Nigeria: COVID-19 and CBN's N50 Billion Credit Facility Target for Agriculture

29 May 2020

When the Central Bank of Nigeria, in furtherance of its financial stability mandate, recently came up with the N50 billion Targeted Credit Facility, TCF, as a stimulus package to support micro, small and medium enterprises, MSMEs, in the face of the adverse economic impact of the novel COVID-19 pandemic, not many believed the implementation will come so soon.

Indeed, no feer than 3,256 individuals and small businesses have so far benefited from the TCF to cushion effects of COVID-19. Managing Director of Nigeria Incentive-Based Risk Sharing System for Agricultural Lending, NIRSAL, Abubakar Kure, disclosed this at the disbursement of the first phase of the facility in Abuja. Kure had explained that the first batch of beneficiaries had received the facility, adding that subsequent disbursements would be done weekly.

While noting that the idea was to provide cash flow or liquidity to mitigate effects of COVID-19 pandemic and help the economy to normalise, Kure had urged businesses and individual beneficiaries to repay so that others could benefit. One of the business activities for selection for the CBN's N50 billion TCF is agricultural value chain activities.

A value chain is a set of linked activities that works to add value to a product; it consists of actors and actions that improve a product while linking commodity producers to processors and markets.

Value chains work best when their actors cooperate to produce higher quality products and generate more income for all participants along the chain, as opposed to the simplest kinds of value chains, in which producers and buyers exchange only price information - often in an adversarial model. The interplay of chain players is often exponentially boosted with stimuluses and bailout during distresses or recessions.

An agricultural value chain might include development and dissemination of plant and animal genetic materials, input supplies, farmer organisation, farm production, post-harvest handling, processing, provision of technologies of production and handling, grading criteria and facilities, cooling and packing technologies, post-harvest local processing, industrial processing, storage, transport, finance, and feedback from markets.

Agriculture in developing countries often is characterised by dual value chains operating in parallel for the same product: one is informal or traditional, and the other formal or modern. Smallholders are frequently involved in informal chains that deliver products to local middlemen and then to small local stores.

Formal value chains can deliver the same product, usually in better or more uniform quality, from larger farms or more organised groups of small farmers to more commercial wholesalers and from there to supermarkets or exporters.

This duality has been accentuated by the explosive growth of supermarkets in developing countries. It can limit many small producers to markets characterised by low-quality products, and low prices and low returns for them - hence a frequent concern is to find ways to integrate small producers into more modern value chains, both domestic and export-oriented.

It is important to note that in the face of the lockdown, there were disruptions in the food supply chains. Vulnerable groups also include small-scale farmers, pastoralists and fishers who might be hindered from working their land, caring for their livestock, or fishing. They will also face challenges in accessing markets to sell their products or buy essential inputs or struggle due to higher food prices and limited purchasing power. Informal labourers will be hard hit by job and income losses in harvesting and processing.

The 2008 financial crisis showed us what can happen when there is a shrink in income, and uncertainty makes people spend less and results in slow demand. Sales decline and disposable incomes vanish. So does production. Moreover, the most affected are forced to revert to negative coping strategies - such as selling off productive assets, less diverse diets, overfishing - to compensate for income constraints.

At the onset of the COVID-19 outbreak, there was a significant increase in demand. Food demand is generally inelastic and its effect on overall consumption will be likely limited, although dietary patterns may alter. There is a possibility of a disproportionately larger decline in animal protein consumption (as a result of fears - not science-based - that animals might be hosts of the virus, and other higher-value products like fish, fruits and vegetables (which are likely to cause price slumps).

These fears can be particularly true for raw fish products supplied to restaurants and hotels, including small and medium enterprises. Food demand in Nigeria is more linked to income, and, here, loss of income-earning opportunities could impact on consumption. Fear of contagion can translate in reduced visits to food markets, and we expect to see a shift in how people buy and consume food - lower restaurant traffic, increased e-commerce deliveries (as evidenced in China), and a rise in eating at home.

Following the outbreak of coronavirus, countries around the world started to implement several policy measures aimed at avoiding the further spread of the disease. However, such measures affect agricultural production and trade. For instance, many countries are implementing higher controls on cargo vessels, with the risk of jeopardising shipping activities and with a particular risk to perishable goods, like fresh fruits and vegetables, fish and fish products.

Measures affecting the free movement of people, such as seasonal workers, might have an impact on food production, thus affecting market prices globally. So, the micro, small and medium enterprises, MSMEs, affected by the COVID-19 pandemic in the agricultural sector in Nigeria now have something to fall back on to fast-track sustainable jobs. This is why the CBN's intervention in agriculture in the past has been of great help in the food and nutrition security of the country in the face of the current pandemic.

If Nigeria had not been rice-sufficient because of the investment in the sector, how would the country carry on in the face of the significant devaluation of the exchange rate concerning the US dollar, which has affected import-dependent countries like Nigeria? The Food and Agriculture Organisation, FAO, has said the only staple food that has seen rising prices is rice, and that's linked to the export restrictions of a key exporter.

It has been admitted by various farmers' groups and associations as well as agro-economic professionals that the CBN's Anchor Borrowers Programme had saved the country from the rising price of rice and other food crops in the face of the COVID-19 pandemic.

So, the Central Bank of Nigeria injecting funds into fisheries and aquaculture sectors, crop production and livestock through the facility can help food availability, employment creation along the value chain, stimulate demand and pave some way to economic recovery post-COVID-19, as casual labourers, salaried staff and business entities can work and stay afloat.

Kareem Sanni, a cocoa value chain stakeholder, said he strongly believes these three interventions of lower interest rate, extended moratorium and the targeted credit facility would help to boost the recovery process post-COVID-19 in the sectors covered by the fund, including the agro-agro-allied sectors. "For agriculture and agribusiness, extension of moratorium and reduction of interest rate will benefit small and medium scale agribusiness as well as agro-allied industries.

"However, the government can do better by honestly earmarking a large percentage of N50 billion strictly for agribusiness, making it accessible and as well making the potential beneficiaries aware of the availability of this facility by way of advertisement."

Ex-president of AFAN, Mr Ibrahim Kabir, had earlier said the government should offer stimulus to the Nigerian farmers for food crops in the interim. The stimulus, he too suggested, should be in the form of seeds, fertiliser, agro-chemicals, water pumps and other irrigation equipment as well as some cash for farm labour.

"It is prudent to channel this through farmer associations to ensure that the practicing farmers benefit. It should be state by state, supervised by the authentic AFAN, which has leaders in all the 774 LGAs in the country. The reduction of interest rate from 9 % to 5% and the extension of moratorium for loan repayment as well as the 50 billion NIRSAL Microfinance stimulus window for MSMEs will mitigate the adverse effects of the pandemic and stimulate recovery, no doubt.

"In addition, I propose that the tenor of all loans on agricultural production and CBN Anchor Borrower programmes should be restructured to cover at least three farming seasons for sustainability to take care of the devastation caused by the COVID-19 pandemic on the national economy," he suggested.

Tiri, an agric expert, wrote from Lagos

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