Import Quota Debate: Crisis Looms In Nigeria’s Rice Value Chain

EVEN as the rice market experiences its peak season, serious crisis may be looming in the value chain due mainly to regulatory snag, sharp market practices and bogus investment speculations by investors, checks by The Guardian has revealed. 

    Rice production has been hailed to be Nigeria’s next income spinner, with mills sprouting in the different parts of the country and markets flooded with locally made rice. But feelers from government quarters and the millers suggest that all is not well with the so-called rice revolution.  

  The first hint of worry was dropped last week when the Minister of Agriculture and Rural Development, Dr. Akinwunmi Adesina, raised the alarm that foreign investors were sabotaging Federal Government’s efforts in the rice value chain, claiming that excess import duties on rice imports owed by investors amounted to billions of naira.

     But the Nigerian Rice Millers Association (NRMA) said the allegations were “baseless and misconceived,” noting that a retroactive quota allocation by the ministry was to blame. Also, they argued that the quotas were skewed in favour of speculated investors who have no real investments on ground to show for their interest in rice production. 

   However, a document obtained from a source, who is a major stakeholder in the rice industry, revealed that the crisis in the sector was mostly caused by sharp practices of Indian and Thai merchants and traders who import finished, packaged rice, causing glut in the Nigerian rice market.

    According to the source: “Indian and Thailand merchants and traders have dumped large imports of finished packaged rice into the Nigerian rice market. This has led to a major glut in the local rice market with consequent collapse of prices. Locally milled rice cannot compete against cheap and low quality imported rice from foreign countries. Subsidies and export incentives have been granted to these merchants in their home countries. 

  Also recently, the Nigerian-Vietnam Chambers of Commerce reportedly disclosed that Nigeria spends about $500 million (about N90bn) annually on rice importation from Vietnam; whereas the latter spends a paltry $100 million to import agricultural products like raw cashew nuts, cassava and oil palm from Nigeria.  Mr. Oye Akinsemoyin, the President of the Chamber, reportedly gave the figures.

   Mr. Timothy Obadina, a Lagos-based licensed Customs agent, had harped on the matter and rued Nigeria’s penchant for importing “things that are produced locally.”

   “This is the figure for Vietnam; we have not added the ones from Thailand, China and Indonesia. By the time we put all the figures together, it will be astronomical.  Yet, you hear government officials using every opportunity to say how they have been growing the economy,” Obadina was quoted as saying.

       An email from a rice farmer, who is very conversant with the ‘import quota system,’ at the weekend, explained the far-reaching implications of the development, saying: “Nigerian rice farmers cannot sell their produce of paddy. This is the peak season for rice in Nigeria, but farmers cannot sell because market prices are low. Prices now offered by local rice millers are substantially below their cost of production. Farmers are losing, and the earlier gains recorded in the sector are being wiped out by the current crisis.”

  Rice farmers generally complain of low patronage of locally milled rice due to prejudice and preference for imported products, which have caused farmers severe losses. The source claimed that, “even government agencies buy imported rice for all their social functions. Some of these agencies include National Emergency Management Agency (NEMA) and others involved in Millennium Development Goals (MDGs) activities.”

    “Local farmers are in cash crisis. They are discouraged, frustrated and are unwilling to go back to production. Local rice millers face business failure or may collapse. They are left to contend with unsold stocks, zero profits, and compounded losses. There is also the huge infrastructure burden of electricity,” it stated.

    Alleging poor management of rice imports and governments unfulfilled promises to local farmers and millers, the document said: “poor management of import tariff and smuggling; import quota not released on time and ineffectual control and management of imports are the immediate and remote causes of the crisis. There is also the tardy implementation of otherwise good policies and strategies. Promised improvements were not implemented such as staple crop processing centers, silo lease, paddy aggregation centers, agriculture mechanization, and irrigation schemes reactivation.

     “Current import quotas are not fairly distributed. New investors without actual investments on ground are favoured far more than people who have actual assets and investments on ground. Traders and speculators are favoured against serious local players who are already producing with massive investments. Government has encouraged speculators instead of farmers and serious rice millers.” 

The debate

The Federal Government, last week, alleged that foreign investors were sabotaging the rice policy, claiming that some of them owe the government debts amounting to about N36.56bn, which was incurred for exceeding their preferential allocated quotas for imports.   

    The Minister of Agriculture and Rural Development, Dr. Akinwunmi Adesina, citing data from Nigerian Customs, identified Popular Farms and Mills as well as other importers as responsible for exceeding their import quotas under the new policy.

   However, The Nigerian Rice Millers Association (NRMA), at the weekend, said the Minister only imposed quota in December 2014, and requested payment of excess duties for importations made when quota was not in place. They accused the Federal Government of imposing penalties retroactively.

     Claiming that they do not owe the Federal Government, the rice millers maintained that the figures are “misconceived and baseless.” They said that the letters written by some of their members to the Minister shouldn’t be mistaken as an attempt at sabotage, as members had worked out their costs, sales prices and planned ahead based on an earlier circular. 

    The ministry had identified three other companies, including Conti-Agro, Central Trading and Export and African firms as having imported 98,285 metric tonnes of rice without approved quotas, thereby owing the treasury N8.16 billion.

   A statement from the ministry hinted that the companies had imported 634,270.16 metric tonnes of finished rice without directives by the inter-ministerial committees or issuance of quotas. 

    Adesina had said: “Nigeria cannot lose any revenue due to the economy. All companies who have imported rice above their allocated quotas must pay fully the amounts due to the treasury. With the devaluation of the Naira, all hands must be on deck to ensure that all leakages are blocked. Nigeria is not for sale.

    “I will not be intimidated, bought or corrupted. I will not sell my country to any foreign company. The President has given us a clear matching order to make Nigeria self-sufficient in rice and we will fully achieve this. All who owe the Federal Government must pay what they owe and Nigeria must lose no single naira. No amount of malicious representation will derail the new policy.”

   According to the statement, “rather than pay the levies owed, the two firms wrote letters to the Minister asking for a revision of their rice import quotas; Olam asked for 400,000 metric tonnes rice import quota, to cover the quantities of rice that they had gone ahead to import (or still desire to import) without any approved quotas or Domestic Rice Production Plans (DRPP) as required, but a mere agreement with Nigerian Customs that they would pay the duties due once the quota allocations are out.”

    But the NRMA, in a statement, said that the minister didn’t present the true picture of things, as there must have been gaps in information passed to him. According to the statement, “Sometime in May 2014, the Minister of Finance issued a circular titled, 2014-2017 Fiscal Policy Measures on Rice, in which it states that the President had granted approval for the review of the fiscal policy measures on rice to encourage investments in the rice value chain through backward integration with effect from May, 26, 2014.”

    The circular, according to the NRMA read: “Importation of Husked Brown rice (H.S. Code 10006.2000.00) and semi-milled or wholly milled rice, whether or not polished or glazed (H.S. Code 10006.3010.00), by investors with rice milling capacity and verifiable backward integration programme, shall attract 10 percent duty rate with a levy of 20 percent and will be limited to the national supply gap to be determined by the Committee (for a period of fours) and; Importation of Husked Brown rice (H.S. Code 10006.2000.00) and semi-milled or wholly milled rice, whether or not polished or glazed (H.S. Code 10006.3010.00), by pure traders, shall attract an import duty rate of 10 percent plus 60 percent levy.”

    After complying with the dictates of the circular, importing rice to meet the national supply gap, the NRMA claimed to have received a letter early in December dated November, 27, in which the Minister of Agriculture and Rural Development, informed them that an import quota had been tentatively assigned to each of the rice importers and demanded that they pay into the national treasury a higher tariff of 10 percent duty and 60 percent levy for a surplus. 

     According to the statement, “The circular came into immediate effect and our members with clearly verifiable backward integration investments proceeded to import rice and paid duties and levies based on the circular. This step was timely as it helped to stabilize the price of rice in line with the Federal Government’s objective.

“Surprisingly, by a letter dated November, 27, 2014, received by importers early in December 2014, the Honourable Minister for Agriculture and Rural Development informed our members that an import quota has been tentatively and unilaterally allocated to each of the rice importers and demanded that they should pay into the national treasury a higher tariff of 10 percent duty and 60 percent levy for surplus. The surplus arose from a quota allocated six months after the circular.”

    “The quota allocated bore no relationship to the billions of naira invested by the rice millers. Instead it weighed heavily in favour of intending investors who propose to go into production in 2017. Apart from the relatively low quota, and the retroactive imposition of very steep penalty, the Honourable Minister’s letter also imposed the requirement of a Domestic Importers and Rice Production Performance Bond without due consultation with the stakeholders and highlighted several penalties to be meted out in the event of non-compliance,” it read. 

   The NRMA claimed that the letters written by its members was intended to put matters in proper perspective and shouldn’t be misconstrued as an attempt to sabotage local rice production, noting that the accusation was serious and alarming.

Interest Rates And The Nigerian Rice Market Situation

SIMILARLY, the Federal Government’s recent monetary policy has been quite harsh on the rice industry. 

    Nigeria has an estimated rice demand of 5.6 to 6 million tons per year out of which the domestic production is put at 3.2 million tons per year; creating a short fall of about 2.8 million tons, which Nigeria imports from India, Thailand and other South Eastern countries of Vietnam, Bangladesh and others. Nigeria is the world’s second largest importer of milled Rice next to Philippines. 

    Thus, it spends about $1.56 to $2.2 billion to import the shortfall of 2 to 3 million tonnes of milled rice per year. Yet, analysts argue that Nigeria has suitable ecology for rice production but needs to invest resources to create irrigation facilities, mechanisation and equip the farmers with skills and knowhow to grow several croppings of rice per year based on the supply of good inputs and support services. 

      But a source, who would “not want to be part of the public debate with the Ministry,” said,  “if current agricultural initiatives and momentum are maintained, Nigeria can produce all the rice it needs and can, indeed, export to neighbouring countries within the Economic Community of West African States (ECOWAS) within a short period of time. This is the strategy of Agriculture Transformation agenda as promoted by the Hon. Minister of Agriculture, Dr. Adesina.

     He said that, with careful planning, “Nigeria can save $1.56 to $2.2 billion if she can grow our own rice and stop importation. Moreover, the local rice production is of high quality, many experts have argued. 

  “The new Central Bank of Nigeria (CBN), governor had, from the onset, identified rice as one of the key products, which can be grown locally and had started a new strategy of backward integration aimed at driving new investments into the local rice production within a short period. 

    “This would be achieved by providing low cost capital to investors in the Rice Value Chain (through CBN-CACS.

     “Unfortunately, the panic measures embarked upon by CBN to support and shore up the value of the naira will impact very adversely on the efforts being made to promote the local production of rice,” said the source.

    The source further argued that the “increase in interest rate is a catastrophic blow to the laudable initiative towards local rice production.” 

    Based on the new monetary policy rate (at which the apex bank lends to the banks), which was changed from 12 percent to 13 percent, the banks have hiked interest rate to as much as 30 percent per annum. CBN took steps to devalue the Naira in order to reduce pressure on the local currency, as people seek to purchase the US Dollar. 

     To mitigate some of the effects of increased lending rates in banks, the CBN is pushing a zero-charge regime in banking services, a development being privately protested by the banks. It is feared that high interest rate will frustrate investments and discourage those making investments in the productive sectors of the economy such as in the local rice production.

   Industry experts argue that local production is the only way of getting out of the crisis.