Agriculture In Nigeria – What You Should Know
- Agriculture is central to the Nigerian economy.
- It accounts for 22% of Nigeria’s Gross Domestic product.
- It provides 60-70% of employment in Nigeria.
- Only 38 million hectares (42%) of the 82-million-hectare cultivable land is under cultivation.
- Soil quality is rated low to medium by FAO
- It represents 1% of export. It is underperforming despite its huge potentials.
- 1 trillion was spent in importing various food products in 2013 (rice, fish, vegetable oil, tomato paste, wheat etc.).
Some Characteristics of Agricultural Practice
- It is cyclical in performance because of gestation period.
- It is seasonal in production.
- It is highly capital intensive.
- It is dependent on weather.
- Farmland is mostly on lease.
Challenges of Agricultural Business
- It is characterized by low productivity due to usage of old and primitive method.
- Poor technology.
- Cultural practices.
- Soil quality
- Low research and development activities.
- Under finance of agriculture value chain.
- Low budget 3% instead of 10% by government
- Policy inconsistency by Governments
Agricultural Policies Since Independence:
- National Accelerated Food Production Programme (NAFPP)-This programme was designed in the early 60s by both the Federal and state governments to accelerate the production of grains (maize, rice, guinea corn, millet, wheat, cassava and cowpeas).
- Operation Feed the Nation (OFN) – In 1976, Operation Feed the Nation was launched to address the problem of rising food crisis, rural-urban migration and escalating food import bills.
- Green Revolution Programme (GR) – The Green Revolution Programme replaced the Operation Feed the Nation of the Federal Military Government by the civilian government in 1979. This was an attempt to bring about radical changes in Nigerian Agricultural production and eliminate inherited food problems of successive governments.
- National Agricultural Land Development Authority (NALDA) – This development authority executed a national agricultural land development programme aimed at moderating the problems of low utilization of abundant farm land, thereby increasing food production level of farmers through expansion of farmers’ farm lands. A survey conducted by the Central Bank of Nigeria in 1998 indicated that the agency was able to develop 16,000 hectares of land. Out of this, 12,984 (81.1%) was cultivated with various crops. It also provided extension services to farmers at project sites. The overall goal of NALDA was to encourage farmers to plant above what they can consume, so that the surpluses can be sold at the local markets or exported to other countries for foreign exchange earnings.
- River Basin Development Authority (RBDA) – The existing abundant water resources in the country and its potential for increasing agricultural production prompted the establishment of River Basin Development Authority (RBDA). The scheme became necessary because of persistent short rainy seasons in many parts of the country which has continued to restrict cultivation to single cropping pattern the year round. However, the establishment of various large-scale irrigation facilities the country witnessed unprecedented multiple cropping patterns. In addition, larger areas were put into cultivation, while livestock and fisheries production were intensified.
- Directorate of Food, Road and Rural Infrastructure (DFRRI) –Trends in the transformation of the rural sector shows that despite the huge investment in the agricultural sector, which was assumed will automatically bring about eradication of rural poverty and isolation has not been achieved. This is partly due to the deplorable conditions of rural areas, enormous size and dwindling economic resources to address the problem of rural under development in Nigeria. In 1987, the Babangida administration established the Directorate of Foods, Road and Rural Infrastructure (DFRRI). On establishment, DFRRI attempted to open the rural areas through the construction of access roads, and provision of basic amenities of modern living.
- Agricultural Development Programmes (ADPs) – The idea of Agricultural Development Programmes is an offshoot of the concept of integrated agricultural and rural development. It started in 1972 in Northern Nigerian towns of Gombe and Gusau with two pilot projects assisted by the World Bank. This became necessary because of the need for the application of knowledge and skills in all the relevant areas of agriculture. This concept involves the provision of Infrastructural facilities such as roads, schools, water supply in the rural areas at the right times in required quantity to farmers.
- The Agricultural Transformation Agenda (ATA):The ATA aims at transforming agriculture from being perceived as a developmental sector to a profit sector.
- The ATA addresses the agriculture sector from a value chain perspective – from input to marketing.
- The four key measurable goals are:
- To fix fertilizer supply and input challenges (GES, Agro Dealer Schemes, Tractors etc.)
- To fix challenges of marketing institutions (Out growers, focused crops)
- To fix the agricultural financing challenges (NIRSAL)
- To fix the agricultural investment framework (Staple Crops Processing Zone, protection for local producers – duty regimes etc.)
Challenges of funding Agricultural business
In Nigeria, funding of Agriculture business is about 2% of total bank lending whereas it is about 6% in Kenya.
Reasons for low funding are:
- lack of understanding of agriculture business by banks. Most banks do not have agricultural lending desks, where they have they are poorly staffed or even staffed by personal with no agricultural background. It is compounded by most executives being ignorant and classify agriculture as high risk
- Perceived high risk
- complex nature
- high transaction cost, and
- low profit margin.
Central Bank of Nigeria (CBN) Role in Agriculture
The CBN has severally introduced various intervention schemes to support agriculture. They include:
- Agricultural Credit Guarantee Scheme Fund – Established by the Federal Military Government under the Agricultural Credit Guarantee Scheme Fund Decree 1977. The purpose of the Fund is to provide guarantee in respect of loans granted by any bank for agricultural purposes with the aim of increasing the level of bank credit to the agricultural sector. “Loan” under the decree includes advances, overdrafts and any credit facility.The Fund also provides interest rebate to farmers who borrow at market-determined rates by granting them a drawback of a certain percentage of the interest paid.
- Agricultural Credit Support Scheme (ACSS) – The ACSS is an initiative of the Federal Government and the Central Bank of Nigeria with the active support and participation of the Bankers’ Committee. The Scheme has a prescribed fund of N50.0billion. ACSS was introduced to enable farmers exploit the untapped potentials of Nigeria’s agricultural sector, reduce inflation, lower the cost of agricultural production (i. e. food items), generate surplus for export, increase Nigeria’s foreign earnings as well as diversify its revenue base.
- Commercial Agriculture Credit Scheme – The Central Bank of Nigeria (CBN) in collaboration with the Federal Ministry of Agriculture and Rural Development (FMA&RD) established the Commercial Agriculture Credit Scheme (CACS), for promoting commercial agricultural enterprises in Nigeria which is a sub–component of the Federal Government of Nigeria Commercial Agriculture Development Programme (CADP). The scheme was financed from the proceeds of the N200billion seven (7) year bond raised by the Debt Management Office (DMO). The fund was made available to participating bank(s) to finance commercial agricultural enterprises. In addition, each State Government could borrow up to N1.0billion for on-lending to farmers’ cooperative societies.
Nigeria Incentive-Based Risk Management System for Agricultural Lending (NIRSAL) –
- NIRSAL is a dynamic, holistic approach that tackles both the agricultural value chain and the agricultural financing value chain. NIRSAL does two things at once; fixes the agricultural value chain, so that banks can lend with confidence to the sector and, encourages banks to lend to the agricultural value chain by offering them strong incentives and technical assistance. NIRSAL, unlike previous schemes which encouraged banks to lend without clear strategy to the entire spectrum of the agricultural value chain, emphasizes lending to the value chain and to all sizes of producers.
- There are five pillars to be addressed by an estimated USD 500 million of CBN money that will be invested as follows:
- Risk-sharing Facility (USD 300 million). This addresses banks’ perception of high-risks by sharing losses.
- Insurance Facility (USD 30 million). To expand insurance coverage to new products, such as weather index insurance, new variants of pest and disease insurance etc.
- Technical Assistance Facility (USD 60 million). This would equip banks to lend sustainably to agriculture.
- Holistic Bank Rating Mechanism (USD 10 million). This mechanism rates banks based on two factors, the effectiveness of their agricultural lending and the social impact
- Bank Incentives Mechanism (USD 100 million). This offers awards to winning banks in the four Pillars. It will be in terms of cash awards.
Status of Lending to Farmers
- Exposure under ACGSF is N3.0 billion.
- 20,093 claims with a value of N1.528 billion for refund have so far been received and 9,236 claims considered valid while a value of N242.58m have been paid.
- Exposure under ACSS is N50 billion
- Exposure under CACS is N199 billion.
- Exposure under NIRSAL is N61.16 billion guaranteed.
- Agriculture is a profitable business despite all the challenges and risks
- There is a large population to feed
- There is availability of resources (land, labour)
- Existing technology makes room for Good Agricultural Practices (GAP)
- Food safety management systems can be guaranteed through GAP, good storage and processing facilities.
- The value chain approach to agriculture should support and encourage production.
- The current foreign exchange climate in the country will discourage imports and encourage local production and good farm gate price for farmers.
Is the current economic situation a blessing in disguise to help us re-direct the economy from an oil-based one to a more diversified economy (agriculture, solid minerals, Information Technology etc.)? What are your views?