TOWARDS FOOD SECURITY IN NIGERIA

Ayodeji Balogun canvasses the need to embrace the commodity exchange model to transform the nation’s agric sector

Nigeria has signalled a new era with the recent inauguration of a new president with a track record of successfully overhauling infrastructure projects and improving the economy at the state level. The effects of the president’s inauguration speech can be seen already in the heightened discussions around harmonising foreign exchange rates and the official repricing of petrol at the pump price. Among other focal points of the new government’s growth strategy is the development of agriculture in the country via the adoption of commodity exchange boards. The new growth strategy seeks to secure rural incomes and establish fair prices for key agricultural commodities.

Commodities exchange boards are not entirely new to Nigeria. In 1977, the government set up six commodity boards namely: the Nigerian cocoa board, the Nigerian groundnut board, the Nigerian palm produce board, the Nigerian grains board, the Nigerian rubber board and the Nigeria cotton board. These boards were headquartered in Ibadan, Kano, Calabar, Minna, Benin and Funtua respectively, and served to control prices for agricultural commodities and apply a uniform rate to all produce from their members.

One of the duties of the board was “to secure the most  favourable  arrangements  for  the  purchase  of  the  relevant  commodity  and  subsequent  sale  thereof  to  meet  domestic  requirements  and  the  evacuation  to  a  port  of  shipment  of  any surplus to such requirements intended for export”. Essentially, the boards aimed to hold producer prices of cash crops lower than world market prices in periods of high world market prices and pay higher prices to export crops producers in periods of low world market prices. This way, farmers were protected from short-term fluctuations in world market prices.

Additionally, the boards engaged in value adding agro-industrial processing. For example, rubber boots were produced from the latex tapped by farmers from rubber trees and processed into lumps, crepes, and various rubber products such as rain boots and elastic bands. However, in 1986, the commodities boards were abolished after the board-controlled producer prices failed to match fast-rising production costs and competition from a booming food market. It is also believed that boards were a source of disincentive to farmers and therefore precipitated the virtual disappearance of agricultural exports.

But between 1986, when Nigeria’s pioneer commodity boards were dismantled, and now, a lot of innovative changes have taken place in the local agricultural systems and landscape. Nigeria’s agricultural sector has witnessed the creation of private, commercial platforms, working to transform the sector. Notably, Agribusiness Marketplaces as well as agritech solutions have emerged as influential players, offering substantial opportunities within Nigeria’s agricultural system. Creative business propositions and selling has opened up participation in the agriculture ecosystem to both retail investors and institutions across borders while agritech businesses upskill farmers and take care of needed infrastructure. While these advancements have brought about great positives, they are only snippets of what is possible.

The adoption of the commodity exchange model, by the new administration, will promote a more inclusive form of growth because this business model actively involves small-scale farmers and rural communities in the agricultural value chain. Contrary to commodity boards setting prices, in an exchange model, farmers gain access to transparent markets, can utilise price information for informed decision-making, and also engage in equitable contract negotiations with buyers. Additionally, the model facilitates access to crucial resources such as financing, storage facilities, and other essential services, which ultimately enhance productivity and competitiveness. Through this comprehensive approach, farmers are empowered, poverty is reduced, and socio-economic development is catalysed throughout Nigeria.

In Ethiopia, for example, the government, in partnership with private market actors and members of the exchange launched the Ethiopia Commodity Exchange, in a bid to overhaul the country’s agriculture sector and create a dynamic, forward-looking, and efficient market system for the country’s agriculture output. The exchange currently connects over 3.5 million  Ethiopian smallholder farmers to markets and handles larger trade volumes. The volume of coffee and sesame traded grew from 138,000 metric tons in 2008-2009 to 715,000 metric tons in 2015-2016. Notably, Ethiopia earned a record $841.6 million from the export of nearly 200,000 tons of coffee in 2010/2011 – up 59% from the previous year.

Similarly, private companies like AFEX have been operational in Nigeria for nine years now, and was recently recognised as Africa’s fastest growing company by the Financial Times on the strength of the economic impact that the commodity exchange has catalysed in Nigeria, Kenya and Uganda. To date, the exchange has worked with over 450,000 farmers offtaking 1.7 million metric tons of produce into its exchange system in Nigeria alone. Typical rural farmers like Yunusa, in Northern Nigeria, have experienced significant transformation by virtue of their association with the exchange.

Before joining the AFEX network, Yunsua faced numerous challenges with his seven-hectare farmland, which was wasting away. Limited access to fertilisers, seeds, and manpower hindered his ability to maximise his harvest. He resorted to leasing his farm and relied on meagre profits from a small shop to support his family. However, everything changed when Yunsua registered on the AFEX network. With the AFEX model, Yunsua was supported with physical market operations, farmer outreaches, input disbursements, and fair trade interventions that empowered him to unlock his farm’s true potential. Today, Yunsua not only experiences a substantial increase in production and sales volume but has also achieved newfound prosperity. With two houses, multiple shops, and the ability to adequately provide for his four wives and 14 children, he has shattered the cycle of limited opportunities. Selling maize, soybeans, and paddy rice from his farm, he credits AFEX’s intervention for his remarkable journey.

The AFEX model extends its benefits to processors as well. By partnering with AFEX, processors such as Flour Mills of Nigeria (FMN), and Olam, can efficiently source commodities at the required quantity and quality via the exchange. The model also provides processors access to storage facilities and collateral management, enabling them to unlock financing from the capital market to support their purchases. AFEX further facilitates this process by issuing asset-backed commercial paper products to processors, allowing them to procure the necessary inventory at the beginning of the season. This reduces the high cost of procurement for domestic processors and serves as a hedge against supply shortages and price volatility.

With the move by the federal government to stimulate growth through commodity exchanges, the AFEX framework reflects the capacity of private commodity exchange models to deliver a thriving agriculture sector that prioritises financial inclusivity and maximises returns across the value chain – from farmers to retail investors. By ensuring price transparency and standardisation, there’s a renewed confidence in export markets and farmers are safeguarded against exploitation while connecting them to formal markets.

The Food and Agriculture Organisation (FAO) forecasts that some 25 million Nigerians risk severe hunger by August 2023, buttressing the urgent need to overhaul and scale food systems in the country. By working together, private and national commodity exchanges can establish the necessary infrastructure and supply chains for a resilient and prosperous agricultural sector, thereby achieving food security in Nigeria in a short time. 

Balogun, Afex Group Chief Executive Officer, writes from Abuja