Roadmap for development: After a period of relative decline, the sector is once again a top priority

The largest contributor to Nigeria’s GDP, the agriculture sector accounted for a 40.1% share as of mid-2013, according to the Nigerian National Bureau of Statistics (NBS). It is also the main source of employment in the country, responsible for more than 60% of jobs, as per figures from the International Fund for Agricultural Development. Increases in the amount of cultivated land have led to a rise in production in recent years, although yields remain low and the sector is performing far below its potential.

Once an agricultural power in Africa, Nigeria now struggles at every step in the value chain. Formerly responsible for 18% of world cocoa production, the largest single contributor at the time, Nigeria’s market share is now less than half of that. The country has also lost significant ground in crops such as ground nuts and palm oil, both staple products in the local market for which it was once a key supplier globally. The Agricultural Transformation Action Plan (ATAP), a state-backed market-oriented reform effort, is in the early stages of implementation and is expected to pave the way for the sector’s development going forward.

OTHER RESOURCES: The downturn in agriculture has coincided with the rise in oil revenues. The federal government spent an estimated $11bn on food imports in 2011, according to the Federal Ministry of Agriculture and Rural Development (FMARD). The value of food imports is growing at about 11% per annum, with the three main imports being wheat, rice and sugar. The money spent on food imports is considered an obstacle to development since those funds could be used elsewhere, and is unsustainable as the population is growing at a faster pace than revenue.

While issues related to food imports are common in resource-rich countries, Nigeria has some unique challenges as well. “Terrorist activity continues in the north, adversely affecting economic activity (particularly in agriculture and commerce),” according to a recent IMF report. “A further deterioration in security would raise business costs in an already high cost environment.”

SIZE & SCOPE: There are some 84m ha of arable land in Nigeria, but only 10% of it is optimised for agricultural production, the minister of agriculture, Akinwumi Adesina, told OBG. This means there is plenty of room for growth. To realise that, however, agricultural practices must be improved and issues relating to infrastructural development, especially for road and ports, must also be addressed – post-harvest losses due to transport issues in Nigeria are roughly 45%.

Growth in overall agricultural output has been rising by an average of 5.6% since 2000, although yields have remained constant since the 1980s. The gains have come from adding farmland, according to the World Bank, but in some cases the ensuing changes in ecology have contributed to soil degradation in these areas.

Agriculture’s contribution to the overall economy has fallen dramatically over the past 50 years. At independence in 1960, agriculture accounted for 65% of economic activity, a figure that declined over the following years, reaching a low of 28.3% in 2002. The share of real GDP in 2012 was 39.21%, according to the NBS, although by the second quarter of 2013 this had risen slightly to stand at 40.1%.

When viewed through the lens of year-on-year ( yo-y) growth, agriculture lags behind other areas of the economy; it expanded by 5.64% in 2011 and 3.97% in 2012. In a group of 14 broad sectors, it was one of just three to post a growth rate under 4% in 2012 (the other two were finance and insurance, and crude petroleum and natural gas).

KEY CROPS: The one crop for which Nigeria remains a world leader is cassava. About 45m tonnes are produced annually, according to figures from the US Agency for International Development. It grows in 24 of 36 states, and the yield per ha is around the international average, according to the International Institute of Tropical Agriculture (IITA), which is based in Ibadan, Nigeria. As of 2009 yields were slightly above the international norm, the IITA found, with a global average of 10.2 tonnes and Nigeria at 10.6 tonnes. Two advantages to cassava are that it can grow in mediocre-quality soil and there is no rush to harvest it: it can be left in the ground for up to 24 to 36 months.

Maize production for the 2012/13 growing season was 7.6m tonnes, and is estimated to be 7.7m tonnes for 2013/14, according to a US Department of Agriculture (USDA) report. Both figures are far lower than the 9.3m tonnes produced in 2011/12, due to flooding from July to October 2012 that destroyed crops in 23 of 36 states. In response, the state released supplies held in its strategic reserve into the market to help make up for any shortfall in local production. Maize is both a basic foodstuff and an industrial input for the country’s beer and livestock sectors. In 2013, 1.7m tonnes went to feed chickens. As of May 2013, maize was fetching N80,000 ($504) per tonne, up from N72,000 ($453) a year earlier, mostly due to the floods.

The recent introduction of drought-resistant seeds is expected to pay off in the form of increased production, but it should also allow for a larger growing area. In addition, the USDA projects that improved access to fertilisers as a result of the ATAP will be reflected in higher yields in the coming years.

Sorghum production for 2012/13 is expected to be 5.9m tonnes, down from 7m the year prior, due to floods inundating about 14% of growing areas. Sorghum is a key staple for Nigerians and also has commercial uses, such as an ingredient for brewing beer. As of March 2013 prices were between $450 and $500 per tonne, 35% higher than a year earlier.

Floods affected the 2012/13 rice crop as well, which came in at 2.4m tonnes, less than the 2.58m tonnes forecast. The projection for 2013/14 is 3.1m tonnes, in part reflecting increased efforts to expand production as part of ATAP. The goal is self-sufficiency by 2015, and that means doubling 2012/13 output, but USDA researchers doubt that is possible. “A lack of infrastructure and low private investment in the rice sector value chain cannot support such a large production jump.”

Cocoa remains an important cash crop as the country’s main non-oil foreign-exchange earner. Production was at 300,000 tonnes a year at independence, touched bottom in 1999 at 90,000 tonnes, and has since climbed back up to about 250,000 tonnes a year. As part of the ATAP, FMARD seeks to double that by 2015.

LAND CONSTRAINTS: For foreign investors, access to land remains a key obstacle, in part because it is controlled by government authorities. Land is designated as urban or rural, with the former controlled by states and the latter by municipal-level bodies.

Land is also a constraint for agribusinesses and logistics companies. Tunji Owoeye, the managing director of Elephant Group, told OBG, “Acquisition of large land parcels is fraught with complications and difficult to secure. The federal government must revise and reform the Land Use Act in order to facilitate this process.”

In recent years Nigeria has seen a mushrooming in the number of local logistics ventures, as domestic entrepreneurs tackle the obstacles presented by the country’s poor infrastructure. “Warehousing capacity is a challenge, in part due to the difficulty in acquiring land in the right places – close to the airport in Lagos, for example – in order to build facilities,” said Eric Opah, CEO of Fortune Global, a local shipping and logistics company. “It takes an average of three years in Lagos to get a title document,” he said. “It is a challenge for the logistics and supply chains to provide efficiency.” It is also difficult to obtain financing – banks are more likely to back ventures that own land and can prove it. “We are trying to become an agro-processing country, but infrastructure remains a big problem,” Opah said.

IMPROVING ROADS: Fortune Global has invested in two cold storage trucks, and Opah said there are 10 other companies in Nigeria competing in that market. But cold storage capacity at the airport is just 60 tonnes, not enough to support large-scale export operations. An expansion in cold storage capacity alone would be a wasted investment; an entire cold-storage supply chain is required, including storage capacity and trucks, as well as improved roads, which are typically potholed and clogged, making journeys far more expensive than they otherwise would be (see Transport chapter).

Building roads is only part of the solution. Roadblocks and bottlenecks also create complications – a consequence of mismanagement, underinvestment and fraud. If Nigeria accomplished its goal to export agricultural products across the region, it would suffer the same problems beyond its borders, in addition to that of getting goods through Customs posts quickly and without bribes. A World Bank report estimated that the cost of moving staples around West Africa would fall by 50% if these types of non-tariff barriers were removed.

INCENTIVES & INVESTMENTS: Despite these challenges, Nigeria remains keen to attract foreign investment and is offering incentives to make that happen. According to FMARD, duties on agriculture and agro-industry machinery and equipment have been dropped to 1%, and investors in agriculture are given a five-year tax holiday from the start of production as well as generous capital allowances for accounting purposes.

The World Bank is playing a central role in sector development and investments have been made by the US government’s private equity arm and the US Overseas Private Investment Corporation. From the private sector, some of the leading agribusinesses worldwide are participating, including Cargill, Dominion Farms, Olam, Syngenta and Zambeef. The latter is a Zambian company that started in its domestic market and has now become a key supplier of meats across the continent, both through its own retail network and as a wholesale supplier to grocery chains. Zambeef won a $3m loan from the World Bank to establish a dairy farm near Lagos. Foreign investor United African Corporation was once a domestic conglomerate until 2010, when South African agribusiness firm Tiger Foods took a 51% stake. In October 2012 Tiger Foods bought 63.35% of Dangote Flour Mills, formerly owned by Aliko Dangote, Nigeria’s richest person. Overall, the ATAP’s programmes attracted more than $6bn in development funding as of March 2013, according to Adesina.

HISTORY OF REFORMS: Many approaches and techniques have been tried to reform the sector, without success. Programmes to subsidise fertiliser and seeds failed, for example, due to corruption in the system similar to that in the controversial fuel subsidy regime. The government made itself the sole importer of fertiliser, which it sold at a subsidised rate to distributors expecting that they would pass along the savings to their customers. Instead, distributors charged more, diluted the product with sand, or smuggled it into neighbouring markets. The Central Bank of Nigeria established the Agricultural Credit Guarantee Scheme Fund in 1978 to improve farmers’ access to credit, but remains one of the main obstacles in the sector.

Even though unsuccessful, Nigeria’s long history of reform help underscore the long-standing importance of the sector to the broader economy. That importance is only likely to grow. With food price shocks in the last five years and increasingly unpredictable weather that has damaged yields, Nigeria is concerned about food import costs spiralling. Already the most populous country in Africa by a factor of two, the number of mouths to feed is expected to nearly triple by 2050, according to statistics from the UN, from roughly 165m to 450m.

In addition to the aims of achieving greater self-sufficiency of food supply and eliminating a growing expense from the federal budget, agriculture is also important as an employment and social tool. Nigerian farmers are an ageing demographic, and most youth believe they are more likely to find work in cities than on farms. As people pile into Lagos, Abuja, Ibadan, Kano and other cities, they create immense pressure on those municipalities to provide public services. Some of that pressure could be reduced if those seeking work could find it on farms. There is an FMARD plan, called Youth Employment in Agriculture, to spend N36bn ($226.8m) to recruit and train 760,000 business-minded youth in modern farming and agribusiness. The money is to be spent on land, working capital, machines and training for technical and management skills.

Santosh Pillai, the managing director of PZ Wilmar, told OBG, “Bringing youth into agriculture can only happen through the right combination of exposure and opportunities. University students need greater awareness of the careers and growth potential within agriculture. Likewise, the industry needs to reach out to universities, create training programmes and provide career opportunities for graduating students.”

IMPORT REPLACEMENT: Adesina bills the ATAP as a “farm-to-fork” effort to build agricultural value chains. He talks in his speeches about making agriculture a business, thinking about what can be sold later before deciding what to plant, and doing it in places where harvests can get to markets without soaking up profit margins along the way. Research from Abuja has found that Nigeria’s five key crops hold up well against these criteria. The programme’s basic targets are to add 3.5m jobs in agriculture and 20m tonnes to domestic food production by 2015. Also by 2015, the government hopes to end rice imports and replace 40% of wheat flour in all domestic breads with cassava flour, to reduce dependence on wheat imports.

The government could also start focusing on restructuring its tax regime to incentivise import replacement. As of July 2012 import duties went to 100% for wheat flour and 20% for wheat grain. Brown rice was taxed at 30% and white at 50%, which rose to 100% by the end of the year. Taxes lifted on imported equipment for processing and blending encouraged cassava flour production. For rice, the government supports the construction of new mills and expects domestic milling capacity to more than double by 2015, from 3.4m tonnes to 7.4m tonnes (see analysis). At present, Nigeria produces 3m tonnes of rice and imports another 2m. According to a May 2013 progress report from FMARD, 13 privately owned rice mills were opened in 2012 with a combined capacity of 240,000 tonnes. Further milling capacity will be aided by a soft loan of $1.2bn from the China Export-Import Bank to support the establishment of 100 large-scale privately owned processing facilities with a total capacity of 3m tonnes.

GES: The government no longer has a monopoly on fertiliser and seeds imports and has shifted its subsidy structure to provide the same benefits to farmers, while also ensuring that those savings are not kept by corrupt distributors. Since May 2013 a federal government initiative known as the Growth Enhancement Support Scheme (GES) has been in place, allowing farmers to exchange government-granted vouchers for fertiliser, and distributors then redeem the vouchers with the government to get paid. Registered farmers also receive a 50% subsidy on their farms’ inputs from the federal government with the support of the state governments. The overall aims of the scheme, according to FMARD, is to provide 20m farmers over four years with vouchers through their mobile phones; enable them to procure agricultural inputs at affordable rates; increase productivity across the country through greater use of fertiliser; and change the role of the government from a direct procurer and distributor of fertiliser to that of a procurement facilitator.

GES vouchers can be printed on paper or electronically exchanged through mobile phones, a programme known as the e-wallet system. The e-wallet has been a measured success since implementation in 2012. The programme distributes low-cost handsets to farmers lacking them to boost participation rates, but some glitches have arisen, and the government did not meet its goal of distributing 10m mobile phones in advance of the 2013 growing season (see analysis). According to the ministry’s website as of October 2013, there were more than 1m farmers with mobile-phone-linked wallets and more than 3m with farmer-ID-linked wallets. Before 2012, only 11% had access to subsidised fertiliser, a figure that is expected to increase.

POULTRY: As a sub-sector, poultry has been showing significant potential and is supported by the ban on frozen chicken imports. A 2011 report by the Poultry Association of Nigeria stated that the livestock sub-sector accounted for 25% of agricultural GDP and 5.83% of total GDP, with poultry showing the greatest potential for growth. Nigeria is the number one egg producer and fourth broiler meat producer in Africa, according to the director-general of the Poultry Association of Nigeria, Onallo Akpa. Still, smuggled frozen chicken remains a problem, but increasing the budget allocation towards agriculture and securing heavier subsidies for maize and soya production are strategies that have been identified to further support the sub-sector, alongside efforts to reduce contraband imports.

CASSAVA FLOUR: Nigeria’s annual output of 40m tonnes of cassava makes it the largest producer of the tuber, but it has struggled with boom-and-bust cycles in production that have been a disincentive to developing a value chain and producing products such as cassava flour, cassava starch or sweeteners. The government is now aiming to create cassava-based agribusinesses by promoting the use of small amounts of cassava flour to replace wheat flour in bread. The goal is to have all bread in Nigeria made with 40% cassava flour by 2015, but even reaching half that goal would save the country N254bn ($1.6bn) in import costs, according to FMARD projections. The first cassava breads were sold in February 2012, and throughout that year several major commercial bakers announced 20% versions of their own. By July 2013, the government mandated a 10% minimum of cassava flour in bread. According to the USDA, the moves have drawn complaints from bakers who say they cannot produce similar-quality products with the new blend, and from millers struggling to cope in their production processes as well.

“Since FMARD required 10% cassava flour in bread production, large private sector firms such as UAC and Leventis have responded accordingly, but local bakers are either unaware of the requirements or how to comply, and since they dominate the market, more needs to be done to raise awareness,” Femi Odulana, executive director of Global Corp, told OBG.

To this end, FMARD has established a training programme for master bakers, training 385 bakers as of May 2013. Other moves already implemented include building a database of farmers and, in concert with the Central Bank of Nigeria, putting in place several schemes to provide loans at below-market rates (see analysis). Long-term plans include establishing commodity boards to help set prices and promote crops and agribusiness clusters called staple-crop processing zones (SCPZs). These will be areas in which the value chain is built from the inside out: spots identified as suited to a particular crop at which a large-scale processing facility owned by a major corporation will be located, and at which other agribusinesses can set up shop. FMARD has 14 sites in mind, and corporations that have expressed interest include the Dangote Group in a tomato-processing zone near Kano, a pineapple SCPZ in Calabar and Cargill, and a cassava-sweetener SPCZ in Kogi State.

OUTLOOK: ATAP has had some successes and failures, as should be expected with any major sector reform effort. In 2014 sector watchers will see how the country copes with its additional rice-milling capacity, whether the improved access to fertiliser and seeds increases yields, and what impacts the upcoming election may have. Foreign investment thus far can be taken as a sign that ATAP may end the streak of failed reform plans. Scepticism remains, however. The USDA’s May 2013 report projects imports rising to 2.8m tonnes in 2013/14. “Nigeria’s rice self-sufficiency debate has been around for a long time,” it states, “yet Nigeria remains one of the leading importers of rice today.”