Questions answered here: - What have been some past efforts on agro financing in Nigeria? - Why has agro-financing not lived up to expectations? - What role do improving security and value chain optimisation play?
Despite the agricultural sector’s evident importance and progress, it needs financing to expand, grow and adapt. This is where agro financing comes in.
Agriculture, they say, is the mainstay of most economies. It is the beginning of the countries’ journey to economic growth, at least according to Rostow. Nigeria’s agriculture sector is on this journey despite its years of struggle. The sector employs 34.97% of the country’s labour force while contributing 24.88% to GDP, thus highlighting the sector’s importance in promoting economic growth and living standards.
But has agro-financing been effective in Nigeria? That is what we will investigate in this article. We will use a set of metrics to determine the extent to which agro-financing positively impacts agriculture. But first, what is agro-financing?
A Town Hall on Agro-financing
Agro-financing encompasses all initiatives directed at simplifying access to capital for the development of the agriculture sector. It is multi-faceted because it is not limited to the government alone and does not end with domestic investment. Nigeria has a rich agricultural heritage, and it is no surprise that there have been numerous agro-financing schemes since independence.
These schemes range from the Agricultural Credit Guarantee Scheme Fund (ACGSF) (1977); the Agricultural Credit Support Scheme (ACSS) to the Commercial Agriculture Credit Scheme (CACS) (2009).
Furthermore, the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc.) (2013) and the Anchors Borrowers’ Programme (ABP)(2015) are the most recent Agro-financing schemes to be established.
Since the ABP is the most recent, let me just give an overview.
The ABP aims at developing the connection (linkages) between smallholder farmers and Anchors (Corporate entities involved in the procession of critical agric commodities).
For instance, if an anchor (let’s say Flour Mills of Nigeria) needs cassava input for flour processing, it would identify some smallholder farmers that would meet their cassava needs and submit a financing request through specified channels. The subsequent funding would be given to the smallholder farmers in cash or kind to enable them to cultivate and harvest the desired cassava.
This list is not exhaustive of all agro-financing schemes in Nigeria, but I did not point them out at random. They all have common objectives towards agriculture and the economy.
According to the CBN and NIRSAL, the common objectives of agro-financing schemes include: improving access to finance in the agriculture sector, diversifying the revenue base of the economy and increasing export earnings from the sector; enhancing food supply and lower food prices; and promoting employment and inclusive growth.
To judge the effectiveness of agro-financing in Nigeria, we shall consider if these schemes have collectively succeeded at achieving their common goals.
All hail the green revolution, or nah?
For this article, I will focus on two of the aforementioned common goals; Food price stability and increasing export earnings from agriculture.
Food price stability
Food prices have been volatile over the last two decades, but since the establishment of NIRSAL and the ABP, food inflation has doubled. This is the first strike on the effectiveness of Agro-financing in Nigeria.
Moreover, effective agro-financing should give farmers easy access to credit to expand their operations efficiently, thereby reducing costs and increasing supply. These are the foundations for better harvests and a sustained supply of agricultural products. Lower costs and higher supply reduce price and it’s volatility. However, as the graph shows, food prices have increased sharply despite implementing these agro-financing schemes.
To end this segment, a quick look at the prices of common staple foods from the Nigerian Bureau of Statistics to get a clearer picture of food price volatility.
The price of every item on this list has doubled, and in some cases tripled in the past six years.
Let’s put this into context so that the severity can manifest.
In November 2022, the NBS revealed that 63% of Nigerians (133 million people) are multidimensionally poor, but the World Bank in 2015 projected that there would be only
