The outbreak of coronavirus has had far-reaching consequences across the globe. For Nigeria, which experienced a delayed onset of the virus, the implications have been multi-faceted. For millions of MSMEs, business has been brought to a standstill, as a result of government-led efforts to curb the spread of the virus, through multi-city lockdown initiatives.
Millions of low-income citizens, living on daily streams of income have now been relegated to their homes, struggling to survive. Overall, economic indices look bleak, and Nigeria’s economic rating has recently been downgraded to a B, due to the negative outlook. As countries across the world shut their borders in an effort to limit the spread of the virus, supply chains have been disrupted significantly, bringing imports to a halt, and research suggests that this disruption could continue long into the aftermath of the pandemic. Never has it been more critical to review one of our most critical sources of sustenance as a nation – food. This pandemic, and the increased self-dependence of nations, while borders remain closed, has brought to the fore a need to revisit the sustainability and strength of our local food production.
Food security in Nigeria
The question of Nigeria’s food security has become increasingly pertinent and has resulted in a significant amount of investment into the agricultural sector in recent years. And while the industry takes the lead in local production, we still lack the necessary food security that a nation with Nigeria’s agricultural potential should have. Agriculture accounts for over 20% of Nigeria’s real GDP, valued at approximately $48.5bn (N17.5trn). Yet, 2018 reports estimated that about 3.7 million people, across over a dozen Nigeria states, are food insecure. Some of this, particularly in the North, is triggered by crisis and insurgency; however, a significant amount is driven by rising costs, poverty and population growth, among other factors. The importance of food security cannot be overstated – a nation that is able to feed itself and support the well-being of its citizens is a nation that is one step closer to sustainability. And who can say that that isn’t a win for the economy?
Nearly all food production in Nigeria rests on the smallholder farmer – output from smallholder farmers is estimated to account for 80% of Nigeria’s agricultural output. Ultimately, our nation’s food security boils down to the smallholder farmer’s capacity to produce and supply on par with demand. Thus, if the country were to make any substantial efforts towards achieving this, efforts must be centred on up-scaling the smallholder farmer.
Through the looking glass: Nigeria’s smallholder farmers
At Sahel Consulting, we have worked with thousands of farmers who have relied on the output of the same single 1-hectare plot of land for sustenance for decades; despite growing families, and despite increased demand from a growing population. Yet, the average smallholder farmer, despite a desire to grow and increase his or her output, lacks the financial and technical resources needed to take advantage of the economies of scale. Access to the necessary finances to achieve this has consistently been proffered as one of the most important means through which the smallholder farmer can achieve scale – however, the big credit players (banks and other financial institutions) are averse to lending to them due to the high risks involved. The typical rural farmer lacks the digital footprints or financial history that provides indicators of credibility, which these institutions require. Risks are further heightened by the sector’s vulnerability to external shocks such as unfavourable weather, security attacks or pests and disease infestation. Thus, the smallholder farmer remains financially-excluded.
Their limited resources limit their ability to invest in critical inputs like the machinery required for landscape feasibility studies, mass crop production, amongst other things; increased farm inputs, fertilisers, pesticides, and the necessary tools for protecting their output; the logistics infrastructure they need for storage and transportation; or even updated technical know-how and skill. This lack creates a cycle that keeps farmers at low productivity levels. It limits their access to high-quality inputs, thus reducing their chances of harvesting good yield at the end of the season. Meanwhile, demand grows, and as a result of the limited supply, we find that individuals and organisations resort to foreign importation. Well, taking our current situation into account, this reality is extremely unlikely. So, the question that remains is: how can we provide the necessary support to enable our smallholder farmers to scale?
The role of financial inclusion in up-scaling the smallholder farmer
Financial Inclusion goes far beyond providing access to financial resources and tools and must take into account the base level empowerment requirement across educational and capacity indices which enable this newfound ‘finclusivity’ to be leveraged effectively.
To a large extent, the smallholder farmer has managed to get by through their own unorthodox means. The average smallholder dairy household has about 80 to 100 cows, and the truth is, if it were monetised, these families would not be considered poor, however, for them, these cows serve their pastoral livelihood, while a small portion are kept as a financial security option, in the event that they need to sell one in a crisis situation, or even for a family celebration. A study conducted on cocoa farmers in Cote D’Ivoire found that many farmers have developed a good savings habit – despite the fact that their income is barely sufficient; only 11% of funds used by the sector are from financial institutions, while savings and loans from friends account for 15% and 54% respectively. These savings are then invested into production in the next season and can keep the business running for a few more months but are very rarely sufficient enough to expand or scale any of their businesses.
Access to digital and mobile financial services such as mobile money serves as a solid entry point, and provides them with a cushion – reports from the Global Index Insurance Review revealed that, in Tanzania, farmers who accessed digital financial services such as microinsurance through mobile money earned 16% more than their uninsured counterparts, as they were able to invest a greater amount into their farms.
Commercial bank lending to the sector has increased albeit slowly. It accounted for 0.5% of total loans in 2009 and has since grown to 4.2% in 2019. This annual growth of 0.35% is much too slow to move the needle considerably in the long term. To compare, oil & gas accounted for 27.99% of loans, while manufacturing accounted for 15.79%. The CBN encourages banks to give single-digit interest rates to agricultural players, this makes the sector a less profitable outlet for banks, which may be looking to maximize profits.
In the absence of adequate provisions as it relates to access to finance for smallholder farmers, social enterprises, such as Thrive Agric, AFEX and Babangona, have become the compulsory middlemen that connect farmers to capital, and prospective buyers. This capital, however, is often dispensed to the farmer as direct farm input, as opposed to cash, thus enabling improved financial management support and reducing the associated risk. More importantly, the direct interaction that these organisations have with farmers has provided an opportunity for such companies to gather verified information on small scale farmers (e.g. prices, yield, rate of default, amongst other indices); these can be used to build credit profiles, useful for investors or corporate lenders. Over time, these efforts have enhanced financial institutions’ understanding and perception of the smallholder farmers. The service provider approach is even more effective for the empowerment of farmers – they are equipped with knowledge, insights, and updates as it relates to weather, land viability, input, and other necessary factors. These organisations also provide much-needed logistics support and market linkages.
The Way Forward
For many, the image of the smallholder farmer – completely marginalised; an individual struggling to make ends meet, who depends on the forces of nature for his livelihood – is a long-standing one. And the negative perception creates a stigma that I’ve seen this even among those studying to work in the agricultural sector. Last year, the Sahel Scholars Program – an annual program we introduced to educate and empower Nigerian agriculture students in higher institutions – took us to Obafemi Awolowo University; during the introductory exercise, I asked the students how many of their parents were farmers, and no one raised their hand. It seemed rather unlikely. Later on, after our guest speaker told his story of having grown from subsistence farming to become a successful commercial farmer, we asked the question again – this time, most of the class raised their hand. Having gotten a glimpse into the possibilities, they were no longer ashamed to be associated with a farming family or legacy. It’s high time we began to make those possibilities a reality for our Nigerian farmers.
After so many decades of our nation’s continued development, the agricultural sector and these farmers – its primary facilitators – must begin to reflect, and in turn, contribute to the nation’s broad ongoing development. An increased flow of non-monetary credit, combined with skills training, will significantly boost their output; this will not only improve the livelihood of the farmer, and their capacity to keep investing in their farms, but more so, it will help to close the gap between national food production and demand.
The coronavirus pandemic has placed an increased emphasis on the critical role that farmers play; with closed borders and airspaces, limited entry, and a slowdown on imports across board, our self-sufficiency as a nation rests in the hands of the smallholder farmer. We need to adopt an increased urgency in empowering them, by putting the necessary pillars in place, not only to increase production in the medium-term, and insulate us from food insecurity in the long term, but also, to ensure that our realised potential plays a significant role in feeding the entire world.
Ndidi Nwuneli
Nwuneli is founder of LEAP Africa and Nourish Africa; Co-Founder of AACE Foods; and Co-Founder and Managing Partner of Sahel Consulting.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
