CARANA Capstone Project Final Draft

NIGERIAN SHEA BUTTER:
EVALUATING GROWTH AND EXPORT OPPORTUNTITIES
APRIL 9, 2016
GRADUATE CAPSTONE RESEARCH PAPER FOR THE INTERNATIONAL TRADE AND
INVESTMENT POLICY PROGRAM SPONSORED BY CARANA CORPORATION
KENNETH AJOKU, AUSTIN DRENSKI,
BLESSING KAIGAMA & ALEXANDER LYDDON

ITIP Capstone: CARANA Corporation
1
TABLE OF CONTENTS
Abstract:.......................................................................................................................................................................2
CARANA Corporation: NEXTT Project ..................................................................................................................3
Assessment of the Nigerian Market ...........................................................................................................................5
Agriculture in Nigeria .................................................................................................................................................7
Shea Butter as a Cash Crop........................................................................................................................................8
Women in Shea ..........................................................................................................................................................11
Shea Production in Nigeria.......................................................................................................................................13
Challenges ..................................................................................................................................................................16
Ghana: Case Study....................................................................................................................................................18
Limitations to Detailed Analysis...............................................................................................................................22
Policy Recommendations ..........................................................................................................................................23
Appendix A: The Use of Currently Available International Data ........................................................................26
Appendix B: Forecast: Autoregressive 1st
Order Differencing Model..................................................................34
Appendix C: Forecast Outputs.................................................................................................................................38
Data Graphs: .........................................................................................................................................................46
References:.................................................................................................................................................................50

2
ABSTRACT:
This paper will evaluate the market growth potential of Nigerian shea butter. Nigeria is the largest
producer of shea nuts in the world, however they are have not maximized their production to meet
demand. Global demand for shea has been growing steadily for many years, however Nigerian
production and exports fall short of capacity. The limited capital requirements of shea production
farming lends itself well to developing economies and provides a sound opportunity for sustainable
poverty alleviation if some challenges can be overcome. Poor market and pricing information is
available to producers leading to inaccurate production incentives whereby global demand signals
are not being received by rural producers. Domestic processing facilities need to be developed to
maximize the value chain revenue and general infrastructure needs to be improved to lower costs
of production related transportation and export. Further, low income women dominate shea
production in Nigeria, therefore investment in the shea market will likely result in a direct impacts
empowerment and poverty alleviation for thousands of rural women. Ghana, while a smaller shea
producer in total volume, has a more mature market and domestic processing industry, which has
led to greater revenues. We use the Ghanaian example as a case study for investment, coupled
with market trend forecast model to support our policy recommendations to address challenges
limiting growth in Nigerian shea butter.

3
CARANA CORPORATION: NEXTT PROJECT
From 2012 to 2016 our sponsor CARANA Corporation implemented the Nigeria Expanded
Trade and Transport (NEXTT) project, funded through the United States Agency for International
Development (USAID). The project “targets improved trade policy and trade facilitation through:
1) Developing effective mechanisms for stakeholder engagement in the most critical
constraints to trade and investment,
2) Facilitating performance improvements in Customs and port clearance times to reduce
costs and time to trade goods, and
3) Creating improved processes for developing food safety standards and infrastructure.1
The project aims to improve trade linkages along the LAKAJI Corridor (Lagos-Kano-Jibiya)
that has a history of congestion, poor infrastructure, and checkpoints along the route to the port at
Lagos. These challenges directly impact the agricultural sector in Nigeria leading to higher prices,
increased food waste and limited growth opportunities for the more than seventy million Nigerians
living in poverty.
This project expects:
1) Twenty-five million dollars in new investments in projects along the LAKAJI Corridor;
2) A 30 percent reduction in transport costs along the LAKAJI corridor;
1
CARANA NEXTT Project Website

4
3) Dynamic trade policy coordination mechanisms that integrate public and private sector
priorities into a strategic framework for engagement with trading partners;
4) Modernization of customs procedures and systems for meeting international standards for
agricultural goods; and
5) Thirty million dollars in additional exports as a result of more strategic positioning of
Nigerian exporters by export promotion institutions and industry groups.
6) Figure 1 NEXTT project's target region
Our project provides an analysis of the investment and export opportunities in the region
related to the fifth goal, assessing the viability of shea butter as an export commodity. This paper
assesses the domestic and global market for shea butter and provides policy and strategy
recommendations for Nigerian shea producers, the Nigerian Government and foreign aid

5
organizations and investors focused on developing the
shea market in Nigeria in accordance with the
objectives of the NEXTT project.
ASSESSMENT OF THE NIGERIAN
MARKET
The agricultural sector in Nigeria accounts for
48.0 percent of employment in the country (2007) and
was responsible for 20.2 percent of gross domestic
product (GDP) in 2014, down from 32 percent in 2006
according to data available from the World Bank.
Major crops include beans, cashew nuts, cassava,
cocoa beans, corn, palm kernels, soybeans and rubber.
Cocoa and rubber constitute the two largest, non-
petroleum, export commodities. The majority of
Nigerian producers are small and medium-sized
holdings; large-scale production farms are
uncommon2
.
2
Economist 2013
Note on Data Reliability:
Establishing reliable data sources
was a significant barrier to
conducting rigorous analysis.
Data sources from the United
Nation’s Food and Agriculture
Organization (FAO) provided
some reliable and estimated data
related to the trade flows and
production of karite nuts and
refined shea butter. The product
groupings tracked by the
Harmonized Commodity
Description and Coding System
(HS) vary over time in response
to changes in trade volumes of
specific goods. While this system
helps to improve international
harmonization, it creates
challenges in tracking products
with low trade volumes. Our
research shows growth in the
demand for shea butter and
associated products, however,
production data does not
reconcile with the volume of
final goods observed. As karite
nuts are produced primarily in
West Africa, the most viable
explanation for this discrepancy
is the weakness of enforced
reporting standards. Further,
existing data report to the FAO is
a mix of official Nigerian
estimates, UN estimates,
unsubstantiated estimates and
missing values.

6
Nigeria is the largest producer of karite nuts (the source of shea butter) in the world, yet its
domestic production market remains underdeveloped. By comparison, Ghana has more mature
domestic production and processing industry and experiences significant returns on those
investments. Until Ghana invested in domestic processing facilities, raw karite nuts were exported
to processing facilities in Europe, before being re-exported as refined shea butter. By investing in
domestic processing, a greater percentage of revenue can be captured and contribute growing the
domestic economy. Oil exports and revenues generate a majority of government funding in
Nigeria. This ties the Nigerian economy to the volatility of the oil markets. For this reason, it is
important for the Nigerian Government to pursue policies aimed at diversifying Nigeria’s
economic base.
More than half of all Nigerians continue to live in poverty, and investment in the shea
industry offers significant potential to reduce poverty while growing domestic industry and GDP.
Karite nut trees grow in the wild throughout the West African region. The nature of local
production is characterized by simple gathering of the nuts, creating employment opportunities
requiring little education or specific training, making idea for poverty alleviation.
The international shea butter market is valued at nearly $3 billion annually. Nigeria, as the
largest producer of raw karite nuts, is positioned to be a market leader in the industry. However,
to capture the potential gains in this growing industry, specific attention and investment must be
given to the domestic production sector. Investment in the systematic collection of production and
trade data is necessary in order for the Nigerian Government to be able to provide for the domestic
industry’s critical infrastructure needs.

7
AGRICULTURE IN NIGERIA
The role of agriculture has declined in the Nigerian economy in recent decades.
Historically, the agriculture sector employed more than 70.0 percent of the labor force. However,
the discovery of oil in 1956 altered Nigeria’s economic base. The government focused on oil
exports as a source of revenue, while overlooking critical infrastructure in the agriculture sector.
As a result, large areas of arable land are underutilized. If efficiently utilized, Nigeria could
produce and export a greater volume of cash crops, such as shea nuts. However, at present, the
agriculture sector is too often characterized by subsistence farming.
Agriculture contributes to employment, food production, foreign exchange earnings, and
industrial intermediate inputs. In 2001, agriculture represented 41.0 percent of Nigerian GDP.
Nearly 60.0 percent of the labor force worked in agriculture, predominantly as subsistence
farmers.3
Nigeria has a total land area of ninety-eight million hectares, of which seventy-one
million hectares are cultivable. Only thirty-four million hectares – about 48.0 percent of the
cultivable area – are presently used in cultivation, and less than 1.0 percent of arable land is
irrigated.4
The decline in productivity of the agriculture sector in Nigeria is attributed to the oil
3
Central Bank of Nigeria, 2002
4
FMARD, 2001

8
boom of 1980 that led to reduced investment in the agriculture sector. Prior to the pivot toward oil
export, the agriculture sector was the most productive sector of the Nigerian economy.5
Despite the effects of this pivot toward oil exports, agriculture contributed $15 billion to
real GDP in the first quarter of 2014, making up 19.7 percent of the quarterly total. As is consistent
with the cyclical nature of agricultural production, output increased to $17 billion or 20.9 percent
of the total in the second quarter, and then reaching $23 billion in the third quarter, 26.6 percent
of Nigeria’s third quarter real GDP.6
SHEA BUTTER AS A CASH CROP
The demand for shea butter produced in West Africa has
increased by 120% over the past decade, and in 2012, an estimated
350,000 tons of shea nuts were exported from Africa at a market
value of nearly $120 million.7
Shea butter is an ivory-colored fat
that is extracted from karite nuts of the African shea tree (Vitellaria
paradoxa). The shea tree is a perennial and deciduous tree, which
grows naturally throughout the savannah region. Mature shea trees grow up to fourteen meters in
height and nearly two meters in width.8
The shea tree grows naturally in west and central Africa,
5
Nigerian Bureaus of Statistics
6
7
GSA 2012
8
Olife et al. 2013
Figure 2 Raw shea nuts

9
reaching maturity after approximately fifty years. Mature trees bear fruit for up to twenty years.
Its long life span and productivity, making it an ideal cash crop for export revenues.
Karite nuts and their derivative, shea, products are in increasingly high demand in the
international market.9
A study conducted by USAID estimates that of the 600,000 tons of shea
nuts harvested in West Africa, nearly 350,000 tons are exported in raw form.10
Shea butter extract
is a complex fat that contains oleic acid (40.0 to 60.0 percent), stearic acid (20.0 to 50.0 percent),
linoleic acid (3.0 to 11.0 percent), palmitic acid (2.0 to 9.0 percent), linolenic acid (less than 1.0
percent) and arachidonic acid (less than 1.0 percent). Shea butter is used widely in cosmetics, such
as moisturizers or lotions. It is also edible, making it a suitable supplement to cocoa butter in the
production of chocolate.11
In Africa, shea butter is used as cooking oil, hairdressing, wax, candle making, and as an
input in other traditional medicinal products. The diversity of applications for shea butter has
prompted the increase in demand for the extract, largely from Europe, China and North America
(See Data Graphs, Appendix C). This increase in demand is attributed to the growth of the
cosmetics industry, which grew from a global market value of $207 billion in 2007, to nearly $245
billion in 2012.12
The demand growth is driven in part by the growth of the diverse industries into
which shea butter is used. It is estimated that 90.0 percent of shea products exported were raw nuts
9
USAID, 2010
10
USAID, 2010
11
12
Statista 2015

10
destined for processing abroad. Due to the increased efforts in more advanced processing
operations in West Africa, that figure has decreased to 65.0 percent.13
Traditionally, most shea butter exported from African countries is unrefined and in raw nut
form, due to the labor-intensive process required to refine it. Further, even shea that has undergone
this labor-intensive processing, it is rarely fit for export to the U.S. market due to the low-quality.
Seventy percent of shea butter exported from Africa goes to Europe and South Asia where it is
further refined to Grade A quality, repackaged, and exported to major consumer markets.14
The traditional methods of processing shea are inefficient for large volumes. When the shea
crop is harvested, the seeds are parboiled in the shell immediately, to stop seed growth enzymes
and to facilitate sun drying of the nut prior to the shell being removed.15
Once dry, polythene
produce bags or sacks are used for storage. The tightness of the bags prevents free circulation of
air, which would otherwise lead to rapid contamination of the stored nuts.16
To finally process into
its butter form, a significant volume of water, wood fuel, and manual labor is applied. Recently,
Ghana has made significant progress in using more advanced methods of processing shea into
butter and oil. The bridge press, now in use, reduces the processing time for twenty-five kilograms
of shea kernels from nine and a half hours to just over three hours, water use from ninety liters to
just under two liters, and has completely eliminated the need for wood fuel.17
Although the quality
13
USAID, 2010
14
GSA 2012
15
CFC, 2002
16
CFC, 2002
17
RIU website

11
of the butter produced using the bridge press is better than that produced by traditional means,
exported shea continues to undergo further refinement overseas to conform to the quality and
standards of the importing countries.18
WOMEN IN SHEA
Women dominate rural shea production in
most parts of Sub-Saharan Africa and depend on it
as their main source of income. Most states in the
northern part of Nigeria where shea nuts are found
are predominantly Muslim states, with strict
interpretation and enforcement of Sharia law
which limits the roles of women in society. Shea
harvesting is in the domain of “women’s work” 19
because within the household they are
traditionally responsible for gathering of non-agricultural products – such as wild fruits – and
processing the shea nuts into butter. While shea has been recognized for its importance to the
livelihood of women, both in terms of its nutritional value and its economic value it is becoming
increasingly important in international markets. The global market is increasingly demanding more
natural, less processed items in their food and personal care products.20
18
USAID, 2010
19
The Shea Project, 2012
20
USAID, 2010

12
Shea butter processing in Nigeria is traditionally done by women in the rural areas and
relies on traditional methods of handpicking and manual pounding to extract shea butter from the
raw nuts. These women often operate in small groups that consist mainly of immediate family
members. This process is tedious and time-consuming, and it is estimated that the production of
one kilogram of shea butter takes one person between twenty and thirty hours and eight to ten
kilograms of wood fuel.21
A number of non-governmental organizations (NGOs), microfinance institutions, and
multinational corporations are stepping forward to address the challenges of assisting women
entrepreneurs in their production and sale of shea products. An example of this is the case where
the German software giant, SAP, collaborated with Paris based microfinance development
organization, PlaNet Finance in June, 2008, to invest in technology, expertise, and cash to connect
underserved markets to the global value chain.22
The collaboration, known as the Shea Value
Chain Reinforcement Initiative, has enrolled women through two local microfinance institutions,
Maata-N-Tudu (MTA) and Grameen Ghana (GG). The goal of this initiative is to assist the women
entrepreneurs to have more negotiating power, and to provide transparency to the buyer on the
quality of the shea products. By 2010, women were organized into an association called the Star
Shea Network, which gave the women more negotiating power, trained them on how to process
better quality nuts and butter, provides buyers with access to larger volume of products, and gave
21
Olife et al. 2013
22
Rammohan, 2010

13
the women better access to market information via text messages.23
It demonstrated that domestic
market demand for shea is weak. As such the prices of shea could become regulated to keep prices
low thereby limiting the women’s earning potential. With regulated pricing there is still a high cost
associated in transporting products, and selling during the early season tends to earn lower prices.
SHEA PRODUCTION IN NIGERIA
In Nigeria, shea trees grow in both northern and
southern parts of the country, spread over eight of its thirty-six
states. These include: Niger, Kwara, Kebbi, Kaduna, Kogi,
Benue, Ogun, and Oyo. These states have a combined
population of more than thirty-one million people and account
for about 26.5 percent of the nation’s impoverished population.24
The high concentration of poverty in these states is due largely to the high unemployment rate, the
subsistence method of farming, and a lack of investment in infrastructure. According to the World
Bank, 53.5 percent of Nigerians live below the poverty line25
and a larger percentage of the poor
live in rural areas. (OPHI 2014) Nigeria has about 21.1% unemployment rate, with a high
percentage of unemployed populations living in the rural areas.
23
Rammohan, 2010
24
Oxford OPHI 2015
25
Measured at $1.90/day in 2009.
Figure 3 Mature shea tree

14
Table 1 Nigerian population and poverty index, 2014
Nigeria is the leading producer of shea nuts but contributes
relatively little to global recorded exports. In 2006, Nigerian shea
nut production was at an all-time high of 490,000 tons, but that
number dropped to about 324,000 tons by 2014.27
Despite the
high production rate, Nigeria ranks fourth among African
countries that export shea.28
The current global shea value stands
at more than $4 billion and Nigeria is said to contribute about 57.0 percent of the global shea value,
which is about $2 billion in revenue (Venture Africa).
26
OPHI Oxford University Multidimensional Poverty Index
27
International Monetary Fund 2015
28
LMC 2014
State26 Population (million) Multi-dimensional
Poverty Index (MPI)
National MPI
contribution
Niger 3.1 0.324 4.5
Kwara 2.5 0.099 1.5
Kaduna 6.1 0.311 5.2
Kogi 3.2 0.113 1.8
Kebbi 3.4 0.553 3.6
Ogun 3.2 0.112 2.4
Oyo 5.1 0.155 4.0
Benue 4.2 0.280 3.5
Figure 4 Shea butter

15
Shea butter is priced depending on its quality, grade or level of purity. There are about 4
different types or grades of shea butter, and each grade have a price attached to it, depending on
its level of purity. These grades range from grade A to E.
Table 2 Shea grades
Grade
Level
Price per 3lb Level of Purity
Grade A $100-150 Raw or Unrefined: retains the most natural vitamins.
Grade B Unavailable Refined
Grade C Unavailable Highly refined and extracted with solvents (e.g. hexane)
Grade D Unavailable Lowest uncontaminated
Grade E Unavailable Lowest with contaminants
Shea butter produced in Nigeria is categorized as low-quality shea butter, characterized by
impurities that make it unfit for export to markets such as the United States. While some is
consumed domestically, most shea butter is produced by traditional method. It is often sold at
below market prices to middlemen bound for export to Europe and Asia where it is reprocessed to
increase its purity, and then sold as a Grade A shea butter to the global market at a higher price.
In the region, traditional methods of farming are prevalent. With few exceptions, farming
groups rely on thrift associations or clans to finance agricultural production. Despite the millions
of dollars that have been spent by the Nigerian government, little progress has been made in
modernize the agricultural industry in the country.

16
CHALLENGES
Issues affecting shea butter production in Nigeria manifest themselves in several areas, but
the research for this paper is focused on processing, market access, marketing and information
asymmetry. The challenges to the collection and production stages include: indiscriminate cutting
of shea tress and bush burning, lack of enforcement of existing legislation with regards to the
protection of shea trees and lack of domestication of the shea tree in Nigeria.29
These states have
weak organizational structures for pickers and traditional processors, often lacking sufficient water
for processing, and inadequate transportation infrastructure. Such limitations disincentivize
participation in shea nut farming, an industry that should otherwise enjoy a comparative advantage
in Nigeria.
Domestic demand market for shea nuts in Nigeria is limited. Locally, shea butter is known
for the unpleasant odor associated with low quality refinement. The low domestic demand limits
the production quantity which has a direct effect on the volume of investment attracted. Higher
rates of production would open the possibilities of economies of scale and increased competition
in the pricing markets, leading to higher returns to individual farmers.
Informational asymmetry is the primary factor leading to the weak domestic demand
market which persists despite the growth in international demand. The asymmetry is easily
observed in the discrepancy between the prices offered to domestic framers compared to the price
paid on the international market. Standard economic theory suggests that these prices should be
29
Ahmed 2011

17
equivalent, but in practice, isolated domestic farmers observe a significantly lower price than
would be expected, even after accounting for transaction costs incurred by intermediaries.
This leads to variation in the prices of shea nuts across the northern Nigerian states,
skewing supply incentives. In the state of Niger, processed shea butter sells for two to three dollars
per ton (300 Naira), while the same ton earns $50-60 in Lagos. Later, purchasers in Europe and
the United States are quoted prices near $1,500 per ton (Grade A refined). The asymmetric
information allows intermediaries to dominate the market with little competition to raise the
offering price.30
According to World Bank, the informational needs of small-scale farmers remains a major
barrier to improving agricultural productivity in Nigeria.31
The lack of information enables the
exploitation of domestic farmers by the intermediaries who offer a price that is significantly lower
than the world export price32
. The local market in Lagos is the most developed market for all
agricultural products in Nigeria, yet is nearly 850 miles from the shea nut producing region. The
trip to Lagos, which should take thirteen hours by road, often takes between seventeen and twenty
hours due to poor road conditions along the route. Given the cost and time constraint associated
with traveling to Lagos, farmers are incentivized to sell to regional intermediaries. If the
30
Ahmed 2011
31
World Bank Group 2014
32
As a result of the poor infrastructure, it is estimated that substantial amounts of exports are not
being captured in recorded exports. While some valuations of these “smuggled” exports are quite
substantial ($2 billion, per Global Shea Alliance) they are illogical as it is more than 20 times
best case production estimates. Given the discrepancies between production and export
estimates data (Appendix C), there likely are unrecorded exports but their total value is unclear
but would more likely be estimated at a few hundred million dollars.

18
information were less asymmetrically distributed, the price gap between the intermediaries
offering price and the port’s purchasing price would likely decline. At a minimum, more complete
information would allow farmers to determine whether the price differences would made the trip
to Lagos worthwhile.
GHANA: CASE STUDY
On May 16, 2012, Ghana commissioned its largest shea processing facility in Buipe.33
The
facility was assembled at a cost of $30 million, and aimed to increase Ghana’s processed shea
exports. The facility operating at a full capacity can process 40,000 tons of shea nuts annually,
nearly equal to Ghana’s shea production that year. The facility – owned by a consortium of
companies – was the newest of Ghana’s processing facilities. Ghana currently has eight operating
shea processing plants located strategically in shea producing regions around the country,
specifically Savelugu, Techman, Juaben, Tema, Brong-Ahafo, and Ashanti regions. The combined
production output of these facilities helped Ghana’s share of shea butter export to surpass that of
Nigeria and other shea exporting countries.
The agriculture sector – historically the backbone of the Ghanaian economy – underwent
dramatic changes beginning in 1983. The Economic Recovery Program (ERP) was launched to
halt the decline of the Ghanaian economy by reducing government’s involvement in the sector.34
These reforms led to an enhancement of budgetary support and the establishment of initiatives to
33
GSA 2012
34
Al-Hassan, 2012

19
increase investment funds to promote key agricultural projects including those in the shea
industry.35
According to Al-Hassan (2012), these reforms were part of a trade liberalization
scheme, aimed at alleviating poverty in Ghana. However, these reforms were unsuccessful in
linking rural shea processers to the international market.
The demand for shea nuts and their derivative products have increased. An estimated
350,000 tons of kernels were exported from Africa in 2012, with a market value of approximately
$120 million.36
Total production potential in Africa is estimated to be greater than two and a half
million tons.37
Tables 3 and 4 show brief historical trends of shea production and exports of for
the major shea producing countries in Africa. The average production volume over the last seven
years for Ghana is 56,000 tons, while Nigeria, on average, produced 284,000 tons. Thus Nigeria
produces, by volume, almost five times that of Ghana. The differential between Ghanaian and
Nigerian shea production should also be observable in the export market however this is not the
case.
35
Al-Hassan, 2012
36
Global shea Alliance
37
Global shea Alliance

20
Table 3 Select years and countries producing and reporting shea nuts (in tons)
Year
Ghana Nigeria
Cote
d’Ivoire Togo Benin Mali
Burkina
Faso Total
1980 44,000 110,000 9,300 9,265 9,184 85,000 80,000 346,713
1985 55,000 100,000 60,800 20,878 26,000 85,000 158,824 506,502
1990 52,000 289,000 20,551 6,396 7,000 85,000 88,173 548,120
1995 52,000 384,000 36,245 8,520 15,000 85,000 75,700 656,465
2000 65,000 369,000 36,000 8,500 15,000 85,000 70,000 648,500
2001 65,000 370,000 36,000 8,000 15,000 85,000 70,000 649,000
2002 60,000 371,000 36,000 8,000 15,000 85,000 70,000 645,000
USITC Report, 2008 & FAO data, 2016
Table 4 Select years and countries exporting and reporting shea nuts (in tons)
Year
Ghana Nigeria
Cote
d’Ivoire Togo Benin Mali Burkina Faso Total
1980 494 7,500 4,738 7,204 9,278 17,949 34,700 81,863
1985 17,000 544 55,061 15,496 1,394 1,668 11,005 102,168
1990 4,171 14,217 13,852 4,759 7,464 1,150 17,222 62,835
1995 14,616 412 11,195 4,606 9,504 0 7,263 47,596
2000 35,983 54 0 4,764 8,531 0 11,575 60,907
2001 45,281 880 0 368 13,299 0 17,980 77,808
2002 27,627 880 0 1,166 5,560 7 34,975 70,215
USITC Report, 2008& FAO data, 2016

21
The export market performance of Ghana’s
shea products is high relative to production potentials.
Taking the average of the years presented in tables 3
and 4, Ghana’s ratio of exports to production (36.9
percent) is significantly higher than Nigeria’s ratio
(1.2 percent). It should be noted, that the figures in the
tables referenced above are aggregate estimates made
in 2004, and not necessarily representative of the
figures today. In recent years, significant changes in
consumer awareness and legislation have caused
significant increases in demand for shea products.
Consumer demand has increase for non-hydrogenated
oils to be used in food and consumer products, thus increasing supply requirements for “natural”
alternatives, one of which being shea butter. Further in 2012, the European Union altered
legislation to allow for some substitutions of cocoa butter in chocolate production. These market
changes have been major drivers of demand in the last decade and with China’s growing consumer
market, demand is likely to continue to trend upwards.38
38
Al-Hassan, 2012
RECENT DEVELOPMENTS IN THE
GHANAIAN SHEA MARKET
Reasons for the increases in global demand:
• Change in laws that allow
substitution of shea butter for cocoa
in the European Union chocolate
manufacturing industry (Al-Hassan,
2012);
• Growth of shea as an ingredient in
the cosmetic industry in the U.S.
and the European Union (Al-
Hassan, 2012);
• Increased consumer awareness
around hydrogenated oils (USAID,
2010)

22
LIMITATIONS TO DETAILED ANALYSIS
The absence of consistently collected and reported data in Nigeria is the single greatest
barrier to supporting the domestic shea nut industry and encouraging investment, especially from
abroad. Currently, the lack of data means that potential investors are unable to determine the size
of the potential market, the local demand schedules, or the potential margins of production
facilities geared toward exports with value-added processing. The solution is straightforward and
domestic in origin. If the Nigerian Government is able to collect more robust statistics,
entrepreneurs – both foreign and domestic – would be able to understand the existing market’s
demand and supply. Further, reliable data on pricing trends in response to supply and demand
changes would enable individual farmers to determine whether they should move into the shea
sector. This section details the difficulties that currently exist for a researcher – or potential investor
– interested in analyzing the Nigerian shea market through the use of publicly available data
reported by international organizations. Unsurprisingly, there are limitations as internationally
reported data must still be collected at the national level. The subdivision among Harmonized
System (HS) trade codes further contributes to the difficulty in tracking the sources and
destinations of shea products from initial production to end use (See Appendix A for complete
analysis). Further, shea is a niche market with limited visibility in the international commodity
markets (also due to poor data) thus available literature is somewhat limited. While there are many
papers discussing the opportunities associated with shea, many are based on questionable data
sources which proved to be a challenge to establish a baseline from which to work. This paper
endeavored to base its recommendations on economic theory and available data coupled with
corroborated evidence found in the literature.

23
POLICY RECOMMENDATIONS
Data Collection:
Encouraging West African governments to collect and report on production, sales and
exports associated with shea butter, karite nuts and other agricultural goods, would greatly increase
the visibility and marketability of these products. More reliable data enables more sophisticated
and defensible analyses which in turn leads to increase interest in investment in the sector by
foreign and domestic firms. This additional investment is necessary to develop shea into a mature
and efficient industry. This goal is most effectively achieved by the public sector. Customs agents
and tax collectors are already positioned to collect the necessary data, and with minimal additional
funding, effective data collection can be achieved.
Domestic Processing Facility:
Following the Ghanaian model, expanding Nigeria’s capacity to refine shea butter to export
quality domestically will allow Nigeria to capture a greater market share globally. By exporting
directly to end-users at higher prices, Nigeria will create a profitable industry to aid in the
diversification of the Nigerian economy and continue to directly impact poverty in their country.
Private sector investment is key to creating a sustainable and efficient shea industry. Partnerships
with the private sector will be necessary to generate the necessary capital to get facilities off the
ground and the efficiencies of private firms are required to ensure the industry is able to compete
in growing competitive market.
Pricing Information for Producers:
Mobile phones have been used in many developing countries to distribute market and
pricing information to producers in rural areas. In Ghana, mobile services are used to inform rural

24
farmers of the prices of agricultural products in Accra and other cities to allow farmers to make
the best business decisions they can39
. This reduction in price risk for producers will help to
incentivize participating in the market, leading to growth in production and a better ability for
demand signals from the global market to reach small rural producers. By expanding existing
mobile pricing programs to include shea, domestic refining and processing facilities will be
ensuring that they have a sustainable supply chain, thus private sector investors are best
incentivized to create a robust and effective program.
Export Promotion and Government Coordination:
Through effective policy, the government can aid in limiting challenges facing the shea
market. Continued investment in infrastructure will positively impact the business community as
a whole and help to continually reduce business costs across all segments of the market. The
government is well positioned to strengthen market linkages by ensuring that police, export and
customs agents and other public servants are conducting their duties in accordance with Nigerian
law and not adding additional costs to do business through corruption or bribery for regular
services. Further, current efforts to support the industry have been segmented and often driven by
aid programs. A coordinated country wide approach is necessary if the government is going to
create an environment that enables its citizens to capitalize on market opportunities. This policy
may need to include some assessment of ownership of wild growing shea trees in order to ease
investment concerns related to ownership risk and production contracting.
39
Aker & Mbiti. 2010

25
Moving Forward
By encouraging growth in the shea market, great strides can be made to reduce poverty in
an efficient and sustainable way. The shea market domestically is dominated by women and by
encouraging growth in the market, significant benefits will go towards reducing poverty rates by
empowering women to lift themselves out of poverty. Creating an environment with free flow of
information and minimized logistical challenges will enable demand signals from the growing
global market to reach potential producers in remote rural locations. Both public and private sector
actors are needed to ensure the success of this industry. Support from the public sector is needed
in continued improvements to infrastructure and through the creation of public policy that
incentivizes business development and to reduce the political risk associated with investment in
Nigeria. The technical knowledge and capital investments of the private sector are necessary to
establish facilities and grow the industry beyond its current form. By facilitating the transfer of
information and investing in the necessary capital improvements the shea market is poised to grow
and provide much needed income to the segment of Nigeria’s population who can most benefit.

26
APPENDIX A: TRACKING KARITE NUTS AND SHEA BUTTER
THROUGH HARMONIZED SYSTEM
The Harmonized Commodity Description and Coding System (Harmonized System or HS)
is an international product nomenclature developed to standardize product classifications across
countries. The Harmonized System describes around 5000 product groupings by six-digit codes.40
At the national tariff line level, countries further refine product classifications. For example, pure-
bred breeding horses are internationally codified as HS 0101.21. The Harmonized Tariff Schedule
(HTS) of the United States also codifies pure-bred breeding horses as HTS 0101.21, but the HTS,
a national tariff schedule, provides more detailed descriptions at the eight-digit and ten-digit levels.
For instance, HTS 0101.21 contains only one eight-digit subheading (0101.21.00), but within that
are two ten-digit subheadings for males (0101.21.00.10) and females (0101.21.00.20) (USITC
2016).
The Harmonized System (HS) undergoes revisions every five to six years. Initially
introduced in 1988, the first revision (H0) was published in 1992. The second revision (H1) was
published in 1996. The third revision (H2) was published in 2002. The fourth revision (H3) was
published in 2007. The fifth and most recent revision (H4) was published in 2012. It is important
to understand the revision process and history of the Harmonized System in order to investigate
the trade of specific products over time.41
40
Yu 2008, 1.
41
Yu 2008, 3-10.

27
The revision process is intended to maintain the relevance of product descriptions for
national authorities. Over time, new products are supplied to the market and the demand for old
products decline. For example, the growth in trade of modern computers has coincided with a
decline in demand for typewriters. At each revision a product code may either be created,
eliminated, or repurposed. The creation or elimination of a product code does not require a new
invention, or the complete cessation of trade in some product. Rather, the World Customs
Organization (WCO) – the international body responsible for maintaining the Harmonized System
– may decide to collapse or break-out individual products.
With the collapse and break-out process, the World Customs Organization intends to
capture an optimal mix of statistics on international trade. For an arbitrary example, imagine that
apples are codified at the six-digit level into three product groupings: red apples, green apples,
and other apples; now suppose that the trade in green apples declines precipitously for several
years; under such circumstances, the WCO may choose to eliminate the code for green apples by
collapsing green apples into the other apples category. By freeing up the code for green apples,
the WCO is now able to repurpose that code for another product and simplify the analysis of
international trade patterns. The break-out process works in reverse. Continuing with the story of
the apples: imagine that after several years, the WCO now believes it to be advantageous to
monitor the trade in green apples at the harmonized six-digit level; at the next revision, the WCO
may choose to separate green apples from other apples, providing them with a new (or repurposed)
six-digit product code.
Shea nuts are currently codified under HS 1207.99. The four-digit HS 1207 describes Other
oil seeds and oleaginous fruits, whether or not broken. HS 1207 houses beneath it ten, six-digit

28
codes, including HS 1207.99 which is described as simply Other. The third revision of the
Harmonized System (H2) included the code HS 1207.92, shea nuts (karite nuts). However, in the
second revision (H2), HS 1207.92 was collapsed into the existing HS 1207.99. In the correlation
table that concords the 2002 version to the 1996 version, the WCO remarks, “Subheading 1207.92,
relating to shea nuts, has been deleted because of the low volume of trade.”42
In the fourth revision (H3), three additional codes – HS 1207.10, HS 1207.30, and HS
1207.60 – were collapsed into HS 1207.99 due to “low volume of trade.”43
In the fifth revision
(H4), HS 1207.99 was broken-out into five codes, HS 1207.10, HS 1207.30, HS 1207.60, HS
1207.70, and HS 1207.99. These new codes describe palm nuts and kernels, castor oil seeds,
safflower seeds, melon seeds, and the original other category which continues to house shea nuts.44
The United States Harmonized Tariff Schedule (HTS) describes the contents of HTS 1207.99 as
one eight-digit code labeled as other (HTS 1207.99.03), and three ten-digit codes labeled
respectively as niger seeds, hemp seeds, and other (HTS 1207.99.03.10, HTS 1207.99.03.20, and
HTS 1207.99.03.91). Thus, in the national tariff schedule of the United States, shea nuts are
codified under [Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruits; industrial
or medicinal plants; straw and fodder]: [Other oil seeds and oleaginous fruits, whether or not
broken]: [Other oil seeds and oleaginous fruits whether or not broken, including niger seeds, hemp
42
World Customs Organization 2002.
43
44

29
seeds and seeds not elsewhere specified or included]: [Other oil seeds and oleaginous fruits,
whether or not broken, not elsewhere specified or included].45
It is difficult to analyze the trade in shea nuts due to the reclassifications described above.
While it is well-documented that shea nuts are traded under HS 1207.99, any analysis of that code
will be examining shea nuts along with other, unspecified products. In the context of the U.S. tariff
schedule, it is clear that HTS 1207.99 includes shea nuts, niger seeds, hemp seeds, and seeds not
elsewhere specified or included (n.e.s.o.i.). While it is likely that HS 1207.99 contains niger seeds
and hemp seeds, independent of the country in question, the contents of seeds n.e.s.o.i. could vary
widely depending on the locally produced and traded products.
Thus, any conclusions or recommendations drawn from the use of international data in the
analysis of HS 1207.99 – are subject to the following assumption:
1. It is assumed that the percent changes in the trade of HS 1207.99 is a proxy for the
percent change in the trade of shea nuts. This assumption is expected to hold if either:
a. HS 1207.99 is entirely composed of shea nuts;
b. The products within HS 1207.99 are equally represented; or,
c. Changes in the supply of HS 1207.99 do not alter the ratios of underlying
products.
If Assumption 1 accurately characterizes the relationship between trade in HS 1207.99 and
trade in shea nuts, then by assumption, an increase in demand for HS 1207.99 indicates an increase
45
USITC Dataweb 2016.

30
in demand for shea nuts. Given the lack of reliable production and consumption data for shea nuts
on a cross-country basis, it is possible to deduce potential supply and demand information from
changes in trade volumes. For example, an increase in the volume of global exports of HS 1207.99
suggests that at least one of the following has occurred with respect to HS 1207.99:
1. An increase in the supply in the exporter’s domestic market; or,
2. A decrease in the demand in the exporter’s domestic market.
Given the standard assumptions of egoistic rationality and perfect information, the supply of a
product should increase in response to an increase in demand for the product. In the first scenario,
this implies that an increase in exports causes an increase in global demand for HS 1207.99.
Similarly, a decrease in the demand for a product is a consumer response to either: a change in
consumer preferences, or an increase in price. In the second scenario, this implies that for reasons
of preference or affordability, domestic consumption has declined, allocating a greater volume the
export sector.
Given the lack of consistent and reliable data, it is helpful to consider the shea market in
Nigeria through an economic model. While the volume of shea nuts recorded as exports by Nigeria
may underrepresent the actual quantity that leaves the country, a model helps in determining the
directional effects of various policy measures. Model 1 describes a small-country and assumes
that: (1) the price for shea nuts is set in the world market; and (2) the world price is greater than
the domestic equilibrium price that prevails in autarky. The increase in domestic supply is
represented by a shift down (or to the right) from Supply 1 to Supply 2, representing a greater
quantity available at every price point. The quantity consumed domestically remains unchanged
at Q2, where the domestic demand curve intersects the World market price. However, the domestic

31
export quantity increases from the difference between Q3 and Q2, to the difference between Q4
and Q2. If Nigeria is well-described by the assumptions embedded in Model 1, then an increase in
domestic production is expected to increase national welfare.
Model 1
Part of the difficulty in analyzing production and trade data for shea nuts in Nigeria is the
unknown volume of unrecorded exports. In 2013, the Food and Agriculture Organization of the
United Nations (FAO) reports that 325,000 metric tons of karite nuts (shea nuts) were produced
in Nigeria. However, the FAO reports exports of only 836 metric tons for the more inclusive
category Oilseeds n.e.s. If accurate, this implies that of the 325,000 metric tons that were produced,
99.7 percent of the volume was consumed domestically, either by consumers or as intermediate
inputs. Data, as it is currently available, makes it difficult to categorize this 99.7 percent of the
volume. One explanation for at least a portion of the difference between production and exports is

32
that shea nuts as measured for production data and shea butter (i.e. Oilseeds n.e.s.) as measured
for export are likely two different items. Without additional production data, it is difficult to
determine whether the exports of Oilseeds n.e.s. recorded by the FAO represent processed shea
butter, or unprocessed shea nuts.
Another explanation for the low volume of export relative to the production volume is the
transfer of shea nuts across national borders, but not recorded as trade. There are several potential
explanations for ineffective export records. First, while import tariffs represent a source of
government revenue, the Nigeria Customs Service does not enforce export tariffs, and prohibits
the export of only a limited number of goods.46
On this basis, it is well-documented in the
international trade literature that export statistics are relatively less reliable than import statistics.
However, while insufficient export statistics are not unique to Nigeria, in the case of the shea
industry, this insufficiency does represent a barrier to detailed analysis. Second, as a member of
the Economic Community of West African States (ECOWAS), Nigerian exporters face few tariffs
when trading with neighboring states, including Ghana and Niger. Thus, when trading with other
ECOWAS members, Nigeria neither collects import tariffs, nor faces tariffs on most of its exports.
This culminates in an environment in which Nigeria is not incentivized to invest in the collection
of robust export statistics.
Trade statistics published by UN Comtrade (Comtrade) strengthen the argument that this
discrepancy is more significant than differences in statistical definitions. For example, data from
46
Nigeria Customs Service.

33
2011 shows that the world as an aggregate reports importing 541,000 kilograms of HS 1207.99
from Nigeria. However, Nigeria reports exporting only 145,000 kilograms of HS 1207.99 in the
same year. There are two significant problems herein. First, Comtrade reports Nigeria’s exports of
HS 1207.99 as 145,000 kilograms in 2011, while the FAO – also an organization of the United
Nations – reports Nigeria’s exports of Oilseeds n.e.s. as 496,000 kilograms. As HS 1207.99 should
represent Other oil seeds and oleaginous fruits, whether or not broken, other (not elsewhere
specified), any exports reported as Oilseeds n.e.s. should be a subset of HS 1207.99. It is difficult
to further investigate the discrepancy between Comtrade and the FAO. There should be no
difference between the export quantity reported by Nigeria, and the import quantity reported by
the aggregate of all countries. Both values are measured in kilograms, and recorded using a
harmonized definition. The difference between imports and exports is 396,000 kilograms of HS
1207.99. This discrepancy is strong evidence that Nigeria is not capturing the totality of the
products that are shipped over its borders.

34
APPENDIX B: FORECAST: AUTOREGRESSIVE 1ST
ORDER
DIFFERENCING MODEL
In an attempt to make an educated prediction on the movements of the market, given the
aforementioned limitations of the data, we will forecast production and exports out of Nigeria and
Ghana and compare the market trends. Given recent changes in the shea butter market and the
particular interests of our sponsor we will look at the last five years from 2008 to 2013 (most
recent available data). The comparison of the two forecast results will provide a quantified
illustration of the changes in recent years in the shea market and the likely future trends assuming
current market conditions.
We utilized a simple autoregressive first order differencing model to illustrate the observed
data and to provide forecast estimates. In the standard ordinary least squares (OLS) regression
model, the assumption of no autocorrelation (among others) is made. In forecasting, this
assumption is violated as the error terms are serially correlated in time series data. Correcting for
this violation is done through the use of a lagged autoregressive term 𝜑𝜑i.
𝑦𝑦𝑡𝑡 = 𝑥𝑥𝑡𝑡
′
𝛽𝛽 + 𝑣𝑣𝑡𝑡
𝑣𝑣𝑡𝑡 = −𝜑𝜑1 𝑣𝑣𝑡𝑡−1 − 𝜑𝜑2 𝑣𝑣𝑡𝑡−2− . . . −𝜑𝜑𝑚𝑚 𝑣𝑣𝑡𝑡−𝑚𝑚 + 𝜀𝜀𝑡𝑡
𝜀𝜀𝑡𝑡~𝐼𝐼 𝐼𝐼(0, 𝜎𝜎2
)
The notation εt ~ IN(0,σ2
) indicates that εt is normally and independently distributed with
mean 0 and variance σ2
. By estimating the regression coefficients β and an autoregressive error
model parameter 𝜑𝜑i the error term is corrected for autocorrelation in the otherwise standard OLS

35
regression analysis.47
Given the uncertainty of the data we have chosen to reduce the alpha level
of our regression to the 90% level, which allows for additional error in the model.
The modeling of the Vegetable Oil NES commodity code does not allow us to differentiate
shea butter from other products in the mix (See Appendix A). We will assume that the proportion
of shea butter within that HS code is maintained within the total, thus we can be reasonably certain
that the trends within the market also apply to the shea market specifically. Further we are
bounding our results to positive numbers. In two of our models, the expected values fall below 0,
however as we are working with agricultural commodities, the production and export values
cannot be negative. This is a reflection on limitation of the use of a linear model where theory
dictates a lower bound in the output. Given our assumptions and unclear reliability in the data, we
did not feel we could justifiably utilize a more sophisticated model and accurately attribute those
results to the research.
There are several weaknesses that are evident in our model apart from our already
questionable data. The narrow time span is likely creating a sample bias that is accentuating the
most recent trends and not taking into account longer term effects. This presents the appearance
of a strong change, positive or negative, when more gradual changes are supported in the literature.
With greater accuracy in the data we would be able to model a wider timespan which would allow
the model and the estimated values to more accurately reflect the observed data.
47
SAS Chapter 8 “The Proc AUTOREG Procedure” page 305 www.okstate.edu/sas/v8/saspdf/chap8.pdf

36
Significant p-values were observed in three of the four models indicating that the estimated
model had a reasonable level of descriptive power (See Appendix C). The R2
values of the models,
adjusted for the autoregressive term, ranged from .47 to .75, providing a moderate fit to the data.
It does not appear that serial correlation is an issue in the model as Durbin-Watson coefficients
range from 1.29 to 2.75. As the range is ‘close’ to 2 (between 1.5 and 2.5) we can be reasonably
certain that the serial correlation is not substantially obscuring the estimates (See Appendix C).
The market trends for exports showed positive slopes, indicating growth in the export of vegetable
oils NES in both countries. This lends credence to the observed trends in the literature that the
market for shea is growing globally. The production models showed negative slopes for both
counties. The slopes of the two production models are likely steeper than they are in reality (See
Appendix C). As was observed in any industries, there was a slow-down in the market following
the financial crisis in 2008, growth since then has been somewhat flat, so it is likely that the limited
timeline is skewing the slope and provide a spurious result related to the specific estimate
parameters.
AR Estimate STD Error P-Value Total R2
Nigeria
Production
-14,411 8614 .1929 .4777
Ghana Production -9,750 2694 .0363 .7508
Nigeria Exports 9.2488 3.6881 .0871 .6547
Ghana Exports 1,818 708.3397 .0827 .7139

37
The primary takeaway we can gather from these models is the general trend in the market.
The vegetable oil (N.E.S.) market is likely to increase over the next five years. While exports are
not likely to grow as dramatically as this model indicates, our research supports the hypothesis that
the export market is growing. For the analysis of shea production, models for both countries
indicate a decline in production, however it should be noted that for Nigeria, the results are not
significant at the 90% confidence level. Thought these trends show somewhat dramatic changes,
the data indicates that more could be done to encourage growth in the industry and capitalize on
this market opportunity. We can posit that because we are still greater growth in exports while see
a decline in production, may be an indicator that the proportion of shea produced for export is
growing, even in a somewhat stagnant global economy. By investing when the market is low, the
project would be better situated to capture future growth and returns.

38
APPENDIX C: FORECAST OUTPUTS

39

40

41

42

43

44

45

46
DATA GRAPHS & TABLES:
Data Sources: FAO Statistics
Figure 5 Producer price for karite nuts, 2010-13 (FAO Stat) *Pricing data for Ghana not available

47
Producer Price Index (’04-’06=100) Karite Nuts

48
Figure 6 Shea nut production in Ghana, 2000-13
Figure 8 Shea nut production in Nigeria, 2000-13

49
Figure 9 Vegetable Oil NES exports from Nigeria and Ghana, 2000-13

50
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