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Applied Project (APRJ-699)

A Study Of The Competitiveness Of The Nigerian Rice Industry

Tam Brisibe

April 6, 2010

Word Count – 14866

Applied Project Coordinator

Dr. Lindsay Redpath


Table of Contents

Abstract ..................................................................................................... 4

Introduction & Background ...................................................................... 7

Introduction .................................................................................................................. 7

Background ................................................................................................................. 8

Research Purpose and Research Questions ........................................ 10

Current Literature Review ...................................................................... 13

Research Design and Data Collection ................................................... 19

Statement of Results .............................................................................. 21

Current Approach to Domestic Rice Production in Nigeria ................. 22

The Competitiveness of Domestic Rice ..................................................................... 23

Domestic Rice Production In Nigeria .................................................... 25

Harvesting ................................................................................................................. 26

Threshing and Winnowing ......................................................................................... 26

Parboiling ................................................................................................................... 26

Marketing ................................................................................................................... 27

Analysis ................................................................................................... 28

Overview of Porters Diamond and Porters five forces......................... 28

Porters Diamond ........................................................................................................ 28

Porters Five Forces ................................................................................................... 30

The Nigerian rice industry ...................................................................... 31

Factor Conditions....................................................................................................... 33

Home demand conditions .......................................................................................... 34

Related supporting industries .................................................................................... 35

Firm strategy, structure and rivalry ............................................................................ 35


Porters Diamond In Relation To the Nigerian Domestic Rice Industry

................................................................................................................. 38

Factor Conditions....................................................................................................... 38

Home demand conditions .......................................................................................... 40

Related supporting industries .................................................................................... 41

Firm strategy, structure and rivalry ............................................................................ 43

Porters Five Forces – With reference to the Nigerian domestic rice

industry ................................................................................................... 46

Bargaining powers of suppliers .................................................................................. 46

Bargaining powers of buyers ..................................................................................... 48

Threat of new entrants ............................................................................................... 49

Threat of substitute products ..................................................................................... 50

Competitive rivalry within the industry ........................................................................ 51

SWOT Analysis of the Nigerian rice industry ....................................... 53

Conclusion .............................................................................................. 58

Recommendations .................................................................................. 62

Appendix ................................................................................................. 66

References .............................................................................................. 69


Abstract

With a population of over 150 million, Nigeria is the most populated country in Africa.

Once regarded as “the giant of Africa” because of its abundance in human, natural and

agricultural resources, the country has since moved from this exalted position as other

African countries have overtaken it in these areas. Agriculture which includes cocoa,

peanuts, palm oil, corn, rice, sorghum, millet, cassava (tapioca), yams, rubber, cattle,

sheep, goats, pigs, timber, fish e.t.c. dominates the Nigerian domestic economy and

accounts for about 40% of the Gross Domestic Product (GDP) and two-thirds of the

labour force in the country, this makes agriculture very important both in terms of

revenue generation and employment for the country‟s citizens, in addition the country

had in the past been self sufficient in agricultural products cultivated in the country, this

has since changed because the country today relies heavily on importation of

agricultural products irrespective of whether the country has the ability to produce it or

not.

Rice which is a staple food consumed by the majority of people in Nigeria is cultivated in

most part of the country and milled for sale to consumers in the country and is included

in the average diet of most Nigerians. In addition, there are more arable lands in the

country that is suitable for rice cultivation but is currently not been utilized for this

purpose due to various reasons. Even though the country cultivates and mill rice, it

continues to depend heavily on imported rice from countries like Thailand, India and the

United States of America. Over the last 20 years, the quantity of rice imported into the


country has steadily increased from approximately 450 metric tons in 1980 to 6,990.54

metric tons in 1997 as shown in the table below.

Table 1- Rice imports in Nigeria

Rice imports in Nigeria, 1980-1997

Year Imports (`000 tonnes)

1980 450

1981 657

1982 539

1983 544

1984 365

1985 356

1986 320

1987 400

1988 200

1989 300

1990 220

1991 210

1992 270

1993 380

1994 411.26

1995 374.35


1996 2,266.64

1997 6,990.54

Source: http://www.fao.org/docrep/x7164t/x7164t04.htm

This research project critically analyses the competitiveness of the Nigerian domestic

rice industry by looking at local production and importation of rice to determine why a

country that engages in rice cultivation and production, has enough arable land to

cultivate rice to meet its local consumption demand and has a huge market to absorb

locally produced rice is heavily engaged in rice importation to determine why importation

of rice is growing faster than domestic production and also the competitiveness of

domestic produced rice in Nigerian. To complete this a comprehensive review of was

done on previous research completed on the Nigerian rice industry, identification of

areas where rice is currently produced and milled, current approach to domestic rice

production, internal and external factors affecting the competitiveness of domestic rice

and its industry. The research revealed that even though rice is produced in the

country, various factors have and continues to affect the growth of the domestic rice

industry which includes local rice production process, equipment and machinery, lack of

supporting industry, government rice policies, funding, research and training and poor

infrastructure within the country. Based on these findings, recommendations on ways

to help improve and grow the industry were proffered.


Introduction & Background

Introduction

“Rice is a very important food crop that is consumed globally, it is an ancient crop that is

consumed as healthy and staple food by more than half of the world population. In

Nigeria, the status of rice in the average diet has been transformed from being a luxury

food item to that of a staple, taking the place of other meals like cassava and yam”

(Daramola, 2005, p. 2).

Whenever there is a description or mention of the Nigerian agriculture sector, an array

of agricultural products will be listed, e.g. in its economic overview of Nigerian, the

Central Intelligence Agency highlighted cocoa, peanuts, palm oil, corn, rice, sorghum,

millet, cassava (tapioca), yams, rubber, cattle, sheep, goats, pigs, timber, fish as

Nigeria‟s agriculture products. The agricultural sector suffers from extremely low

productivity, reflecting reliance on antiquated methods; agriculture has failed to keep

pace with Nigeria‟s rapid population growth which currently stands at over 150 million,

so that the country, which was once a major producer and exporter of food, now relies

on imports. The CIA World Fact book estimates that Nigeria had a total import of $46.3

billion in 2008 which is over 50% of its total exports of $76.03 billion. Rice, which forms

a part of the Nigerian staple meal, and is produced locally in different geographical parts

of the country, has also not been spared from being imported. It was highlighted in the

2001 GAIN Report on the Nigerian Rice Situation states that “Nigeria‟s rice imports in


2001 increased nearly 50 percent over a year earlier to 1.8 million tons due largely to a

shift in consumption from locally-grown, traditional basic food staples to imported

parboiled rice” (p. 1).

Ezedinma, (2003) also commented that “the market for domestic rice have been

shrinking as a result of imports” (p. 1).

Background

The status in Nigeria in terms of its population in Africa and the important part that

agriculture plays in the country‟s local economy cannot be underestimated, Akande

(2002) points out that “Nigeria is the most populous country in Africa, with a population

of over 150 million. The Nigerian domestic economy is dominated by agriculture, which

accounts for about 40% of the Gross Domestic Product (GD) and two-thirds of the

labour force (p. 1)”, in essence, agriculture is important both in terms of revenue

generation and employment of the country‟s citizens.

The Nigerian agriculture production was estimated to have risen by 28% during the

1990s, the country currently ranks 25th in the world, and 1st in Africa in farm output.

Nigeria is West Africa‟s largest producer of rice, producing an average of 3.2 million

tons of paddy rice for the past 7 years preceding 2004, rice cultivation is widespread in

Nigeria, extending from the northern to southern zones, with most rice grown in the

eastern and middle belt of the country. With all of these, Nigeria still heavily relies on


importation and consumption of foreign rice. In the global commodity market report on

rice importing countries completed by the World Bank as shown in Table 2 below.

Table 2 - Rice Global Market Data

Nigeria stands as number three on the list with 1.4 million metric tons in 2008/2009, and

has been projected to import 1.6 million metric tons of rice in 2010 representing 4.8% of

global rice import, this is in spite of the fact that rice is cultivated in virtually all the agro-

ecological zones in the country with an approximate annual rice production of 2.1 million

metric tons and where the demand and consumption of rice is very high.

All the above referred reports and studies indicate that even though rice is milled in

Nigeria, a country with high demand and supply capacity/potential for rice, the domestic

rice industry does not seem to have any competitive advantage over imported rice as

the quantity of rice imported into the country continues to grow in both demand and


supply which is somewhat indicative that imported rice seem to be more favoured than

domestically grown rice.

Research Purpose and Research Questions

The purpose of this project is to carry out a competitive overview of domestically

produced rice and imported rice in Nigeria to determine why importation of rice is

growing faster than domestic production and to determine the competitiveness of

domestically produced rice in the Nigerian rice market using the concept of competition

as defined by Grant (2008) as being “When two or more firms compete within the same

market, one firms possesses a competitive advantage over its rival when it earns (or

has potential to earn) a persistently higher rate of profit” (p. 205).

As opposed to two or more firms competing in the same market, the project will focus

on the two products (domestic and imported rice) competing in the Nigerian rice market.

To fully analyze the competitiveness of domestic rice in Nigeria, this project will answer

the following questions:

1. Is there a big enough market for locally produced rice in Nigeria, if so will

domestically produced rice be enough to meet the total rice demand in Nigeria? –

With the demand for imported rice, will consumers be willing to switch their rice

demands from imported to domestic and can domestically produced rice be enough


to meet the demands of the over 150 million Nigerians and make up for the current

shortfall that imported rice fills?

2. Is locally produced rice able to compete with imported rice? – What are the factors

affecting domestically produced rice from competing with imported rice, can these

factors be changed, if so will it help the competitiveness of locally produced rice.

3. What factors if any, is affecting the competitiveness of local rice production? – Are

there internal and/or external factors affecting locally produced rice from being

competitive, if these factors are present, what are they and what strategy should be

applied to domestic rice in order for it to be competitive.

My reason for picking this topic stems from my work experience between 1995 – 2001

with Trenko International (Nigeria) Limited where I was employed as the Assistant

General Manager, Sales and Administration, the core business of Trenko International

(Nigeria) Limited involved the importation of parboiled rice in 50kg bags from Thailand

and India for resale in Nigeria. My role in this company amongst many other duties

includes completing all the necessary paper work and transaction for the purchase and

distribution of all imported rice into the Nigerian market. During this time, I was intrigued

at how much rice was imported into the country and how fast the rice was sold, I was

also very worried by the fact that even though we had a well known domestic rice

industry, retailers and consumers still preferred imported rice. At that time I was not

disposed to complete any analysis of this situation as I was in the employment of one of


the biggest rice importing companies in the country, however even after leaving the

employment of Trenko International (Nigeria) Limited, I have always been curious to

understand the factors that have made imported rice more competitive than domestic

rice, having learnt a about competitive advantage in the course of my MBA programme,

I decided to use some of my learning‟s to answer this question.


Current Literature Review

As Daramola (2005) comments, “rice is a very important food crop that is consumed

globally, it is an ancient crop that is consumed as healthy and staple food by more than half

of the world population. In Nigeria, the status of rice in the average diet has been

transformed from being a luxury food item to that of a staple, taking the place of other

meals like cassava and yam” (p. 2).

Agriculture plays a very important part in the domestic economy of Nigeria, this is because

of its employment potential and the role it plays in the country‟s GDP, as earlier

commented, agriculture dominates the Nigerian domestic economy and accounts for about

40% of the Gross Domestic Product (GDP) and two-thirds of the country‟s labour force

which makes the Nigerian agricultural sector a very important part of the Nigerian economy.

In the food sub-sector of Nigerian agriculture, rice has risen to a prominent place as its

consumption continues to rise at approximately 10% per annum since the 1970‟s to the

point that domestic production of rice appears not to be able to meet the current

consumption demands prompting the country to import rice from other parts of the world.

“The value of Nigeria‟s rice industry is estimated to be about US $5.56 billion (as at 2002)

made up of US 2.2 billion of imports and US $3.66 billion of domestic production, and that

the value of the industry is expected to rise to about US $ 7.98 billion by 2006” (Daramola,

2005, p. 4), which make the Nigerian rice industry/market very important in the global rice

market. In spite of the consistently high rate of import, Daramola (2005) suggest that

“Nigeria has the potential to increase her domestic share of the rice market in a medium to


long-term investment strategy that can develop into a self-sufficient industry locally over the

next three year, (p. 4)”, however four year after this report was written Nigeria stands as

number 3 on the table rice importing countries and its rice import is projected to continue to

grow into the future.

“Rice production occurs in all agro-ecological zones in Nigeria with the middle

belt enjoying a comparative advantage in production over the other parts of the country.

Production is primarily by small-scale producers, with average farm size of 1-2 hectares.

Yield per hectare is low due to production systems, aging farming population and low

competitiveness with imported rice” (Daramola, 2005, p. 3).

The Foreign Agricultural Services of the United States Development Agency (USDA) and

Africa Rice Center completed an overview of the crop zones of Nigeria as highlighted in

Figure 1 and Figure 2 in the appendix, which shows the Nigerian crop zones highlighting

some major areas where rice is currently planted in the country, it additionally shows that

the country is fully capable of being able to achieve self-sufficiency in the domestic

production of rice, this is because of the arable nature of the country‟s land which makes it

possible for rice production to occur in virtually all parts of the country.

Despite the fact that there is currently local milling and production of rice and potential for

cultivating rice in more areas of Nigeria, the country‟s rice production still lags behind and

remains one of the world‟s largest importer of foreign rice. In an overview of rice production

in Nigeria by the Overseas Development Institute

(http://www.odi.org.uk/resources/download/3044.pdf, p1), Britain's leading independent think

http://www.odi.org.uk/resources/download/3044.pdf


tank on international development and humanitarian issues, it was commented that

“Nigerian rice faces competition from imported rice which is considered by some as

mentioned in the above referenced document, to be less tasty less” (p. 1). This comment

though a personal opinion and not one of every rice consumer in Nigeria, leaves me asking

the question, why is imported rice still preferred to domestic rice and continues to grow in

demand among consumers in the country?.

A good percentage of rice that is imported into the country are parboiled rice that is

imported from Thailand, India and the United States, rice that is domestically produced are

also mostly parboiled rice. While trying to determine the competitiveness of Nigerian rice,

this project will focus on the parboiled variety of both domestic and imported rice to

determine what the preference drivers are. In trying to determine the preference drivers,

many comments and suggestions have been made by looking at different factors, Odusina

(2008) commented that income, price and taste are factors that affect rice type demand” (p.

4), some other researchers including Lancon, F, Erenstein, O, et al (2003) have suggested

that “indeed, consumers select the type of rice they purchase on the basis of different

criteria, price being only one of them” it was further commented that “even though

consumers may appreciate the taste of local rice, they also put a strong emphasis on other

attributes that are determined by marketing and processing operations”.

Even with the rise in imported rice, over the years, the Nigerian domestic rice Industry has

seen growth in both supply and demand, Erenstein, O, et al (2003) commented that:


“The Nigerian rice sector has seen some remarkable developments over the last quarter-

century. Both rice production and consumption in Nigeria has vastly increased during the

aforementioned period” (p. 5)

This development though, does not seem to hinder and/or thwart rice importation as it

continues to grow and the country still thrives in importation of rice giving an indication that

rice production has still not developed to such a sustainable level that it is sufficient to meet

the demands of local consumers and capable of competing with foreign milled rice, as local

production of rice has grown, so has rice importation into the country. As commented by

Daramola (2004) “Nigeria has the potential to increase her domestic share of the rice

market in a medium- to long-term investment strategy that can develop into a self-sufficient

industry locally over the next three years, with almost four fold increase in the industry‟s

employment level, moving from a position of rice import to rice export (p. 4)”, but this

statement is yet to come to fruition as it relates to domestic rice production.

In reviewing the impact of trade on domestic rice production and challenges of self

sufficiency in Nigeria, it was commented that “rice is generally graded by quality, using

factors like percentage of broken rice, sortexed or non sortexed long grain or short grain

e.g., the better (less percentage of broken grains) the quality, the higher the price, in

essence, quality determines the price that any particular brand of rice is sold” (Ezedinma,

2003, p. 8). With this in mind, it will be important to determine the quality of the locally

produced rice in Nigeria i.e. the percentage of broken grain in rice that is produced

domestically within Nigeria, this will help determine if this is a factor that is affecting its

competitiveness and if it is, what can be done to change this and if locally processed rice


are produced to the standard and quality of imported rice, will it have the ability to compete

in terms of price.

Akpokodje, G, Lançon, et al (2001) in their paper titled “Nigeria rice economy: State of the

art” commented that “Nigeria has become the largest consumer of rice in Africa; the country

produces 4.2 million metric tons and consumes 6 million metric tons per annum” , this

status of Nigeria is not commensurate to the country‟s rice production as the country lags in

its production compared to consumption. There are however efforts by the government to

boost the cultivation of rice, as commented by Omotola & Ikechukwu (2006) “Nigeria is

making visible efforts under the government‟s stated policies to increase local production

and eliminate the need for imports in the medium term, the government is promoting the

adoption of new hybrid rice varieties to help boost rice production. These new varieties are

high yielding, early maturing, disease resistant, and high in protein content, the government

aims to have 3 million hectares under rice cultivation by 2007”. Based on the goal that was

set with these new strategies for Nigeria to increase local production and eliminate the

need for import, Table 2 still shows a trend of continued increase in importation between

2008/2009 1.4 million metric tons and 2009/2010 1.6 million metric tons. If these measures

have been implemented, why is there still an increase and future forecasted increase in rice

importation into the country?, are there steps or measures to be taken to meet this goal?.

In an article titled “making Nigeria a rice exporter”, it was commented that “the growth in

consumption of rice can only be met either by increased production or by increased import

(Business Day, 2009), this comment gives a hope that it is indeed possible to meet the

country‟s rice demand locally if the factors to help domestic production are put in place, and


steps to increase these demands are implemented, however these factors and steps are

not further expanded on.


Research Design and Data Collection

This research project will be a conceptual paper where no primary data will be gathered, it

will also be a descriptive research as defined by William Zikmund in “Business Research

Methods” which is to determine and describe the answers to research objectives. What I

hope will be achieved is a comprehensive look at the Nigerian rice industry using

secondary data from previous research paper in the rice industry, library database,

conference papers and internet searches to determine if domestically produced rice is

competitive with those imported from foreign countries like Thailand, India and the United

States. The focus will be to look at competitiveness as defined in the business dictionary

“Ability of a firm or a nation to offer products and services that meet the quality standards of

the local and world markets at prices that are competitive and provide adequate returns on

the resources employed or consumed in producing them”

The paper will cover some past researches, studies, journals and reports conducted both

locally and abroad by on the subject of competition in the Nigerian rice industry and market

in the last 39 years 1970 – 2009. In addition to the review of the related literature above for

this project, I will be using the Porters Five Forces model which is “a framework for industry

analysis and business strategy development developed by Michael E. Porter of Harvard

Business School in 1979, which uses concepts developing Industrial Organization (IO)

economics to derive five forces that determine the competitive intensity and therefore


attractiveness of a market”. This model will be used to analyze the competitiveness and

factors influencing the Nigerian Rice Industry and value chain.

The following keywords below were used to search for online research information on the

World Wide Web:

o Can locally produced rice in Nigeria meet demand?

o Nigerian Rice Market

o Nigerian Rice Industry

o Competition in the Nigerian rice industry


Statement of Results

In the course of writing this project I will not be completing and/or conducting any survey

apart from the literature review, data collected by both local and foreign researchers in

previous studies relating to this topic will be utilized, all data if and when necessary to be

used, will be from secondary sources, my main objective for this project is to give readers a

knowledge on domestic rice milled in Nigeria. The expected outcome of the project will be

as follows:

1. To gain an understanding of the Nigerian Rice Industry and market

2. To find out the geographic area of Nigeria where rice is currently planted and

milled and the current approach that is being employed in the domestic

production of rice

3. Determine the competitiveness of domestically produced rice compared to

imported rice in Nigeria to see if it is able to compete with imported rice in terms

of price and quality and make recommendation if/when necessary

To achieve the expected outcome as outlined above, I will be completing a critical review

and analysis of existing literature and secondary survey materials on the Nigerian rice

industry and market with a focus on locally produced and imported parboiled rice sold in the

Nigerian market, these materials will be gathered from sources including but not limited to


academic journals, online sources, seminars, newspapers, business magazines and

papers from different international rice institute e.g. Africa Rice Center, International

Institute of Tropical Agriculture and International Rice Research Institute, I will utilize and

apply a number of competitive advantage theories and models from the learning‟s in my

MBA course especially strategic management including Porters Five Forces, SWOT

analysis of both domestic and imported rice and an analysis of competitive advantage. I will

also tap into the knowledge gathered from previous experience in rice importation gathered

from working with Trenko International (Nigeria) Limited.

Current Approach to Domestic Rice Production in Nigeria

As outlined by Ezedinma (2003), “there are three identifiable methods of rice production in

Nigeria, these are traditional or hand pounding, small mill processing and large mill

processing enterprises. The hand-pounding traditional method of processing rice paddy is

still used by some village rice farmers and millers especially in the northern states of

Nigeria” (p. 6). The traditional method of domestic rice production which is carried out by

hand-pounding includes a process where the rice paddy is soaked in water for a 24 hour

period after which it is then boiled in water to soften it, then it is spread out to dry in the sun

after which the husks and bran of the rice paddy is then separated from the grain, then the

winnowing process which is the last stage of the processing is carried out. Using the

traditional method of rice production can be very cumbersome, intensive and very slow, in

addition the final product often consists of broken rice and other materials and particles like

sand, stones and dirt. This traditional method is gradually been dropped due to the

increase of availability of small rice milling machines causing an increase in small rice


milling processing. In commenting on this, Ezedinma (2003) wrote that “the small rice

processing mills are the most dominant in Nigeria” (p.10), of all the three modes of rice

production, (traditional hand pounding, small rice processing mills and large rice processing

mills) “it is estimated that there are about 3,500 small/medium rice mills scattered all over

Nigeria, in addition to this about 85 percent of Nigerian rice is processed through the small

rice mills”, (Ezedinma, 2003, p. 6). Even though 85 percent of domestic rice in Nigeria is

produced in the small rice mills, these mills are still operating below their installed capacity,

partly as a result of unavailability of machinery and sufficient paddy for processing.

The Competitiveness of Domestic Rice

Ezedinma (2003) points out that “in the international market, rice is graded by quality

usually in the percentage of broken rice, sortexed or non-sortexed long grain or short

grain”. As shown in Table 3 below, the better (less percentage of broken grains and

stones) the quality, the higher the price in the international market, in other words quality

determines the price of rice.

Table 3 - International (indicative) prices for rice by grade and quality


Further observations was also made that there are also other types of Thai white rice, it is

pointed out in http://www.odi.org.uk/resources/download/3044.pdf that the production of

rice comes in various varieties, some of which are considered “traditional” varieties while

others were introduced within the last twenty years see. In his paper titled impact of Trade

on domestic rice production and the challenge of self-sufficiency, Ezedinma (2003) points

out that “there are different varieties of rice like 100 % grade B Thai white rice, 10% broken,

100% broken A1 extra super. Other products of rice in the international market are Thai

parboiled rice, Thai glutinous rice, Thai fragrant rice (or Thai hom mali rice), Thai loonzaine

rice, and Thai organic rice. Within each type there are also grades and standards, which

again determine the selling price” (p. 8).

The research question in this project that needs to be answered as is; is locally produced

rice able to compete with imported rice?, what are the factors affecting domestically

produced rice from competing with imported rice, can these factors be changed, if so will it

help the competitiveness of locally produced rice. To answer this question, we will look at

the modes of rice production in Nigeria.

Field observations conducted by Ezedinma (2003) indicate that the technology to achieve

the production of high quality rice to meet international standards and quality exists in

Nigeria. The key issue is whether the local rice can be profitable after imputing the extra

cost of processing required of the local rice to meet international standards or consumer

preference in the Nigerian market. “Through interviews it was observed that on the average

an extra cost of 25 percent was needed to process domestic rice to the quality and

standards of imported rice”. This extra cost will be incurred for additional technologies and



labour that will be used to de-stone, clean out dirt and polish the rice. The cost of acquiring

this additional machine and technology will increase the retail cost of domestic rice in the

country which is currently grappling with competing with imported rice.

Domestic Rice Production In Nigeria

Domestic rice production in Nigeria is carried out in a number of states within the country,

as have earlier been mentioned rice is cultivated in virtually all the agro-ecological zones in

Nigeria, in 2000, only about 6.73% of about 25 million hecters of land cultivated to various

food crops was cultivated for rice (Akande, 2001, p. 3), which indicates that even though

rice can be cultivated in a number of states in the country, this is still not been done to its

full capacity, rice production in the different geographic region is highlighted in Figure 2

showing rice output in Nigeria by zones. Rice is grown in paddies or on upland fields,

depending on the requirements of the particular variety, their first rain in the year indicates

that the field needs to be ploughed and this comes between the months of May and June,

Some varieties of rice can reach maturity and ready for harvest within 3 months of planting.

Most farmers in Nigeria produce one rice crop per year because of their dependence on

rain which the farmers really have no control over, the only farmers that produce more than

one crop per year are those that have constructed irrigation systems in their farms, these

farmers are able to harvest anywhere between 2 – 3 rice harvest per year from their farms.

The Nigerian rice processing value chain that is highlighted in Figure 5 below starts with

harvesting and ends with marketing.


Harvesting

Typically, rice grains are considered ready for harvest when it‟s colour begins to change to

yellowish brown and the rice seed is hard, the process of getting the rice seed to get to this

stage takes approximately 30 – 45 days, and after it has flowered, majority of the entire

grains have turned straw colour and after the first rain has fallen on the rice plants. The

rice is harvested by cutting the rice stems slightly above the ground level and put in an

upright position to dry in readiness for threshing.

Threshing and Winnowing

The process of threshing involves the spreading of rice gain on hard surface, while grain is

separated from the straw by continuously beating the straw on the solid hard surface.

Winnowing on the other hand involves the process of separating the chaff from the grain,

this process helps prepares the rice paddy for storage and gets it ready for the next step in

the processing stage.

Parboiling

The parboiling process starts with softening the husk (The rice husk is the hard, protective

shell on the grain. The removal of the rice husk is the first stage of rice milling), this process

involves soaking the paddy in hot water at specified temperatures depending on the variety


of rice being processed, the rice paddy is then steamed to open the husk, the rice is

thereafter left to dry. This stage can be completed either by using the typical local method

or in the mechanized rice mills. For the typical local method of processing, the parboiling is

carried out using large improvised drums constructed from used oil containers, after boiling

the rice is left out to dry in the open field. With the mechanical method on the other hand,

the rice is sold to rice mills by rice farmers, these mills which are partly owned by the

government uses mechanical method where the rice is parboiled in huge silos constructed

specially for this purpose, after which the rice is dried, polished and bagged for marketing.

Marketing

Rice marketing comes in different ways in Nigeria. Erenstein, Lançon et al (2003)

comments that “rice producing households typically sell their paddy to traders (90%),

Second most common is to sell to millers (13%, including 7% that were considered as

miller-cum-trader). Rice traders normally come from outside village (81% of villages). The

place of transaction for rice sales varies – with most sales taking place within the village

(40%), at the main market (31%) or at the local market (30%). Sales at the farm itself are

uncommon. This indicates that rice paddy passes through a number of middle men for

milling and final sales to consumers”.

Even though there are rice mills in Nigeria, the finished product is still not up to date and

thus domestic rice still has a lot of broken grains, sand, stones and dirt in it, breaking arises

from beating of the rice in the threshing and winnowing stage, while sand and other


particles in the rice comes as a result of keeping the rice to dry in the open, these factors

reduces the quality of domestic rice sold in the country.

Analysis

As was mentioned earlier in this research paper, I have chosen to use Porters diamond

which looks at clusters of industries with relation to how the competitiveness of one

company is related to the performance of other companies and other factors tied together

in the value-added chain, and Porters five forces model framework for industry analysis and

business strategy development developed by Michael E. Porter of Harvard Business

School in 1979, which uses concepts developing Industrial Organization (IO) economics to

derive five forces that determine the competitive intensity and therefore attractiveness of a

market. These models will be used to analyze the competitiveness and factors influencing

the Nigerian Rice Industry and value chain.

Overview of Porters Diamond and Porters five forces

Porters Diamond

“The diamond model is an economical model developed by Michael Porter in his book, The

Competitive Advantage of Nations, where he published his theory of why particular

industries become competitive in particular locations.


Porters analysis in this approach looks at clusters of industries, where the competitiveness

of one company is related to the performance of other companies and other factors tied

together in the value-added chain”, according to Porter, most important for competitive

advantage is the ability of companies to constantly innovate, he argues that the only

meaningful concept of competitiveness at national level of any nation is productivity. To

find out a country‟s determinants and growth of productivity, Porter classified four factors

incorporated into the Porters diamond, which has become the key tool for the analysis of

competitiveness as outlined in Figure 4, these factors includes the following:

Factor conditions: These are the nation‟s positions in factors of productions including

human resources, physical resources, knowledge resources, capital resources and

infrastructure.

Demand conditions: This is the home market factors e.g. demand situations that creates

and enhances the competitive advantage, this can include markets where firms/companies

will have work on fast innovation for new and advanced products than the competition due

to the pressure from buyer‟s demands.

Related and supporting industries: These are the supplier industries that can produce

inputs which are important for innovation and that are internationally competitive.

Firm strategy, structure and rivalry: These are the conditions that govern company‟s

creation, set up and organization, in addition, it takes into consideration how goals are set

and managed and includes the presence domestic rivalry.


Porter‟s notion is that these factors interact with each other to create conditions where

innovation and improved competitiveness occurs.

Porters Five Forces

The Five Competitive Forces model was developed Michael E. Porter in his book

“Competitive Strategy: Techniques for Analyzing Industries and Competitors” in

1980. The framework basically describes an industry as an entity that is influenced by five

forces as shown in Figure 3 which are; bargaining power of suppliers, bargaining powers of

buyers, threat of new entrants, threat of substitute products and competitive rivalry amongst

existing players. Using this model to complete an analysis will give a clear picture of the

competitive landscape of any industry, this model will in this research enhance the

understanding of both the internal and external strength of the Nigerian domestic rice

industry as compared with the competition, it will also help give insight into the future

competitive opportunity position that the industry can occupy.

Completing an analysis using both the Porters diamond and Porters five forces helps in

understanding the competitiveness of any industry in any country, and will help in

determining the competiveness of the Nigerian domestic rice industry as these models are

utilized in completing this analysis in this applied project.


The Nigerian rice industry

In describing the Nigerian rice industry, Ezedinma (2003) wrote that “rice commodity

marketing is of two forms in Nigeria namely: paddy rice and processed rice. Processed rice

also includes milled rice and rice flour. For paddy rice the major potential market is the

processing sector. The demand of the processing industry for paddy is derived from the

demand for the processed form mostly in the urban areas of Nigeria. Contribution of rice

production to small farmer income and rural employment is linked to the availability of a

thriving market in Nigeria. The two major potential markets are markets for commercial

processing and that of the household consumption. In both instances, the performance of

the marketing activities is solely in the hands of private actors, but is adversely affected by

rice imports”. From my personal experience in working in the Nigerian rice commodity

trading and marketing, this description is definitely what obtains. Table 4 below, retrieved

from http://www.warda.org/workshop/RicePolicy/Chuma.E/Chuma.E.Nigeria.Pres.ppt.ppt

confirms the comments above as it confirms that the share of imported rice in the Nigerian

urban market is higher than what is locally produced which further suggest that the there is

a high dependence of imported rice by the urban consumer.

http://www.warda.org/workshop/RicePolicy/Chuma.E/Chuma.E.Nigeria.Pres.ppt.ppt


Table 4 - Market share of foreign rice to local rice in selected urban markets

Source:http://www.warda.org/workshop/RicePolicy/Chuma.E/Chuma.E.Nigeria.Pres.ppt.ppt

“This trend give the Nigerian consumers the ability to measure the quality and

competitiveness of domestic rice by the quality that is found in imported rice and in

situations where these factors on domestic rice does not match those of imported rice,

consumers will opt for imported rice thereby causing a shrinkage in local demand for rice

due to imports” (Ezedinma, p. 5). In addition to this, years of military rule and instability in

government have affected the country‟s economy and infrastructural growth, the ability of

the country to favourably compete as shown in the selected rankings from the global

competitiveness report in Table 5 below showing that the country ranks really low in all the

measured aspects of competitiveness, and have in addition affected the four factors in

Porters diamond as outlined below.

Table: Market share of foreign rice to local rice in selected urban markets.

Urban market

Local rice volume (tons)

Foreign rice volume (tons)

Total volume (tons)

Percent of foreign rice

Enugu 2270.00 5935.80 8205.80 72.33

Umuahia 417.00 14202.90 14619.90 97.14

Owerri 1786.90 15493.40 17280.30 89.60

Uyo 290.70 887.00 1177.70 75.53

Port Harcourt 442.90 26306.50 26749.40 98.34

Onitsha 4284.90 157600.00 161884.90 97.35

Calabar 321.00 790.10 1111.10 71.11

Aba 847.97 23177.10 24025.07 96.47

Source: Field survey, 2001.

http://www.warda.org/workshop/RicePolicy/Chuma.E/Chuma.E.Nigeria.Pres.ppt.ppt


Table 5 – Selected rankings from the Global Competitiveness Report

Factor Conditions

Infrastructure is a big factor that affects the Nigerian production sector. Due to the fact that

infrastructure like standard roads are not available, and lack of maintenance of existing

roads, transportation has become a serious constraint for conveying goods from one part of

the country to another, even when this is possible, the cost is very high. Although there has

been some progress made in other infrastructural aspect e.g. telecommunications which

help the industrial sector, however transportation and transportation infrastructure which

plays a more prominent role in enhancing this sector is still lacking.


With regards to human resources, there seem not to have been any improvement in this

area since the 1970‟s, e.g. rice farms and production is mostly operated in rural areas

mostly by farmers and producers who have limited know how with regards to mechanized

rice farming and production. Apart from this, there is also scarcity of labour to help in the

domestic rice industry due to other employment opportunity, Daramola (2005) commenting

on the scarcity of labour wrote that “scarcity of labor due to alternative (and more

remunerative) off-farm employment opportunities (e g construction sites and motor-bicycle

riding) (p. 9)”. Rural communities in Nigeria where domestic rice is produced have

witnessed an increase in urban migration due to better employment opportunities that

provides for better pay and benefits, this has caused a shortage in the number of willing

hands to assist in local rice production and processing.

Home demand conditions

With a population of over 140,000,000, the Nigerian economy has a good population of

buyers. The home demand condition for goods in Nigeria is high, however consumers can

be classified into two categories i.e. rural and urban. Consumers in rural areas of the

country are mostly illiterate with low income, their demand for goods is really not influenced

by its origin and quality, rather price plays a big factor for their purchasing habit. On the

other hand, urban consumers are those that live in cities, are educated and have good jobs

that pay well. Different varieties of goods and services (local and imported) are available to

these consumers thereby giving them the ability to choose mostly based on quality. Urban

consumers though form a higher percentage of consumers in the Nigerian economy.


Related supporting industries

When it comes to local supporting industries Nigeria is not completely self sufficient, a

factor that can be attributed to years of military rule and instability in government where

infrastructures were either neglected or left to rot. In support of this, Daramola (2005)

commented that “the Nigeria domestic industry is unattractive due to low technology base

(mechanization), decaying infrastructure, high interest rates, weak institutions such as

poorly-funded research institutes, public extension system, and seeds certification” (p. 9).

Nigeria has become dependent in foreign supplies of machinery to support its industries,

these imports are done from countries like Germany, China, India and the United States

amongst other.

Firm strategy, structure and rivalry

Firm strategy, structure and rivalry takes the conditions in a country with regards to

company set up framework e.g. how they are established, organized and the

characteristics of domestic competition into consideration. In Nigeria, the Corporate Affairs

Commission (CAC) is the authority set up by the government to monitor the incorporation,

structure and management of companies in Nigeria. Information gathered from its website

shows that the “Corporate Affairs Commission was established by the Companies and

Allied Matters Act, which was promulgated in 1990 to regulate the formation and

management of companies in Nigeria . The establishment of the Corporate Affairs

Commission as an autonomous body was as a result of the perceived inefficiency and

ineffectiveness of the erstwhile Company Registry, a department within the Federal Ministry


of Commerce and Tourism which was then responsible for the registration and

administration of the repealed Companies Act of 1968”. Further description of the functions

of CAC includes:

To administer the Act, including the regulation and supervision of the formation,

incorporation, management and winding up of companies;

To establish and maintain companies registry and offices in all the states of the

Federation suitably and adequately equipped to discharge its functions under the Act

or any law in respect of which it is charged with responsibility;

Arrange and conduct an investigation into the affairs of any company where the

interests of the shareholders and the public so demand;

To undertake such other activities as are necessary or expedient for giving full effect

to the provisions of the Act.

The Commission also registers Business Names, and Incorporated Trustees as well

as provides a wide range of ancillary services.

Despite the above functions of the CAC, there is lack of follow ups with industries to ensure

strict compliance with the enabling laws governing its affairs, e.g. in the rice industry, there

is no law that specifies the procedure for planting, quality and standard of rice that should

be produced and sold in the country for both domestic and imported rice.


Rivalry – This aspect of Porters diamond deals with the existing rivalry between domestic

companies operating in the same industries. In Nigeria, rivalry amongst domestic are at

three levels of companies i.e., these are, the big corporations/companies who are at the top

and control the value chain of industry that they are involved in, medium size enterprise

that works directly with the big corporations as suppliers and distributors and the

small/family owned companies that are “at the bottom of the value chain” and in the case of

rice production, are the primary group that does the planting and harvesting of the rice

which they sell to the small and medium size companies. Rivalry exists amongst

companies within their different levels however, companies with brand names and long

standing reputation always have an advantage, this negatively impacts the development

and growth of the small and medium size companies and small/family run companies as

only the big corporations/companies fall in this category which puts the success or failure of

companies in other levels under their control as these companies depend on them for

success.

Even though all the factors that have been discussed with respect to Porters diamond are

different, they all play a very vital role in the success of any industry in the country.


Porters Diamond In Relation To the Nigerian Domestic Rice

Industry

To better understand the Nigerian competitiveness of the Nigerian domestic rice industry,

an analysis will be completed using Porters diamond as it relates specifically to this industry

as a number of the factors identified within the country setting are prevalent in the domestic

rice production industry.

Factor Conditions

As have been mentioned severally in this project and many other papers and reports

referenced in this study, rice production occurs in all agro-ecological zones in Nigeria and

Nigerians consume about 5.4 million metric tons of rice annually, if properly harnessed, this

will give the country the ability to be a leading rice producer in the world, however this is

currently not the case as Nigeria imports most of the rice consumed in the country from

other rice producing countries. Different writers have attributed different factors which falls

under factor conditions to this state of affairs as outlined below:

Quality – Nigeria is the largest producer and consumer of rice in West Africa and is also

listed as one of the biggest importer of rice in the world. As have been severally mentioned

in this paper, one reason that has been attributed to this trend is the fact that local

production is not able to meet the quality and quantity demanded by urban consumers, who


prefer better quality and cheaper rice both factors derived from rice imported from countries

like Thailand, India and the United States. The poor quality of domestic rice in the country

is mostly as a result of poor technology used in the domestic production of rice which will

be discussed later in this project.

Infrastructure – In describing the rice infrastructure technology in Nigeria, Daramola (2005)

commented that one unattractive condition in the domestic rice production industry in the

country includes low technology base (mechanization) and decaying infrastructure (p. 8).

This factor is further compounded because mechanical equipment required to produce rice

to international standards and quality is imported at costs that most producers are not able

to afford, the result is to either use local production method or a combination of local and

mechanized method using equipments that are outdated. As an example, parboiling

(partially boiling the rice in the husk) which is one major step in the production of rice as it

makes processing easier and enhances the nutritional quality of the product which is mostly

done by local farmers in Nigeria in vats, the traditional vats however are large and this

affects the quality and final product of the rice as there is no uniformity in the cooking

because rice may burn at the bottom and remain undercooked on top. In addition, as was

pointed out when completing Porters diamond for the country, the lack of standard roads

affect the effectiveness and adds to the constraints of the ability of farmers to convey rice

paddy form farms to rice milling plants and the market.

Key Production Resources – Nigerian farmers who form the bulk of producers in the

country, lack some key resources available to farmers in more developed nations to

produce domestic rice to meet international quality. In its article on the New Agriculturist,


trading up in the rice sector in Nigeria, http://www.new-

ag.info/focus/focusItem.php?a=1041, it was pointed out that “limited access to fertilizers

and credit by domestic rice producers in Nigeria lead to an inability to meet quality

standards and a lower rate of production”. The article went further to point out that Olam

Nigeria Limited, a major rice importer, decided to test a new business approach by

investing in local production of high-quality rice for Nigeria‟s domestic market. The article

further points out that in 2005, Olam began processing locally produced rice from a

government-leased mill located in Makurdi, Benue state. However, Olam was faced with

the challenge of an insufficient supply of high-quality paddy rice to meet their capacity. This

further highlights the effects that the lack of key production resources has in domestically

produced rice. Also included in this factor, is the issue of high inputs costs which includes

the cost of credit, cost of imported equipments, taxes, tariffs and duties which increases the

cost of agrochemicals used for planting of rice. One addition cost in the production

resources is the cost associated to generation of electricity due to instability of power

supply in the country.

Home demand conditions

Daramola (2005) wrote that “Rice is a very important staple food in the diet of the estimated

120 million Nigerians. It is consumed in various forms but the most popular is as grains. He

went further to value the Nigeria rice industry to be about US $5.86 billion (as at 2002).

Both the demand and value of the local rice industry points to the one fact, that there is

good demand for rice in Nigeria. Currently with a population of over 140 million as

http://www.new-ag.info/focus/focusItem.php?a=1041



estimated by the British broadcasting commission (BBC) see

http://news.bbc.co.uk/2/hi/africa/6217719.stm, and the fact that rice is a staple food in the

country, there is undoubtedly a high home demand for the product. Though there is a

dichotomy of buyers of domestically produced rice and imported rice, while purchasers of

domestic rice do so due to cost factors and accessibility of domestic rice, while those that

prefer imported rice comprise mostly of buyers in urban centers and cities where imported

rice are more easily accessible in addition to their good quality, it still does not change the

overall fact that there is indeed a high local country demand for rice, Rice Web (2001)

commented that “the demand for rice in Nigeria has been soaring. Rising demand was

partly the result of increasing population growth, increased income levels, rapid

urbanization and associated changes in family occupational structures. The average

Nigerian now consumes 24.8 kg of rice per year, representing 9% of total caloric intake”

(Rice Web, 2001). In order to satisfy the demand of both groups of buyers, local rice

producing would need to be done to meet the quality of imported rice and made accessible

in both rural and urban parts of the country.

Related supporting industries

There are many industries that supports and helps rice production to thrive in many rice

producing countries, these supporting industries range from machinery and technology

companies, financial institutions, suppliers e.t.c. e.g. VOV news

http://english.vovnews.vn/Home/Banks-to-support-rice-production/20102/112549.vov#,

commented that the government of Vietnam working with financial institutions urges banks

http://news.bbc.co.uk/2/hi/africa/6217719.stm

http://english.vovnews.vn/Home/Banks-to-support-rice-production/20102/112549.vov


to support rice production in Vietnam; “Prime Minister Nguyen Tan Dung has directed

ministries, sectors, food corporations and the Vietnam Food Association (VFA) to develop

support for this year‟s domestic rice production and export activities. Accordingly, State

commercial banks must meet loan requests to help with the purchase of rice for domestic

consumption and export”, this is a clear indication of the importance that local supporting

industries has on rice producers. In the case of Nigeria, even though we have some of

these industries e.g. financial institutions present, there is very little support given to rice

producers especially those in the categories of small and medium size enterprise and

small/family based companies despite the fact that these companies form over 80% of the

country‟s domestic rice production. With regards to machinery and equipment required for

mechanized rice production, Sage V Foods LLC

http://www.sagevfoods.com/MainPages/Rice101/Milling.htm, gave a description of the rice

production process as discussed later in this project, and commented that “the milling of

rice has become a very sophisticated process”, a review of this process shows that the

ability to produce good quality rice as obtained in the U.S., Asia and Europe, hi tech

machinery and equipments are required to complete processes like cleaning, destining,

paddy separation, milling, sorting and polishing. These equipments are not readily

available in Nigeria as the country does not have a vibrant equipment manufacturing plant

leaving it with the option to purchase this machinery at very high cost due to the fact that it

is imported from outside the country and attracts high import taxes and excise duties.

http://www.sagevfoods.com/MainPages/Rice101/Milling.htm


Firm strategy, structure and rivalry

As have been previously discussed in the analysis of the country‟s firm strategy, structure

and rivalry above, the corporate affairs commission is responsible for registering and

monitoring companies in the rice producing industry. The federal government however also

from time to time come up with policies that affects the aspect of Porters diamond in this

industry some of which is highlighted in Table 6 below, e.g. the government has employed

various trade policy instruments such as tariff, import restrictions, and outright ban on rice

import at various times which one way or the other affected the strategy, structure and

rivalry within the industry.

Table 6 - Taxonomy of Nigeria's Trade Policy on Rice

Period Policy Measures

Prior to April 1974 66.6% tariff

April 1974 - April 1975 20%

April 1975 - April 1978 10%

April 1978 - June 1978 20%

June 1978 - October 1978 19%

October 1978 - April 1979 Imports in containers under 50kg were banned

Apr-79

Imports under restricted license only Government

Agencies

Sep-79 6 month ban on all rice imports


Jan-80 Import license issued for 200,000 tons of rice

Oct-80

Rice under general import license with no quantitative

restrictions

Dec-80

Presidential Task Force (PTF) on rice was created

and it used the Nigerian National Supply Company to

issue allocations to customers and traders

May-82

PTF commenced issuing of allocations directly

to customers and traders in addition to those

issued by NNSC

Jan-84

PTF disbanded. Rice importation placed under

general license restrictions

Oct-85 Importation of rice (and maize) banned

Jul-86

Introduction of SAP and the abolition of

Commodity Boards to provide production

incentives to farmers through increased

producer prices

1995 100%

1996 50%

1998 50%

1999 50%

2000 50%

2001 85%

Source: http://www.unep.ch/etu/etp/events/Agriculture/nigeria.pdf

http://www.unep.ch/etu/etp/events/Agriculture/nigeria.pdf


In situations where there is a ban like the ban on importation of rice in 1985, it meant to

help stimulate the local rice industry and domestic production of rice through increases in

the price of the commodity (Akande, 2002, p. 8), rivalry therefore in these kinds of situation

will be among local rice as opposed to imported rice. In addition, in situations where the

federal government intervenes by coming up with policies regarding domestic rice

production and importation as described in Table 5, rivalry is also established as

companies that are favoured and/or connected to the government are often specially

selected to import rice at very low and/or competitive prices due to government

concessions on duties and taxes, an action that pitches these importing companies against

local rice producers.

Despite all of these, there still is low rivalry strictly within the domestic rice production

industry, Daramola (2005) highlights this when he wrote that “However, the farmers‟ supply

response for Nigerian rice has been extremely low because of the largely uncompetitive

economic environment within which rice is being produced in Nigeria. Some of these

problems include lack of improved seeds, low mechanization, complementary production

inputs which have led to low productivities of Nigerian rice farms. There is poor access to

markets, capacity underutilization of existing small-scale mills. Installed processing and

milling capacity is currently in excess of paddy rice production in every part of the country.

Obsolete and inefficient processing technology (especially parboiling) lead to smelling and

unappealing products, presence of stones, uneven grains etc. There is also limited

knowledge of consumers‟ preference and taste, especially the urban population for well

processed rice. There is no uniformity in the variety of rice cultivated and processed hence

the frequency of broken and uneven grains” (p. 9).


Porters Five Forces – With reference to the Nigerian domestic

rice industry

Michael E. Porter developed the five forces model in his book „Competitive Strategy:

Techniques for Analyzing Industries and Competitors“ in 1980. This model has been used

severally and has become an important tool for analyzing organizations and industry

structures. Porter‟s model is centered on industries being influenced by five forces i.e.

bargaining power of suppliers, bargaining powers of buyers, threat of new entrants, threat

of substitute products and competitive rivalry within the industry, as shown in Figure 3

below. These strength of weakness of these five forces within an industry, determines the

strength or weakness of the performance and competitiveness of any company or industry.

To further understand the competitiveness of the Nigerian domestic rice industry, each of

these five forces will be analyzed to determine if there are prevalent factors affecting the

industry‟s competitiveness.

Bargaining powers of suppliers

This category of Porters five consists of aspects of market of inputs, like suppliers of raw

materials, machinery, labour and services. Suppliers can wield a lot of power over the firm

if they have unique resources or their products have few substitutes. There are different

suppliers in the Nigerian domestic rice industry, this includes companies that supply raw


materials like rice seeds and faterlizers and those that provide the machinery that are

required for rice farming and milling. The powers of these suppliers can be summarized as

follows:

Suppliers of raw materials – Supplies of the major input in rice planting fertilizer and rice

seeds is mostly carried out by the federal government who provide rice seed and fertilizers

for farmers, in addition the International Institute for Tropical Agriculture (IITA) who carry

out agricultural research for development in Africa develop agricultural solutions with for the

agricultural sector. Both the government and IITA work to enhance the local rice

production in Nigeria which has had some positive impact on the domestic rice industry,

however government‟s control of the fertilizer and seeds can be unhealthy as it can wield

power over farmers because of their dependence on the government for these inputs.

Suppliers of machinery – This group of suppliers provide machinery and equipment that

helps in the cultivation and production of rice. As have earlier been mentioned, machinery

and equipment required for rice cultivation and milling are not manufactured in Nigeria,

manufacturers and suppliers of these equipments are located in countries in Asia and

Europe. Since these manufacturers also sell their machinery and equipment to other

countries both locally and internationally, orders from Nigerian millers which come far in

between due to the nature of rice production in the country, these suppliers are able to

wield power over buyers from Nigeria.


Bargaining powers of buyers

Buyer's power is significant in that buyers can influence a number of actions e.g., “buyers

can force prices down, demand higher quality products or services, and, in essence, play

competitors against one another, all resulting in potential loss of industry profits”, see

http://www.enotes.com/management-encyclopedia/porter-s-5-forces-model, it was further

commented that buyers exercise more powers when they are large-volume buyers.

Number of customers: As earlier mentioned, the fact that the population of Nigeria is over

140 million and rice is a staple food in the country creates a potential for large volume

buyers, even though purchases are small in nature i.e. buyers purchase just enough for

their household, the share number of buyers in the country creates the volume, however

because the purchasing powers of buyers are not concentrated in one purchase effort, their

bargaining power is reduced.

Price Sensitivity: There are different categories of buyers in Nigeria, e.g. buyers in urban

cities are more quality conscious but will still have price as a consideration for their

purchase, while those in rural areas are more price conscious, however an overwhelming

population of buyers in the country have a combination of both price and quality

consciousness due to the economic condition in the country where the income per capita is

$1,606.6, see http://www.doingbusiness.org/ExploreEconomies/?economyid=143, but will

in most cases still have a preference for quality over price. With the high quality standards

of imported rice from other countries, buyers naturally gravitate to it not minding the price.

http://www.enotes.com/management-encyclopedia/porter-s-5-forces-model

http://www.doingbusiness.org/ExploreEconomies/?economyid=143


Threat of new entrants

The threat of new entrants is dependent on two functions in an industry, this is barriers to

entry and the reaction from existing competitors. The barriers existent in the Nigerian rice

industry are as follows:

Economies of scale – Entering into the domestic rice industry requires a company to

produce rice that is capable to compete in terms of cost and quality of both the local and

imported rice. This would require a high capital cost for cultivation, milling and marketing.

The cost of the initial capital outlay becomes a barrier as most entrants do not have the

financial requirements to meet this demand, making imported rice have advantage in the

economy of scale as their products are imported from countries where the industry is

already established.

Product differentiation- Product differentiation creates a barrier to entry and forces new

entrants to spend heavily to overcome loyalties for current brands that customers have

developed over time. Even though there are many brands of rice in Nigeria, there is no

loyalty attached to any particular brand the only differentiation is between local rice on one

hand and imported on the other hand, thereby eliminating any barrier as it relates to brand

loyalty.

Capital requirements - Any new entrant into either local rice processing or rice import

requires large capital outlay. There are fixed and variable costs involved for local rice


production e.g. cost for land, rice cultivation and processing inputs, and cost of equipments

and marketing, this capital requirement will discourage new entrants.

Access to distribution channels. Distribution of rice in Nigeria takes place though a number

of distributors in different parts of the country, new entrants will have a problem with this as

the new entrants‟ will need to have distribution channels for its product or it will not be able

to compete.

Governmental and legal barriers - Policies from different government and government

agencies with regards to registration of companies, licenses, permits, tariffs and trade

restrictions can hinder new entrants from the industry. There have been a number of policy

changes affecting the rice industry in Nigeria as outlined in Table 5, taxonomy of Nigeria's

Trade Policy on Rice.

Threat of substitute products

Substitutes are products that can do, or meet the same functions as one that already exists

in an industry. There is a threat from substitutes if a similar product is available with lower

or better price or of better quality. In the case of the domestic produced rice in Nigeria,

substitute products are rice imported into Nigeria from countries like Thailand, India and the

United States, these rice are of better quality and cost less to purchase. The biggest factor

that causes substitute products to thrive in the Nigerian rice industry is the quality of

imported rice, Erenstein & Frederic (2003) comments that “the quality differential between

local and imported rice implies a price differential that can only be reduced if the quality of


local rice is drastically improved” (p. 8). The problem with this opinion is that because of

the high input cost of producing domestic rice in Nigeria to meet international quality (partly

due to the high cost of imported machinery and cost of financing), domestic rice of the

same quality with local rice will end up being more expensive which in essence may not

give it any additional competitive advantage.

Competitive rivalry within the industry

Competitive rivalry describes the rivalry that exists between existing players in the industry,

Porter (1998) opines that “in situations where this exists, tactics like price competition,

product introduction and intense advertising will be used to jostle to be the most

competitive”. In the Nigerian domestic rice industry the following factors exists to influence

competitive rivalry:

Many same size players - In describing the Nigerian rice industry, Erenstein and Lancon

(2003) commented that “Rice milling in Nigeria is a „cottage industry‟ mainly carried out by

small-scale workshops with an average hourly capacity of 200 kg of milled rice”, in addition,

Ezedinma (2003) says that small rice mills are the most predominant of the three rice-

processing methods. Estimates (Presidential Rice Initiative 2002) indicate that there is

“about 3500 small/medium scale rice mills scattered all over Nigerian addition to this”. The

fact that the domestic rice producing industry in Nigeria is made up of mostly small-scale

producers who operate at the same level, competition amongst this group is not as intense

amongst this group, which gives competitive edge to imported rice and the companies that

import these rice are the ones that create the competitive rivalry.


Similar Strategies – Strategies within the small scale domestic rice industry in Nigeria is to

a large extent the same amongst all players where rice farmers are also the ones

responsible for milling which is done in with little or no recourse to quality, this method of

rice production hinders the growth of the industry and hampers the ability of domestic rice

to complete favourably with imported ones.

Low market growth rates – The market growth of domestic rice industry in Nigeria has been

slow compared to that of imported rice. “The annual demand for rice in the country is

estimated at 5 million tons, while production level is 3 million tons of milled rice resulting in

a deficit of 2 million tons. Over the years the country had resorted to imports to bridge this

deficit. For instance in 1999, the value of rice imports was US$259 million and this

increased to US$655 million in 2001 and US$756 in 2002. Between 1990 and 2002,

Nigeria imported 5,132,616 tons of rice valued at US$1,883,553 million. In 2002 alone, the

country imported 1.882 million tons of rice” (FAO 2002). The growth experienced in rice

importation has enabled imported rice have more footings in the Nigerian rice market

thereby putting domestic produced rice at a disadvantage.

Low cost of switching - With regards to switching cost, the Nigerian rice consumer does

not have any real cost for switching from one brand to another for both domestic and

imported rice as the prices for each category is not too different from brand to brand, this

increases rivalry within the domestic rice industry as customers freely move from one brand

to another without losses being accrued to them.


SWOT Analysis of the Nigerian rice industry

To further analyze the Nigerian rice industry environment, a SWOT (strengths,

weaknesses, opportunities and threats) analysis will be used to capture the industry

internal strength and capabilities and match that with its external threats, which will help in

proffering a recommendation at the end of this paper. Based on the completed work on

Porters diamond and Porters five forces above, the following was deduced as the SWOT of

the Nigerian domestic rice industry.

Strength

Availability of land – As have been severally mentioned in this paper, every Nigerian

ecological zone has the potential of rice cultivation, if properly harnessed, Nigeria is able to

become one of the leading rice producers in the world.

Large consumer base – With a population of over 140 million and rice being the biggest

staple food in the country, Nigeria has a high population base of consumers.

Availability of rice paddy – For the quantity of rice that the country produces, there is

substantial availability of rice paddy from local farmers. As noted by the International Rice

Research Institute in its rice production by country report, Nigeria produced a total of

5,333,000 mt of rice in 2008, see

http://beta.irri.org/solutions/images/stories/wrs/wrs_jun09_2009_table01_usda_prod.xls.

This quantity was achieved even though the country‟s available rice farmland is not being

optimally utilized.

http://beta.irri.org/solutions/images/stories/wrs/wrs_jun09_2009_table01_usda_prod.xls


Government rice policy – As was earlier noted in Table 6 taxonomy of Nigeria‟s trade policy

on rice, the Federal Government in a bid to boost domestic rice, have at different times

between 1966 to date have used different methods to discourage rice importation, this

policy is bound to continue and serious local rice producers can leverage on this to improve

their quality and better compete in the domestic rice market.

Weakness

Aging farming population – as pointed out by Daramola (2005, p. 3), the country has an

aging population of farmers because younger generations of its population have moved

away from villages to cities in a bid to pick up jobs that are less tedious and pay more than

farming.

High cost of machinery and equipment – Nigeria currently imports its machinery required

for the production of rice from Asia and Europe as it does not have any local company that

does this in the country. Purchasing these machines including installation, maintenance

and repairs, comes at a high cost which is not affordable by most domestic rice producers.

Government machinery importation policy – As was earlier noted while discussing

strengths, the Federal Government of Nigeria encourages domestic rice production by

using different trade policies as noted in Table 6 to discourage importation, on the other

hand, there is high taxes and tariffs which can range anywhere from 5% – 25% see

http://www.customs.gov.ng/hscode/resulthscode.php?TYPE=DESC&HSCODE=machines&

MODE=ALL, imposed for the importation of machinery into the country which in essence

increases the cost of machinery and equipment purchase and upgrade by domestic rice

producers, these high taxes and tariffs on its own acts as a barrier to improve domestic rice

http://www.customs.gov.ng/hscode/resulthscode.php?TYPE=DESC&HSCODE=machines&MODE=ALL



production and is counterproductive to the Federal Government policy on encouraging

domestic rice production.

Weak brand – The Nigerian domestic rice has a weak brand and has over the years been

known for its poor quality due to the domestic rice production process which is not at par

with what is obtained in other large production countries that exports rice to Nigeria as

earlier mentioned in this paper. This factor has affected the strength of the local brand of

rice and its purchase by consumers.

Poor transportation infrastructure – Both roads and transportation facilities in the country

have over the years suffered neglect and poses hardship with respect to transportation and

cost for rice paddy and produced rice to be transported from farms to milling facilities and

eventually the market for purchase by consumers.

Local means of production – The production of rice in the country is done locally with little

use of the latest rice milling equipment as obtained in other parts of the world, this

production process affects the quality of domestic rice as is produced with high quantity of

broken grain and particles of sands and stones in the final product.

Opportunities

Large local market – The local market for rice in the country is very high. Akande (2002)

wrote that:


“Of all the staple crops, rice has risen to a position of preeminence. Since the mid-1970s,

rice consumption in Nigeria has risen tremendously, at about 10% per annum due to

changing consumer preferences. Domestic production has never been able to meet the

demand, leading to considerable imports which today stand at about 1,000,000 metric tons

yearly. The imports are procured on the world market with Nigeria spending annually over

US$300 million on rice imports alone”.

Even with local production at 5,333,000 mt in 2008, the country is still not able to meet the

rice demand of consumers. This situation leaves a big gap that is filled by imported rice

from mostly Thailand, India and the United States, with a market this big and large

consumer base, if the country is able to step up on its cultivation and production, there is

room to absorb domestic produced rice.

Quality improvement – From the analysis conducted in the Porters diamond and Porters

five, one observable trend for preference of imported rice is because the quality of imported

rice is higher than those produced locally. An opportunity and quick win for domestic rice in

the country will be quality improvement of its rice, in essence the current rice production

method employed in the country will need to be changed to meet with those obtained in

other rice producing countries like Thailand, India and the United States.

Training – Ekeleme, Kamara et al (2008) commented that “Currently, most of the farmers

producing rice rely on traditional technology with low use of improved inputs” (p. 1). This

comment is prevalent in Nigeria as a good number of rice farming is done in rural

communities by farmers who run family farms and operate with rice cultivation and


production know how that was passed down to them from their fathers, these farmers have

not been and/or had the opportunity to be trained in modern method of rice cultivation

production, use of different high yield seeds and other farm inputs. Conducting training for

these local farmers will help improve the quality of the final rice output.

Threats

Strong competition from imported rice – As have been earlier mentioned in this paper,

because domestic rice production is not able to meet the quantity and quality demand of

consumers, imported rice mainly from Thailand, India and the United States is used to

bridge this gap.

Government protection – In the USAID report on Nigeria rice value chain analysis, it was

pointed out that the Nigerian government has a policy of protecting the local rice industry in

an effort to encourage consumers to substitute imported rice with those produced locally, to

achieve this, the government have used tools like high customer and excise duties and

outright ban on rice importation. Even though this action may somewhat help improve the

purchase and consumption of domestic rice, it has the potential to be counterproductive

because if the ban does not stimulate improvement in the quantity and quality of domestic

rice, then the industry will continue to suffer and whenever these bans are lifted, as it often

happens, then there is likely to be an increase in the embrace of imported rice.


Conclusion

The goal of this project as earlier outlined is to carry out a competitive overview of domestic

and imported rice in Nigeria to determine why importation of rice is growing faster than

domestic production and also the competitiveness of domestic produced rice in the

Nigerian. To better understand and analyze this, the project was to determine: If there is a

big enough market for locally produced rice in Nigeria, if domestic rice can fulfill consumer

demand in the country and if consumers will be willing to switch their rice preference to

from imported to domestic, the factors affecting domestic rice from effectively competing

with imported rice and if/how these factors can be changed and if there are internal and/or

external factors affecting locally produced rice from being competitive.

In the course of completing this project to get answers to the research questions, literature

reviews comprising of research papers, seminars, web searches and textbooks on Nigerian

and world rice was completed. The project did not come without its challengers, while the

literature review helped with gathering information about the rice industry in Nigeria, it was

very difficult getting accurate information about the industry from Nigerian government

related website e.g. the Nigerian National Bureau of Statistics statistic‟s website

http://www.nigerianstat.gov.ng/, did not provide a lot information about the rice industry in

Nigeria including domestic and imported, in situation where there were information, it is in

most cases not up to date. That notwithstanding at the end, the research paper was still

able meet the expected outcome of this of this project which includes gaining an

understanding of the Nigerian rice industry and market, find out the geographic area where

http://www.nigerianstat.gov.ng/


rice is currently cultivated in the country and to determine the competitiveness of domestic

rice compared to those imported.

Based on all the findings in this project with respect to the research questions, the following

are the conclusions for this research.

With its population which currently stands at over 410,000,000, the fact that rice is a staple

food consumed by a large number of citizens in the country and the share quantity of rice

that is produced and those imported which is currently more than half the quantity produced

domestically, the country does have a big enough market for locally produced rice.

Currently, the total quantity of rice locally produced and imported annually in Nigeria is

approximately 3.5 million mt consisting of 1.4 million mt of imported rice and 2.1 mt of

domestic rice, indicating that rice produced locally is not enough to meet the total

consumption demand of the country, however should domestic production receive

increased efforts in terms of machinery, equipment and training, the country will be able to

produce enough rice to meet its domestic demand.

With regards to the question whether consumers will be willing to switch from imported to

domestic rice, Lançon, F. Erenstein, O. et al (2003) highlighted the most important criterion

for selecting imported rice per type of customers (p. 10) as shown in Table 7 below:


Table 7 - Most important criterion for selecting imported rice per type of customers

Source: http://www.usaid.gov/ng/downloads/markets/imported_rice_consumption_and_retailing_in_nigeria.pdf

Currently, domestic produced rice lacks in many areas of the above criteria because of lack

latest rice producing technology, machinery and technical knowhow in rice production in

line with international standards. Based on its current state, locally produced rice is not

able to compete favourably with imported rice, however if domestic production is able to

meet these criteria, consumers will be willing to switch as the criteria are really not

impossible to achieve.

Apart from the above criterion for selection of imported rice, some key factors affecting

domestic produced rice from competing with those imported are:

Lack of equipment and machinery – The lack of latest technology and machinery in the

production of rice in Nigeria was obvious throughout the course of this project, currently a

lot of local technology and input is employed in producing domestic rice which negatively


impacts the quality by having a high number of broken grains and particles like sand and

stones in the final product.

Government rice policy – Government policies since the 1960‟s seem to be targeted

banning the importation of rice and not really focused on developing the local rice industry

which has not helped the growth of the local rice industry

Poor infrastructure – Good road network within the country that is linked to rice cultivating

and producing communities are either dilapidated or non existence, this affects the

transportation of rice paddy from farms to milling facilities and the market thereafter. In

addition, the country lacks in the area of utility, electricity supply is erratic and/or none

existence all over the country, water supply on its part is also not available, causing

companies including rice producers to invest in both private electricity and water for

production which can be very expensive and increases the cost of their final product.

Research and training support – Unlike many top rice producing countries that have

particular bodies or groups focused on rice research, cultivation and production to help the

country‟s local rice industry, Nigeria has only one known research institute, the

International Institute for Tropical Agriculture (IITA) which is not only Nigeria or rice specific

focused but works in developing general agricultural solutions for the whole of Africa.


Recommendations

Based on the findings as outlined in the conclusion above, the following recommendation

will be made, these recommendation is based around three aspect that have a part to play

in the rice industry and value chain in Nigeria, these are rice production, research and

training and the Federal Government as outlined below:

Rice Production

More Investment in rice processing plants & equipments – Rice producers should invest in

modern machinery and equipment and/or upgrade their rice milling plants to international

standards that will not only enhance the quantity of rice that is being produced, but will also

increase its quality to bring it to par with imported rice so that it can compete favourably and

increase the potential of locally produced rice in Nigeria to be exported to other West

African countries.

Participation form rice importing companies – In the course of writing this paper it was

discovered that over 80% of rice production in the country is done by small/medium size

operations, these companies are somewhat restricted from improving their production

process due to lack of funds from financial institutions due to their size, on the contrary, rice

companies that import rice into the country are a lot bigger in size and have more cash

flow. These companies should be encouraged to invest their resources and be involved in

domestic rice production.


Specialization – The Nigerian rice producers typically cultivate and mill rice, which in itself

is not bad, to do this however will require know how and commitment of resources in the

different aspects of both cultivation and milling. I recommend that the job of cultivation and

milling should be separated in such a way that rice farmers sell their paddy‟s to rice millers

and onward to marketers, this way everyone will focus and specialize in their particular

area which will help the process to be effective, efficient and done with reduced cost

implication.

Research and Training

From the findings in this paper, one area where Nigerian rice production is lacking is

training and this is mainly due to the fact that rice producing is mostly done in rural parts of

Nigeria by farmers and millers who have little or no formal education in farming and rice

production and had this trade/business passed on to them by their parents. For there to be

any form of sustainable development and growth in the local rice industry, there will need to

be consistent and on-going training available for everyone involved in this process. An

institute that is solely focused on research in all aspect of rice from cultivation and

production should be set up, this institute should also complete training to rice farmers and

millers, providing them with up to date information on rice production and rice industry.

The Federal Government

Steady policy measures – The Federal Government should come up with stable policy

measure and tariffs for importation of rice. As was highlighted in the taxonomy of Nigeria's


Trade Policy in Table 5, the Federal Government of Nigeria has had a number of policy and

tariff measures, in some cases there were 3 – 4 different tariff regimes in one year. Even

though these measures and tariffs are meant to help boost the local rice industry by

discouraging importation, its constant change is bound to have a negative effect as the

industry may not immediately react to the change with the fear that it is not likely to last.

Domestic rice standards – The Federal Government can aid the improvement in rice quality

by placing and enforcing a standard for all domestic for all domestic produced rice in the

country, this will help spur producers to upgrade their facilities to meet these standards.

Provide enabling environment – The Federal and State government should invest in

infrastructure that will aid the cultivation, milling and marketing of rice in the country which

will ultimately reduce the production cost of domestic rice. These infrastructures includes

construction and upgrade of accessible road networks to farm, milling and marketing

location, improvement in the country‟s utility including electricity and water which is

fundamental in the rice value chain.

Incentive for private sector participation – To encourage more private sector participation,

incentives such as government backed loans, reduced custom and excise duties for

imported machineries and equipment, tax holidays for a set number of years for new rice

producing companies and access to arable lands for rice cultivation.


Funding for research – The Federal Government should provide on-going and sustained

funding and support to the afore-mentioned rice institute to enable it carry out research on

rice and training and development for rice producers in the country.


Appendix

Figure - 1 Crop Zones in Nigeria

Source: Foreign Agricultural Service, United States Development Agency.

http://www.fas.usda.gov/pecad2/highlights/2002/03/nigeria/pictures/nigeria_cropzones.gif

Figure 2 - Distribution of rice output by production zones in Nigeria

Source:http://www.warda.org/workshop/RicePolicy/Chuma.E/Chuma.E.Nigeria.Pap r.pdf

http://www.fas.usda.gov/pecad2/highlights/2002/03/nigeria/pictures/nigeria_cropzones.gif

http://www.warda.org/workshop/RicePolicy/Chuma.E/Chuma.E.Nigeria.Pap%20r.pdf


Figure 3 - Porters Five Forces

Source: http://www.mindtools.com/pages/article/newTMC_08.htm

Figure 4 - Key tools for the analysis of competitiveness

http://www.mindtools.com/pages/article/newTMC_08.htm


Figure 5 – Nigerian Rice Value Chain Map

Source: http://www.scribd.com/doc/24050879/mR-159-GFSR-Nigeria-Rice-Study

http://www.scribd.com/doc/24050879/mR-159-GFSR-Nigeria-Rice-Study


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