DAILY TRUST, 01 APRIL, 2011

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. DAILY TRUST

Friday, April.1, 2011

Agri 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 oJAgriculture Economics, Adesilla is the Vice President Jar Policy alld Partnerships oJthe AllianceJar a Greell Revolutioll ill Africa (AGRA). With over 20 years experience in fixillg ti,e agricultural sectorJor 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 ex panding 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 yo u 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 ne w 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 agrib usinesses. Nigeria can deSignate its vast high potential agricultural areas into "staple crop import substitution zones" to ramp up production, processing, value addition and ma rketing. 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 tomatoeÂŁare 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 th is with other banks in other countries. My institution, A~RA, has worked in Kenya, Uganda,

Mozam bique, Tanzania and Ghana to help the banks transform the ir 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 mo ved 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 p age 24

,~gric/Business

'Howwe're helping Nigeria run • agrlcas business' Continued fro m page 23 indeed. NIRSA L will 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 encour age output subSidy?

First of all. there is no ag ri culture that is not subsidized in the wo rld. American far mers 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 MO Ibrahim is a board members of AGRA more subsidized than the African farmers.

While America and Europe subsidize rich to make it easier for seed companies to get farmers. millions of African farmers go without support. It is not a level playing field. Let access to foundation seeds. This needs urgent me give you some figures. Farmers in Japan attention. as that is the experience in other receive US $ 90S per hectare in subsidies. parts ofthe world where agriculture has prosFarmers in Ge rmany and France receive US pered. $583 and US $ SOl per hectare. respectively.

AGRA is currently supporting the ministry of Agriculture to design beller ways of But look at Africa. Kenyan farmers get less doing subSidy in Nigeria. If it is done well it than $ 1 per hectare. Tanzanian farmers get only US$ 4 per hectare. Ghanaian farmers can create a huge impact. Look at Malawi. five get US $ 4 per hectare. In Nigeria. it is also years ago. it was a food- deficit country but so small. Fanners should be subsidized. But it gave subsidies for their farmers get access subsidies should go to real farmers and those to seeds and fertilizers. so today Malawi is a net exporter of food . It even exported that need them. Fertilizer subsidies should maize to Zimbabwe. Kenya. and also gave be done through agrodealers and the private food aid to Lesotho. That is to tell you that sector. Need to have in place price support when you support farmers they will deliver. system that guarantees minimum prices for far mers. If the agricultural value chains work There is nothing inherently wrong with Afriwell they will guarantee farmers good prices. can smallholder farmers. it is just that they are less supported than the European farmNigeria also needs to promote warehouse ers. So I believe African far mers or Nigerian receipt systems and beller use of the strategic grain reserve§ .to assure farmers good and farmers should be s.upported but we should stable prices. w ~i~ making sure the price of use the support well. The supp ort should be food is affordable for millions of Nigerians provided through the private sector so that it By how much does the US government does not distort the market and also reach the farmers that need them most. Farmers also subsidizes agriculture annually?

It is worth several tens of billions of dolneed to be trained in better farming praclars. I can tell yo u also that the European tices so that they use them efficiently. Only Union provide over $260 billion as subSidy then will the return of the subSidy program for their farmers every year and they are subbe high.

Sidizing rich far mers. but when it comes to AGRA is working currently with an Africans. they would tell you don't subsidize. organisalion called IFOC to pilot our fertilizer voucher programme in a couple ofstates I do n't buy into that because why subSidizing and this is very important because we have the rich and no t the poor w.ho actually need it? I believe that African fanners must be helped to train a group of agro dealers -these are rural shops that sell seeds and fertilizgiven subSidy. You cannot go to an Olympic race with somebody with track shoes while ers across the country_ The idea is that when the other has no shoes and you expect them the farmers get the voucher they take them to compete together. there must be a level to agrodealers who gives supply seeds and fertilizers and get reimbursed for the value playing field. But we must use subsidy funds of the voucher. This has worked well in Tanwell. avoid subsidizing the rich and focus on smallholder farmers who need them. We zania. Malawi and Kenya. So Nigeria should l11usi find better and efficient ways of delivlearn from what is working elsewhere. We are ering subsidies. But farm ers also need to hoping that fertilizer vouche r project can be know how to apply the fertilizers effiCiently_ sealed better here.

They also need hybrid seeds. It is a waste of Are you saying it is going to address funds to subsidize fertilizers when you don't the issue of middlemen in the distribution use improved seeds. Nigeria needs to dracbain?

Yes it will_Agrodealers and wholesalers of matically raise the level of use of improved seed varieties. Less than 5% of farmers use seeds and fertilizers are the most critical for improved seeds. For this to happen. Nigeria ..-getting inputs to farmers . They need access should liberalize its foundation seed policy to finance to stock seeds and fertili zers and

began to extract from fa rm ers 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 far mers 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 ve ry low prices from farmers. So I believe that what is needed is a moreorg~n­ ized marketing arrangement for farmers. We should look at marketing corporations that are driven by the private sector. not marketing boards controlled by govern ment.

What is the advantage oftbat to farm ers?

They will help to coordinate the agri cul 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 gove rnm ent -called 'Disaster Payme nt: 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 coverin g them. I would 'say the marketing corporations should other farm inputs. Need to expand agrodeal- be private sector led and coordinated institutions that can help to coordin ate the agriculers networks across Nige ria. AGRA is helping tural value chains. a lot with this now. They will help to reduce We should organize farmers into marketdistances travelled by farmers to get inputs. ing groups so that they can build aggregate In Kenya. from our support for agrodealers and use the volume to trade. We also need we have seen the average distance travelled to put in place an agricultural commodby farmers reduce from 10 kilometres to 4 ity exchange. AGRA has helped Ke nya and kilometres.

Malawi to establish well-fun ctioningagriculYou see the fertilizer issue is a very comtural commodity exchanges. The commodplex one. In 2006. under the dynamic chairity exchange will help farmers to plan better. manship offormer President Olusegun Obaknow future prices and have market intelli sanjo • I helped to organi ze the Africa Ferti gence. There is need to qUickly develop marlizer Summit. with support from the Rockketing information systems to allow farmers efeller Foundation. which brought together to know prices in different markets. The cell 40 heads of states and governments to discuss phone is expandin g rapidly in Nige ri a. We about fer tilize rs in Africa_Africa faces a ferti lize r crisis. It uses less than 8 kg per hectare. should use this to put power of marke ts in the Nige ria uses only 10 kg per hectare while the hands offarmers to negotiate prices. Knowledge is power. global ave rage is over ISOkg per hectare. It There is need to have better strategic use was agreed at the Summit that African govof our grain reserve because strategic grain ernm ents should subsidize fertilize rs. expand reserves to stabilize prices. It can mop up the number of agrodealers. and use the agrthings in the market. So we cannot leave odealers to deliver the subsidies to farmers.

Nigerian agriculture to the fate of the marThis is what I am talking about here. ket alone. governm ent has a role to play and So the issue here is that we have to get the they must play the role well together with the fertilizer support programme right and in private sector. my view it means we have to design it propHow soon would Nigerian farmers start erly. pilot it and make sure that there are no feeling the impact of this new initiative? leakages so that it does not get to unintended The CBN at the approp ri ate time woul d beneficiaries. Need to focus on building the announce the NIRSAL initiative. but it will capacity of the private sector to run the fertibe very soon. I believe that the support of the lizer support programme. banking industry has to be enormous in the Recently the government announced design phase that we are in now. It is clea r that base on the recommendation of the that there is much enthusiasm . The banks CBN it is considering reviving the marketing boards that were scrapped in 1987_ believe that with all of what NIRSAL will bring to support them they would be able What is your view on this? to lend 10 times more than they are lending I think that marketing boards that we had before helped our farm ers a lot before now. We believe that as soon the programme is launched it would have a speedier take-off the Structural Adjustment Programme (SAP) because the interest is strong and also there came in. In most cases. they guaranteed miniis a lot of opportunity for the state governmum prices for farmers. They provided ments. Many of the stakeholders are telling ready markets for farmers. they helped staus that they believe that the new initiative bilize the prices. gave farmers access to inputs is going to be a game changer for the agriand dedu cted the cost when the farmers sold cultural sector. So the initiative of the CBN their produce to them. But were there probwould change how we look at agriculture. it lems? Absolutely. Yes! The marketing boards would change it from being a development became politicized as they began to have programme to a real business in that generate more politicians than professionals. Second. wealth. It will open up a great new world for they started taxing farmers. They were payNigerian agriculture. ing them less than the global prices so they