Ask the average person in agriculture, particularly primary production; what do you need to be profitable? If three things are mentioned, access to finance is sure to be included, and perhaps, the need for inputs such as seeds and fertilisers could be mentioned.
But then, a shocker; access to finance is not the biggest problem confronting the agricultural sector in Nigeria, at least going by submissions by panellists during this year’s BusinessDay Agribusiness and Food Security Summit. And, a spoiler: banks do not entirely ‘understand agriculture’, and as long as this knowledge gap exists, lending to agriculture will remain a big challenge. Coming from bankers themselves, this has to be a valid position.
The most important question is: does it matter how much finance is provided for the production of any commodity if at harvest, selling it becomes a nightmare? Access to market, and fixing infrastructural deficiencies that restrict this from happening, would make lenders more comfortable to provide credit to agriculture.
“If we encourage the local farmer to expand primary production this year and he does, then losses 40 to 60 percent of his produce post harvest, you will not get him to cultivate next year,” remarked Olabode Abikoye, executive director, Bank of Agriculture, during the panel on; Risk Management Approaches and Solutions in Agricultural Finance and Trading.
According to him, Nigeria has over the years, adopted the “strategy of optimisation as against expansion”. Every year, more inputs such as fertilisers, improved seeds etc are brought for distribution to farmers, with little attention going into what next after production.
As he narrated, if a flour milling company is asked if they are willing to depend on a Nigerian farmer for the supply chain of grains that will supply their mills, they may respond in the affirmative. However, when it comes to production planning, if the Nigerian farmers can provide maize at that particular moment, and they cannot supply continually over a period, then it will hamper the entire production plan. In that case, it becomes a better business decision to import this maize from South America or elsewhere to keep the mills running, than to depend on someone who is producing seasonally.
On financing, as it is currently structured, Ayodeji Balogun, country manager for AFEX Commodities Exchange Ltd, believes it is “one-handed”, with the supply side (i.e primary production) getting more attention in finance, than the supply side (i.e processing), which creates a problem that leads to price volatility. This is because producers are being financed to produce too much, whereas the market will not have the liquidity to absorb it, and prices will crash because supply will exceed demand. When prices decline, the farmers will stop producing, with this comes scarcity; prices will climb up, then return to farming again, prices crash (as usual) and the cycle repeats itself continuously.
“We need to have a systematic financing structure that actually balances both demand side and supply side,” he emphasised.
Osita Nwanisobi, deputy director, Development Finance Department, Central Bank of Nigeria, while illustrating difficulties in agric finance, still using Maize as an example, noted that with an unbalanced market, when prices reduce farmers will also be unable to repay what they have borrowed from banks. When this happens, banks will of course be hesitant to lend again. The question then comes up again; is borrowing to farmers more important if there are factors that could make it difficult for them to repay? However, if they are able to sell, and profitably too, then it may in fact, be possible for them to produce with less dependence on lending or an unbridled appetite for subsidies.
Even when financing is balanced for both the ‘demand and supply side’, Balogun of Afex commodities, gave perspectives on other factors that actually make it difficult for farmers to thrive. According to him, there are issues around quality, which make it difficult for processors to rely on commodities produced in Nigeria.
If a company is producing for instance Baby food, quality assurance has to be top notch. As he explained, in other climates, the company wants to know who the farmer is, which plot it was grown, what the quality of storage is, what truck transported the product, and have all the records. Therefore, if there is a quality glitch while testing, they will not just be throwing out that batch, but also identifying the farmer that produced it and where the problem is coming from.
“We have a system where there is really no grain standards,” he said. “Grade one maize in Nigeria means nothing.”
According to him, Aflatoxin levels are at points where it is hazardous. “There was a discussion recently that some countries are rejecting our products and we are trying to solve the problem of the rejects, but we do have a bigger problem that what is being rejected is actually the best of the quality of what we are consuming,” said Balogun.
He in fact, asserted that the quality of food being consumed in Nigeria, particularly grains, is actually Grades 4, 5 and 6. Therefore, grading and quality assurance is the next biggest problem that has to be solved in addressing market issues.
Abikoye, BOA’s executive director posed a few questions in agricultural finance; What risks are we measuring? What are we financing, and what are we supposed to be financing?
If roads in the cities are bad, it is many times worse in rural areas, the implication: their commodities are stuck there and mostly get spoilt. There is also a lack of storage systems, which adds to the risk of losing a substantial part of whatever may have been produced. Therefore, if these infrastructural deficits are not fixed, the wastage will persist, making the sector perpetually perceived risky, and with this, lenders will shy away.
“Until we fix the inefficiency gap, we will continue to say the same stories,” said Abikoye, “and we will continue to import fertilizer and seeds, when we should actually be fixing infrastructural gaps.”
Lending is not the ‘master key’ to unlocking agricultural prosperity in Nigeria, rather, fixing the broken linkages that limit access from farm to market.
“It is a no brainer that the emerging sector in Nigeria for sustainability of growth is agriculture,” said Segun Anjorin, head, High Local Corporates at Ecobank Nigeria. According to him, there will be a shift in lending to the agric sector, but the question is; how can this be done in a manner where we do not repeat the mistakes of the past?
“You have to understand what you are funding. If you do not understand what you are funding, then you are definitely still going to have the same broken linkages,” he said.
CALEB OJEWALE
