Like tomato like rice, yet another special intervention policy

The policy circus continues. The Federal Government has announced the launch of yet another special policy, this time targeting the tomato industry. The structure is the same as others. A couple of intermediary imports have been banned, and tariffs raised on others, to stimulate local production, with some incentives tacked on.

The government has effectively banned the importation of tomato paste, powder, or concentrate for retail sales, as well as of preserved tomatoes. It has increased tariffs for tomato concentrate, presumably for commercial use, to 50% plus a further $1,500 per metric tonne. It has also restricted importation of said concentrate to the sea ports. Finally, it has added tomato production or processing to its list of industries for incentives administered by the NIPC. Will these set of policies “work”?

We already know that things like human capital and infrastructure are really important. One thing which is often overlooked however, is reliable and consistent access to high quality raw materials. It has been demonstrated time and time again that without it, industries don’t grow. For any given industry, it does not really matter where the raw materials come from, just that they come in a predictable and reliable manner, and that they are of high quality. Most of the time, only imported raw materials fulfil these requirements. This is true all over the world and in Nigeria too. Our manufacturing industry might be small, but with most of them, the key raw materials are imported. From flour, to sugar, and from chemicals, to cars, a look at the fundamentals show that imported raw materials are a common theme.

The current tomato policy, unfortunately, restricts access to the highest quality raw materials for almost all participants across the value chain, and tries to force them to go local. Once you accept that the tomato industry is really at least three industries then the problem becomes apparent. Growing tomatoes is one industry. Turning tomatoes into concentrate is another industry. Finally turning concentrate into the tomato paste that we buy off the shelves, is another industry.

The policy places the final tomato paste manufacturers at a disadvantage by restricting their access to imported concentrate, and forcing them to use local concentrate. Local concentrate that currently cannot compete in terms of reliability and quality, with imported concentrate. The implication is that the local tomato paste will be more expensive, and of lower quality than the imported tomato paste, which will be waiting at the border, ready to be smuggled in.

Taking a step back to the industry that converts tomato into concentrate, the same restrictions apply. The industry is tactically being forced to use local tomatoes as the key raw material for making concentrate. Unfortunately, again, Nigeria does not currently have a steady and reliable source of tomatoes for processing into concentrate. We grow a lot of tomatoes but it is not clear that we grow the species that are ideal for processing. Our small-scale farmers tend to see tomatoes as just tomatoes but processors see species of tomatoes. Not all species are equal. A tomato concentrate industry would try to get around this by importing preserved tomatoes but that is banned, and will probably not be of the highest quality anyway, given that tomatoes are notoriously difficult to preserve and transport.

Then there are the farmers who have to be convinced to grow tomatoes. The tomato harvest disaster last year probably won’t serve as encouragement to many. Should farmers grow tomatoes or should they try to grow the most valuable thing they can and then buy tomatoes? The answer is always to grow the most valuable thing, which may not be tomatoes. Convincing them to grow tomatoes in that instance would probably make the farmers poorer than they would have been.

In summary, the policy enforces a structure in which one industry is forced to rely on another industry, which probably cannot deliver. That industry is also forced to rely on another industry which probably also cannot deliver, at least not in the near term. Like a pack of dominos, the industry is set to fail once one part of the value chain fails, and one probably will.

This tomato policy highlights what has been a major problem with almost all our industrial policies, since independence. We seem stuck on the idea that we can build a successful manufacturing industry without international trade, but the evidence says otherwise. International trade is a fundamental part of successful manufacturing and the sooner we accept that, the better for us. Credible industrial policy tries, amongst other things, to remove barriers to trading. At the very least, it does not increase those barriers. Until then, we will wait for the announcement of a special waiver for tomato paste manufacturers, to import concentrate, because we know that is inevitable.