The Importance of Financing Agribusiness in Nigeria

This was a presentation at the 2015 Agriculture Conference of the NECA Network of Entrepreneurial Women (NNEW). A friend of mine reposted it on Facebook today and I was awash with the memories of that wonderful day. The submissions of the speakers at that Conference remain valid till today. Lets go!

Agribusiness can be described as that part of the economy that is devoted to the production, processing, and distribution of food, including the financial institutions that fund these activities (dictionary.reference.com/browse/agribusiness). ‘Agribusiness’ emphasizes agriculture as a big business rather than as the work of small family farms and involves all the allied activities associated with the production, through to the consumption of agricultural products, some of which are not food products. It is difficult for persons outside of the agro-Sector to understand agribusiness as having other relevance outside of food. But how else can you describe the skin of a cow that is processed into leather from where our shoes, coats and bags come from? Or how else can you illustrate the processing of cassava into bio-fuel for energy use?

Agriculture in Nigeria has for centuries been largely a private commercial activity. Many homesteads across the country depended on their agricultural produce for food and income from sales. With the coming of the colonialists, Nigeria began to develop her potential as a producer of several cash crops for export and industrial use. Recently, there has been a sustained and intensified interest by government in the sector and official efforts to infuse both local and foreign private participation in the development of agribusiness in Nigeria.

What is Agricultural Financing?

According to Ugwuanyi (1999), Agricultural financing is the sourcing of fund and making it available for agricultural production and uses. Agricultural financing is essentially, the acquisition and utilization of funding for agricultural purposes. It involves the efficient sourcing of funds from sources including the money and capital markets, and the judicious and efficient disbursement of those funds so sourced for agricultural and agro-allied production purposes so that the investor will be able to pay both the interest and the principal as at when due and earn enough return on his capital or investment.

The governments in Nigeria, federal, state and local, have made both direct and indirect efforts to finance agriculture. In the words of Anyanwu (1993), they have employed moral suasion and other policies to attract funding to the agricultural sector. In fact, commercial banks and other non-banking financial institutions, through one incentive or the other, are being urged to finance agriculture in Nigeria. However, when it seemed that the effort of these financial institutions were not sufficient, the governments went a step further to establish specialist financial institutions, specifically charged with the financing of agricultural activities. Among these specialized banks was the Nigeria Agricultural and Cooperative Bank (NACB), which later became known as Nigeria Agricultural, Co-operative and Rural Development Bank (NACRDB) and now the Bank of Agriculture (BOA).

The Need for Agribusiness Financing in Nigeria

According to the 2010 report of the Federal Ministry of Agriculture and Rural Development (FMARD), Nigeria is a top producer of about 10 major foods in the world, namely;

(1) Sorghum: According to Wikipedia, the grain, sorghum, is the third most important cereal crop grown in the United States of America and the fifth most important cereal crop grown in the world. In 2010, Nigeria was the world's largest producer of sorghum, followed by the United States and India but now Nigeria is third largest producer of sorghum with a production of 6,300mt per year.

(2) Yam: Nigeria is the largest producer of yams in the world with the production volume of 38,000,000 mt followed by Ghana and C?te d’Ivoire respectively.

(3) Kolanut: Nigeria is the largest producer of Kolanut with 88,000 mt in 2010 followed by Cote d'Ivoire (68,000 mt) and Cameroon (36,000 mt) respectively.

(4) Cassava: Nigeria produces 54,000,000 mt of cassava according to a 2012 assessment and is the largest producer in the world followed by Thailand and Indonesia.

(5) Shea Nut: Shea nut is from a tree called Vitellaria and the shea tree is a traditional African plant which produces Shea nuts which is processed into butter...Nigeria is the largest producer of shea butter in the world.

(6) Millet: Nigeria is the 2nd highest producer of millet in the world with 4,800 mt. India with 9,500 mt is the largest producer of millet.

(7) Sweet potato: China is the largest producer of sweet potato in the world with 77,375,000 mt while Nigeria is the second with 3,400,000 mt and Tanzania at third place with 3,018,175 mt.

(8) Cashew nuts and groundnut: Nigeria is the second largest producer of cashew nuts with shell with about 836,500 mt and the third largest producer of groundnut with shell in the world.

(9) Palm kernels: Nigeria is the third largest producer of palm kernels with 1,200,000 mt. Indonesia is the leading producer with 6,560,000 mt and Malaysia is second with 4,859,000 mt.

(10) Cocoa bean: Nigeria is the 4th largest cocoa producing country in the world with 383,000 mt while C?te d'Ivoire leads with 1, 650,000 mt, Indonesia 936,300 mt and Ghana 879,348 mt.

The report provided more information, such as;

§???? Plantain (6th world producer)

§???? Papaya (5th largest)

§???? Pineapple (7th largest)

§???? Okra (2nd largest)

§???? Onions (6th largest)

§???? Ginger (4th largest)

§???? Mango (9th largest)

§???? Soy beans (14th largest)

§???? Maize (12th largest)

But being the largest producer does not equally mean largest exporter!!! So, the importance of funding agribusiness in Nigeria cannot be over-emphasized. According to Ugwuanyi (1999), the need for special funding towards the agricultural sector stems from the following reasons:

The agricultural sub-sector is saddled with peculiar risks, risks that can hardly be diversified, calculated or quantified, making it almost near impossible for commercial banks and other financial institutions to make accurate forecast and prediction in granting loans/credits to the sector.

Much like the above reason is the fact that most conventional insurance institutions shy away from handling or insuring many agricultural risks. Much of the agribusiness players have no marketable securities. For example, many farmers are peasants that cannot afford any meaningful collateral to obtain loans from banks and other financial institutions - the communal land system in Nigeria compounds the case even more.

Most Nigerian farmers are illiterate and ignorant of the services being offered by banks and other financial institutions. They seem to be in a world of their own. Most farmers cannot compete favorably with other sectors of the economy in the finance market as interest on commercial loans are always high and more significantly, the risk associated with agro-business. But the place of food in the life of mankind makes it impossible for the business of agriculture to be neglected. In the hierarchy of man’s needs, food comes tops. Thus, at any cost, food must be produced as life must go on.

Culturally, in many communities in Africa, borrowing is usually regarded as living above one’s income. In order to discourage this sort of belief and attitude and increase agricultural production, there is need to provide for agricultural financing. The governments are looking to diversify the Nigerian economy in order to be less dependent on oil as the nation’s major income. In so doing, government intends to support the development of the economic sectors where Nigeria has comparative advantage. Agriculture has been identified as being one of the sectors that can contribute to the nation’s Gross Domestic Product (GDP) more than oil. Providing funding to the sector will help to achieve this goal.

As a major player of the global community, Nigeria needs to protect her sovereignty by ensuring the food sufficiency and security of her citizens. Our ability as a super power will depend on how less we depend on other countries or are vulnerable as a result of seeking for food for our citizens. Nigeria has the ability to not only provide food for her citizens but also export food to other parts of the world. What is required is patient and sustained funding of and capacity building for the agribusiness sector.