The Cost of Insecurity 

Analysts see security challenges as the current biggest threat to Agricultural output and believe that the way they handle the challenges will be key to the sector outlook in the medium to long term. The Agriculture sector in Nigeria got off to a slow start in 2018, with real GDP growing at 3% y/y in Q1’18, the lowest quarterly real GDP growth rate since Q1’13. 

Whilst the exact driver of the slowdown is not clear, analysts highlight recent clashes between Farmers and Herdsmen in a few food producing states and the consequent destruction of crops and livestock alike. Analysts believe that the slowdown is a lagged effect of the ensuing insecurity. Whilst there is a dearth of information regarding the extent of damages to agricultural output, they expect continued disruptions to negatively impact sector growth and elevate food prices.

Analysts have already seen offshoots of this in May, with m/m food inflation rising from 0.9% in April to 1.3% in May. Conflict over arable land is as old as farming and herding. However, with the population of both livestock and people growing over the years and the effect of climate change capping available arable land for either grazing or cultivation, competition and conflict has intensified in recent times. 

In the run up to the general elections, analysts expect increased pressure on the Federal Government to find a lasting solution to the issue. FG has already established a National Food Security Council and increased military activity across the middle belt (The most affected region). They however expect this phenomenon to remain a key issue in the near term, especially given the unique ethnic and religious undertones underlying the clashes. Amidst increased disruption to food production, analysts foresee higher food prices in H2’18. 

Development policies still key to capturing sector potential 

As stated in analyst’s 2018 outlook, “Acta Non Verba”, they expect Development Finance Initiatives by the CBN and other Government agencies to drive growth across the entire Agricultural value chain. Recently, the CBN directed commercial banks to set aside 5% of prior year’s PAT as funding for the Agri-business Small & Medium Enterprises Investment Scheme (AGSMEIS). The scheme, which was first approved in 2017, is aimed at increasing SME access to finance, up to a maximum of ?2 billion per business. 

The initiative is one of many initiatives by the CBN with the intent to drive activity in key sectors of the economy, particularly the agriculture sector. These initiatives have been key to driving growth in the Agric sector. The Anchor Borrowers program for one, has disbursed over ?55 billion since 2015 to over 250,000 farmers at single digit interest rates. 

The program, targeted mostly at rice production (80% of funds committed to this), has recorded some progress, with the number of rice farmers rising from 5 million to 12.2 million since commencement and import of Rice reducing from 500,000MT in 2015 to 20,000MT in 2017. Other initiatives include the National Collateral Registry of Nigeria, which provides a web-based system for financial institutions to register their interest in any movable asset used as collateral. 

This is particularly important for Agribusiness MSME’s as movable assets/property accounts for most of their capital stock and is usually the only asset type that can be encumbered by them. The registry is already proving popular, with 20,684 assets valued at ?392 billion already registered on the platform as at September 2017 – four months after the registry was set up. 

Analysts expect the registry to improve credit supply to the Agribusiness sector, especially given the success of similar systems in Mexico and China. Moreover, the National Assembly recently passed the Secured Transactions in Movable Assets act, changing the program from a CBN initiative to actual Federal law. They expect this to make the program more sustainable. Overall, analysts see these initiatives as a critical key to unlocking growth potentials of the Agriculture sector in the near term and over the longer term. 

Source: Analysts at Vetiva Capital Management

Reporting for EasyKobo on Wednesday, 27 June 2018, in Lagos, Nigeria.