Transformation plan: Efforts to push the industry forward and improve farmers’ access to resources face challenges

The Federal Ministry of Agriculture (FMARD) released a mid-term report evaluating its Agricultural Transformation Action Plan (ATAP) in May 2013. It aimed for a paradigm shift, in which the logic of the private sector would be applied to a traditionally public sector, and claimed that the result would be more jobs, more food and a better future for all. With the triumphs so far, there have also been some setbacks.

ATAP PROMISES: Some of ATAP’s successes are visible: there are more business-oriented agricultural enterprises now, albeit most of them government-initiated, and more farmers are getting the fertiliser, seeds and extension services they need at the subsidised prices promised to them. The plan has yet, however, to deliver on its loftier goals of ending food imports and creating jobs, although those will take time to achieve, and FMARD has reached some of the mileposts it indicated would show progress. The government has quickly dismantled the dysfunctional subsidy regime for fertiliser, and additional rice mills in paddy-rich areas have stimulated job growth. Unlike many past reformers, Minister of Agriculture Akinwumi Adesina has made enough progress to retain the high regard he held when he took the job in 2010. Some challenges that lie ahead are out of his direct control, however, as real reform in the agricultural sector is likely to require cooperation across several agencies and ministries. Many previous attempts at reform have been met with resistance by entrenched interests or hampered by corruption.

COOPERATION: For the plan to work, for example, Nigeria will need to fix its roads and build more new ones, and that means convincing the Federal Ministry of Transportation to prioritise projects that benefit the agricultural sector in particular. Getting loans for farmers will require the cooperation of a banking sector that has historically been reluctant to back them. Loan schemes have left many in the agricultural sector critical of rates and terms they say are still too high for farming, and as a result, Adesina and FMARD may need more support from the Central Bank of Nigeria (CBN).

One solution to reliance on other ministries and agencies is the Agriculture Transformation Implementation Council, which was set up in May 2012 with the participation of President Goodluck Jonathan to gather relevant parties, explain plans, hear objections, and push solutions and implementation. The body is comprised of 11 ministers and 11 state governors. However, the council has only met once in 18 months, and a lack of cooperation among government bodies and corruption are already hampering the reform effort, with Customs a clear example of this. Nigeria wants to replace imported rice with domestic rice, and has hiked up tariffs and banned imports through land borders to do so, meaning rice can legally enter the country only through ports. Rice imported into Nigeria is now N201,600 ($1270) per tonne, factoring in an effective tax of 110%. But due to corruption within Customs, smuggling rice overland through neighbouring countries is commonplace. According to a June 2013 media report, imported Thai rice now costs between N10,000 ($63) and N12,000 ($75.60) per 50-kg bag in Nigeria. Rice can instead can be acquired in neighbouring Benin for far less, smuggled through Customs and sold at a price that undercuts the legal goods by about N1000 ($6.30).

TRADING: A partial solution to the problem of commodity pricing would be to establish commodity boards – agencies to set or guarantee prices, serve as a trade interest group to represent the interests of farmers or specific crops in Abuja, market their products overseas and monitor markets to keep out distortions. Providing a growing environment in which farmers know what they can get for their crops will give them an incentive to grow and help convince banks to lend to them.

Another potential solution would be the Abuja Securities and Commodities Exchange. This trading floor was established in 1998, but volumes have never reached a critical mass. If the government can provide adequate storage for harvested commodities, having a stable destination for crops would further incentivise both farmers and lenders. Whether a robust exchange can help agriculture is a chicken-and-egg argument, however. The exchange suffers in part because the fragmented nature of farming in Nigeria makes it difficult to process large trades on the exchange and also prevents enough quality control to ensure that one unit of any given commodity is truly equal in value to any other available on the exchange. Commodity boards, which are envisioned as part of the ATAP, would help by ensuring quality control and serving as a single point of contact to make sure that the volume of commodities available is enough to meet demand from traders. Accordingly, additional supply and more controls over it could allow the exchange to help the sector.

LAND ISSUES: One of the biggest problems beyond the control of FMARD is that of land. Land is controlled at the sub-sovereign level in Nigeria, and the Land Use Act of 1978 allows state and local governments a high degree of control, including eminent domain powers that have, in the past, been used arbitrarily. Acquiring land may be difficult for foreign investors in particular. An example is a joint venture between consumer-staples manufacturer PZ Cussons and the Singaporean agribusiness Wilmar International. The two formed PZ Wilmar in 2010, intending to build a $60m refinery for palm oil in Nigeria. Though palm oil is not one of the five key crops the ATAP is promoting, this joint venture promises to create 10,000 jobs directly and another 50,000 indirectly, according to its promoters, and oil palm can be used both by consumers in their kitchens or as inputs in value-added agribusinesses. However, to date the venture has managed to secure just half of the 30,000-40,000 ha of land it needs to build oil palm plantations, officials told OBG.

GETTING CREDIT: Officials had hoped the issue of access to credit would be addressed through the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL), a programme developed together with the CBN. CBN Governor Sanusi Lamido Sanusi has consistently supported moves to push Nigerian lenders to extend credit to what he refers to as the real economy – people and businesses aiming to produce or manufacture, as opposed to banks lending to the service economy or investing in securities.

However, in Nigeria’s agricultural community, NIRSAL has not been popular because the terms it offers are not considered to be favourable enough. “Farmers cannot afford to pay 25% or 26% and pay the loan back within a year,” Emmanuel Ijewere, chairman of the agricultural arm of the Nigerian Economic Summit Group and CEO of Best Foods Global, said. “Land preparation is 70% of my costs. I cannot recover this in less than five years.” Some banks, he said, will lend at rates as low as 19%, but not for less.

Others players that could get involved at this stage include the country’s five development banks, which could be up for be reform in the coming years. A new lending scheme, known as the Fund for Agricultural Financing in Nigeria, was being developed as of mid-2013 and is a joint effort by FMARD and the KfW Group, the German state-owned development bank. The goal is to get the interest rate down to 14%, Ijewere said.