PFI has succeeded because it was insulated from the normal workings of government
Valentine Nwandu is the Chief Executive Officer of Tak Continental Limited, a major player in the Nigerian fertilizer and agro inputs industry. He spoke with DANIEL ANAZIA on the progress so far recorded by the Presidential Fertilizer Initiative of the Federal Government
Not many Nigerians know what the Presidential Fertilizer Initiative is all about and the role your organization played in its formation?
If you recall, in 2015/2016, there was hardly any fertilizer in Nigeria. A new government had come in and had immediately discontinued the Growth Enhancement Scheme (GES) programme run by the Ministry of Agriculture. The new government was struggling with cash flow; they didn’t have money to further subsidize fertilizer. So during that period, the price of fertilizer skyrocketed; farmers in some areas in the country, were paying up to N13,000 and N14,000 for a bag of fertilizer. As a result, many of farmers — the rural farmers mostly — find it difficult to farm in 2015. The government was aware of this problem and in 2016, the Presidency approached Fertilizer Producers and Suppliers Association of Nigeria (FEPSAN) and laid out the problem. The government didn’t have money for subsidy but agreed that a situation where most farmers in the rural area that are poor and cannot be able to access fertilizer to farm should not be allowed. It noted that this would increase the level of hunger in the country. They solicited a solution to this problem from FEPSAN, and we at FEPSAN proposed a solution. We brought back a proposal to the government — to the Presidency — on how to make fertilizer available to the farmers on time and at an affordable price. The Presidency adopted that proposal and supported FEPSAN to execute it. The result of that effort was that in 2017, the price of fertilizer, officially produced for this initiative was supposed to be N5,500 per bag. In most places, they sold at N5,500 per bag. But for those places that are far off from the blending plants, it sold at a higher price, some at N6,000, some at N6,500. However, compare it with the price from the previous year, which was N13,000, you would agree that there were immediate significant gains.
Would you say this was a success?
Yes of course. The programme achieved its main objective of providing good quality fertilizer for the farmers on time and at an affordable price. Remember, this price we are talking about, there was no one kobo subsidy in it; and the Presidency working with FEPSAN and the Nigerian Sovereign Investment Authority (NSIA) executed this. There are other stakeholders who contributed immensely, for instance, the Governor of Jigawa State, whom the Presidency appointed the Chairman of the Committee for this PFI. He spent a great deal of time in the early stages, helping design this programme. The Sovereign Wealth Fund, officially known as the Nigerian Sovereign Investment Authority also brought in professional project management skills to it and at the initial stage, funded the first two transactions from their own cash flow, while awaiting reimbursement from the Central bank of Nigeria. The CBN also supported the programme by providing real sector support fund at nine percent. The Minister of Finance supported the programme by approving the NSIA to advance the money to kick off the programme in the first place. So a lot of stakeholders were working to make this work. The Chief of Staff to the President was there as the Chief Whip, and whenever there was a problem along the way, he immediately intervened and the problems were resolved. The National Security Adviser also supported the programme by providing approvals on time to move some of the sensitive material.
What happened that enabled the dilution of competition among the players to ensure everyone cooperated to make the programme work?
We have a strong leadership in FEPSAN in the person of Mr. Thomas Etuh. Most of these ideas that brought us this far will be credited him. He was able to convince members that it was in the interest of all members to co-operate and grow the industry, even though they were making sacrifices in terms of profits. But this has also allowed plants that had been shut down for many years, some from inception, some for over 10 years. Plants that were operating under 10 percent capacity for many years, under this programme were resuscitated back to life. So I don’t think any member today regrets being a part of the programme. Instead, what we are seeing is many more applying to become members so they can be a part of it. But to answer your question more pointedly, I think that cohesion that we see among members can be credited the leadership provided by Mr. Thomas Etuh, who bought into the will of President Muhammadu Buhari to ease the burden that lack of inputs have placed on farmers in the country.
What exactly did you people do that ensured the drop in pricing?
What happened was that we took advantage of the scale to negotiate good prices — huge discounts with our suppliers. In this business, raw material cost accounts for about 90 percent of the entire cost of the input. Primarily, what we did was travel along all the routes in the value chain and squeezed all that we could from them. The first was raw materials like I said. We negotiated directly with the largest supplier of Diammonium Phosphate (DAP) in the world, which is Morocco. With President Buhari providing leadership, we got huge discounts and these discounts were passed on directly to the farmers. We also entered into a one-term supply contract with the supplier of Muriate of Potash (MOP) and were able to enjoy some good discounts as well. We also negotiated with Indorama to change their pricing for Urea to us from the import parity model to an internationally based pricing model. So we pay Indorama the price of fertilizer at the global market at the particular time we were making our purchases. With the other local supplier that provides us with Limestone (LSG), we also negotiated and got a substantial discount. The blending plants made significant sacrifices in terms of their production fee. For each bag of fertilizer produced, the blending plants don’t get N120. Even in the days of government supply contracts, they are supposed to get at least 10 percent, which would have been N500. But they agreed that for this programme to work, everybody must contribute. So all along the value chain, all these savings were passed on directly to the farmer. The CBN provided funding, like I said earlier, at nine percent; so the cost of funding also crashed. When you aggregate all of these, they add up to substantial value, which was passed on directly to the farmer. Most of these would have been retained among the value chain players as profits.
But retaining these would also be at the expense of volume?
Yes, it would have been at the expense of volume, when you look at it now, it also adds up. If, for instance, you are taking a margin of just N120 and you produce and distribute one million bags, which is N120 million. But if you are getting N500 per bag and you can only do 200,00 bags, you can see the difference.
Are there available statistics in terms of the difference in volume in this PFI regime and in previous years?
Let me address it this way. We believe that Nigeria has capacity to absorb four million tonnes of NPK fertilizer yearly. When we started out the programme, we were targeting one million tones for the first year of the PFI programme. However, it was the first year, and we started late. Don’t forget that this whole thing accelerated in December, when the King of Morocco visited Nigeria and then OCP of Morocco and FEPSAN signed an MOU. We therefore had very little time to implement the programme we had designed. Again, we had other issues; if you recall, most of these plants have not been operational in many years. So when we began production, we had breakdowns and then the peak of our production was taking place in the rainy season, which added its own problems. So instead of the one million tones, we scaled down the target to 500,000 metric tonnes. But this year, 2018, the target is around two million tones. We may achieve it, we may surpass it or we may fall slightly short. However, the country’s farmers have been getting their fertilizers on demand. The truth is that many people were skeptical and did not expect it to succeed. As a result, we had other people that imported fertilizer. But many of these fertilizers are now stuck because the farmers prefer what they now call the ‘Buhari Fertilizer’. I can tell you there was no scarcity of fertilizer last year. Our challenge this year has increased because the success of last year has created higher expectations that we have no choice than to surpass the achievement of last year
To what extent do you think this PFI programme will contribute to the overall objective of boosting food production and ensuring food security? Is there statistics to suggest its impact?
The National Bureau of Statistics (NBS) is compiling the numbers now. FEPSAN is also doing the same. I understand that the International Fund for Agriculture Development (IFAD) is also interested in the programme and it is also putting its statistics together. Some of the preliminary reports have been out; they have been circulated for internal stakeholder reviews and will be made public soon. You may also look at the situation where farmers in Kebbi State and some other states like Sokoto and Niger, on their own and without government sponsorship, paid their ways to the pilgrimage in Mecca. This number was the highest ever. This is a clear indication that they have the cash flow to do that.
Given the larger objective of government to sustain developments in agriculture, are there plans to drop the prices further?
In terms of price drop, that is unlikely to happen because, if you look at things critically, commodity prices have all gone up but we are still managing to hold the price of fertilizer down. That is the much we can do for now. Everybody is still making sacrifices to ensure that the price stabilizes here, but it must interest you to know that most FEPSAN members have started plant expansion in anticipation of growth in appetite of the market to take more. There are also brand new plants that have been approved to come on board and they will be joining this year. So in terns of production capacity, those already participating and those wishing to come on board are making sure that overall we have increased plant capacity to meet the demands of farmers
How many plants did we have before this initiative and how many do we have now?
Before the initiative, we had just about five plants that were in production. But all of them, without exception, were producing at less than 25 percent of their installed capacity. Some were producing at about five percent of its installed capacity. But as a result of the programme, many of them worked during the rainy season round the clock, every hour, every day for four months without break. When we began the programme, we had 11 blending plants that participated in the first year. One joined towards the end of that year, 2017. This year, two additional plants have already been approved. The PFI Committee made up of FEPSAN, the National Security Adviser and NSIA are also going round the country now to certify some other plants that have applied and want to be a part of the programme. We therefore project that before the end of the year, we could have between 15 and 20 plants participating in the programme.
What lessons can we pick from this initiative to ensure it impacts on other sectors of the economy?
This one is really a sign that things can work in this country with the right leadership and commitment. And it must surprise you to hear that many are willing to collaborate in other areas, other sectors of the economy to make sure that things work. It is important for you to know that when Mr. President envisioned this, he had in mind a project that will be largely insulated from politics and removed from the normal workings of government agencies. It was mostly driven by the private sector but with active government vision and support. All the financial decisions, technical decisions and other factors critical to this success story were driven by the private sector. So government played its role well here and that was to create an enabling environment that enabled the private sector to run. The plants are mostly private sector companies. So the point I am making is that there are key intervention areas by government that you cannot take away. But what is important is to mobilize the private sector, take the lead in negotiating incentives and making the environment right and ripe for initiative to thrive. This is what we need across all the other areas.
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