SPECIAL REPORT: Agriculture can’t save Nigeria, but agribusiness might

Agriculture in Nigera - Photo credit: Guardian Nigeria

by Mazi Emeka

As the Nigerian economy slowly descends into full blown recession, and the national currency nose dives to a historical low, a common rhetoric erroneously uttered – albeit with good intentions, – and widely believed too, is that agriculture will become the proverbial mice that will bail out Nigeria’s troubled economy. As a better, cheaper alternative for oil, which we have relied on for far too long, agriculture, many have argued, is the formula for greater economic growth.

Increasingly, in supporting this claim, government policies, officials and economists have often pointed to the ‘’good old days’’ when agriculture was the mainstay of Nigeria’s economy.

Recently, the Imo state government, in the South Eastern region, as part of its self-sustenance and plan for the agriculture sector, rolled out a new policy tagged “Back to Land for Agriculture.” This policy, the state government says, will put the state back on the road towards greater opening in the sector by enforcing civil servants in the states to work and invest on farms twice weekly.

Critics have argued though that the policy is not just a waste of human resources but also not well thought out.

Nigeria is largely agrarian with the sector contributing the highest to the economy in terms of the number of persons employed and revenue generated (oil generates more revenue but employs less number of people).

Revenue from the agriculture sector was the bedrock upon which the post-colonial (1960-1968) national developmental plan was built. Nigeria has well over 80 million hectares of arable land –accounting for 23 percent of the total arable land mass in West African sub-region. Only 30.7 million hectares of this arable land is currently under cultivation.

The country was widely regarded as a major producer and exporter of several agricultural products such as livestock, Cassava, sorghum, corn, yam, cocoa, palm oil, groundnuts, rice, rubber and millet.

However, a change in the structure of Nigeria’s economy with the discovery of oil and the subsequent oil boom led to the sector being relegated to the background.

Agreed, agriculture is the highest employer of labour, the second highest contributor to our Gross Domestic Product (GDP). A national agriculture policy will have far-reaching consequences towards ensuring food sustainability, increase Nigeria’s earnings from foreign exchange and sustainable economic growth.

But agriculture alone is unlikely to become the magic wand that will save Nigeria’s troubled economy. Setting up and focusing as much energy on agro-allied businesses may indeed backfire in the long run.

Research has shown that there is a favorable relationship between agriculture, industrialization and economic growth. And that the process of industrialization – which basically involves the application of technology – has a lasting impression on the level of productivity in the sector.

Internationally revered economist, Ragnar Nurkse, for example, wrote in 1953 that “Everyone knows that the spectacular industrial revolution would not have been possible without the agricultural revolution that preceded it.”

It could be argued based on historical precedents that agricultural revolution comes before industrial revolution. True. But it is also of utmost importance to point out that industrialization is a sign of a developing economy. An economy with deep growth in its agriculture sector is still considered a developing economy.

Agriculture versus industrialization has been an age old economic argument. But research has shown that an economy based on agriculture alone is overtime, de-industrialized and the population still rooted in poverty.

Economist, Kiminori Matsuyama, in his 1990 paper, Agricultural Productivity, Comparative advantages and Economic Growth, argued that “High productivity and output in the agricultural sector may, without offsetting changes in relative prices, squeeze out the manufacturing sector and the economy will de-industrialize over time, and, in some cases, achieve a lower welfare level.”

Although Matsuyama further argues that countries that lack arable land often achieve industrialization faster than countries with arable land because such countries (case in point: Japan) focus their energy and resource on refining imported agricultural products and raw materials and exporting finished product to other countries.

An ideal situation is one whereby local agricultural products are not only exported and consumed domestically but also fed directly into indigenous agro-allied industries to ensure greater economic yields in terms of employment, revenue and food consumption.

An agriculture sector built to stand alone without industry is weak and faulty at its layers. For a more progressive and strong sector, agriculture must be built to birth industry within the same country in other to reap the multi-benefits of the sector, across board. Because for every 2 persons employed by agriculture, the agro-allied industries employ five. This is also applicable in the profits made by both sectors.

“Agriculture is all about the value chain,” says Ada Osakwe, founder and CEO of Agrolay Ventures. “I tell people it is Agribusiness – agriculture as a business. Agriculture itself can be industrialized and that’s what we need to do. Today when we talk about importing, the numbers used to be a turnaround of Nigerian’s spending up to 500 billion annually on importing food.”

Osakwe, who served as Senior Investment Adviser to Akinwumi Adesina, Nigeria’s former Minister of Agriculture and Rural Development, points out that over half of the product placed on the no-forex list by the Central Bank of Nigeria are agriculture related food products. She describes agriculture in Nigeria as an untapped gold mine and stresses that “tomato paste, vegetable oil, sugar, toothpick, all those things that we import, are value added product. Packaged agriculture products are a 2 trillion dollar industry globally. But where does Nigeria figure in that amount? So all those tomato paste, we are bringing into the country, vegetable oil, toothpick – which is from wood – all those things, if immediately we can process and package in a fantastic, beautiful way right here in Nigeria, we can succeed from it. So we are not spending N500 billion on import, instead it is all here (Nigeria).

“Do you see any made in Cote d’Ivoire chocolate on the shelves of Tesco in London or Walmart? You don’t. But that is what the consumer is buying and what is making significant money for companies like Mars. So that’s what we need to get into if we want to get a piece of that pie, of that 2 trillion dollar industry of packaged food.”

Blogger and small scale farmer, Japheth Omojuwa, re-echoes Osakwe’s assertion. He says that both agriculture and industry must work together for greater economic value.

“It is not a question of one or the other. It is a question of one and the other. You have to have everything so it is not about choosing agriculture and ignoring agro-allied industries or choosing agro-allied industry and ignoring agriculture. It’s all about value chain. With agriculture you are talking about the primary side of things, whether you are planting or you are producing broilers, eggs or whatever, that’s the primary side of it. It is a kind of value but that is not enough. You need to now add some extra value to what you are producing on that primary side.

Another question that remains unanswered by government and proponents of agriculture as the next best thing is: will Nigeria become a country that produces agriculture products for consumption and exportation while still importing finished products from other countries (much like the regrettable, albeit confusing, situation of the oil and gas sector wherein Nigeria still imports refined oil that it produces and exports) or will Nigeria become a country that uses its agriculture products for agro-allied production, exportation and domestic consumption?

Both conditions have dissimilar and far reaching ramifications for the economy. The former means that Nigeria will remain a agriculture based economy, impoverished while the later implies that Nigeria will become a truly diversified economy with a booming agricultural and manufacturing sector.

This is by no means an effort to belittle the importance of agriculture. Far from that, this is an examination of the extent to which the belief that agriculture alone can save the Nigerian economy is true and how Nigeria can achieve faster economic growth through industrialization.

Agriculture’s historical contribution to the economy

In the late 1950s and early 1960s, agriculture contributed about 63 percent to the Gross Domestic Product of Nigeria and about 80 percent of Nigeria’s export earnings and employment. In 1959, cocoa, followed closely by rubber, was the biggest foreign exchange earner for Nigeria.

However an increase in the cost of commodity, the oil boom, increase in mining and manufacturing, plus unfavorable macroeconomic environment caused a massive shrinking of the sector. This resulted in the loss of jobs, decrease in exportation of agriculture products and increase in the rate of rural-urban migration. Prior to this period, Nigeria was self-sufficient in food production.

The sector shrunk further in the 1980s as agricultural output dropped by about 1.9 percent with a proportional decrease in the level of exportation, increase in importation and a massive decline from the over 40 percent contribution to the GDP which the sector recorded in 1970.

The eighties weren’t a particularly favourable period for Nigeria. The economy recorded negative growth in virtually all sectors, inflation was at its highest since independence and the country was in recession.

The level of agriculture output and exportation continued to decline progressively. By 2001, agriculture accounted for an estimated 32 percent of the GDP. After Nigeria’s economy was recalibrated in 2014, (with revelations that Nigeria is the largest economy in Africa and that several other sectors like technology, entertainment, are making significant contribution to the nation’s economy than previously thought,) agriculture sector was found to have contributed 22 percent to the GDP.

Nigeria’s population continues to expand exponentially. The agriculture sector reportedly employs 70 percent of Nigerians.

Several administrations have in the past tried, and failed, to revitalize the agricultural sector – most notable of which are Shehu Shagari’s Green Revolution, Olusegun Obasanjo’s Operation Feed the Nation, Gen. Ibrahim Babangida Structural Adjustment Programme (SAP) and Umaru Musa Yar’Adua’s Food Security Agenda.

How farming is done in Nigeria

Agriculture in the country is mostly done on a small, subsistence scale. There is comparatively a small number of farmers involved in large scale farming within Nigeria.

Farming is largely done on a small polycultural scale with simple tools and shifting cultivation while livestock farming – especially cattle – is more nomadic with Nigeria having little or no ranch within its land mass.

Farms are mostly scattered around and owned by private middle or lower class Nigerians who form corporative societies to aid themselves. These small scale farmers produce an estimated 80 percent of the total fresh foods consumed in Nigeria.

“Agriculture is one of our best alternatives for sustainable growth because when you look at it, it is a value chain. You cannot disaggregate what the farmer is doing,” says Osakwe.

“If today, in Nigeria, the largest producer of cassava in the world is able to give that cassava to a company right here in Nigeria – an indigenous company – that has a huge cassava processing plant that can make cassava starch, for example, that cassava starch can then be sold to the Nestlés of this world to put into their products. Nestlé does not have to spend millions of dollars importing corn starch that they use in their products; they can then use cassava starch. Suddenly that farmer – who we think is just making a small amount of money and is poor – now has a guaranteed market to sell his cassava to the processor and that processor has somebody to buy it, like Nestle.”

While some agro-allied manufacturers source for raw materials within Nigeria, others import or serve as assembly plant for the finished product.

Example: despite the abundance of water supply and favorable climate conditions for cassava production, several Nigerian businesses that need ethanol (alcohol) rely on importation before they can get the product (ethanol is gotten from cassava tubers through the process of distillation), thus expending scarce and expensive foreign exchange.

More farmers are employing modern mechanization in their farm practices. This increases efficiency, cost of production (as a few hands using machine can cultivate a large land), speed and ease of farming.

While mechanized farm is praise worthy, it will however lead to decrease in the number of hands employed in farms. Even at this, agricultural practices that are hand labour intensive will lose workers to a more efficient, easier and less stressful employment option: industry.

“It’s a win-win situation,” says Osakwe as she talks on mechanized farming and industrialization. She points out that hands displaced from the farms due to mechanization can easily be absorbed in the factory.

Although Omojuwa agrees that mechanized farming leads to loss of jobs, he, however, adds that “mechanization also creates jobs.” Hear him: “Mechanization helps you to do so in lesser time. Mechanization helps you to produce more than ever before. Mechanization helps you to produce faster and bigger. And what that means is that you’ll need more hands elsewhere.”

Yearly, agriculture is employing less and less number of people. In South Africa, for example, the agriculture sector employs fewer people than before. In Britain, agriculture was the first victim of the industrial revolution. As at 1871, the sector employed 7 percent of the population, today Britain’s farming sector is highly mechanized and the figure of persons employed stands at 0.2 percent – a drastic 95 percent decrease.

The best bet

The federal government preaches the gospel of agriculture as formula for greater economic growth but there are no data to support these assumptions.

In his 2016 economic policy speech, President Muhammadu Buhari spelt out the problems with the Nigerian agriculture sector but he offered no long term solutions to the problems, instead he chose to rely on the usual rhetoric of Nigeria’s “main foreign exchange earners were groundnut, cotton, cocoa, palm kernel, rubber and all agro/forest resources,” in the 1950s – when he was still a schoolboy.

Buhari indeed offered answers on why agriculture was successful then but he proffered no answers as to why agriculture can be successful now. While the President advocated for support and access to farmers, he made no mention of agro-allied industries.

Government’s focus appears to be on providing structures for small scale farmers to sell their products and export them. Providing support for small scale farmers is a good thing but it should also be balanced by creating structures for small scale food industries.

Neighbours Cote d’Ivoire, produce 33 percent of world cocoa and exports to chocolate manufacturers such as Hershey’s, Mars Inc. and Nestlé. The country earns $2.5 billion in revenue while chocolate manufacturers earn more than quadruple of the amount Cote d’Ivoire earns. Farmers in the West African country suffer so much to produce cocoa yet earn comparatively little from its proceeds.

As earlier pointed out; agriculture has a positive relationship with industrialization. However, greater focus – or at least, equal focus – should be placed on the agro-allied industry.

Both agriculture and industry are in no way mutually exclusive as they can exist in the same economy, with agriculture providing raw materials for industries, foreign exchange, revenue for government and employment. Industry, by its default nature, will employ much more hands in different capacities (e.g. legal, technicians, accounts, administration, human resource, production, marketing, sales, etc.). It will also generate more revenue than agriculture and earn higher foreign exchange while providing food and other materials like cloth.

This argument of technology displacing human jobs has been around since the industrial revolution but credible research has shown that technology and innovation have only created more employment option and opportunity rather than take them away.

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