DAILY TRUST, 01 APRIL, 2011
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Transcript of DAILY TRUST, 01 APRIL, 2011
. . .
. DAILY TRUST Friday, April.1, 2011
Ag ri c/Busi ness
'How we're helping Nigeria run agric as business'
Dr. Akinwllmi A. Adesi,;a is a household lIame in the agricultural sector world over. A First Class graduate oJ Agriculture Economics, Adesilla is the Vice President Jar Policy alld Partnerships oJthe Alliance Jar a Greell Revolutioll ill Africa (AGRA). With over 20 years experience in fixillg ti,e agricultural sector Jor AJrican countries, he has in his kitty several awards. Last week, he was in Nigeria. In this interview. he says the sector needs a comprehe"sjv~ overllQ1l1.
By librin Abubakar& Usman Bello
Why are you in Nigeria thjs time around?
I am in Nigeria as a continuation of what we are doing with the Central Bank of Nigeria on a programme called Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL). Basically this programme wiU help the CBN to leverage the excess liquidity that is on the balance sheet of banks into agriculture. TheCBN and the Bankers Com mittee have been working hard to see how to expand the lending going into the real sectors. Our task is to help with expanding lending to the agricultural sector. The CBN Governor and the Bankers committee are doing a great job.
The agricu ltural sector is crucial for Nigeria to feed itself, raise incomes of millions in rural areas, lower the price of food and raise real wages and boost rural employment. You can do without petrol in youreaf, but you call t do without fo od. For Nigeria to meet its Millennium Goal target on hunger and food, we must fix the agricultural sector. It should generate new sources of wealth all across the land. Nigeria has huge potentials in agriculture but is not taking advantage of them. Nigeria is the largest producer of cassava in the world but it adds zero per
. cent value in terms of export. It is the largest importer of rice and tomato paste in the world. So Nigeria is not taking advantage of what it produces but it imports what it does not really need to import.
Now, the challenge that occurs here is that when you look at the banking sector, it has not been lending.much to farmers. Less than 1% ofNigeriibanks'lending goes to agriculture where you have about 70% of the population and at the same time we have 7Q% of our people living on less than a dollar, so there is a correlation between the poor performance of agriculture and rise in poverty. This needs to change.
Why does this need to change? We have been looking at agriculture in
Nigeria for too long as a development programme. The way it is organized now generates more poverty than wealth. Agriculture is not a development programme. Agriculture is a business. There is no reason why Nigeria should not be one of the largest players globally in terms of food business. We need a more productive agriculture, with expanded use of improved seeds, fertilizers, irrigation and mechan ization. We need to accelerate funding!or agricultural research and development to generate better technologies. If you look at the northern guinea- savannah of Nigeria and you compare it to other places like breadbasket areas of USA, it is not different, but they are able to produce and export food but we barely feed ourselves. So there is something fundamentally wrong. Banks are not lending to agriculture because oflow
productivity, high risks and poorly coordinated value chains. To make it easier for banks to lend, farmers, need to be weU organized into commercial groups that are linked to off-takers or agribusinesses. Nigeria can deSignate its vast high potential agricultural areas into "staple crop import substitution zones" to ramp up production, processing, value addition and marketing. Banks would then lend to these well-organized agriculture business clusters. To help banks lend more, there is need to de-risk the financial value chains by sharing risks with banks and fix the agricultural value chains as well. This is the task ofNIRSAL which we are helping to deSign. .. Are you also referring to the specialised agriculture banks? .
I am talking of the banking industry generally. All banks need to lend to agriculture as a business. They can't lend because you have a "better life project". It has to make business sense. The hanking industry has focused on oil and gas and not agriculture and as a result you can see that Nigeria is importing everything that it can produce and export so as the CBN governor said, Nigeria is essentially importing inflation because we are importing expensive food and as the price of food rise globally, we are importing inflation. The NIRSAL will develop risk sharing to share risks with all banks to expand their lending to farmers. It is strongly supported by the Bankers committee. They are trying to reduce risk of lending for banks. It will also build capacity for banks to lend more. We are working closely with the Ministry of Agriculture on the agricultural value chains. For instance, the case of tomatoes, you go to Kadawa in Kano you would see where tomatoe£are wasting away. The idea now is to fix those agricultural value chains to reduce all .
the wastage and generate new sources of revenues from investments in storage and processing.
Can you shed light on the risk shar ing initiative for agriculture?
If a bank is to lend to you, the bank has to figure out what is your risk prome and if it is high, the bank may decide not to lend to you. For risk sharing we say if you lose money we would pay certain amount of the loss and it varies whether you are a small or large farmers, agrodealers, seed or fertilizer companies, or agro-processors and food manufacturing firms. We want the business to work for banks and for farmers and agribusinesses. It is a win-win.
How m uch is needed to execute this initiative?
The CBN is planning to allocate $500 million to NIRSAL which will be used to leverage $3 billion from the banks to agricultural sector, across all the banks that are going to participate.
How many banks would participate? All the banks would participate and we
have been having a lot of discussion with them and also had a number of meetings with chief executives of the banks, credit officer and insurance companies. farmers. agribusinesses and development partners. It has been a fully bottom-up design approach. So we believe that when the initiative is fmally announced by the CBN, the design would help to transform Nigerian agricultural sector.
What is the term of partnership with your organization?
The CBN and AGRA signed a memorandum of understanding in June last year to bring our experience of doing this with other banks in other countries. My institution, A~RA, has worked in Kenya, Uganda,
Mozambique, Tanzania and Ghana to help the banks transform their lending into agriculture. We have helped to leverage $170 million in new lending from banks in those countries into agriculture. When we started, we put up a loan facility and credit guaranty, with a bank called Equity Bank in Kenya. It leveraged $50 million from the bank. Today the bank has lent over $20 million to over 40,000 farmers. We helped to reduce the interest rates for farmers Significantly. The loss rate is extremely low at less than 1 % of the facility. We leveraged $ t 00 million from Standard Bank, Africa's largest bank, into new lend ing into agriculture. These are encouraging results. Many more banks are now seeing that lending to farmers and agribusiness is not as risky as they think. So the idea is to get the bank to move into a space that they would not normally have moved into. NIRSAL is being designed for the specific context of Nigeria, as Nigeria is very different.When NIRSAL is launched by the CBN governor you will see the details. It will be a game changer for agricultural lending in Nigeria. The focus is on real farmers.
How do you ensure that banks buy into thisinitiative, given that agriculture is seen as highly risky in Nigeria?
The Bankers sub-Committee on development has been showing remarkable leadership. All the banks in Nigeria are actively participating. We have organized a number of workshops for credit officers of banks, Chief Risk Officers and Chief Strategy Officers of banks. We have met with several of the CEOs of banks. Theytold us why they are not lending and what needs to be done to encourage more agricultural lending. There is full support for NIRSAL as addressing al l the key issues for the banking sector to expand agricultural lending. This is very encouraging
Continued on page 24
,~gric/Business
'Howwe're helping Nigeria run
• agrlcas business' Continued from page 23
indeed. NIRSA L wi ll support them to lend responsibly. with good quality loans going to agribusinesses and farmers. The banks all feel that reducing their risk of lending is critical for success. NIRSAL would also help to coordinate the value chain better so that banks are not just lending haphazardly but towards coordinated value chains.
Over the years, successive governments have been injecting money into agriculture but the money has not been reaching the targeted farmers. Do you think government should continue to subsidize agriculture in the form of fertilizer. or rather encourage output subSidy?
First of all . there is no agriculture that is not subsidized in the world. American farmers are heavily subsidized. Those that grow cotton there are so heavily subsidized that their cost of production is low compare to those in Nigeria. Not that the American farmers are more efficient but they are just more subsidized than the African farmers. While America and Europe subsidize rich farmers. millions of African farmers go without support. It is not a level playing field. Let me give you some figures. Farmers in Japan receive US $ 90S per hectare in subsidies. Farmers in Germany and France receive US $583 and US $ SOl per hectare. respectively. But look at Africa. Kenyan farmers get less than $1 per hectare. Tanzanian farmers get only US$ 4 per hectare. Ghanaian farmers get US $ 4 per hectare. In Nigeria. it is also so small. Fanners should be subsidized. But subsidies should go to real farmers and those that need them. Fertilizer subsidies should be done through agrodealers and the private sector. Need to have in place price support system that guarantees minimum prices for far mers. If the agricul tural value chains work well they will guarantee farmers good prices. Nigeria also needs to promote warehouse receipt systems and beller use of the strategic grain reserve§ .to assure farmers good and stable prices. w~i~ making sure the price of food is affordable for millions of Nigerians
By how much does the US government subsidizes agriculture annually?
It is worth several tens of billions of dollars. I can tell you also that the European Union provide over $260 billion as subSidy for their farmers every year and they are subSidizing rich far mers. but when it comes to Africans. they would tell you don't subsidize. I don't buy into that because why subSidizing the rich and not the poor w.ho actually need it? I believe that African fanners must be given subSidy. You cannot go to an Olympic race with somebody with track shoes while the other has no shoes and you expect them to compete together. there must be a level playing field. But we must use subsidy funds well. avoid subsidizing the rich and focus on smallholder farmers who need them. We l11usi find better and efficient ways of delivering subsidies. But farm ers also need to know how to apply the fertilizers effiCiently_ They also need hybrid seeds. It is a waste of funds to subsidize fertilizers when you don't use improved seeds. Nigeria needs to dramatically raise the level of use of improved seed varieties. Less than 5% of farmers use improved seeds. For this to happen. Nigeria should liberalize its foundation seed policy
MO Ibrahim is a board members of AGRA
to make it easier for seed companies to get access to foundation seeds. This needs urgent attention. as that is the experience in other parts ofthe world where agriculture has prospered.
AGRA is currently supporting the ministry of Agriculture to design beller ways of doing subSidy in Nigeria. If it is done well it can create a huge impact. Look at Malawi. five years ago. it was a food- deficit country but it gave subsidies for their farmers get access to seeds and fertilizers. so today Malawi is a net exporter of food . It even exported maize to Zimbabwe. Kenya. and also gave food aid to Lesotho. That is to tell you that when you support farmers they will deliver. There is nothing inherently wrong with African smallholder farmers. it is just that they are less supported than the European farmers. So I believe African farmers or Nigerian farmers should be s.upported but we should use the support well. The support should be provided through the private sector so that it does not distort the market and also reach the farmers that need them most. Farmers also need to be trained in better farming practices so that they use them efficiently. Only then will the return of the subSidy program be high.
AGRA is working currently with an organisalion called IFOC to pilot our fertilizer voucher programme in a couple ofstates and this is very important because we have helped to train a group of agro dealers -these are rural shops that sell seeds and fertilizers across the country_ The idea is that when the farmers get the voucher they take them to agrodealers who gives supply seeds and fertilizers and get reimbursed for the value of the voucher. This has worked well in Tanzania. Malawi and Kenya. So Nigeria should learn from what is working elsewhere. We are hoping that fertilizer voucher project can be sealed better here.
Are you saying it is going to address the issue of middlemen in the distribution cbain?
Yes it will_ Agrodealers and wholesalers of seeds and fertilizers are the most critical for
.. -getting inputs to farmers . They need access to finance to stock seeds and fertili zers and
other farm inputs. Need to expand agrodealers networks across Nigeria. AGRA is helping a lot with this now. They will help to reduce distances travelled by farmers to get inputs. In Kenya. from our support for agrodealers we have seen the average distance travelled by farmers reduce from 10 kilometres to 4 kilometres.
You see the fertilizer issue is a very complex one. In 2006. under the dynamic chairmanship offormer President Olusegun Obasanjo • I helped to organize the Africa Ferti lizer Summit. with support from the Rockefeller Foundation. which brought together 40 heads of states and governments to discuss about fer tilizers in Africa_ Africa faces a ferti lizer crisis. It uses less than 8 kg per hectare. Nigeria uses only 10 kg per hectare while the global average is over ISO kg per hectare. It was agreed at the Summit that African governments should subsidize fertilizers. expand the number of agrodealers. and use the agrodealers to deliver the subsidies to farmers. This is what I am talking about here.
So the issue here is that we have to get the fertilizer support programme right and in my view it means we have to design it properly. pilot it and make sure that there are no leakages so that it does not get to unintended beneficiaries. Need to focus on building the capacity of the private sector to run the fertilizer support programme.
Recently the government announced that base on the recommendation of the CBN it is considering reviving the marketing boards that were scrapped in 1987_ What is your view on this?
I think that marketing boards that we had before helped our farm ers a lot before the Structural Adjustment Programme (SAP) came in. In most cases. they guaranteed minimum prices for farmers. They provided ready markets for farmers. they helped stabilize the prices. gave farmers access to inputs and deducted the cost when the farmers sold their produce to them. But were there problems? Absolutely. Yes! The marketing boards became politicized as they began to have more politicians than professionals. Second. they started taxing farmers. They were paying them less than the global prices so they
began to extract from fa rmers and their operational cost became excessive and the farmers began to lose out in the marketing boards.
_ Sa they began to consume too much of gov-' emment resources. When SAP came. it took
all the marketing boards out. The problem is that it left nothing to replace them. Right now you find that the farmers have no place to sell and the markets are poorly coordinated . Their transaction costs of finding buyers are so high. The middle men come together and buy at very low prices from farmers. So I believe that what is needed is a moreorg~nized marketing arrangement for farmers. We should look at marketing corporations that are driven by the private sector. not marketing boards controlled by government.
What is the advantage oftbat to farm ers?
They will help to coordinate the agricul tural value chains. Farmers need to improve their grades and standards for markets and these marketing corporations would help with this. They would guarantee a price; it means I know the price of my commodities before I put the seed on ground. A farmer in America smiles to the bank because before he grows anything he knows what the price is going to be. He knows there is a market. If there is flood or haze or ruin their crops. he is paid compensation by the government -called 'Disaster Payment: When American farmers produce. if the price they sell in the global market is below the target price. the government pays the difference that you should have gotten. The market system is heavily subsidized. the research and development is heavily subsidized. in other words. the American farm er is covered on all sides but the Nigerian farme rs has to pray all the time because nothing is covering them. I would 'say the marketing corporations should be private sector led and coordinated institutions that can help to coordinate the agricultural value chains.
We should organize farmers into marketing groups so that they can build aggregate and use the volume to trade. We also need to put in place an agricultural commodity exchange. AGRA has helped Kenya and Malawi to establish well-fun ctioningagricultural commodity exchanges. The commodity exchange will help farmers to plan better. know future prices and have market intelli gence. There is need to qUickly develop marketing information systems to allow farmers to know prices in different markets. The cell phone is expanding rapidly in Nigeria. We should use this to put power of markets in the hands offarmers to negotiate prices. Knowledge is power.
There is need to have better strategic use of our grain reserve because strategic grain reserves to stabilize prices. It can mop up things in the market. So we cannot leave Nigerian agriculture to the fate of the market alone. government has a role to play and they must play the role well together with the private sector.
How soon would Nigerian farmers start feeling the impact of this new initiative?
The CBN at the appropriate time would announce the NIRSAL initiative. but it will be very soon. I believe that the support of the banking industry has to be enormous in the design phase that we are in now. It is clea r that there is much enthusiasm. The banks believe that with all of what NIRSAL will bring to support them they would be able to lend 10 times more than they are lending now. We believe that as soon the programme is launched it would have a speedier take-off because the interest is strong and also there is a lot of opportunity for the state governments. Many of the stakeholders are telling us that they believe that the new initiative is going to be a game changer for the agricultural sector. So the initiative of the CBN would change how we look at agriculture. it would change it from being a development programme to a real business in that generate wealth. It will open up a great new world for Nigerian agriculture.