP, but being able to feed the population at home and arresting hunger. Despite having so much arable land, Nigeria’s food production capacity remains insufficient to cater to its growing population. The challenge will become more of the reality going forward.

With the broken agricultural value chain and few big-enough players in the local food manufacturing space, Nigeria is importing heavily to make up for the deficit in food supply.

While expectations were high on addressing the huge food supply deficit when it was announced that Flour Mills of Nigeria Plc (FMN) and Honeywell Flour Mills Plc (HFMP), a portfolio company of the Honeywell Group (HGL), have combined their businesses to increase food supply locally, market observers are watching the development with keen interest.

This transaction is coming at a time the country was battling mild food scarcity, which was mostly responsible for the hike in some staple foods.

The sheer size of the deal is one reason – as this transaction will see HGL transfer its 71.69 per cent stake in HFMP to Flour Mills of Nigeria at a total enterprise value of N80 billion. Hence, the size of the two major food manufacturing firms is raising lots of heads because of the impacts, which could be negative or otherwise on food supply in the country.

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The last time we saw an acquisition of this magnitude was in November 2019, when Olam International (owners of Crown Flour) completed the acquisition of 100 per cent equity of Dangote Flour Mills in a N120 billion transaction.

Among other things, this transaction has raised a lot of interest about what this could mean for Nigeria’s food manufacturing sector.

Experts have pointed out that the food manufacturing sector is not one that draws concern about monopoly, as it is a space large enough to take in more players than what is currently obtainable. What in fact, is of concern, is the ability of these players to meet Nigeria’s growing demands for food, and possibly exploit the AfCFTA to export food out of the country.

Impacts of the FMN-HFMP Merger

The FMN merger with HFMP is a significant union – a marriage (if you may) of two leading market players in Nigeria’s food manufacturing space. Between both players, they have over 85-year combined market experience and track record.

One of them, Flour Mills of Nigeria Plc (FMN) comes to this union with its range of grain-based foods, sugar, starches, oils, spreads and breakfast cereals.

The other partner – Honeywell Flour Mills Plc  (HFMP) comes with its diverse range of carbohydrate products and staples.

Cashflow wise, both companies seem to be very healthy and have shown impressive and sustained growth in revenue. For instance, Honeywell Flour Mills Plc audited results for the 2020 financial year (FY) showed an all-time high revenue of N109.5 billion, a 36 per cent increase from the N80.4 billion posted in the last FY, among other impressive results.

These results were attributed to improved efficiencies, increased production and cost optimisation strategies.

Speaking on the merger deal, managing director of Honeywell Group Limited, Obafemi Otudeko, said: “the announcement is in line with the evolution of Honeywell Group and our vision of creating value that transcends generations.

“For over two decades, we have supported Honeywell Flour Mills to build a strong business with a production capacity of 835,000 metric tonnes of food per annum. Following the transaction, Honeywell Group will be strongly positioned to consolidate and expand its investment activities, including as a partner of choice for investors in key growth sectors.”

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Market observers stressed that the merger of two firms will result in a more resilient player in food manufacturing. Both companies, according to them, have a healthy track record to consolidate on, adding that, as separate entities, FMN and HFMP were performing well in production and revenue, but as a combined force, they will put their past achievement in the ashes and go all the way up from there.

Similarly, CEO of Flour Mills of Nigeria, Omoboyede Olusanya, said: “the proposed transaction is aligned with our vision not only to be an industry leader but a national champion for Nigeria. We believe that this will create an opportunity to combine the unique talents of two robust businesses. As a result, we will have a better-rounded and more comprehensive skill set available to us as a combined diversified food business, thus enabling us to better serve our consumers, customers, and other stakeholders, whilst providing employees with access to broader opportunities.”w

Resolving Food Supply Crisis

While Nigeria needs more sustainable and sizable organisations that can withstand strong economic winds that may come, the increased production expected from the emerging entity, experts said, will bring the economies of scale into play, allowing for cheaper production costs per unit, improved turnover and better profit margins.

According to a credit expert, Prof. Chris Onalo, in the drive towards improving food production and ending hunger, the agricultural and food manufacturing sector should be encouraging, and where necessary, engineer such unions to create bigger players that will have the capacity to invest heavily in backward integration, thereby, improving the agricultural value chain.

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