The fortified foods business in Nigeria is on a rapid growth trajectory as people recognise the benefits of healthy eating. The trick is to make it affordable, according to Pelumi Aribisala, the CEO and co-founder of Cato Foods, an indigenous pioneer of a range of traditional staple foods infused with micro-nutrients (biofortified foods).
“Many Nigerians still regard nutritious food as a luxury so we set out to find a cost-effective solution for families to have access to healthy, safe and affordable food, particularly those at the base of the pyramid,” says Aribisala.
With a background in food microbiology from Obafemi Awolowo University, Aribisala wanted to find a way to bring together agriculture and health. The business started in 2008 as a farm doing agricultural training for young people, with some value-added food production. He launched Cato Foods in 2014 with his business partner Atinuke Lebile, the current chief operating officer, who has an agricultural background from the University of Ilorin. “We decided to use our skills to give people access to affordable but nutritious food. About 33% of children in Nigeria under the age of five are vitamin A deficient and one in five die every day from malnutrition-related diseases.”
The young company received support and training from a range of organizations and institutions, such as Nigeria’s Fate Foundation, HarvestPlus and the Scaling Up Nutrition Business Network, among others.
Currently, more than 75% of its raw materials are from biofortified crops. Whereas many foods with enhanced nutrition have this added to raw materials, Cato Foods grows crops that have already been biofortified with vitamin A.
The main products are based on foods that are among the main staples in Nigeria: cassava, maize and orange sweet potato. “We didn’t want to change the food culture of people as this is very difficult in Nigeria. Instead, we added value to the existing food culture.”
Demand outweighing capacity
Six products have already been commercialized and another four are under development. The company’s biofortified cassava is used in popular local dishes such as garri and fufu. One of its best-selling items is custard powder made from provitamin-A cassava, the first of its kind in Africa, he says.
There is demand for Cato Foods’ high-quality cassava flour from the confectionary and baking industry. It also makes food targeted at children, such as cassava flour snacks mixed with cowpeas and bananas.
The market is growing rapidly, Aribisala reveals, and the company is battling to meet demand. Cato Foods relies mostly on a network of smallholder farmers to grow the biofortified crops but has not yet reached a critical mass. It had about 100 contributing farmers in 2020 but to meet demand, aims to add 1,200 new farmers to the network this year, with a target of 3,000 farmers by 2024.
The company spends considerable time and money on training. As cassava is a popular staple food in Nigeria, farmers already know how to grow it. However, training is required to improve planning and land preparation skills. The farmers also need to learn how to work in a climate-smart and environmentally friendly way; how to increase their yields from the current eight tons per hectare to 30 tons; And must ensure they work optimally with the specially formulated planting materials for the vitamin A-enriched crops developed through special breeding processes.
The objective is to put them in co-operative groups of 30 within a 50km radius of the company’s facilities to cut down on logistics costs. Cato Foods operates two factories with capacity to utilise 35 tons of cassava a day, a figure it wants to increase to 100 tons a day by 2024.
Retail and distribution
The products – which are sold in community markets – are distributed through a network of companies that already deal with this retail channel. Cato Foods also collaborates with other small businesses selling complementary products, leveraging their networks. Most of its market is contained within south-west Nigeria, covering six of the 36 states, including Lagos, from its factory in Osun State. It also has a distribution point in Ibadan, a city about 30 minutes’ drive from the factory.
The company is not currently looking at supermarket retail until it builds up its stock and capital resources. It is unable to satisfy that demand yet, nor will it be easy to manage the 30-day payment terms that supermarkets tend to impose.
Scaling the business is not easy. Nigeria is already a tough place to do business, particularly for SMEs in the food business.
The cost of logistics is high, accounting for about 50% of total expenses, explains Aribisala. This includes moving raw materials from the farms to the processing facility, and then on to customers.
“Logistics is crucial to our business. We don’t have our own vehicles and public transporters charge exorbitant fees. We are looking for investment to set up a distribution unit within the business.”
Packaging is another major expense. Although it is sourced relatively cheaply from China, the product is bulky and suppliers often set minimum quantities on sales, which pushes up prices. “We won’t compromise on the quality of packaging and consumers are assured of food safety with our products,” Aribisala insists.
While the cost of energy continues to be a struggle in Nigeria, he says access to the grid has improved. The problem is the cost of diesel for backup generators when the grid fails. Infrastructure is another issue. “Poor roads make it hard to get to the farmers and takes a lot of time.”
Looking to the future and scaling up
Aribisala adds, “We need to scale, and fast. For this, we need new investment, but also the right investment.” He believes the company is ideally positioned to attract impact investors given that its model goes beyond profit and seeks to make an impact by addressing one of Nigeria’s most serious and costly health issues, malnutrition.
The company currently employs 25 people full-time and 30 part-time.
Although Cato Foods has benefited from an early-mover advantage among local producers, it is now facing competition from multinational companies. Smaller packaging to make products more affordable was a competitive advantage for local players in this space, but multinationals have seen that this model works and have also adopted it.
“This is a big threat to SMEs,” Aribisala says. “We are building brand loyalty in areas where we have regular customers but to grow the market, we need investment so we can increase volumes. We keep our margins low to keep prices down, but food is a volume game in Nigeria.”
The government could play a role in boosting uptake and is encouraging the fortification of food such as flour, vegetable oil and salt. It also has a campaign to promote ‘made in Nigeria’ products, but Aribisala says there has not been sufficient traction to be helpful to local food producers.
While, the market is growing organically as Nigerians see the links between health, productivity and diet. “Our problem is not the uptake of products but that we cannot currently meet demand, therefore there is a need to scale fast.”
What are the lessons learned from this journey? Aribisala says it has highlighted the need to be well capitalized from the outset and to ensure a steady supply of raw materials. Backward integration is key to sustainability.
“You definitely need reliable backup for critical production inputs. Proper branding is also imperative; your product must be attractive to consumers. People buy with their eyes first and later assess the quality once they taste it.
“If I had to do it again, I would make sure I had a farm large enough to cluster the farmers around the factory as it would cut costs and improve productivity. If you have a strong base and can add quality to peoples’ lives, the market will be there. Everyone needs to eat every day and nutritious food must be readily available, easily accessible, very affordable and safe.”
Cato Foods CEO Pelumi Aribisala’s contact information
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