7 July 2017

Nigeria: UK-Sponsored Study Show Impact of Nigeria Recession On Agriculture

Photo: Irin News

The Federal Government and international development organisations must refocus their policies on agriculture to reshape their interventions to mitigate the negative impact of the recent devaluation of the Naira on the sector growth, a study by two development groups said.

The Foundation for Partnership Initiatives in the Niger Delta, PIND, and the UK Department for International Development, DFID Market Development, MADE Programme, said on Thursday a study they sponsored found the Naira devaluation policy impacted the agricultural value chains in the Niger Delta region.

The Executive Secretary of PIND, Dara Akala, said at the presentation of the findings in Abuja that the study was to examine effects of devaluation and related government trade restriction policies on four key agricultural value chains in the Niger Delta region, namely cassava, palm oil, aquaculture, and poultry.

Mr. Akala said the study also looked at the impact on agricultural inputs and leather goods as well as market responses across the value chains to the income and substitution effects that arose from the price shocks as a result of the devaluation and depreciation policies.

Presenting his findings, the consultant, who conducted the study, Ogho Okiti, said there was need for the government and its partners to restructure its interventions to reflect the economic realities of a dynamic situation, especially relating to the four key commodities in the agricultural value chain."

"As the global crude oil price fell from above $100 per barrel in early 2014 to below $30 per barrel by the beginning of 2016, Nigeria's oil revenues and foreign exchange reserves dropped. The decline in reserves exerted pressure on the Naira against the dollar, and the Central Bank of Nigeria, CBN, was unable to defend the Naira's peg to the dollar," the report noted.

"To reduce imports and conserve its diminishing foreign exchange reserves, the CBN devalued the Naira twice between November 2014 and February 2015 and implemented a ban on access to foreign exchange at the CBN official window for a list of 41 items, including rice, poultry and palm oil products.

"The Federal Government increased import levies on these goods and other agricultural products, and even banned imports of some entirely. The impact of this devaluation and the subsequent ban on importation differ from one agricultural value chain to another," it added.

Mr. Okiti said one of the findings from the study was the impact of the devaluation on aquaculture, which resulted in the rise in the price of catfish, as consumers turned to it as alternative to more expensive imported fish and poultry, meaning increased revenues to farmers.

Besides, he said Naira devaluation made foreign feeds more expensive, creating opportunity for local producers to strive to meet demand, while demand from the food sector more than doubled the price of imported rice between 2015 and the beginning of 2017.

"The drop in rice import by about two million tons since the devaluation led to higher demand of cassava food products and cassava tubers.

The palm oil sub-sector also saw increased demand for both Technical Palm oil, TPO, and Special Palm Oil, SPO, as imports of refined palm oil were banned, while crude palm oil imports were subjected to combined import tariffs of 35%, and exclusion from access to official foreign exchange," the report said.

The report said the increase in demand resulted in increased prices for palm oil, with producers and processors of fresh palm fruit facing higher prices than when purchasing inputs.

More details of finding from the study showed that the devaluation led to significant increases in costs of major inputs over the last two years, which influenced costs across all the value chains.

High energy prices, including power and diesel, it noted, were largely driven by foreign exchange costs, which were significant cost components for processors of the four commodities in the value chain.

The report said the cost of credit also increased sharply since the Naira's devaluation, as the CBN increased interest rates to curb rising inflation.

This constrained actors in the agricultural sector, as they found it increasingly difficult to obtain credit to expand their operations.

Again, prices of agricultural inputs, such as fertilizers and crop protection products, also increased, while farmers experienced difficulties accessing these products, as local production capacity is currently inadequate.

Specifically, it said farmers in the aquaculture value chain faced large increases in prices of both imported and locally produced fish feeds.

In the cassava value chain, increases in the price of fertilizers and other crop protection products increased input costs for farmers, while processors faced increased energy costs.

In addition to the increase in production costs, devaluation also led to an increase in cassava demand, and therefore prices.

The devaluation caused significant price increases in the poultry value chain, with a drop in the demand for preventive vaccines, as poultry farms adjusted to the increased cost of production.

Consequently, PIND and MADE urged government to adopt mechanized and commercialized agriculture methods, to maximize the country's agricultural potentials, to earn foreign exchange from exports, produce raw materials for the industries and create jobs for unemployed youth.


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