How to make agriculture profitable in Nigeria

Access to agricultural inputs, market linkages, technical support services, infrastructure development, as well as financial services through value chain financing has been identified as the panacea to the myriad challenges facing Nigeria’s ailing agriculture sector such as high transaction costs and high risk, skills and technological gaps, lack of reliable financial information about smallholder farmers and other aspects of the value chain. Value chain financing entails flow of financing within the agricultural sector, across all value chain actors, for getting agricultural products to the market. 

Jacques Taylor, an expert in agriculture development financing and Head of Agricultural Banking, Stanbic IBTC Bank, said in Abuja that development and proper coordination of the country’s food production chain comprising input suppliers, primary producers, storage, logistics and processors, among others, will reduce risk and attract new investments, thereby  making the sector competitive and commercially viable. 

Speaking on the theme, “Agriculture is a profitable business” at the two-day conference on Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL), organized by the Central Bank of Nigeria (CBN), Taylor, disclosed that the agricultural sector in Nigeria has the potential to rapidly jump-start economic growth and poverty reduction. According to Taylor, capacity building for lenders, risk reduction through yield and price insurance and value chain approach to agricultural lending from commodities to products, will address the risks and capacity challenges along the agricultural and financing value chains preventing the existence of a demand driven market. 

“Agricultural finance is value chain finance. This requires understanding of the interdependency of businesses along the value chain, which is as important as understanding the sector you are financing. For instance, lack of usable collateral makes traditional lending products inappropriate for smallholders, hence Stanbic IBTC Bank’s lending model uses a funding structure that includes partnering with key players in the agriculture value chain, high profile foundations and NGO’s who assist smallholders with operational management. The provision of finance is important, but it is only one of constraints facing smallholder agriculture in the country. 

“Equally important is the provision of a system through which small farmers can improve efficiencies in all areas; from accessing inputs, improving yields, market linkages, infrastructure development and skills transfer. The partnership between Standard Bank and the Alliance for a Green Revolution in Africa (AGRA) and partners that is operating in Ghana, Uganda, Tanzania and Mozambique is an example of this type of system, benefitting about 55,000 farmers. The lending structure makes use of a co-operative mechanism that includes linkages to formal markets that provide minimum price guarantees (thus mitigating price risk), includes weather index insurance (to mitigate climate risk) as well as training and mentorship. The co-operative structure allows farmers to consolidate their bargaining power, which reduces input costs and contributes to economies of scale in terms of output and market access,” Taylor stated.

He also reiterated that for lenders and borrowers to fully exploit the available opportunities in the sector, all initiatives for agriculture development in the country must be supported by infrastructure development, to complement NIRSAL.