The IMF, however, said the weak effect of agricultural credit on production growth could be associated with difficulties in targeting the right recipients
The International Monetary Fund (IMF) says only 24 per cent of loans disbursed under the Central Bank of Nigeria (CBN) Anchor Borrowers Programme (ABP) have been repaid.
The Washington-based lender in its recent report titled 'Nigeria selected issues' said agricultural credit in Nigeria has not significantly boosted production even though there is the challenge of targeting the right recipients for the credit.
In November 2015, President Muhammadu Buhari launched the ABP to boost agricultural production and reverse Nigeria's negative balance of payments on food.
Smallholder farmers cultivating cereals (rice, maize, wheat etc.) cotton, roots and tubers, sugarcane, tree crops, legumes, tomato and livestock are those captured under this initiative.
Loans are disbursed to the beneficiary farmers through Deposit Money Banks (DMBs), Development Finance Institutions (DFIs) and Microfinance Banks (MFBs), which the programme recognises as Participating Financial Institutions (PFIs).
According to the guidelines of the programme, upon harvest, the farmer repays their loans by taking their harvest to 'anchors' who pay the cash equivalent to the farmer's account.
The IMF, however, said the weak effect of agricultural credit on production growth could be associated with difficulties in targeting the right recipients.
It explained that data (November 2020) from the central bank indicate that the repayment rate for the Commercial Agricultural Credit (CAC) Scheme is at almost 66 per cent but, since the loans started in 2009, this is not a particularly high outcome.
"For the Anchor Borrowing Program, repayment is also low at 24 per cent, especially since repayment can be made in kind, thereby limiting the tenor of the loans to one year.
"Part of the problem is that the incentive structure for repayment is weak, the recipient loans are not always well targeted and occasionally the funding is used for other purchases (e.g., new agricultural input trading companies to elicit trading rents)," the IMF said.
Food Insecurity
The report noted that food insecurity is an increasing policy concern in Nigeria.
It said the country is endowed with immense agricultural resources and over 81 million arable and largely fertile hectares of land, with maize, cassava, guinea corn, yam beans, millet, and rice being the major crops.
The IMF said domestic production of staples and the global increase in food prices are among factors adversely affecting food security conditions.
"Rural areas are insulated somewhat from the recent price surge because of more home production although peripheral areas of the country have suffered the worst effects in recent years," it said.
The Washington-based lender said the key drivers of food security are demand and supply factors as well as food price inflation.
It added that the cross-country analysis identifies four levers for raising food security levels: raising per capita consumption, raising production yields, limiting food price inflation, and reducing reliance on food imports.
"Per capita consumption is far below comparator countries in Nigeria, and it could be stimulated through increased diversification. Yields are also lower in Nigeria than in other countries due to scarcity of inputs (fertilizers, modern irrigation methods, and mechanization)," it said.
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Addressing other challenges, the IMF said timely, high-quality, and price-competitive inputs would not only achieve optimal productivity of agricultural outcomes but also temper food inflation.
It noted that Nigeria has achieved a substantial increase in agricultural production associated with its policies but some have been less successful.
"Import dependency for key staples has not fallen and the cost of these agricultural products remains driven by international prices.
"Further, central bank credit to the agricultural sector has not succeeded in increasing production beyond the stimulus of high rainfall and high food prices," it said.
In contrast, the IMF said, the government's e-voucher schemes for farmers to obtain subsidized inputs have proven to boost yields.
"This latter policy is currently being introduced in tandem with the creation of new special processing zones and offers good prospects provided it is handled efficiently," it said.
