African Reserves Loans

Nigeria: The dark shadow behind the food pyramids

It is time to move towards more modern entrepreneurship in the Nigerian agricultural sector.

It’s time to admit that the era of food pyramids is long gone, especially not government-inspired ones. Today, the pyramids only cast shadows of a bygone past. The agricultural sector currently employs the majority of the Nigerian workforce, most of whom still live in poverty. It is important to focus on the problem of poverty and make farming a truly profitable business, after which the activity will be self-promoting and will not require large displays of pyramids on the surface.

In light of the rising price of rice in Nigeria, the Federal Government recently made headlines by unveiling “mega” rice pyramids in Abuja. A million sacks of paddy rice are said to have been transported from all over the country to the capital to be geometrically stacked and put into use. To relive the sentiments of the country’s Tafawa Balewa era groundnut pyramids, the Rice Farmers Association of Nigeria (RIFAN), through its “Pyramid Sub-Committee”, has taken the financial decision to transport the strong national harvest to the center of the country before continuing nationwide redistribution. The incremental input costs were deemed necessary to demonstrate the results of the Central Bank of Nigeria’s lead borrower program. After all, previous administrations had also tried and often failed to revive these prosperous food structures.

Through the Anchor Borrower Program (ABP) launched in 2015, the government, through the Central Bank, has offered low-interest loans and other forms of support to farmers. These types of interventions have been successful in improving local agricultural yields across the country and Nigeria is no longer dependent on imports for certain staple foods like rice. Self-sufficiency in food production, however, is not synonymous with food security, and in the shadow of food pyramids lie grim realities that challenge their integrity. The CBN’s 2020 fourth quarter economic report shows that of the N497.2 billion deployed in 2,504,690 projects under the PBA at the time, only N118.7 billion had been repaid, which which implies a loan rate of return of 24%, assuming that the total amount disbursed was due. . CBN and RIFAN were nevertheless right to launch a debt collection campaign due to poor performance.

The conclusion is that despite the dramatically low cost of capital, the CBN’s efforts to tap supply to subsidize the market, and persistent food price inflation, farmers are not profitable enough to recycle their loans. Indeed, despite the country’s growing food self-sufficiency, the smallholder farmers who are responsible for 99% of Nigeria’s agricultural production remain at the very bottom of the economic pyramid. According to a national survey and segmentation of smallholder households in Nigeria by the Consultative Group to Assist the Poor (CGAP), nearly two-thirds of smallholder farming households in Nigeria live in poverty. It is no wonder, then, that despite the country’s huge youth population and repeated calls from voices within government for young people to come to the farm, only 12% of smallholder households are headed by people under the age of 30. The next generation just aren’t as interested in farming.

Given the limited resources of the Nigerian government, it must instead target its investments on repairing the infrastructure layer and focus on de-risking the sector by improving the factors that otherwise make it unprofitable. This mainly includes poor internal security, high import barriers and costs (especially for technological inputs), low investment in research, and low mobility of local and foreign investment capital.

The reason is clear. Economic incentives to engage in agricultural production are not visible. The future population is not interested in simply producing food for subsistence, and neither sentiment nor patriotism will change that. In 2019, Nigerian banks disbursed only 4.2% of total lending to the agricultural sector, reflecting their internal risk-return models and possibly government competition. For agriculture to become profitable and sustainable in the long term, market forces and data must demonstrate that the sector has the potential to create wealth in a direct and consistent way.

If we follow the model of other sectors such as telecommunications and the media, private capital – with the innovation it forces – must take the lead in the financing and development of agriculture, and the intervention of the State cannot be regarded as distorting supply. This is not to say that government interventions like subsidies and import restrictions are entirely bad; in fact, they’ve been very successful in boosting local sourcing in countries like China. But unlike China, the Nigerian government cannot afford to build up a large share of farmers’ income (38% of income for wheat, 29% for maize and 32% for rice in China). Nor can the government afford to buy produce from farmers at above-market prices to store in national reserves, as is done in some other countries.

Given the limited resources of the Nigerian government, it must instead target its investments on repairing the infrastructure layer and focus on de-risking the sector by improving the factors that otherwise make it unprofitable. This mainly includes poor internal security, high import barriers and costs (especially for technological inputs), low investment in research, and low mobility of local and foreign investment capital. The government also has an abundance of land, which is a primary factor of production. Commercial and independent equity relationships can be negotiated with contractors to cultivate latent arable land across the country.

It is time to move towards a more modern entrepreneurship in the sector, which will result in the reduction of the low-skilled agricultural workforce, which anchors workers in poverty in favor of more qualified expertise in agricultural production. research, technology and distribution. If we are to achieve food security fueled by capitalist efficiency, we must overwhelm capital and government interventions with private capital, competition, innovation, and fair market prices.

The government’s preoccupation with agriculture, which makes institutions like the Central Bank overly active with stakeholders, could be the bane of the sector. It forces progress to be inorganic, triggers premature actions such as import bans and border closures, creates highly fragile supply systems, limits private sector competition and innovation, and distorts trade without expected results of poverty reduction or reduction of price inflation.

It’s time to admit that the era of food pyramids is long gone, especially not government-inspired ones. Today, the pyramids only cast shadows of a bygone past. The agricultural sector currently employs the majority of the Nigerian workforce, most of whom still live in poverty. It is important to focus on the problem of poverty and make farming a truly profitable business, after which the activity will be self-promoting and will not require large displays of pyramids on the surface.

It is time to move towards a more modern entrepreneurship in the sector, which will result in the reduction of the low-skilled agricultural workforce, which anchors workers in poverty in favor of more qualified expertise in agricultural production. research, technology and distribution. If we are to achieve food security fueled by capitalist efficiency, we must overwhelm capital and government interventions with private capital, competition, innovation, and fair market prices. Industry participation and advocacy should no longer be limited to the production of raw materials, but also extend to processing and intermediation for price discovery and distribution. Only then can we have a sustainable and forward-looking sector.

Olaoluwa Samuel-Biyi is a partner at Hacked Ventures, Venture Partner at Greenhouse Capital and a PhD student in cryptoeconomics at IE Business School in Madrid.