THE NEW OIL

Nigeria 2017 | AGRICULTURE | REVIEW

The agriculture sector is dubbed the “new oil" in Nigeria, and only now is it realizing how lucrative a role it will play in the low oil price environment.

In August 2016, Nigeria's Minister of Agriculture and Rural Development, Chief Audu Ogbeh, announced the government's roadmap for the country's agriculture sector. With the so-called “green alternative," the government intends to return to its bygone days of the 1960s and 1970s, when Nigeria was a major exporter of agricultural goods and a definitively agriculture-led economy, not an oil-based one. Ogbeh expressed the government's motives to diversify the economy away from oil, reduce dependence on imports, improve food security, and become more self-sufficient. The agriculture reforms, he said, will pave the way for foreign exchange earnings and job creation.

From 2004 to 2015, Nigeria's GDP has grown at an annual rate of nearly 6%, positioning the economy as a promising market for FDI. In 2013, Nigeria garnered nearly USD6 billion in FDI. Also in 2013, oil comprised approximately 70% of the government's income and 94% of the country's export revenues, according to the Center for Strategic and International Studies. In 2014, the country's GDP of USD569 billion exceeded that of South Africa.

But then the global oil price floundered. In the first quarter of 2015, Nigeria's GDP grew at a rate of 2.11%. In the first quarter of 2016, GDP grew by -0.36%. By August 2016, Nigeria officially entered a recession for the first time since 2004.

With a low oil price environment and analysts predicting oil production to drop significantly over the next decade, the Nigerian economy has inevitably felt the effects and the government is being forced to take stock of its diversification options. Enter: the re-mergence of the agriculture sector.

Agriculture: The New Oil

Between 1962 and 1968, export crops were Nigeria's primary source of export revenue. Nigeria globally reigned palm oil exports, surpassing both Malaysia and Indonesia, and exported 47% of the world's groundnuts, ahead of both the US and Argentina, according to the Daily Monitor.

Soon, oil came to dominate the economy, putting agriculture on the backburner. While the agriculture sector employs two-thirds of Nigeria's entire labor force, its value-added per capita has climbed by less than 1% per year for the past two decades. Due to performance inefficiencies and a subsequent decline in production, the country has forfeited some USD10 billion in annual export opportunity from groundnut, palm oil, cocoa, and cotton alone, according to the Food and Agriculture Organization of the United Nations.

Meanwhile, a population growth from 45.2 million people in 1960 to 182.2 million people in 2015 has strained the agriculture sector further. Once self-sufficient, Nigeria has experienced a rise in demand that exceeds domestic production levels. The country is now importing approximately USD2 billion worth of agriculture goods each year, mostly of wheat, rice, flour, fish, tomato paste, eggs, textile, and sugar, according to local media outlet Vanguard.

Main Crops

Nigeria was once the world's source for 18% of cocoa production. Today, the country provides only 8%. And even though Nigeria comprises 65% of tomato production in West Africa, it stands as the largest importer of tomato paste in the world, according to Forbes reporting. The palm oil segment suffers equally. Some 1.5 million tons of crude palm oil is consumed each year in Nigeria compared to the 900,000 tons produced. The palm oil market continues to grow at a minimum—4.5%—annually, in line with population increases, TBY learned from Graham Hefer, Managing Director of Okomu Oil Palm Company.

Rice has long been a major cash crop. In fact, among all other crops, it makes for the largest source of income for Nigerian farmers. However, the country has turned into the second-largest importer of rice in the world after China, taking in some 24 million metric tons since 2006, particularly from Thailand, Pakistan, India, the US, and Vietnam. Nigeria's demand for rice is some 6.3 million tons per year, while domestic supply lags behind at 2.3 million ton per year. Despite a tariff of 70%, approximately 3.1 million tons are imported each year. In 2015, 1.8 million metric tons of rice was illegally imported, according to New Telegraph reporting.

In the first quarter of 2016, there was a 300,000-ton decrease in rice imports due to the Central Bank including rice in its list of 41 items that would be limited for importation via land borders. In February 2016, Dangote Industries Limited, the largest manufacturing conglomerate in Africa, launched the Dangote Rice Outgrowers Scheme, designed to bolster the rice value chain by distributing rice seedlings to farmers spread across 8,000ha of land.

Nigeria is the world's largest producer of cassava. The country comprises 20% of the global output but exports less than 1%. Ogbeh announced plans in 2016 to target an annual income of USD5 billion from cassava production alone. Cassava represents incredible market potential that is valued at approximately USD51 billion—an incredible opportunity that has yet to be tapped. Cassava is the base for major industrial products, including ethanol, starch, cassava flour, glucose syrup, and sweetener, among others. At the moment, Nigeria imports more than 95% of the industrial starch used in the country and 97% of companies use imported ethanol. By boosting cassava production, Nigeria benefits from the domestic market of industrial products as well.

Other major crops in Nigeria include cocoa beans and rubber. Cocoa is Nigeria's leading agricultural export and the country is the world's fourth-largest producer of cocoa, trailing behind the Ivory Coast, Indonesia, and Ghana. It is the third-largest exporter of cocoa in the world after the Ivory Coast and Ghana. However, due to dry weather, fungal diseases, and aged cocoa trees at the beginning of 2016, Nigeria experienced a poor harvest and a consequent drop in production by nearly 30%, or 80,000 metric tons (valued at USD231.84 million).
Nigeria's rubber production has fallen drastically since the advent of oil. Rubber production peaked at nearly 113,479 metric tons, but by 2007 the country was only producing 46,000 metric tons, and output has not rebounded much since. Of Nigeria's 18-million-ha capacity of land for rubber, only 13,500 is being cultivated. This capacity spells immense potential for rubber development, especially when the international market pegs rubber at USD3,000 per ton, and Nigeria has the ability to produce more than 200,000 tons per year, according to Daily Trust reporting.

Government Steps Up

Despite the deterioration of the agriculture sector since the beginning of the oil boom, the government is shifting toward its resurrection, particularly in light of the low oil price, general population growth, poverty growth, and the desire to create jobs. It cannot be overlooked that the sector accounts for more than 24% of Nigeria's GDP, according to central bank data.

In 2011, the Central Bank of Nigeria provided NGN10.19 billion worth of loans to farmers in the country's 26 states. The loans are disbursed under the Nigerian Incentive-Based Risk Sharing in Agricultural Lending (NIRSAL). Nearly 96% of beneficiaries were individual farmers.

In 2012, the government initiated the three-year Growth Enhancement Support (GES) Scheme. It was geared toward providing subsidized fertilizer and other input to farmers and assist in the transition from subsistence to commercial farming. Registered farmers were encouraged to use vouchers for fertilizer and seeds from agro-input dealers rather than directly purchase and distribute from suppliers. This scheme was introduced in response to middlemen having abused their roles in the past by servicing neighboring countries and leaving only 11% of some NGN873 billion in fertilizer subsidies between 1980 and 2010 for the Nigerian market. Nearly NGN776 billion were lost to corruption during this period, according to claims made by former Minister of Agriculture Akinwumi Adesina. The GES Scheme exhibited strikingly positive results and was thus renewed after its initial run. Rice output rose from 2.2 million tons in 2009 to 3.1 million tons in 2014. The private rice sector has reacted by developing 14 new industrial scale rice mills.

In February 2015, the Federal Executive Council approved the National Policy on Staple Crops Processing zone, which allows farmers of staple crops, such as rice, wheat, cotton, sugar, fish, and palm oil to more easily enter higher value-added markets. When fully operational, the project is expected to create at least 10,000 jobs and will attract USD1 billion in local and foreign investment.

The government has also been targeting the youth. In 2012, it launched the NGN59.7 billion Youth-In-Agriculture Scheme that trains students to set up and run an agriculture business over the course of 18 months. As a culmination of their training, trainees receive loans between USD25,000 and USD300,000 to enact their business plans.

Roadblocks Before Payoff

As the agriculture sector revival continues, challenges continue to threaten its return. The sector is still feeling the wrath of years of neglect and is desperate for a structured approach that increases crop yields, especially of high-value crops, lowers post-harvest and distribution losses, and escalates the scale of production. Improving crop yields alone accounts for 39% of the sector's upside potential.

Graham Hefer of the Okomu Oil Palm Company, which oversees 14,000ha of palm oil land and boasts an annual output of 40,000 tons of crude palm oil, told TBY of the tedious bottlenecks that prevent necessary expansion of palm oil farms. “Companies have to go through the entire process of environmental and social impact assessments and other certification processes, such as the Roundtable on Sustainable Palm Oil, which can take a number of years to conclude before any land expansions can even begin," Hefer said.

Paul M. Gbededo, Managing Director of Flour Mills of Nigeria, the largest producer of high-quality cassava flour in Nigeria and which oversees a 4,500ha pam oil estate, talked to TBY about why his company still needs support despite a NGN25 billion loan from the central bank, “The banks can only lend you money at a commercial rate and that is out of the question because agriculture is not profitable or sustainable at commercial rates of interest." Meanwhile, many farmers are not aware of the loan opportunities, because they are so distant from government undertaking and thus do not get to benefit as they could.

Infrastructure also remains a strain on the sector. Roads, railways, irrigation systems, water pipelines, housing, and electricity are inadequate at best. Nigeria's core stock of infrastructure amounts to some 20-25% of the GDP, a figure that should be hovering at 70% for a country of its size. A lack of sufficient infrastructure lowers efficiency and production levels among farmers.

Teeming with both small and large farmers who are ready for immediate change, Nigeria's agriculture sector is still underperforming. Only if it undergoes drastic reforms may the sector enjoy its great output of USD227 billion by 2030, more than twice the amount (USD113 billion) witnessed in 2013.