Post by Trade Coach on Jul 31, 2017 10:09:40 GMT 1
The economic diversification programme was anchored on the agric sector because of its potential to create jobs, boost domestic demand, and generate significant foreign exchange. But its capacity to deliver these benefits is hampered by lack of investments in value chain addition. Most raw materials from the sector are exported without any value addition, resulting in loss of huge revenues and jobs. Experts say that massive investments are required to increase production and create value addition in the sector. Assistant Editor CHIKODI OKEREOCHA reports.
Despite agriculture being Nigeria’s single largest economic sector, its impacts on government and export revenues have remained relatively small. In 2016, for instance, the sector accounted for a meagre 4.8 per cent of the total foreign earnings and 24.4 per cent of Gross Domestic Product (GDP).
For a sector upon which Nigeria anchored its hope of diversifying the economy, following the crisis in the international oil market where crude oil prices have been tumbling, causing serious upsets in the finances of Africa’s largest economy and oil producer, this is unacceptable.
It is even more unacceptable, perhaps,disheartening, particularly considering that it was not the case for the sector in the past. In the 1960s. Before the discovery of crude oil, agriculture was the mainstay of the economy, accounting for an average of 57 per cent of GDP, and generating as much as 64 per cent of export earnings.
Nigeria was a big producer of many agric commodities. The country was a global powerhouse in cocoa production and export, for instance. She also had competitive and comparative advantage in other non-oil products such as cassava, groundnut, palm oil, cashew, sugar, rice, Sesame seed, and wheat, among others.
However, from 1970 to late 2000s, the sector’s fortunes nose-dived, and its GDP contribution and export earnings started declining steadily. That was when Nigeria shifted its focus on crude oil and neglecting agriculture, despite boasting 82 million hectares of arable land that can support commercial agriculture.
But the recent fall in crude oil prices has since forced a strategic rethink in favour of transforming the agric sector to diversify the economy and exit recession. According to experts, the agric sector has the potential to create jobs, boost domestic demand, and generate significant foreign exchange.
Despite the emphasis on agric, the sector, according to experts, has remained largely under-developed, primarily because the focus has been on production, rather than on enhancing value addition across value chain segments. They noted that most of Nigeria’s agric commodities are exported in their raw form, without value chain addition.
Indeed, most semi-finished or finished products attract more value at the international market than products in their raw forms. By converting the raw materials into semi-finished or finished goods through processing, before exportation, more Nigerians across the value chain will be employed and the size of the sector’s contribution to GDP will increase.
But because of issues around infrastructure such as steady and reliable electricity, processing facilities, access roads and rail transportation, among others, to ease conversion of these raw materials or agric commodities into semi-finished or finished goods for exportation, Nigeria has practically been exporting jobs and importing poverty and unemployment.
Nigeria’s cocoa industry is a case in point. Nigeria, according to the United Nations Food and Agriculture Organisation (FAO), is world’s sixth largest cocoa producer, behind Cameroun, Brazil, Indonesia, Ghana, and Ivory Coast.
Out of the country’s total production volume of 248,000 tonnes of cocoa beans, only 30 per cent is processed into cocoa derivatives such as cocoa powder, cocoa butter, and cocoa paste, with the remaining 70 per cent exported without processing.
Yet, the processing of cocoa into cocoa derivatives is the highest value adding activity in the cocoa value chain. It has the potential to generate significant export revenues. For instance, in 2015, cocoa, a key cash crop, accounted for 21 per cent of Nigeria’s agricultural exports and generated $711 million in export revenue.
These were some of the findings contained in a new report by PwC Nigeria, a firm, which delivers quality in assurance, advisory and tax services. The report was titled “Transforming Nigeria’s Agricultural Value Chain: A case Study of the Cocoa and Dairy Industries.”
The report, which was obtained by The Nation, identified poor infrastructure, low investment, and unfavourable government policies as some of the factors hindering the exploitation of the opportunities in the nation’s cocoa value chain, for instance. It also observed that Nigeria’s cocoa production was highly subsistent and harvest done in small quantities.
Experts at PwC Nigeria said, “From our survey, a combination of inadequate farm inputs, in particular improved seedlings and fertilisers, high disease and pest incidence, limited agricultural mechanisation, ageing cocoa trees, and inadequate extension services have been responsible for low cocoa yield.”
Source: thenationonlineng.net/diversification-push-value-chain-addition-agric/
The added that production was further limited by the size of the cocoa plantations, which is an average of 2.5 hectares (ha) farm size. Besides, cocoa processors in Nigeria, the report said, “are underutilised, as Local Buying Agents (LBAs) and cooperatives prefer to sell cocoa beans to merchants, who offer a higher premium than processors.”
The report, therefore, recommended that “introducing an appropriate tariff on cocoa beans exports to disincentivise LBAs and cooperatives from selling to merchants could be a policy for upgrading processing in the cocoa value chain”.
It added that Nigeria’s agric sector requires massive investments to increase production and to create value addition across the most profitable segments of the value chain.
The report identified the various actors and stakeholders in the nation’s agric value chain as regulators, Federal Ministry of Agriculture & Rural Development (FMARD), Standard Organisation of Nigeria (SON), and National Agency for Food, Drug Administration and Control (NAFDAC).
Others are finance institutions, Central Bank of Nigeria (CBN), commercial banks, private equity firms, and Nigeria Sovereign Investment Authority (NSIA); Development Finance Institutions (DFIs) including Bank of Agriculture (BoA) and Bank of Industry (BoI). There are also local and international research institutes.
The key players or actors are those involved in input supply, production, processing, marketing/trade.
The report identified poor access to improved seedlings, high cost of agro-chemicals, difficulty in acquiring land, and climatic variation (high temperature and irregular rainfall) as the challenges facing operators in input supply.
It also said agric commodity producers are challenged by frequent pest and disease attacks, poor irrigation systems, low utilization of mechanised tools, and inadequate research.
On the other hand, operators in the processing segment of the value chain are faced with high cost of power and processing equipment, limited storage facilities, and inadequate skilled personnel.
The report added that marketers and traders are plagued by illegal food imports, poor road network, low cost of imported agricultural products, and inadequate market information.
Sadly, while Nigeria, despite her competitive and comparative advantage agric commodities, has yet to address these obstacles to the effective development of the value chains, other less endowed countries are deriving immense benefits from the agric sector.
For instance, in Brazil, improvement in the country’s agric value chain resulted in agri-business generating 16 million new jobs in 2012 and accounting for 46.3 per cent of exports in 2016. Also, Brazil has become a global producer of many agro processed commodities including orange juice, sugar and ethanol.
The PwC report said Brazil’s agric value chain developed because of the availability of improved seeds, improvement in soil fertility, increased adaptation to technology, and the support of domestic and international research institutions.
Developments in the global cocoa industry perhaps, bring the reality of Nigeria’s poor showing in the agric sector nearer home. For instance, The Netherlands, a non-cocoa producer, boasts one of the largest cocoa producing industries in the world.
The processing and exportation of cocoa derivatives generated $4.2 billion for the Dutch economy last year. It is the third largest exporter of chocolate in Europe. In comparison, Nigeria generated only $144 million from the exportation of cocoa derivatives to neighbouring countries like Ivory Coast, Cameroun and Ghana.
According to experts, the global market for finished goods made from cocoa is about $ 200 billion annually. But unfortunately, Nigeria has not been able to claim a chunk of this market share because of lack of a vibrant chocolate industry to process cocoa into chocolate and other finished products.
The Nation learnt that at present, 90 per cent of chocolate products in the Nigerian market are imported from Europe and other African countries such as Ghana, Cote d’Ivoire and South-Africa. There are few processing companies in Nigeria with the capacity to process cocoa into chocolate.
Issues around regular supply of cocoa, capital to establish local processing plants, and the challenge of marketability viz-a-viz imported chocolate, among others, have been identified as serious obstacles to the emergence of a vibrant local chocolate industry.
For the dairy value chain, the report recommends breed improvement, scaling up of dairy extension services, encouraging backward integration, improving processing tools, improved organisation of producer groups, and massive investment in cold chain technology.
It identified the main actors in the chain as pastoralists and commercial dairy producers, local and commercial processors, retailers and consumers.
