Required Report - public distribution

**Date:** 5/12/2004

**GAIN Report Number:** NI4009

NI4009

**Nigeria**

**Cotton and Products**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Jamie Rothschild

U.S. Embassy, Lagos

**Prepared by:**

Ali Michael David

**Report Highlights:**

Nigeria's lint exports over the last two years have increased in
response to the GON's Export Expansion Grant introduced in 2001.
However, domestic lint output has not kept pace with growth in demand by
the local textile industry and export market. Textile manufacturers are
currently grappling with scarcity and record high lint prices. The
modest recovery recorded by the textile sector in recent years is now
threatened as some manufacturers have had to suspend operations. In
January 2004, the GON banned all textile imports to protect local
producers and reduced its Export Expansion Grant on lint from 40 percent
to five percent to boost domestic availability. Lint imports are limited
by its relatively high landed cost.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Lagos \[NI1\]

\[NI\]

Executive Summary

Nigeria's down stream textile manufacturing sector is hit once again by
crises caused by acute scarcity of lint. The introduction of GON's
Export Expansion Grant since 2001 has increased Nigeria's lint exports
and reduced cotton available for local textile production. Production
has not kept pace with exports and local demand, therefore, lint prices
are up significantly from 90,000 Naira per ton in 2003 to 208,000 Naira
in May 2004. Consequently, several textile manufacturers have suspended
operations. Industry sources indicate that the scarcity of lint has
dampened the pace of recovery in the sector following recent efforts by
the GON to curtail large-scale undocumented Asian textile imports. In
January 2004, the GON implemented a complete ban on all textile
products, ostensibly to protect the local textile industry. The Nigerian
Customs Service impounded a cargo plane bringing into the country banned
textile products. Smuggled textile products often enter through
Nigeria's porous borders and are sold to consumers at prices, which
reflect the avoidance of import duty payment.

Nigeria's lint production in 2004/05 is forecast at 100,000 MT, up from
90,000 MT in 2003/04. The increase in crop size is largely based on a
projected seven percent increase in cotton area. The prevailing record
high seed cotton prices, scarcity and high cost of fertilizer and poor
grower prices for competing crops are encouraging farmers to switch to
cotton in the upcoming 2004/05 season. Planting activities will commence
in early June but already planting seeds sales are showing a significant
increase over this time a year ago.

In MY2003, Nigeria imported 15,000 MT and exported 26,127 MT of lint.

Exchange Rate: \$1 = 133 Naira

# PSD Table: Cotton

  -------------- ---------- ---------- ---------- ---------- ---------------- ---------- ------------
  PSD Table                                                                              

  Country        Nigeria                                                                 

  Commodity      Cotton                                      (HECTARES)(MT)              

                 2002       Revised    2003       Estimate   2004             Forecast   UOM

                 USDA       Post       USDA       Post       USDA Official    Post       
                 Official   Estimate   Official   Estimate   \[Old\]          Estimate   
                 \[Old\]    \[New\]    \[Old\]    \[New\]                     \[New\]    

  Market Year               08/2002               08/2003                     08/2004    MM/YYYY
  Begin                                                                                  

  Area Planted   340000     340000     375000     375000     0                400000     (HECTARES)

  Area Harvested 340000     340000     375000     375000     0                400000     (HECTARES)

  Beginning      37884      30000      31353      23555      29175            18428      (MT)
  Stocks                                                                                 

  Production     84913      85000      97977      90000      0                100,000    (MT)

  Imports        15241      15241      15241      15000      0                15000      (MT)

  TOTAL SUPPLY   138038     130241     144571     128555     29175            133428     (MT)

  Exports        21773      21773      26127      26127      0                20000      (MT)

  USE Dom.       84913      84913      89268      84000      0                95000      (MT)
  Consumption                                                                            

  Loss Dom.      0          0          1          0          0                0          (MT)
  Consumption                                                                            

  TOTAL Dom.     84913      84913      89269      84000      0                95000      (MT)
  Consumption                                                                            

  Ending Stocks  31353      23555      29175      18428      0                18428      (MT)

  TOTAL          138039     130241     144571     128555     0                133428     (MT)
  DISTRIBUTION                                                                           
  -------------- ---------- ---------- ---------- ---------- ---------------- ---------- ------------

# Production

Post forecasts Nigeria's lint output in 2004/05 at 100,000 MT, up from
the revised 90,000 MT in 2003/04. The anticipated increase is based on
an increase in land area devoted to the crop in response to very
attractive market price for lint this season. Additionally, high cost of
agro chemicals especially fertilizer products is encouraging farmers to
shift from fertilizer-dependent crops such as maize to cotton. Post's
recent visit to the northern cotton growing zones revealed that many
growers have elected to increase cotton area for the upcoming 2003/04
season.

Cotton farming is a smallholder crop with an estimated 70 percent
planted mixed with millet, sorghum, cowpea and sweet potatoes. A major
threat to the Nigeria's lint production is the lack of good quality
planting seeds. The demand for cottonseed by the oil crushers is growing
and has a direct effect on seed availability for planting purposes.

# Consumption

The GON has renewed its commitment to revitalize what is now considered
the 'strategic' textile industry. The industry is still the largest
employer of labor after the public sector. The demand for lint by the
textile industry is steadily increasing reflecting the modest
revitalization of the sector in recent years. At present, the industry
is faced with scarcity and high cost of lint resulting from the lagged
effect of increased exports of lint in 2003. AgOffice field visits
revealed that several textile manufacturers have suspended production.

+--------------------+-----------+------------------------+-----------+
| # Prices Table     |           |                        |           |
+--------------------+-----------+------------------------+-----------+
| **Country**        | Nigeria   |                        |           |
+--------------------+-----------+------------------------+-----------+
| **Commodity**      | Cotton    |                        |           |
+--------------------+-----------+------------------------+-----------+
| Prices in          | Naira     | per uom                | Ton       |
+--------------------+-----------+------------------------+-----------+
|                    |           |                        |           |
+--------------------+-----------+------------------------+-----------+
| Year               | 2002      | 2003                   | \% Change |
+--------------------+-----------+------------------------+-----------+
| Jan                | 108,000   | 130,000                | 20%       |
+--------------------+-----------+------------------------+-----------+
| Feb                | 106,000   | 132,000                | 25%       |
+--------------------+-----------+------------------------+-----------+
| Mar                | 106,000   | 140,000                | 32%       |
+--------------------+-----------+------------------------+-----------+
| Apr                | 102,000   | 140,000                | 37%       |
+--------------------+-----------+------------------------+-----------+
| May                | 100,000   | 150,000                | 50%       |
+--------------------+-----------+------------------------+-----------+
| Jun                | 90,000    | 160,000                | 78%       |
+--------------------+-----------+------------------------+-----------+
| Jul                | 88,000    | 165,000                | 88%       |
+--------------------+-----------+------------------------+-----------+
| Aug                | 86,000    | 170,000                | 98%       |
+--------------------+-----------+------------------------+-----------+
| Sep                | 95,000    | 170,000                | 79%       |
+--------------------+-----------+------------------------+-----------+
| Oct                | 115,000   | 165,000                | 43%       |
+--------------------+-----------+------------------------+-----------+
| Nov                | 125,000   | 180,000                | 44%       |
+--------------------+-----------+------------------------+-----------+
| Dec                | 125,000   | 185,000                | 48%       |
+--------------------+-----------+------------------------+-----------+
|                    |           |                        |           |
+--------------------+-----------+------------------------+-----------+
| Exchange Rate      | 133/1     | Local Currency/US \$   |           |
+--------------------+-----------+------------------------+-----------+
| Date of Quote      | 5/13/2004 | MM/DD/YYYY             |           |
+--------------------+-----------+------------------------+-----------+

NOTE: As at May 2004, the price of lint had increased to 208,000 naira
per MT

#  Trade

Internationally, Nigeria's cotton lint is rated as poor quality and it
attracts a 20 percent price discount largely because of its high trash
content and polypropylene bag contamination. However, Nigeria's lint
exports in 2003/04 increased to about 26,127 MT, up from 21,773 MT a
year ago, thanks to the GON's export subsidy program (EEG). The subsidy
more than compensated for the discount pricing of Nigerian cotton in
terminal markets. Nigeria's lint exports in 2004/05 are forecast to
decline to 20,000 MT following the GON's decision to reduce the EEG.
There are no official figures for lint exports. Estimates used in this
report are obtained from the local trade. Major export destinations for
Nigeria's lint are Bangladesh, Indonesia, Pakistan, India, Taiwan and
Italy. A breakdown of lint exports by destination is not available for a
trade matrix.

Typically, Nigeria imports about 15,000 MT of cotton lint largely
through undocumented cross-border trade. Although most textile mills in
Nigeria use the locally produced lint with satisfaction, some of the
modern mills require the longer staple lint, which is available from the
neighboring Chad and Niger Republics to blend with the medium staple
cotton available locally for finer prints.

The volume of exports of finished and semi finished textile products
from Nigeria is expected to increase in response to the GON's upward
revision of its Export Expansion Grant in January 2004. Industry sources
indicate that if the new policies are faithfully implemented, the local
textile industry will significantly increase capacity utilization, which
is currently estimated at a mere 28 percent. The Nigerian textile
industry primarily produces African prints and is characterized by
little product differentiation. Nigeria accounts for more than 70
percent of fabric production in all of West Africa.

# Policy

In January 2004, the GON implemented a ban on all textile imports to
support local manufacturers. However, cross-border smuggling of the
products is expected to continue despite recent efforts to enforce
stricter control. Additionally, the GON's Export Expansion Grant (EEG)
on lint was reduced from 40 to 5 percent, while the EEG on finished
textile products was increased from 20 percent to 40 percent in January
2004.

# Marketing

U.S. lint exports to Nigeria were discontinued more than two decades
ago, largely because it could not compete with the cotton lint available
from the neighboring Benin, Chad and Cameroon Republics. Lint from these
countries are either imported duty free or smuggled into Nigeria, while
U.S. imports attract a 50 percent duty. AgOffice is providing training
in the US to a cotton merchant/ginner under our Cochran Fellowship
Program primarily to re-open contacts between the Nigerian textile
industry and U.S. lint exporters.