Anchor borrowers scheme: Raising stake in agric financing

agriculture

With a record of over N1 trillion yearly import bill and foreign exchange for rice, wheat, sugar, oil palm, among others, it is obvious that any measure to counter the trend would be worthwhile. CHIJIOKE NELSON overviews the latest pet project of the Central Bank of Nigeria tagged Anchor Borrowers Programme (ABP), under its intervention series.

ONE of Nigeria’s foreign exchange (forex) challenges, culminating in speculative attacks, wholesale round tripping and fallen value of the local currency, is the high level demand for foreign legal tenders. It is therefore, no gainsay that the huge forex bill on the import of agricultural products has contributed to the drain on the nation’s forex reserves.

Specifically, some of the agricultural products currently in the country’s agriculture import bills include rice, wheat, oil palm, sugar, cotton, tomatoes, and fish. But CBN said its recent collaborative efforts with the Federal Ministry of Agriculture and Rural Development on agricultural value-chain financing have yielded positive results, especially with the Growth Enhancement Support (GES) scheme that has been able to provide agricultural inputs at highly subsidised rates to over 14 million small holder farmers.

Nigeria’s food import bill is both exceptionally and unsustainably high, with the top four import commodities, consuming over N1 trillion in foreign exchange yearly. Of course, relying heavily on food importation fuels domestic inflation, depletes our foreign reserves, displaces local production and creates unemployment in the country. In the theory of economics, import dependency, especially on commodities of comparative advantage is not only unacceptable, but also unsustainable fiscally and anti-development.

For example, food products like wheat, sugar, milk, rice and fish accounted for N901 billion or 93.5% and N788 billion or 88.71% of total food importation bill in 2013 and 2014, respectively. These figures, according to CBN, are exclusive of the activities of smugglers. The Import bill of rice and wheat was estimated at N428 billion and N307 billion in 2013 and 2014, respectively.

These huge amounts were expended on items that the country has the potential to produce locally, with the attendant losses of employment generation and wealth creating opportunities, while the allocation of foreign exchange to the importation of these items has continually depleted the foreign reserve, which has been on a steady decline in recent times.

Last week, President Muhammadu Buhari, launched CBN’s latest intervention in the sector, which also coincided with the flag-off of the 2015/2016 rice and wheat dry season farming.

Perhaps, his presence at the launch may be attributed to recognition of agriculture as a key driver of food security, industrialisation, employment generation, and economic growth in Nigeria and by extension, underscores the Federal Government’s resolve and commitment towards diversifying our economy, especially in the face of depressed oil prices.

The CBN Governor, Godwin Emefiele, said the even marked the outcome of long period of brainstorming on how best to significantly reduce the country’s huge food import bill, with ABP undoubtedly scripted to complement the GES scheme and advance the status of many subsistence GES small-holder farmers to commercial or large contract growers with attendant increase in agricultural productivity and farm income.
“It is on this premise that we decided to include rice in the forex exclusion list with the overarching objective of salvaging the agriculture sector, encouraging farmers to go back to their farms and increasing the low capacity utilisation in our mills.

This is against the backdrop that though huge investments into the industry were made with the setting up of almost 40 integrated rice mills, the industry continues to suffer as a result of low yield rice varieties, poor farm practices and lack of good quality farm inputs.
“Other challenges facing the industry include non-utilisation of available cultivable lands, manual system of production and inadequate funding for the establishment and development of nucleus farms and small farmers out-grower schemes,” he said.

ABP is designed to create economic linkages between farmers and processors, not only to ensure increased agricultural output of rice and wheat, but also close the gap between production and consumption by ramping up capacity utilisation in our integrated mills.

Under this programme, the CBN has set aside N40 billion out of the N220 billion Micro Small and Medium Enterprises Development Fund (MSMEDF) to be availed to farmers at single digit interest rate of nine per cent per yearly, with smallholder farmers entitled to loans ranging from N150,000 to N250,000 to assist them in procuring necessary agricultural inputs like seedlings, fertilizers, pesticides, among others, to help boost agricultural outputs and productivity.

The programme is expected to link over 200,000 rice and wheat farmers with reputable millers for off-take of every grain of paddy produced, made possible by adequate milling capacity to meet Nigeria’s rice requirements through installed state of the art processing equipment.

It would also create economic linkages between over 600,000 smallholder farmers and reputable large-scale processors with a view to increasing agricultural output and significantly improve capacity utilisation of integrated mills.

However, the quantum of funds to be channeled and the number of farmers to benefit from this programme will increase as the programme extends to other commodities.

The broad implementation plan of the programme involves a three-pronged approach- anchor outgrower support; value chain training for stakeholders; and risk mitigation.
“We have also put in place a project management team, comprising key value chain actors to closely monitor the programme and ensure the achievement of expected outcomes over the next five years, which include: An increase in the ratio of agricultural lending from 3.72 per cent of total bank lending in 2014 to seven per cent; increase in capacity utilisation of rice mills from the current level of less than 50 per cent to not less than 80 per cent; and empower at least one million farmers in each of the selected produce under the programme.
“Create at least 2,000,000 direct and indirect jobs in the processing segment of the above value chains; and reduce

Nigeria’s import bill on the identified commodities by at least 30 percent annually over the specified period.
“With good implementation and Mr. President’s continued support, the Anchor Borrowers’ Programme would be a decisive model that will transform Nigeria from one of the world’s highest importers of rice into a net exporter of the commodity in the short- to medium-term,” Emefiele said.

In the maiden address of the current CBN Governor, he stated that the bank would not concentrate only on price, monetary, and financial system stability in the face of rising unemployment and burgeoning food imports, but would act as a financial catalyst in specific sectors of the economy, particularly agriculture to create jobs on a mass scale, improve local food production, and conserve scarce foreign reserves. Perhaps, this might be the force behind the serial interventions.

Indeed, agriculture remains an important sector in Nigeria’s economy despite the neglect it has suffered over the years. Its uniqueness is buttressed by the crucial role and potential in addressing the challenges of unemployment, rural-urban migration, ailing cottage industries, excessive dependence on oil and poor living standard of Nigerians.

While the availability of timely and affordable credit is a necessary requirement for the growth of the agricultural sector, the credit delivery to the sector has been minimal over the years. In the past 10 years, banks’ lending to agriculture sector as a percentage of total lending in the economy has been below 5 per cent.

Beside the latest effort to support the sector, CBN In an attempt to deepen credit delivery and increase agricultural productivity in Nigeria, has introduced specific interventions/schemes to enhance credit purveyance to the agriculture.

The Commercial Agricultural Credit Scheme (CACS) was established in 2009 as a game changer to agricultural financing in Nigeria and its effect can be seen in the increase in DMBs’ lending to agriculture since its establishment. The Scheme is administered at an all-inclusive interest rate of 9.0 per cent with favourable tenor and moratorium for each agricultural activity. From inception of the scheme to October 2015, the sum of N318.145billion has been released for 399 projects.

Other schemes and programmes of the CBN such as the Agricultural Credit Guarantee Scheme (ACGS), Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the Agricultural Credit Support Scheme (ACSS) have increased DMBs’ confidence in agricultural lending by reducing their risk exposures.

The ABP, thus designed with a view to collaborate with anchor companies involved in the production and processing of key agricultural commodities, will help local farmers increase production and supply of feedstock to processors, reduce importation and conserve Nigeria’s external reserves.

The Scheme involves a finance model whereby the anchor firms, CBN, NIRSAL and state governments organise the out-growers and ensure that they comply with contractual terms, thereby reducing the incidence of side-selling. The financing institutions will serve as veritable channels for delivering credit to the out-growers.

With the support of the Presidency, agriculture and finance ministries and other stakeholders, ABP in the short to medium term, is expected to Increase capacity utilisation in the agro-allied industry from the current level of less than 50 per cent to at least 70 per cent in the next five years; and empower at least 600,000 farmers in the rice (100,000), oil palm (100,000), wheat (100,000), cotton (200,000) and fish (100,000) value chains in the next five years.

It will also create at least 1,000,000 direct and indirect jobs in the processing segment of the value chains of selected commodities including rice (300,000), oil palm (200,000), wheat (100,000), cotton (300,000) and fish (200,000) in the next five years; reduce Nigeria’s import bill on the identified commodities by 10 per cent yearly; and increase output per hectre of selected commodities to international standards and increase hectarage for small holder farmers from an average of 1 hectre per farmer to at least two hectres per farmer in two years.