With the world’s seventh-largest population, which continues to grow rapidly from a base of 170m, agriculture is an exceptionally important element of Nigeria’s economy. After decades of declining production, trends have been moving in the opposite direction in the past several years as overall food supply rises. Guided by the Agricultural Transformation Agenda (ATA), which was launched in 2011 as part of a push to overhaul productivity and output in the sector, short-term goals have included eliminating market distortions and improving transparency while delivering more and better inputs to farmers. The medium-term goal is to achieve self-sufficiency in a number of key staples, such as rice, and to develop the agribusiness sector and export markets.
The potential of Nigeria’s agribusiness sector is sizeable, given the vast extent of as-yet-unproductive arable land and the availability of feedstock for inputs, but challenges remain. For example, almost half of daily tomato production rots on its way to market because Nigeria’s poor road network prevents a timely transfer to buyers, according to Akinwumi Adesina, minister of the Federal Ministry of Agriculture and Rural Development (FMARD) under the outgoing Jonathan administration.
Under the framework of the ATA, the ministry is looking to address agriculture from a wider perspective than was done previously. The ATA was launched with the goal of adding 20m tonnes of food to the domestic supply by 2015 and creating 3.5m new jobs in the process.
Early interventions, including programmes to boost farmers’ access to extension services, have helped to boost yields by improving inputs such as liberalising markets for seeds and fertilisers. The overall availability of food has increased to such an extent that the country has met one aspect of the UN Millennium Development Goals three years in advance of the 2015 deadline: by 2012 it had already reduced hunger by 66%, fulfilling one aspect of goal one.
“The mentality has changed in Abuja,” said Emmanuel Ijewere, chairman of Best Foods Global Nigeria, a processor of livestock and seafood. “Instead of just looking at farmers, they now see agriculture overall, along with agribusiness, in one value chain.”
The plan considers foreign investment as a key input, and the ATA is looking to attract large-scale investors to help secure supply of agricultural outputs from local, small shareholder farmers by guaranteeing they will buy output at market prices, along with providing inputs. Local processing is growing in part not only because of the push from the government but also due to a rise in local consumption that has seen an increase in formal retailing and quick-service restaurants (QSRs).
These outgrower-based relationships form a key component of the regionally customised industrial parks that the ATA refers to as staple-crop processing zones (SCPZs). The zones are still in developmental phases, but once operational should allow farmers that can guarantee steady supply at predictable qualities access to large buyers looking for steady commercial relationships. That growth is a process that predates the ATA but presents the type of commercial arrangement the plan envisions.
Sharing the Wealth
As of late 2014 the main buyers of agricultural output – ranging from vegetables to cash crops such as cocoa and rubber – remain traders who operate in the informal economy. In the ad hoc deals they strike with farmers, they often capture up to half of the value of the harvested yield; however, the formal-sector buyers are keen to abandon the intermediaries they depend on and lower costs by working with the suppliers directly.
Shoprite, a retailer from South Africa, has established a process in which it inspects farms and farmers’ processes, and maintains an approved list of them from which it will buy produce, for example. QSR companies are in some cases making upstream investments in order to secure a reliable supply. For farmers, the ministry is hoping to give them a greater share of the value they create by reducing informal intermediation, and allow the emergence of longterm relationships to reduce risks in the growing process. If the agricultural sector matures along these lines, the contributors to this value chain could find it easier to access bank loans or other forms of credit, and that would address another key complaint of Nigeria’s small-scale farms.
One of the key components of the ATA is the Growth Enhancement Support Scheme (GESS), which subsidises input costs such as seedlings and fertilisers. The programme began in 2012 and had 4m registered farmers that year. GESS has grown rapidly and as of late 2014 included over 14m Nigerian farmers, some 60% of the total farming population in the country. The rapid growth is understandable, as the incentives are high. With the support of federal and state officials, farmers enrolled in the programme receive a 50% subsidy on their inputs. The government manages the distribution of inputs through an electronic-wallet system that has reduced the chances of corruption that plagued previous subsidy programmes.
“The GESS is a laudable project that has helped reverse the large-scale corruption traditionally having affected the fertiliser and seed industries,” Paul Gbededo, group managing director of Flour Mills of Nigeria, told OBG. “Through the e-wallet system, the government has eliminated layers of middlemen, and linked farmers directly with agro-suppliers.”
The emphasis on improving inputs for farmers is also likely to have an impact on yields. In many staple crops, the country performs reasonably, but has much room for improvement. In Cassava, for example, Nigeria’s average yield in 2013 was 14 tonnes per ha, compared to 16.7 tonnes per ha in Ghana, according to the UN Food and Agriculture Organisation (FAO). While Nigeria’s performance was above the continental average of 11.1 tonnes, it paled in comparison to several Asian and Caribbean countries, where yields exceed 20 tonnes per ha. In India, for example, the average yield in 2013 was 35 tonnes.
Folusho Olaniyan, former CEO of UTC Nigeria and current CEO of Compact Consulting Nigeria, a cassava marketing and strategy consulting firm, told OBG that there is a persistent problem with the quality and consistency of cassava. “The variation in the quality of cassava stems is an issue for buyers,” says Olaniyan. “The starch content might vary considerably and the yield processors achieve is not always what they expected. I believe that varieties should be planted in an orderly manner so that one region has all the same quality for local processors.”
A focus on seeds and fertilisers, amongst other factors, should help push Nigeria’s production volume up and improve quality. The Nigeria Root Crops Research Institute (NRCRI) is one of a number of bodies working to introduce high-yielding cassava varieties into the Nigerian market. In August 2013 the International Institute of Tropical Agriculture announced that, in conjunction with the NRCRI, it had released two new varieties in Nigeria with maximum potential yields of between 49 and 53 tonnes per ha. The varieties, UMUCASS 42 and UMUCASS 43, are also pest resistant and disease resistant, and contain moderate levels of vitamin A.
It is not only research and development organisations that are focusing on maximising yields. The African Agricultural Technology Foundation’s (AATF) Cassava Mechanisation and Agro-processing Project has had a significant impact on yields. Following the introduction of fertilisers, herbicides, mechanised equipment and new cassava varieties under the project, farmers in Osun State reported yields of between 28 and 33 tonnes per ha in 2014, compared to a normal average yield of 7 tonnes per ha.
The project is also delivering other benefits. George Marechera, the business development manager at the AATF said in a press release, “The harvested tubers also attracted higher purchase prices through structured market linkages between farmers and processors facilitated by the project. Processors collected the cassava tubers from farmers’ fields, reducing the duration of time to market, which is key to preserving the quality of the tubers and ensuring [they are] processed within 12 hours of harvest.” Thus far, the project has been rolled out in four Nigerian states – Kwara, Kogi, Ogun and Osun.
Agriculture, once the backbone of the Nigerian economy in the pre-oil era, continues to be a key contributor to the economy, comprising 22% of GDP in 2013, according to the Nigeria Bureau of Statistics. Farming provides a livelihood for 60% of the population.
The typical profile in Nigeria is a subsistence farmer working a small plot of land and selling the surplus to traders. An estimated 80% of farmers live on less than a dollar a day and farm a plot smaller than one ha, according to research carried out by the US Department of Agriculture (USDA).
On these farms rainfall is one of the main risks, as irrigation systems are uncommon, and manual labour is sometimes the only option for ploughing, as there are less than 30,000 tractors available in the whole country, the USDA found. This is a problem that is more pronounced in certain areas. Olaniyan told OBG, “There is a need to roll out more tractors and mechanisation. The government is working hard on this, but the geographical coverage is partial.”
Crops account for 85% of all agricultural activity, while livestock, poultry, fisheries, forestry and other segments comprise the balance. The staple crops include rice, cassava, yam, sorghum, millet, groundnuts and palm oil. Amongst the main cash crops are cocoa, rubber and shrimp. The sector is considered to have been in decline for the past four decades, since the country was self-sufficient in the 1960s. The food import bill stood at N1.2trn ($7.3bn) in 2012, according to the Central Bank of Nigeria (CBN), equal to 12.9% of total imports. Only oil (24.6%) and industrial imports (18.5%) surpassed that share.
The ministry’s goal is to ensure food is a shrinking part of the mix. The five crops singled out by the ATA are rice, cassava, sorghum, cocoa and cotton, and the overall value of the crops produced has been climbing in recent years – reaching a total of N12.112trn ($73.88bn) in 2013, up from N12.107trn ($73.85bn) the previous year, according to figures published by the CBN. The figure has climbed every year since the 2010 total of N11.65trn ($71bn).
There are 84m ha of arable land in Nigeria, of which the ministry has said only 40% is cultivated and just 10% is optimised. That may be a measure of potential, but access to land counts as one of the chief obstacles to increased production. Most land for agriculture is provided on a 50-year leasehold basis, but acquiring documentation is a long and difficult process, and using land as collateral for accessing credit is impossible for most farmers.
An occupancy certificate requires 14 steps and takes six to nine months, according to the FAO. Land is governed by the 1978 Land Use Act, which gives states control over land designated as urban, and local governments control over land considered rural.
For foreign investors in particular, land acquisition can be a challenge, and for this reason the FMARD is promoting outgrower schemes, in which an investor can establish relationships with local farmers who do the growing for them. In the typical exchange, investors are encouraged to provide support and inputs, and act as a guaranteed offtaker at market prices in exchange for exclusive right to the harvest.
The ATA reforms are structured around several key areas: getting fertiliser to farmers at subsidised rates and providing them with high-yield seeds; creating marketing boards for key crops to help farmers get the best possible prices; establishing the SCPZs; and an overall de-risking of the agricultural process.
The common theme across the various reforms in the plan is a mental shift away from viewing agriculture as a development activity or a government programme towards approaching it as a business. This means considering the entire supply chain, including growing crops for which there is demand, and having a plan to ensure that produce reaches market in sufficient time. The ATA bills itself as a comprehensive “farm-to-fork” approach.
At the base of that process are agricultural inputs, and the ATA has prioritised the distribution systems as a first step. It liberalised the markets for seeds and fertiliser, which were previously handled by public agencies. Government involvement in these markets had led to a distribution system in which middlemen and large-scale farmers were benefitting at the cost of the millions of small-scale growers, both in terms of access to quality inputs and prices paid. In both cases, the government is no longer the sole supplier.
The market response has been a massive increase in seed suppliers, from 11 before the reform to 77 in 2013. For fertiliser, the old system entailed the government selling to distributors at a subsidised rate, and trusting them to resell to farmers with the discount reflected in the price. Instead, distributors were largely pocketing the difference, according to the ATA. Now the government has opened up room for importers and there are currently 17 suppliers. The state also eliminated the distributors’ role in the subsidy process. Farmers instead receive vouchers that they present as part of the payment to fertiliser sellers, who then redeem the vouchers for cash. This transaction can also be done via the e-wallet system. Nonetheless complaints persist of a lack of access to fertiliser, and in certain cases and areas, such as Delta State, some poultry farms have been reselling chicken manure as a cheaper alternative.
Marketing boards for key products, such as cassava, cocoa and livestock, are also being rolled out to help farmers by promoting consistent pricing for their outputs. This removes the burden of negotiating with a middleman, who may have a better sense of the market. The boards, as envisioned, will also help by promoting Nigerian products at home and abroad, and serving as a lobby group to interact with the government on relevant issues.
Moving further down the value chain, the ATA sees SCPZs attracting large-scale food processors and other industrial users of agricultural products that will drive demand and work together with farmers to ensure reliable supply at consistent quality. These are envisioned as industrial parks based on the crop best suited for the area they are situated in.
According to a presentation by the UN Industrial Development Organisation (UNIDO) at the World Economic Forum conference in Abuja in May 2014, multilateral development agencies including the World Bank, the African Development Bank and the International Fund for Agricultural Development have committed $350m to help create the SCPZs. Their projects include supporting infrastructure and capacity-building programmes for small farmers. UNIDO has aided the FMARD in developing master plans for the SCPZs (see analysis). The Ghana Cocoa Board, better known as Cocobod, is an example of how this model works, as the agency has taken a primary role in the cocoa value chain there.
There are also moves afoot to reinvigorate the Abuja Securities and Commodities Exchange, a bourse that was set up in 1998 and converted to a commodities exchange in 2001. It has never managed to trade volumes high enough to achieve the desired impact, however, in part because the storage facilities needed to facilitate trades are lacking.
After years of inactivity, 2015 is likely to see a change in the exchange’s ownership. According to the director-general of the Securities and Exchange Commission, Arunma Oteh, discussions began in January 2014 to transfer ownership of the exchange to Heirs Holdings, a Lagos-based conglomerate.
Tony Elumelu, chief executive of Heirs Holding, told Bloomberg in December 2013 that Heirs would like to buy the trading facility or apply for a licence to start one of its own. Heirs Holding is currently an investor in Africa Exchange Holdings, which operates the East Africa Commodities Exchange in Rwanda, and has ambitions to serve West Africa from Nigeria. The Securities and Exchange Commission said in January 2014 that it would aim to complete the privatisation process by mid-2014, though that process was still ongoing when OBG went to press.
Minister Adesina told reporters in 2013 that such a bourse would have a dramatic impact on agricultural development in the country. “In Nigeria, the [new] commodity exchange will allow farmers to have access to markets on a more regular basis; it will improve price discovery in the marketplace, because you know the prices of all commodities in different areas; and it will improve the transparency and efficiency of market dealings, because the farmers will know who they are selling to and there will be formal delivery contracts. I think that the exchange will also help ensure quality of produce, especially for international markets,” Adesina said.
One of the most prominent domestic investors in Nigeria’s agriculture and food-processing sectors is Dangote Group, which in May 2014 announced a new commitment of $2.3bn aimed at agriculture in Nigeria’s northern states, to be spent over a three-to-five-year period. The goal is to develop 250,000 ha of land for sugar cane and 130,000 for rice farming, with SCPZs to host downstream buyers. The announcement came in part as a response to the unrest related to Boko Haram militants in the northern half of the country. Roughly two-thirds of Nigeria’s population lives in the northern states, and solutions for agriculture must take into account these geographic and demographic factors. Other companies have also indicated that they may take similar action, including Cargill, Olam, Blackstone, The Carlyle Group and Nestlé.
Two government support programmes also aim to boost the agriculture sector while providing jobs for Nigeria’s youth. The first initiative, the Fund for Agricultural Finance in Nigeria (FAFIN), was launched in July 2014 and is an agriculture-focused investment fund sponsored by the FMARD, the Nigeria Sovereign Investment Authority and Germany’s KfW Development Bank. Currently valued at $34m, the fund is managed by Sahel Capital and seeks to invest in small and medium-sized enterprises (SMEs) throughout the agricultural value chain. In addition to providing funding, FAFIN includes a technical assistance component that aims to help SMEs make the most of invested funding. In December 2014 FAFIN made its first successful investment, securing a 25% stake in dairy producer L&Z Integrated Farms.
The second initiative, launched in late 2014, is the Youth Employment in Agriculture Programme (YEAP), which seeks to create jobs for young people. With a total of N37bn ($225.7m) in funding and support from a range of international partners, including the Word Bank and USAID, YEAP aims to create employment for more than 750,000 youth over a five-year period. The initiative has a dual focus: 1) supporting young entrepreneurs who are active in agri-business; and 2) linking these entrepreneurs with young, market-oriented farmers who can provide the needed agricultural inputs.
Reforms in the Rice Industry
In terms of crop focus, one of the first crops to be singled out for attention by the FMARD was rice, for which a protectionist import-replacement effort is under way: tariffs have been rising and Nigeria plans to ban imports starting in 2015. The story is indicative of the wider challenge of import replacement in Nigeria. Rice is generally seen as a first choice at mealtime, and Nigeria has long been dependent on imports, predominantly from Thailand.
Nigeria produced 2.4 tonnes of rice in the 2012-13 market year, according to USDA data, with 2.8m tonnes expected for 2013-14. Nigeria typically spends $2bn a year on imports, according to the International Food Policy Research Institute (IFPRI). Imports total about 3m tonnes of parboiled rice per annum, according to the USDA, and the market share of domestic rice has been falling for the last 25 years. Nigerian rice accounted for 75.5% of supply in the 1990s, 55.1% in the 2000s, and 53% from 2010-12.
Domestic producers’ inability to compete on price and taste explain the phenomenon – the cost of production in Nigeria is approximately double that of Thailand, one of the world’s main rice suppliers. Even with shipping costs and associated fees included in the calculations, Thai rice is cheaper in the Nigerian market. The country’s plan to become self-sufficient in rice has included additional investment in milling, along with the distribution of higher-yield seeds and fertiliser. While domestic rice production has increased, the plan to become self-sufficient has a significant obstacle to overcome in the form of widespread smuggling.
An estimated 8000, 50-kg bags of rice were illegally brought into the country on a daily basis in 2013, according to Oryza, a website dedicated to news about the rice industry, partly as a result of the rise in tariffs. Much of this smuggling was conducted through Benin, Nigeria’s western neighbour. Smuggling is a common phenomenon at Customs points, according to Adesina.
“The potential for Nigeria to succeed in its quest to become self-sufficient in rice will depend a lot on how well the government can maintain its policies,” IFPRI concluded in its report, titled “Assessing the Potential and Policy Alternatives for Achieving Rice Competitiveness and Growth in Nigeria”, which was published in November 2013.
Another key crop singled out for focus in the early stages of the ATA is cassava, the tuber that is often ground into a flour for further processing or mashed into local mealtime staples such as garri or fufu. Nigeria harvested over three times more cassava than the next-largest producers, Ghana and the Democratic Republic of Congo. The country has made cassava flour an important element of its food-processing goals.
Cassava presents a different problem from rice, however. It is not imports that provide the obstacle to domestic growth but the crop’s quickness to rot before consumption, a process that takes about two days. Nigeria produced 52.4m tonnes of cassava in 2011, and forecasts for 2012 and 2013, the most recent years for which data is available, were at 54m and 55m, respectively, according to the FAO.
Production levels aside, there is no short-term fix for the problem of the national road network. Given its shortcomings, it is difficult to get output to markets and into homes fast enough, so progress here is more likely to be achieved via the SCPZ approach. A cassava-focused SCPZ is in development in which cassava can be refined into multiple outputs with a longer shelf life, including cassava-based sweeteners, flour, pellets and chips (see analysis).
Indeed, the Jonathan administration hopes that the development of such products can help with the federal import substitution programme and make a significant contribution to the reduction of the country’s bloated food import bill.
The Ministry of Agriculture, for example, is pushing for the use of cassava flour in bread and other baked goods as a means of reducing the country’s dependence on wheat. Given that imports of the staple grain cost the country around N635bn ($3.9bn) annually, the introduction of 50% cassava flour bread could save Nigeria more than N315bn ($1.92bn) each year, according to Adesina.
While the government has taken steps to mandate 20% cassava flour in domestically baked bread, the success of the broader cassava strategy will be dependent to some degree on demand amongst end consumers and the appetite amongst retail outlets for products that can be created from intermediate inputs such as cassava flour, chips and sweeteners.
So far, the early signs are promising. “Cassava is moving up the value chain,” Olaniyan told OBG. “Shoprite is now selling cassava bread, while Honeywell Flour Mills and Flour Mills of Nigeria have launched a pre-blended multipurpose flour comprising cassava and wheat.” Given the cost advantages of cassava bread, large-scale bakers such as Food Concepts, UTC and Butter Field Bakeries, have already rolled out 20% cassava flour in many of their products on a commercial scale.
While cassava has the potential to become an economic success story for Nigeria, it may simply mask some key challenges for the wider agricultural sector. The Jonathan administration has instituted protectionist policies in a bid to achieve its ambitions for home-grown staple crops. For cassava, for instance, the government introduced a 15% levy on imported wheat in 2012, increasing the effective duty from 5% to 20%, as well as a levy of 65% on imports of wheat flour.
These measures speak to the competitiveness issues and weak supply in the domestic market. Indeed, despite new tariffs, wheat imports into Nigeria are expected to increase to 4.3m tonnes in 2014-15, up from an estimated figure of 4.2m tonnes in 2013-14, according to the USDA. The grain is likely to remain in high demand as a result of problems related to the stable supply of local staples.
Despite strong government intervention and policies to support the development of the sector, agriculture in Nigeria still suffers from certain chronic and persistent issues. One of the key challenges, according to the USDA, is that supporting infrastructure for the agricultural industry in the country is “grossly inadequate”. Perhaps the biggest issue in this regard is the country’s road network and transport infrastructure. Thanks to bad roads, as much as 30% of produce bound for local markets spoils before reaching the point of sale. According to a 2013 report by the African Development Bank, an estimated 90% of local roads, 70% of state roads and 42% of federal roads are in a poor or failed condition.
In terms of infrastructure in general, Nigeria ranked 134th out of 144 countries for infrastructure on the World Economic Forum’s Global Competitiveness Index. This has a direct impact on the competitiveness of domestic farmers. For example, in the corn sector, bad roads coupled with an abundance of road security check points and poorly maintained drainage systems push up the final cost of the commodity by as much as 20%, according to the USDA.
Indeed, beyond delays and wastage associated with infrastructure problems, local transportation routes often include other hidden costs and non-tariff barriers. “Local tariffs are an issue, especially in the Niger Delta, and transporters simply pass this cost on to the farmer or supplier,” Olaniyan told OBG.
While farmers face difficulties with other input costs such as labour and energy, the sector has been offered some short-term respite in terms of local competitiveness. With crude oil prices dropping and the country facing lower export earnings, the naira fell to a record low against the dollar in November 2014. As such, local producers are currently more competitive against imports, although with tight supply and an expected long-term stabilisation of the naira, the impact in terms of the real benefit to domestic production is likely to be limited.
Nonetheless, as decision-makers grapple with the challenges presented to them and their goals, there is increasing evidence that the elemental mix of better inputs, extension services, and access to credit will result in higher yields. Evidence on a smaller scale comes from Doreo Partners, an impact-investment firm with a targeted programme called Babban Gona, which means “great farm” in Hausa. Doreo uses a franchise model in which franchisees are local groups of farmers or grassroots organisations, and Doreo provides the land, inputs, marketing and financing. Thus far 400 franchises have been created, all in Kaduna State and all growing corn. The groups typically have four to five members. Yields can rise to 6.9 tonnes per ha, as opposed to 0.8 tonnes or below outside the Babban Gona system, according to Doreo.
Access to financing is a critical part of that mix. Nigeria has struggled for years to coax its banks to lend to agriculture, and in a wider sense to entrepreneurs across all sectors in its real economy. One of the more successful programmes now and in the past has been the Commercial Agricultural Credit Scheme (CACS), which is offered through the CBN and FMARD in partnership with local banks. The programme accounts for the increase in bank lending in 2013 and 2014, Ijewere told OBG.
In the CBN’s 2012 annual report, the most recent available, additional notes to the financial statements indicate loans to banks that were then passed on to farming operations through CACS totalled N185.64m ($1.13m) in 2012, up from N154.16m ($940,000) the previous year.
Other development programmes spearheaded by the CBN include the Agricultural Credit Guarantee Scheme Fund, the Nigeria Incentive-based Risk Sharing System for Agricultural Lending and the Agricultural Credit Support Scheme. Overall, agriculture’s share of total bank credit has climbed from 1.4% in 2008 to 4% as of the middle of 2014.
Given the successes achieved so far, the agricultural sector is poised to reinforce its role as a key economic contributor. With the reforms of the fertiliser subsidy programme and growing partnerships with major investors, production is set to sustain its upward trend as farmers improve inputs and farming methods. Meanwhile, efforts to boost domestic agribusiness capacity will allow Nigeria to capture more of the agricultural value chain incountry, thereby creating jobs and increasing wealth.