BEYOND THE AGRICULTURAL VALUE CHAIN IN NIGERIA

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BY ALEX OTTi

I was privileged to give the dinner speech at the 59th Annual Conference of the Nigerian Economic Society in Abuja on September 27, 2018. I have taken the liberty to share excerpts of my presentation. The full paper is available on my website, www.alexotti.com

The challenges of agriculture in Nigeria are not just about the problems of the macro and micro economy but also the misdirection of public policy.

All too often, agriculture and farming are used interchangeably leading to a simplistic interpretation of the sector’s difficulties. This error is more than just a casual misuse of two words or a misapplication of concepts but a major cause of policy confusion. While farming is the act of planting seeds and growing food and cash crops or providing animal protein, agriculture on the other hand is the whole ecosystem of human economic interaction by which food and farm crops enter into a production system in exchange for monetary value. Agriculture, therefore, refers to a value chain that ultimately results in the exchange of money for produce and the subsequent impact of this exchange on the various economic agents involved in the production process.

Not seeing agriculture from a perspective of wider economic and political interactions that lead to the exchange of value leads to faulty public policies that emerge from misdirected or inappropriate trends of thought.

Overview

The Nigerian population is presently growing at a thunderous 3% per annum. This means that the population would double in roughly twenty years from now, resulting in a population of about 350million people. The magnitude of the population growth will perhaps be of less significance than its direction and composition. The country’s population growth rate will make it the third most populous nation on the planet in a mere two and a half decades. This huge population must be fed; therefore suppliers of food items are strategically positioned to create product supply chains that have exponential potential for growth.While micro agricultural production has its uses as a social signaling mechanism, its effectiveness as a strategy to enhance national food production is dubious. Going forward, agriculture would require a relatively small group of farmers applying advanced farming techniques and technology to improve yield per hectare of arable land. The government’s current perspective of throwing more people into the sector is neither sustainable nor strategically sound; and indeed, it could be self-defeating. The more labour that is committed to fixed farm lands, the lower the marginal productivity per worker and the smaller the incomes per farm hands employed, thereby discouraging further labour supply. In the fullness of time, we will realize that what is needed to avert a full blown food crisis is a dedicated community of large scale farmers investing huge amounts of money in improved seed varieties and processing technology that increases yield per land cultivated. The local agricultural value chain needs to be stretched to include semi processed goods and advanced storage facilities and improved preservation techniques to even out the supply uncertainties associated with weather and other unpredictable processing conditions. While primary commodities have not done too well in global markets as prices continue to tumble, declining foreign exchange rates have prompted rising international demand for agricultural produce and could yield stronger incomes in the years ahead. Companies such as Okomu Oil and Presco (with a 16,900 hectare plantation) that produce Oil palm products for the local market (but export about 5% of its output) have seen sales rise by as much as 60% from the second quarter of 2016. Okomu’s profit before tax stood at N11.1b as at December 31, 2017 as against N5.9b in 2016. Similarly, Presco, improved its profit after tax from N21.7b in 2016 to N25.4b in 2017.

Contemporary figures show that Nigeria’s agricultural sector over the last four years has experienced rising growth but within a declining band. For example, the agricultural sector grew by 3% in the first quarter of 2018 but dropped to 1.5% by the second quarter of the year. Indeed, heading into 2018 the agricultural sector made up over N550 billion of GDP but this has since fallen to about N355 billion by the first half of 2018.  This is of major concern when it is realized that between 2009 and 2017 the government through the CBN’s Commercial Agricultural Credit Scheme (CACS) spent a thumping N551.18 billion (for 547 projects) without sustained growth. In 2017 alone, the government made provisions for N200billion in CACS of which N155billion had already been disbursed by February 2018.  Poor agricultural performance relative to large fiscal outlays year-on-year reinforces the notion in business circles that subsidized lending to small scale and unstructured agricultural operations is inept, ineffective and grossly wasteful.

The agricultural sector has remained primarily subsistence and this has limited growth opportunities. If Nigeria is to advance in agriculture and be a significant influence on the global stage, it must be prepared to nurture larger farm holdings with increased application of technology. While micro, small, medium-sized entities (MSMSE’s) will not disappear, it is, however, important to canvass the argument that a more efficient structure in the agricultural sector would be to have these smaller entities serve as out croppers to larger businesses. The larger farmer would secure bigger demand through access to larger markets, which feeds through the sectoral value chain by having these more efficient economic agents serve as off takers to smaller farm producers. The larger producer would be responsible for price discovery at a more competitive global rate, take charge of storage costs and provide some form of crop insurance by way of agreed forward pricing. This would indeed make agricultural financing more attractive to banks and other non-bank financiers, who would charge lower rates for safer agricultural risk assets. The agricultural ecosystem would be bootstrapped towards greater efficiency and effectiveness through larger operators buying up commodities from smaller farming entities. If these larger entities could be supported with storage facilities and an efficient domestic commodity market then agriculture as a proportion of GDP would be significantly higher than the recent 22% down from 36% in 2009 and 37% in 2008. Between 2014 and 2017 average contribution to GDP was in the region of 21% with a variance of 7.8%, notably in 2016 the contribution fell to a ten year low of 18.2% despite huge amounts of money channeled into the sector by way of Central Bank of Nigeria (CBN) preferred lending schemes.

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