Nigeria targets agro-processing as a future growth driver

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– Despite comprising 25% of GDP, agriculture in Nigeria is focused mainly on raw exports

– Nigerian officials are incentivising agro-processing to maximise value added

– A series of incentives and processing zones are designed to bolster agri-business capacity

As Nigeria looks to restructure its economy to be more diversified and sustainable, agro-processing is emerging as a key tool to improve agricultural value added while also bolstering the sector’s status as a driver of economic growth.

As in many African countries, agriculture has long been an important part of Nigeria’s economy – not only in terms of food production, but also in terms of its economic impact and contribution to the overall workforce.

However, the discovery of oil in the 1950s and the subsequent development of the hydrocarbons industry saw agriculture’s economic significance wane.

Nevertheless, agriculture comprises around 25% of GDP and was the country’s largest pre-Covid-19 pandemic employer, accounting for 35% of the workforce, according to the World Bank.

Despite its sizeable footprint, some 90% of agricultural goods are exported raw, meaning that the country misses out on crucial value-added opportunities associated with agro-processing.

It is estimated that up to 80% of profits in the agriculture sector are derived from processing and retailing raw goods. Emmanuel Ijewere, vice-president of the Nigeria Agribusiness Group and CEO of agro-processing firm Best Foods, estimated that for every dollar made exporting raw products in 2016, Nigeria could have earned 10-fold that value had the country processed all the commodities exported.

Economic impact

The lack of processing capacity means that Nigeria essentially exports its agricultural goods abroad, where they are processed and often exported back to Africa at a far higher price.

For example, it is estimated that between 2016 and 2019 Nigeria’s cumulative agricultural imports, at N3.3trn ($7.9bn), were four times higher than its agricultural exports.

As OBG has previously noted, such situations are not uncommon in the region. For example, leading West African cotton-producing nations Benin, Burkina-Faso and Mali export 1.8m tonnes of unprocessed cotton worth $922m, but import $2.4bn of finished cotton textiles and apparel.

The result of such a model is that despite a large agriculture sector and vast arable land, Nigeria remains vulnerable to food insecurity and fluctuating food prices.

These challenges were underscored by the 2014 drop in oil prices that led to a recession in 2016. Amid falling revenue, the government sought to diversify the economy and reduce the import bill by focusing on agro-processing.

However, the pandemic has posed additional hurdles, disrupting many international, regional and local supply chains, as has Russia’s invasion of Ukraine, which has restricted exports of various key crops in many emerging markets and inflated food prices to record highs throughout the first half of 2022.

Development of agro-processing

In an effort to address the situation, in recent years Nigeria has sought to develop its agro-processing capacity.

In 2015 the Central Bank of Nigeria launched the Anchor Borrowers’ Programme, an initiative to create linkages between smallholder farmers and agro-processors through a series of financing options and inputs.

The Bank of Industry (BoI), for its part, has supported the sector by providing loans aimed at developing the agriculture value chain. It is estimated that more than 6.9m direct and indirect jobs were created through BoI initiatives between 2015 and October 2020.

These measures build on broader government strategies such as the Economic Recovery and Growth Plan 2017-20 and the Nigeria Industrial Revolution Plan, both of which see agro-processing as central to plans to diversify the economy and reduce the country’s dependence on processed food imports.

In addition to government-backed programmes, agro-processing in Nigeria has benefitted from projects that are either funded by international organisations or in collaboration with other governments.

One of these is the Special Agro-Industrial Processing Zones (SAPZ) programme. With $520m in funding from the African Development Bank and its partners, and $200m from the International Fund for Agricultural Development, the initiative aims to construct agro-processing zones in all 36 states, with a pilot phase to be held in the states of Ogun, Oyo, Imo, Cross River, Kano, Kaduna and Kwara.

By allowing food producers, processors and distributors to operate out of a centralised

location, SAPZs are designed to improve food security and reduce the food import bill.

Another important initiative is the Nigeria-Brazil Agriculture Mechanisation Programme, which will see Nigeria receive around $1.1bn in loans from the Development Bank of Brazil and Deutsche Bank over a 15-year period.

The funds will be used to provide growers with farming equipment, as well as offer entrepreneurial services across the country to support agricultural production, processing and packaging.

The programme forms part of the broader Green Imperative initiative, a bilateral development plan that will see 142 agro-processing facilities established across the country.

In another boost to the agriculture sector, on July 4 the EU and its development finance institutions announced that they will provide Nigeria with €1.3bn through 2027 to help the country diversify away from oil.

In addition to enhancing access to renewable energy, the funding is designed to strengthen the sector by improving farmers’ access to markets.

Models for development

One potential model for adding value to Nigeria’s agriculture sector is that utilised by Sebore Farms.

Established in 1982 in Adamawa State in the country’s north-east, the company offers a series of agricultural, agro-processing and logistics services that aim to bolster the value chain.

In addition to its own on-site farm, Sebore Farms collects raw milk from thousands of smallholder farmers and transports it back to the company’s facility, where it is processed and packaged into pasteurised milk, butter, yoghurt or cheese.

This model benefits farmers by providing them with a guaranteed market for their goods, while Sebore Farms’ processing and packaging operations – along with its economies of scale – ensure that products gain value before being sold.

In addition, the company’s cool storage facilities help reduce post-harvest food loss, with a 2021 report by the US International Trade Administration estimating that more than half of Nigerian farmers’ produce is lost due to insufficient storage.

Sebore Farms is also classified as an official export processing zone (EPZ), which sees the company provide smaller agri-business firms with services and facilities that allow them to operate without the substantial outlays associated with purchasing their own equipment.

“One of the priorities of EPZs and other economic zones in Nigeria is to support the development of agri-business, in part by enabling local farmers to modernise their production in order to increase output in terms of both volume and quality,” Aminu M Nyako, managing director and CEO of Sebore Farms, told OBG late last year.

“We hope that this structure can be a model for further developing the agri-business industry in the region by creating thousands of employment opportunities to accelerate economic and social development,” he added.

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