Nigeria has a number of constraints hampering growth in the agricultural sector, ranging from transport networks to access to financing. However, chief among the challenges is limited productivity. The country suffers from sub-par yields, which curb farmers’ profitability and restrict efforts to achieve self-sufficiency in the sector.
Consumption
One answer to the productivity problem lies in the choice of inputs used in farming. The proliferation of strong seed varieties and fertiliser is minimal. In 2010, potential demand was estimated at 3.5m tonnes per year. However, farm use of fertiliser stood at just 0.6m tonnes, or 17% of this potential, well short of the sort of consumption levels that could sustain an industry potentially worth N260bn ($820.8m), according to a 2014 study by the UK’s Department for International Development (DfID).
The situation has not improved markedly in the last five years. According to the World Bank, fertiliser consumption now stands at approximately 600,000 to 700,000 tonnes, compared to an estimated potential market size of 10m-12m tonnes. The current estimates for application, which put fertiliser usage at between 6 kg per ha and 20 kg per ha, are well below the figures for developed nations, where usage often exceeds 200 kg per ha. Consumption also falls substantially short of fertiliser application in other regional markets. Nigeria would have to increase usage by 500% to catch up with markets such as Egypt and South Africa.
Nigeria is likely to fall in line with the trend for sub-Saharan Africa, whereby nitrogen fertiliser demand is expected to increase faster than any other global region in the years to 2018, according to the Food and Agriculture Organisation of the United Nations. Approximately 340,000 tonnes will be added in the region by 2018. However, in global terms, this is not a significant volume, representing under 5% of the total increase in global fertiliser uptake in the next 2 years.
The benefits of increasing fertiliser usage are sizeable, both at headline levels and for smallholder farmers. Propcom Mai-Karfi, a local programme run by the DfID, found that applying fertiliser correctly improved yields for Nigerian farmers by as much as 55%, which in turn led to profit increases of up to 40%. Another study by the Federal Ministry of Agriculture and Rural Development (FMARD) found that fertiliser was a profitable investment for smallholder farmers.
However, factors such as cost, access and correct usage limit the ability of farmers to use fertiliser. A survey conducted in 2010 found that more than 90% of farmers in three northern states felt they needed more training in the application of fertiliser. Cost is also a significant barrier. A survey in Kwara State in 2008 found that annual incomes in rural households averaged N30,000 ($94.71), while a 50-kg bag of fertiliser cost N3750 ($11.84), more than an average farmer’s monthly salary. Costs were often even higher in reality, as farmers had to travel to access good-quality fertiliser.
State Subsidies
Until 2011 the government’s main policy to increase fertiliser usage was through a subsidy scheme, under which they distributed fertiliser at a 25% discount. This discount was sometimes complemented by a state-level subsidy. However, the system was opaque and subject to graft. Government-bought fertiliser was often diverted to the private market, where it was sold at higher prices. According to the FMARD, only 11% of farmers received the subsidised fertiliser intended for them between 1980 and 2010.
As a result, the previous administration of Good-luck Jonathan introduced the Growth Enhancement Support Scheme (GESS) in 2012. Under this programme, the federal government sought to get out of the business of the direct purchase and distribution of fertiliser and instead become “a facilitator of procurement, regulator of fertiliser quality and catalyst of active private sector participation in the fertiliser value chain,” according to the FMARD. The GESS allows farmers to acquire subsidised inputs, such as fertilisers and seeds, through a mobile e-wallet system.
Farmers are able to purchase fertiliser at a discount of 50% (25% federal subsidy and 25% state subsidy) directly from retailers and private suppliers using their mobile phone.
The scheme set a target of increasing usage to 50 kg per ha and has so far had mixed results. As of mid-2015, the GESS had reached 5m farmers, although given that there are 60m farmers in the country, it still has some way to go. Furthermore, there have been press reports of leakage, with eligible farmers said to be unable to access fertiliser, and some of the supply allegedly having been siphoned off and sold at higher rates.
Nonetheless, the scheme has been largely welcomed, and has increased private sector participation. The previous system of government distribution “tended to crowd out the private sector and create opportunities for rent-seeking individuals,” according to the World Bank.
Commercial Production
With the government having exited the market, the scheme has also given clear incentives to private suppliers to reach out to, and cater for, small and medium-sized farmers. For example, the local urea and nitrogen-based fertiliser producer, Notore Chemical Industries, which started commercial operations in 2010, began marketing a variety of products, including smaller and more affordable 1-kg and 10-kg bags of fertiliser. During a pilot scheme phase, the company sold 1-kg bags of urea and NPK to the local market at prices of N120 ($0.38) and N150 ($0.47), respectively.
The company has now sold unsubsidised fertiliser to over 1m Nigerian smallholder farmers. According to the 2014 DfID-backed study, in 2012, for farmers accessing these products and their associated educational schemes, yields increased by 19%, income grew by 11% and farmers earned an average of N928 ($2.93) more profit in the season. Notore, which plans to distribute 1.75m metric tonnes of urea and 1m metric tonnes of NPK (a blend of nitrogen, phosphorus and potassium) in the Nigerian market in 2016, is looking into raising N20bn ($63.1m) through an initial public offering.
Other actors are looking at the sector. In January 2016, Aliko Dangote, who has a variety of business interests in the country and is frequently referred to as Africa’s richest man, announced that he plans to build a N2.8trn ($8.8bn) refinery and fertiliser plant at Lekki in Lagos State. The projects are scheduled for completion in 2019 and are estimated to contribute a total of 235,000 jobs through direct and indirect employment. Dangote stated his belief that the project would turn Nigeria into an exporter of fertiliser. “When we finish, Nigeria will be the largest exporter of urea and ammonia in Africa…The refinery is the largest single line in Africa and it will meet our total domestic requirement and save foreign exchange,” Dangote told the local press. The $2bn fertiliser unit will be funded through loans, export credit agencies and his own equity, Dangote said.
Gas Supply
The country is certainly well placed to achieve these grand ambitions. Nigeria harbours more than 180trn cu feet of proven gas reserves, according to the Nigerian National Petroleum Corporation, and the gas supply market has grown to 2bn cu feet per day. As such, new fertiliser plants are not going to want for feedstock.
The government is also highly supportive of such investment. Despite current restrictions on US dollar supplies, the central bank has agreed to release foreign exchange for Dangote’s refinery investment. Godwin Emefiele, the governor of the central bank, told the local press, “We expect that by the time these projects are completed, they will not only meet the needs of our domestic requirements – by the time they are completed, he ( Dangote) will be exporting these products to the point where he will be selling foreign exchange to Nigerians and the central bank to the tune of almost $6 billion yearly… That is the kind of project we think we should support.”
As such, the fertiliser market looks set to be entering a period of growth that will have sector-wide benefits. How much of the growing flood of supply hitting the market can make its way to farmers in rural areas remains unclear, but access is undoubtedly improving. Thanks to government schemes and private sector investments such as Dangote’s, mean fertiliser usage in the country is only likely to increase in the coming years.
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