Economic Update

Investment in production and the rollout of higher-yield strains are helping put Nigeria on track for self-sufficiency in rice, potentially opening the possibility for exports further down the line.

Oil-rich Nigeria has long been dependent on staple imports to feed its 170m people, with a total bill of $4.3bn at the end of December 2013. Nigeria has typically consumed around 6m tonnes of rice a year, importing almost half the amount to bridge its supply deficit.

However, a tighter fiscal environment – a result of declining oil revenues – alongside efforts to strengthen the agricultural sector, has prompted a state-led push to improve local staple crop production and sustainability.  To that end, the government plans to ban all rice imports by the end of this year, saving some N360bn ($1.9bn) a year.

The target is ambitious, but according to the Minister of Agriculture and Rural Development, Akinwumi Adesina, Nigeria has recently reached 80% self-sufficiency in paddy rice production, speaking in November at the Second Nigeria Rice Investment Forum.

Production increase

According to government officials, the recent increase in production has been achieved through private sector investments as well as state support schemes for growers.

Minister of Agriculture and Rural Development, Akinwumi Adesina, said the introduction of new rice varieties – that meet international standards and allow for two plantings a year to generate additional yield – will boost output and quality as well as open up export opportunities in the future.

“We started a rapid process of replacing local varieties with these new varieties,” he told OBG. “Within the last three years, we have reached 6m farmers who have expanded cultivated area by 2m hectares. These new varieties can be produced in both wet season and dry season, so for the first time in this country, we are doing dry season farming.”

“I expect within three years Nigeria will be a net exporter of rice just like Thailand and India,” he added.

The new strains will be crucial but there is a broader package of measures currently being rolled out, including an upgrade of infrastructure and storage facilities, which is equally important.

“Realistically Nigeria must get its infrastructure right, including roads, irrigation and storage facilities, along with co-operatives and efficiently sourced inputs,” said Mukul Mathur, the head of Nigeria Olam, which has invested N18bn ($111m) in an integrated farm and milling facility in Nasarawa State. “Only then will the discussion be about higher yielding seeds,” Mathur told OBG.

Private sector involvement

Significant investments have also been ploughed into processing capacity, with the number of rice mills rising from one plant five years ago, to 24 at present, according to the Rice Millers, Importers and Distributors’ Association of Nigeria. Increased processing will enable Nigeria to reduce milled imports and boost the value-added in the production chain.

One of the biggest investments in processing was made last year by Dangote Group. In August, the Nigerian conglomerate committed to spend more than N165bn ($1bn) in mills, farms and related infrastructure in a bid to support the country in its goal of becoming a net-exporter of rice.  The group acquired farmland in five states, which will be used for the commercial production of rice paddy. It will also set-up two rice mills with an installed capacity of 240,000 tonnes of rice per day.

The expansion of downstream activity is crucial to ensuring that Nigeria’s rice sector is sustainable. Countries that have been able to fully develop their agriculture sectors have done it through commercialisation, Aliko Dangote, President and CEO of Dangote Industries Limited told OBG. “Nigeria is already making strides to prioritise greater private sector participation in farming, since large commercial entities can introduce larger capital investments and productivity-enhancing initiatives,” he added.

Imported rice destabilises market

In addition to other initiatives, the Federal Government recently said it had concluded plans to establish and manage a rice levy fund to support local rice production and growers.

Under the Backward Integration Programme scheme, introduced in 2013, approved investors who are developing rice processing facilities are allowed to import rice at reduced tariffs until their production capacity comes on line.

The programme, which will end in 2017 when domestic production is expected to be sufficient to meet demand, is credited with having helped attract an estimated $1.6bn in private sector investments. However, it may also have caused distortions in the market and a drain on state funds with claims of increased smuggling of rice as a result of a government price hike on imports.

Cheap smuggled rice has toughened the competition for local growers, lowering the price they can attain on the market.  At the same time, some companies may have obtained an import quota but have not made any investments in the rice sector, or have imported quantities of rice well about their quota, without paying the appropriate levies.

In mid-January, the government announced it would pursue instances of under-payment or non compliance, with the N36.5bn ($195.7m) in estimated debts to the state, once collected, to be put into the newly established National Domestic Rice Production Fund.