A clear indication of an ailing economy is a rise in food prices, which has become a prevailing issue in Nigeria. The latest report from the National Bureau of Statistics reveals that Nigeria’s inflation rate reached a 7-year high in June, with the surge primarily attributed to soaring food prices, pushing food inflation to 25.25%. The importance of addressing food production and inflation cannot be overstated for several reasons. Not only is food production essential for sustaining human life, but it also holds a pivotal role in the Nigerian economy as a significant revenue generator and the largest employer of labour.
In light of the alarming nationwide food inflation, the federal government declared a state of emergency on food security last Thursday. Nigeria has been ranked by the International Monetary Fund (IMF) among the countries with the lowest level of food security globally, emphasizing the urgency of the situation.
According to the blueprint for attaining food security, the Tinubu-led administration has highlighted immediate intervention strategies including the activation of land banks (500,000 hectares mapped out) to increase the availability of arable land for farming; and the deployment of concessionary funding to the sector especially towards fertilizer, processing, mechanization, seeds, chemicals, equipment, feed, and labour.
Funding is the lifeblood of every business and economy. For farmers, having adequate funding is crucial for scaling their operations, purchasing farm inputs, generating employment opportunities, and contributing significantly to economic growth and development. In the immediate term, the federal government aims to channel some of the savings from the fuel subsidy removal into the agricultural sector. The focus will be on revitalizing the agricultural industry and increasing its long-term contribution to 70 percent of the economy.
According to the latest estimate, the downstream oil and gas sector has reported that the federal government generated N400 billion in revenue over a span of four weeks after the fuel subsidy was removed. It is reasonable to assume that a substantial portion of these saved funds, amounting to billions, will be invested in the agricultural sector. Throughout this process, the Central Bank will, as it has done in the past, play a major role in funding the agricultural value chain. However, this development has sparked reactions from farmers who are urging the federal government to exclude the Central Bank of Nigeria (CBN) from controlling any intervention fund for the agricultural sector.
Why is the CBN involved in agriculture?
Most times, when one thinks of Central Banks, the immediate associations are typically exchange rate management, monetary policy implementation, inflation control, currency issuance, and interest rate management. In Nigeria it is different. The Central Bank of Nigeria plays a leading role in the finances of the agricultural sector. And while that may not particularly be a problem in itself, the absence of positive outcomes has made its involvement questionable.
The most known link between the CBN and the agricultural sector is the Anchor Borrower’s Programme, a scheme designed to provide farm inputs (in kind and cash) to smallholder farmers to boost production of key agro commodities, stabilise input supply to agro-processors and address Nigeria’s negative balance of payments on food.
Since its inception, the ABP has tried to make a good name for itself. A total of N1.09 trillion had been disbursed through the ABP, and 4.6 million smallholder farmers cultivating or rearing 21 agricultural commodities have benefitted from the programme so far. It has also increased rice milling plants from 6 to 50 in the last six years creating employment along that value chain. However, there is much left to be desired. The amount of money pumped into the scheme does not commensurate with the level of output or return recorded.
Although the CBN allows farmers to pay in cash or give the central bank his/her produce of the same value under the ABP, repayments have been very low. The International Monetary Fund (IMF) said only 24 per cent of loans collected by farmers under the ABP have been repaid — implying that 76 per cent of the loans were yet to be paid. The CBN however gave a counter report saying N503 billion of loans under its Anchor Borrowers’ Programme (ABP) has been repaid. This figure represents 52.39 per cent of the total loans collected by farmers under the programme. Either way, we are sure that the operational cost exceeds the gains.
This situation has made the CBN susceptible to criticism. Their primary mandate, which includes curbing inflation and managing interest rates, has become increasingly challenging and unattainable. Despite implementing several policies from the previous year to the present, headline inflation, for instance, currently stands at a staggering 22.79%, and experts anticipate an interest rate increase from 18.5% to 19.5%. Within their sub-role, where food inflation falls, their performance has also been dismal, as food inflation continues to soar.
It then becomes inconceivable when the country’s apex bank struggles to manage loans effectively, raising doubts about its capability to be in charge of such responsibilities. If the apex bank cannot efficiently disburse loans to those in urgent need, it calls into question its competence in handling critical financial matters.
Mr Akin Alabi Co-Founder, Corporate Farmers International (CFI) noted that the CBN needs to establish a dedicated distribution office, or the distribution process should be managed through an agric ministry, as this will relieve the CBN from the burden of directly involving itself in the growth and production of agricultural products.
“The primary role of the CBN is to provide funds, and it is not obligated to purchase inputs for farmers. But first, there needs to be accurate data on farmers across the value chain, be it producers, processors, or logistics company marketers that can help guide disbursement. If that already exists, the CBN needs to revalidate. After data move to disbursement. Create a mechanism and not direct monetary disbursement. It has to be through appropriate technology transfer. This will help eliminate political farmers,” he explained.
Asides from loan defaults, corruption and cases of insecurity have also affected the ABP. There have been reports of nepotism and the use of “ghost farmers” to divert funds. Hence it has not significantly succeeded in increasing production due to the difficulty in targeting the correct recipients.
According to Adetokunbo Akingbala, Co-Founder PosterVillam, “the primary risks associated with CBN or BOA handling agricultural funding persist because of civil service collusion and greed. Unfortunately, in conjunction with Commercial Banks, they often only pay lip service to agricultural funding and support. While many assume the ABP failed, our research revealed otherwise. The program, initiated in 2016, resulted in a remarkable increase of 4,200,000 MT in locally produced rice.”
It is vital to emphasize that the Central Bank of Nigeria (CBN), especially in its role within the agricultural sector, is expected to maintain independence and transparency to ensure the effective implementation of its programs and policies. The associated challenges with the ABP have raised questions about its future, and the CBN even temporarily suspended the disbursement of loans at one point last year.
But going forward, Alabi emphasized it is important to appoint someone who can effectively drive the food system and gather valuable feedback. “Rather than politicians, experts with knowledge of the entire value chain, including finance, logistics, and insurance, are what we truly need,” he said.
Akingbala shares a similar sentiment. He argued that the agricultural value chain understanding should not be entrusted to individuals who lack involvement or training in food systems. “The failure of our policies can be attributed to their Western-centric application. The solution lies more in adopting Eastern perspectives, drawing inspiration from countries like Vietnam and Malaysia, which have successfully implemented approaches suitable for our context,” he explained.
