Why people fail in cocoa business - Isiaka Yusuf

27 January, 2008 08:00:00 SIAKA MOMOH

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Multi-trex is a new improved Agro-Commodities Ltd, a commodity trading company, which for decades, was a force to recon with in the commodity export market. Agro-Commodities believed it had had enough of this commerce aspect of cocoa business and so moved into a more challenging area - one that calls for value addition and of course one that means more in terms of earnings. Those who are familiar with cocoa business know very well it is one multi-billion naira business that has played host to a litany of investors who walked out of the business with burnt fingers. Why is this the case? Yusuf Isiaka, an icon of sort in the cocoa industry, knows why. He spoke on this, and other issues, to Business Day's Entrepreneurship/Commodities editor, SIAKA MOMOH in an exclusive interview. Excerpts

Cocoa content in chocolate

The first shot was on the issue of substituting the cocoa content in chocolate to the tune of five per cent. Isiaka Yusuf holds we should not entertain any fear on this because "cocoa, called by any other name, will not be cocoa."
Says he: "They cannot therefore effectively replace five per cent component in chocolate. If for any reason there is a major disaster, on the harvest side, we will be forced to do with what we have in the absence of what we can't get. For as long as production level to a large extent reasonably matches grinding requirement, I am not sure they will be too much in a hurry because of the fact that taste will continue to be a drawback." Multi-trex from on set took the strategic decision not to compete with other buyers of cocoa because "it makes sense to specialize".
Isiaka explains "If we have to go and dissipate energy in having to go into the hinterland to meet the farmers, it will not be worth the while.
"I did the calculation recently with somebody. If one has to buy 10 metric tonnes of cocoa - an average farmer will harvest a maximum of about five metric tonnes a year - then are you saying I should deal with 2000 farmers? So we have taken the decision not to compete with exporters and buyers of cocoa in the hinterland. We would rather pay for cocoa delivered to our warehouse."
There is however another reason which bothers on expediency. He quickly chips in: "But let me sound a note of warning - another reason we chose not to partake in cocoa sourcing from the farm gate is that out there, there is a continuous desire of sellers to want to say that except you part with money, they will not supply you cocoa. We would not want to do it that way. We will want to pay for what we see. That is why we take interest in seeing that only cocoa delivered to our warehouse is paid for. We make sure we pay for cocoa delivered to our warehouse within 12 hours. To leave money with anybody and hope cocoa will be delivered leaves you with a lot of risk."

Why cocoa traders fail
And on why most people who trade in cocoa fail, Yusuf Isiaka was livid in his explanation. He does this with the finese of one who knows the industry inside-out. You cannot take this from him. Says he: "Many people got into cocoa for want of what to do. They do not know what it takes. Some people want to make quick money and come out of it. Therefore they get into all sorts of sharp deals. And when you start up a business that way, you can only hope to end up in disaster. The business is a peculiar one. And it takes handling it in a peculiar way. How on earth can anybody be involved in a business which he is told unless he parts with money he wouldn't get what he wants to buy?
For me, a business that emphasizes advance payment underrates or de-emphasizes playing by the rules."
He argues "If you want to sell any goods to me, for goodness sake, you must bring the goods to my warehouse. Sellers will be emphasizing pay me this, give me advance, give me advance. Sellers will never say on my honour, I will deliver topmost quality. I will deliver so much quantity to you at the right time. If I do not do any of this, I will pay for default. On the other hand, you are dealing with buyers and consumers who hold you responsible for default. So you find yourself faced with default headaches at both ends. You default on contract, you get blacklisted, and penalty gets passed to you. You default on repayment of loan; you put the bank into disaster. After a while, the bank singles you out as a problem. When there are many of you, the entire industry becomes a focal point. This is what we are facing."

Getting around this
For him, the solution is simple - all it needs is introducing some measure of controls. He explains: "More than anything else, we should go back to the drawing board and introduce some measure of controls. We must introduce some measure of penalties. People must not be able to get away with murder. In those days, the banking industry saw something similar and the only way it got cured was that measures got applied. There was this finance company called Forum, and so many finance companies that were paying ridiculous interest rates - 70 per cent, 90 per cent.
It did not take anybody who had an atom of intelligence to know that they were building a pack of cards. The moment the base cracked, the building had to come down. And that is what the industry has been experiencing in the last few years. And what we are seeing now is a gradual crash.
"And if we take the bull by the horn, and introduce some control measures, measures that spell out what you cannot do, measures that will be enforced, we will get results. We have seen enough of this in NAFDAC, in EFCC, in CBN; I believe we need this in the cocoa industry. I don't know of any business that is as serious as cocoa."
Isiaka wonders why a business in which billions of Naira is traded is not taken seriously. He argues:" You can just pick your bag and baggage and walk into cocoa today and the next moment, you walk out. I don't know anybody that will say, I now have, for instance, Afenifere Bank’ without a licence.
Today, many people will say they are registered exporters - but what is it that comes with that registration? What is the basis? Is it your capitalization? Is it the level of employment? Is it your readiness to conform to rules and regulation? Is it your training on the job? Is it the referee that you have provided? Is it structures that have been accessed? These are the issues. As long as everybody is left to drift around the way it is currently we will continue to have problem."

Role of industry's apex organ
Another problem, this is. Isiaka laments: "Unfortunately, even the apex organ of the industry is not capable of bringing about that kind of sanitization for the singular reason that the leadership of the organisation is also involved in cocoa business. What I know can bring about the needed change is a situation when that kind of body is completely independent so that it will be able to evolve rules and regulations and it is able to get the support of the government in areas required so that all those new policies tailored at positive changes are actually implemented. It should be a public / private sector arrangement but dominantly driven by the private sector."
He cites the case of the Cocoa Association of London which, according to him, is run by the public sector.
Says he: "There is a gentleman - the Director General of the Association. The guy knows everything about cocoa but he has never traded for one day. Over there, rules are rules. If you flout the rules, you are sanctioned.
I love to have a situation where people can walk into my store and say 'hey you ought to have stacked your cocoa bean by 20 coaches at a time; why is this one 24?, Why is this one 22?, These are the people that will form the association. You either belong and conform or do not and you will not enjoy the cooperation of members of the association. Imagine if the Nigerian Bar Association were to allow their members to be doing whatever they liked. Or the Institute of Chartered Accountants was to allow its members to be doing what they like. For me, this is a serious burden that needs serious attention."
Cross River State and cocoa production
The Multi-trex boss says Cross river state is taking the business of cocoa production a lot more serious than we at this part of the country (South West). For him, "it wouldn't be a long time before we start seeing a lot more cocoa coming from there. He says "I agree with you that the taking over of cocoa production leadership in Nigeria by Cross River State is imminent".

Beauty of value addition
Multi-trex is one of the few Nigerian companies that are out to break out of that bondage that our erstwhile colonial masters has put us - the Centre- Periphery structure which the North, that is the advanced economies, put in place long ago. The structure made the South -developing countries, the group we belong to perpetual suppliers of primary produce to the North for the sustenance of the North's industries. The South was considered not fit for manufacturing industries.
But there is beauty in manufacturing, in adding value to our agricultural products before shipping them to the North. It means for us, more work, more jobs, more money and acquisition of more skill. Yusuf Isiaka reveals all these with satisfaction, even though the drive to achieve this comes with a lot of sacrifice and resilience.
He explains: "We are investing extra effort. And along the chain, each of these efforts will have to be rewarded. But we are in an environment that does not allow the average player in the industry to have its full worth. What do I mean? A lot of money is invested in infrastructure.
“If you come back here in another three to four weeks, you will notice a marked change in infrastructure that is in place. We are giving the place a face-lift. Right now I am making a base for a new generating plant and it has cost me about N8 million.
I am putting a 1200 kva generating plant there; just the base, not the generator. The platform on which I am putting the generator is costing me N8 million.
On the average, 100,000 litres of diesel in month get consumed here. But the real benefit lies for us in the future. During this teething period we are looking forward to government policies on subsidies which come as assuaging factors.
You need to see my books, you will find out that after turn-over and cost of sales an average processor expend 85 per cent of his revenue on cost of beans, on cocoa bean. If you spend 85 per cent on cocoa beans how do you cover this mighty infrastructure with 15 per cent? A minimum of 70 to 75 per cent of production period is run on diesel. There is what you call benefit in critical mass. We haven't reached that yet.
Else where in the world, nobody runs a plant that churns out 10,000, 5000 units. That is the direction we are going. When you do a lot of the same thing, even when the margin is small, when it multiplied by a large number it translates to good money. This is why every opportunity available to us has been tailored towards capacity building.
Secondly, also for the future, we believe in continuous value addition. As a matter of fact, when you do processing, it is just one of three levels.

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