Akala: FG Can Diversify the Economy via Export of Agriculture Produce
Executive Director, Foundation for Partnership Initiatives in the Niger Delta, Dr. Dara Akala, in this interview with Eromosele Abiodun revealed how the government can diversify the economy by producing and exporting agricultural commodities as well as ho
The Foundation for Partnership Initiatives in the Niger Delta (PIND), Market Development for the Niger Delta Programme (MADE), a DFID funded programme recently collaborated to produce a report from your study on the effect of naira devaluation on agricultural value chains in the Niger Delta. What informed this effort?
As a foundation established to build partnerships for peace and equitable economic development in the Niger Delta region, we work closely with market actors in three agricultural value chains, which include palm oil, cassava and aquaculture. So, we had a close look at the ways that the recent changes in foreign exchange policy and trade policy was affecting their business operations and decision-making. This change in dynamic, in turn, affected our interventions, and we had to be as nimble as the market actors we were working with to ensure that our work continues to achieve its goal of increasing income and employment in the region. So this report was about taking a step back to see what the real opportunities and challenges are and where government, private sector and donor organisations working within the agricultural ecosystem should direct their energies to maximise the development impact. That is why this report has recommendations to help private sector better navigate the evolving economic environment; and to donor organisations on how to shape their interventions for relevance and effectiveness, as well as to government on how they can work with all the key actors to strengthen the gains and mitigate the challenges.
What were your findings?
We found that the impact of this import restrictions and the floating of the currency differs from one agricultural value chain to another, but here are some impacts that are concurrent across board. You find that the devaluation has led to significant increases in costs of major inputs over the last two years, which influences cost of production across all the value chains. Energy prices, including power and diesel, are largely driven by foreign exchange costs, and are a significant cost component for processors along the aquaculture, cassava and palm oil value chains, and for some primary producers in the poultry value chain. Agricultural inputs such as fertilizers and crop protection products, which are of special interest to PIND and MADE, have also seen huge price increases. In addition to price increases, farmers are also experiencing difficulties accessing these products as local production capacity is currently inadequate. Nevertheless, it has to be said that it is not all doom and gloom as there is a silver lining in the current harsh economic conditions. For example, because of the sharp rise in the price of imported rice, Nigerians are shifting to locally produced rice and more importantly, to other substitutes such as cassava products. This is driving demand in the food market for cassava, which is good news for cassava farmers.
What lessons can the Nigerian government learn from your findings?
One key thing for government is that a coordinated approach to policy development for agriculture, including understanding the impact of trade policy on the sector, is the key to diversification of the Nigerian economy. There have been some gains with regards to improved productivity and access to market as a result of the import tariffs and weakened naira, but it is important to remember that the government’s hand was forced. The Nigerian government has always preferred a strong naira, and when these kinds of foreign exchange policy decisions are made, they are often not with agriculture in mind. With the growing importance of agriculture in our economy, it is important that we plan towards certain agricultural outcomes with carefully considered policies that foster an enabling environment for private sector actors to operate.
Based on the findings of the survey, how can the government and international organisations with focus on agriculture reshape interventions to reflect the economic realities as it affects some value chains like aquaculture, poultry, palm oil and cassava sectors?
Let us take it one by one. As regards aquaculture, the huge increases in the price of quality feed –doubling, in some cases - is hampering the growth of a competitive sector. This imposes a lot of pressure on the poor, small-scale fish farmers, forcing them to improve the efficiency of their operations, or go out of business. For efficiency to improve, they must be feeding correctly and must also be able to manage the water quality of their ponds. This can create greater demand for productivity training, which international organisations and government can provide to boost these farmers’ incomes.
In the cassava value chain, the increased selling price of fresh cassava roots and the value addition in garri production have resulted in a positive effect in income for smallholder farmers, who produce most of the cassava in Nigeria. Many development programs are currently promoting good agricultural practices to drive further productivity gains for smallholder farmers. Even though we are currently witnessing increases in the demand for garri and fufu among others, there is a limit to which the food market can absorb the increased production of cassava tubers. Therefore, to avoid the cyclical boom and bust in the cassava market, interventions can focus on linking cassava farmers with industrial processors who are now finding it difficult to compete with the food market for cassava tubers. Additionally, we have seen the value of cassava substitution as energy source in animal feed production, and development programs can work with market actors to develop this on a commercial scale, So as to provide an alternative market for bumper harvests of cassava.
For palm oil, the current record level prices provide a unique opportunity to catalyse widespread cultivation of the oil palm tree. The bulk of the production of fresh fruits now comes from the wild groves with relatively low yield in palm oil. So, the introduction of improved seedlings allied with an aggressive training programme in best management practices in small to medium oil palm holdings is a practical way for assuring that the current gains are sustained. A complementary programme would be the promotion of the adoption of the small-scale improved processing technology by processors to increase the yield of oil per tonne of fresh fruit bunches.
In poultry, the increase in price of vaccines presents a huge challenge for poultry farmers. The inability of the National Veterinary Research Institute (NVRI) to produce enough NCD vaccine,
and the reduced importation of vaccines has resulted in shortages in the market. The price rise for a live bird in the market appears to sufficiently cover the price rises for inputs, which implies that poultry farming is still a commercially viable enterprise. It is therefore an opportunity to expand the reach of interventions that promote the use of vaccines in the enterprise.
According to your report, palm oil subsector has seen increased demand for both Technical Palm Oil (TPO) and Special Palm Oil (SPO) as imports of refined palm oil are banned while crude palm oil imports are subject to combined import tariffs of 35 per cent, and are invalid for official foreign exchange access. Please explain further.
This is the interplay of market forces at work. SPO is indeed one of the banned items on the CBN list, while crude palm oil imports now attract a hefty tariff. The combined effect of government policies is that the supply of the refined oil products – Special Palm Oil (SPO), Refined Bleached and Deodorised Palm Olein (RBDO) etc – is reduced as the bulk is imported into the country. Even with demand staying at the same level, scarcity normally triggers price increases. As you may be aware, the highly refined oil products are those used in industries. So, the shortage in the availability of imported SPO and RBDO implies that more technical palm oil (crude oil) is being purchased for processing into SPO, and more SPO is also being processed into RBDO. It is the pull of the demand by the need of industrial users of refined palm oil that drives demand down the line in a domino effect.
The federal government wants to generate foreign reserves from other sources, like exporting agricultural products. As a matter of fact, they have started exporting yams to Europe and the United States. What impact will this have on food security in the country?
The export of agricultural commodities to generate foreign exchange for the country is a welcome development any day. For too long, the nation has been over-dependent on oil; that is why we are referred to as a monoproduct economy. Producing and exporting agricultural commodities would help to diversify the productive base of the economy. As you rightly pointed out, we have started exporting yams; a step in the right direction. However, the question that raises is – what is the size of the market for yams? Are the consumers not Nigerians and other Africans in Diaspora? One of the current trends observable in the economy is a massive drive for export by the private sector. The price paid for cocoa beans in Nigeria is sometimes higher than that on the global market these days. Other products like vegetables, spices and even fruits are being exported. It can be said without equivocation that our agricultural exports are primary produce without any value addition. Many companies and individuals engage in exports these days just to generate forex to be able to purchase foreign goods to import into Nigeria. So one more must ask: when are we going to see any meaningful value addition to our agricultural produce? Until we do this, we are not going to see the multiplier effects of agricultural exports in the economy.
And, to conclude, you raised the issue of the potential impact of exports on food security. I don’t really have that fear in the sense that a lot more people are going into agricultural production these days. The export opportunities would help to expand the market for the various products. In the absence of this, we will witness a glut in the market with many producers losing their investment and ultimately being driven out of the sector. Besides, Nigerians are very resilient and innovative with an uncommon ability to adapt to situations. As we speak, a lot of the palm oil that we find in the markets is from Ghana but don’t ask me how they manage to arrive here.
From your experience in the Niger Delta, can investment in agriculture help to end the youth restiveness in that region?
Absolutely, yes. Youth restiveness is caused by a lack of opportunities in various economic spheres, and deliberate and planned investment targeted at creating opportunities for the youth in the Niger Delta region will help keep them positively engaged. Here, I am not talking of slash-and-burn agriculture or the hoe-and-cutlass technique of cultivation that makes farming looked down upon as a profession.
It is important to make farming attractive, even to the significant unemployed population of graduates in the region. Some of the ways by which we can achieve this is for government to engage in massive land development. By this, I mean opening up large parcels of agricultural land that will allow for mechanised operations, allocating these to the youth and embarking on practical hands-on training in the art of farming. Also, everyone does not have to be a farmer; some of them could be trained to provide services in land preparation, processing and even commodity trading.
From your experience and the outcome of your report, what could the CBN have done different to avoid the impact of naira devaluation on agricultural value chains?
I believe the CBN could have done a scenario analysis to forecast the possible impacts of the policy pronouncements and to plan remedial actions. I don’t think anything like that was done. For example, we have seen that even though product prices have risen in various value chains, the attendant rise in the cost of production means that the very small producers are not able to take advantage of the market opportunities. Instead, as was observable in the case of small-scale fish farmers, they were squeezed out of production. A remedial action could have been providing access to affordable credit to be able to stay in production.