This Day (Lagos)

6 November 2011

Nigeria: Agriculture Policy Review Draws Applause

analysis

The ongoing coordination between the Agriculture Ministry and the Central Bank of Nigeria in their efforts to reposition the agricultural sector is enjoying the support of industry analysts who seek enhanced agricultural productivity and the attainment of food security, reports Festus Akanbi

Attention was again drawn to the abysmal performance of the nation's agricultural sector a fortnight ago when the Central Bank Governor, Sanusi Lamido Sanusi reeled out the facts and figures on why existing agricultural policies should be reviewed with the aim improving output from the sector.

Economic commentators said the call for policy review couldn't have come at a better time considering the startling revelation from the apex bank's governor that Nigeria is incurring a total food import bill of $4.2 billion (about N638.4 billion) annually due to the neglect of agriculture. To redeem the situation, a completely new agricultural policy was proposed by the CBN, to which observers have said the new blueprint may form the basis of intellectual discourse in the days to come.

The Gaps

The damning report of the nation's agricultural sector presented by the CBN governor was substantiated by the Minister of Agriculture, Dr. Akinwunmi Ayo Adesina in a recent interview with THISDAY.

One of the problems identified by the minister was the appalling level of financing in agriculture in comparison with other African nations. According to him, "Nigeria spends only 3 percent or less of her entire budget on agriculture. Other countries, much smaller than Nigeria, do much more. Rwanda, Tanzania, Kenya, Malawi and Mozambique spend between 10 percent to 15 percent and more on agriculture."

The minister pointed out that agricultural productivity is low, noting that yields of farms in Nigeria are extremely low, with the average yield of seed crops in Nigeria still at approximately one ton per hectare compared to the global average of five tons per hectare. "As big as Nigeria is, only five percent of our farmers use modern seeds."

In terms of fertiliser usage, he pointed out that Nigeria is today using only 13kg per hectare of fertiliser. "Now the global average is 100kg, China is close to 400kg per hectare. Most of the food we produce comes from expanding cultivated areas, not from increasing productivity per unit area," he said.

Another problem besetting the agricultural sector is the problem of poor and rudimentary storage culture. He noted that a lot of what we produced is lost due to lack of proper storage and processing facilities, explaining that Nigeria farmers have been poor managers of agricultural resources due to poor planning. "Look at yams in Benue, big yams, but we are losing them because we don't have any way of processing it. In Kadawa Valley in Kano, we were producing before about 630,000 metric tons of tomato. Today, we have 240,000 metric tons, why? Every day that tomato rots because there's no cold storage, there is no processing. This discourages farmers. Yet, Nigeria is now the largest importer of tomato paste from China and Italy," the minister said.

Another problem needing attention is the insatiable Nigerian appetite for food items not produced in the country. Adewunmi said, "Nigeria is the only country in the world that does not produce wheat and eats 100 percent wheat bread."

In terms of access to financing, the minister noted that Nigerian farmers have had a tough time with banks, noting that only 1 percent of total lending in banking sector goes to agriculture, a sector that accounts for 70 percent of employment opportunities and 44 percent of the nation's GDP.

Analysts also noted that although successive administrations have implemented a number of policies to improve output from the agriculture sector, the interventions have not had the desired impact. Speaking at the recent economic forum organised by the Ekiti State Government, a lecturer at the Lagos Business School, Dr. Pat Utomi said all hands must be on deck to fully tap the potential in the agricultural sector since previous interventions of past administrations failed to improve the performance of the sector.

He wondered why a country richly endowed in mineral and natural resources should continue to operate a mono-product economy where emphasis on oil exports has taken attention away from other veritable earners of foreign exchange.

An economic analyst and managing director, Financial Derivatives, Mr. Bismark Rewane added that the agricultural sector, which happens to be one of the sectors underperforming, can only be turned around with more seriousness on the part of policy makers in the country.

He listed some of the challenges in the sector to include under-investment, low productivity, inadequate input, poor manpower and productivity, and an unfavourable exchange rate policy, among others. He was concerned that Nigerian farmers still lacked good storage facilities, saying that a tomato farmer who harvests 100 tonnes, for instance, may not be able to sell more than 20 tons due to a chain of challenges which include poor transportation system and lack of storage.

A BGL Research report further identified improper implementation, low funding, corruption, structural imbalances in the economy, and political instability among others, as the main reason previous intervention plans and related programmes and projects failed to have a substantial impact on the economy.

The question people are asking has to do with whether there is anything to show for these endowments. The answer is no. This, according to experts, is because the sector is performing grossly below expectation. Despite its huge potential, the country is currently a net importer of food. The nation's food import basket is made up of items which can be produced locally in sufficient amounts. In addition, the economy is characterised by price volatility and high prices due to overdependence on the rain-fed agriculture output.

Explaining the underperformance of agricultural sector in Nigeria, the CBN governor said the major challenges facing the sector include underfunded research and development; lack of infrastructure; inadequate funding; lack of local storage and processing systems; threats from pests, diseases and climate change challenges, amongst others.

Sanusi, in defence of banks for their lack of interest in funding agricultural projects, said that the banking sector cannot invest in the sector because commodities values are yet to be fixed in the country, stressing that "it is difficult to fix the financial value chain until the nation can fix the commodity value chain."

Reform Initiatives

Adesina pointed out that for federal government's transformation agenda in the agriculture sector to be meaningful, government should not run the sector alone. Already, the minister has begun to focus on some particular areas of food production to actualise this dream by co-opting the private sector in the ongoing reform measures for agriculture.

Also, in a document prepared by the CBN tagged, Nigeria Incentive-based Risk Sharing for Agricultural Lending, far reaching decisions like the repeal of the Nigeria Agricultural Insurance Corporation and a review of the Land Use Act, among other measures, are among the steps to be taken in order to return agriculture to its pride of place in Nigeria.

Corroborating Sanusi's position on funding for the sector, the agriculture minister said NIRSAL was a product of collaboration between CBN and his ministry. The project, he said, is meant to make available N450 billion to farmers and also to the entire agriculture value chain.

He said: "We will reduce the risk of lending by banks to agriculture, build capacity of the banks to better assess the credit risks for agriculture, and fix the agricultural value chain so that banks can lend to more efficient and agricultural value chains. NIRSAL will provide financing at single digit interest rates.

"We are putting in place a new financing structure for farmers to access finance. We must get serious about financing agriculture. Take a look at Brazil which requires all banks to dedicate 25 percent of all their lending to agriculture, and at single digit interest rates. They are the number one in the world for many agricultural products. They are focused and leave nothing to chance.

"Banks have to lend to the entire agricultural value chain, from production, irrigation, machinery, storage, processing and food manufacturing. The problem in Nigeria is that we have not developed the appropriate financing system specifically for agriculture. You cannot finance agriculture at 23 percent interest rate.

Other issues touched by the CBN governor in his report include the liberalisation of the procurement and distribution of fertiliser and seeds to Nigerian farmers, review of unfavourable trade laws, institutional arrangements and market policies and repositioning of the Abuja Securities and Commodity Exchange (ASCE).

Expenditure Tracking

To properly position the sector, analysts stressed the need to improve on the public expenditure tracking system. They argue that poor data quality and availability hinder policy analysis, programme planning and impact assessment.

According to reports, the role of all stakeholders in the agriculture value chain needs to be clarified in every policy action. A good case in point is the expressed policy objective of strengthening the input supply system via a private sector-led approach but observers said there is no evidence that this is being followed especially in relation to the supply side via the provision of incentives for local production and distribution at rebate prices.

As part of the reform initiatives, the agriculture minister unveiled a new plan for fertiliser distribution which he said would be private-sector driven. He argued that government involvement in the process was giving room for middlemen who do not allow the products to reach the farmers.

Facts and Figures

In value added terms, analysts believed agriculture has contributed over 40 percent to national output annually in the last five years and is also the major driver of non-oil growth in the economy, contributing more that third of annual economic growth.

They maintain that in terms of endowment, available statistics about Nigeria's agricultural potential is intimidating. Apart from the fact that Nigeria has the potential to produce all the imported food components, agriculture also provides a means of livelihood for an estimated 60 percent of the country's population, with vast arable land across the country in excess of 30.5 million hectares (9th biggest in the world), a variety of livestock, an agriculture- friendly climate, and coastal marine resources of over 960km of shorelines, and 120,000 square kilometres of rivers and lakes.

Similarly, a recent BGL in its report indicated that the country has the capacity to produce over 50 export crops at competitive levels, as well as being a large domestic consumer market depicted by its national population in excess of 165 million people. There is virtually no food item currently imported into the country that the country lacks the soil and weather conditions to cultivate, noted BGL.

For instance, rice, the leading imported food, can be cultivated successfully in Benue, Kano, Ebonyi and Lagos States; coffee, apple and strawberry are grown in Plateau State; cocoa abounds in Ekiti, Ondo, Osun and Edo States. Cotton is grown in Zamfara, Katsina and Oyo States while palm trees and rubber plantations do well in the southern states.

Root crops like cassava, yam and potatoes are also said to be in abundance in most states across the country while cereal crops including maize, millet, sorghum, as well as leguminous plants are cultivated chiefly across the northern states. Livestock, fruits and vegetable and aquatic foods are readily available in Nigeria in addition to a very rich forest belt in the southern parts.

Regrettably, Nigeria is still a net importer of agricultural products, as it imports N630 billion worth of fertiliser annually, a fact attested to by the CBN governor who added that Nigeria has lost its dominant position in the export of key agricultural crops like cocoa, groundnuts, groundnut oil and palm oil, since 1960.

"In the 1960s, Nigeria had over 60 percent of global palm oil exports, 30 percent of global groundnut exports, 20-30 percent of global groundnut oil exports and 15 percent of global cocoa exports. By 2000, Nigeria's global share of exports of each of these crops was five percent or less," Sanusi said.

The centrality of agriculture to Nigeria's economy is glaring in terms of employment; the sector is by far the most important, engaging about 60 percent of the labour force. The employment holdings are however overwhelmingly small and scattered, characterised by subsistence sizes, simple tools and shifting cultivation.

Furthermore, the BGL report observed that these small farms produce about 80 percent of the total food and yields are widely varied but at the low end. "It is therefore not a surprise that Nigeria has one of the lowest yields per hectare of agricultural land as a result of largely crude methods of farming."

Past Interventions

Between 1995 and 1998, the government had embarked on the reform of lending policies through the Agricultural Credit Guarantee Scheme for easier access to agricultural credit. This resulted in a sharp growth in the value of loans guaranteed by the government in subsequent years.

However, critics of the policy said ACGS suffers from misplaced priorities as many small scale farmers had less access to the fund. The government also established the Calabar Export Processing Zone, and initiated the Enugu, Kaduna, Jos, and Lagos EPZs with each specialising in specific food and export crops.

"A review of government spending in agriculture reveals that such spending is heavily concentrated in just a few areas - purchases of agricultural inputs and outputs have made up nearly 60 percent of total capital spending.

"Also a number of activities that normally would be considered vital for promoting agricultural productivity gains leading to pro-poor growth are funded at very low levels, if at all. These included basic and applied agricultural research, agricultural extension and capacity building, agricultural finance, irrigation development, and agribusiness development," the BGL report stated.

Ominous Signs

That Nigeria must achieve food sufficiency is a policy objective that must be pursued with vigour and commitment, because according to the minister, "It is all about national security. Nigeria must be food self-sufficient and cannot be at the mercy of the global market.

"If we say we are depending on the global market just for food, the price of food on that global market is continuing to rise as population is rising and as grains are getting used for production of bio-fuel and rising demand for feed grains due to demand for meat and dairy products."

Nigeria's population is rising also, yet the nation continues to dilly-dally on its agricultural policy. As a result, what other food producing countries are doing is to increase the prices of their produce which invariably affects the Nigerian economy. A case in hand, according to the minister, is that of Thailand, the largest exporter of rice. It doubled the price of paddy rice just two months ago.

Owing to the price hike, the price of milled rice will now hit close to $1,000 per metric ton before the end of the year. And since Nigeria is the second largest importer of rice in the world, the impact will be direct on the economy and consumers, the minister predicted ominously.

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