Impact of rice quota policy on millers, farmers

THE rice quota policy introduced by the Federal Government is posing serious threat to the survival of local rice producers in the country, as many of the processors now have their warehouse filled with unsold rice.

The development is not unconnected with the glut created by some rice importers who exceeded their quota and flooded the market with imported rice at the expense of the locally produced ones.

The quota policy, though introduced to discourage smuggling and encourage rice traders to invest in local production as part of government’s effort at achieving self sufficiency in rice production in the country, many local millers are saying if government fails to address the crisis rocking the industry, the quest of achieving self sufficiency in rice production may suffer setback.

Experts have attributed the crisis rocking the rice industry to the mismanagement of quota policy by both the government and traders. The government is blaming rice importers for undermining its efforts at achieving self sufficiency in rice production by importing beyond their allotted quota.

The rice importers are accusing government of granting arbitrary waiver to investors with little or no investment in the rice value chain. They said the federal government did not keep to it terms of agreement with them, as the plan was for the government to introduce the backward integration policy that enabled the country achieve self sufficiency in cement production in the rice sector, rather preferential waivers were given to investors who had planned investment in rice production at the expense of millers who were into production.

However when two elephants fight the grass suffers. The local rice producers and rice farmers who are the supposed beneficiaries of the policy are the ones suffering, as local rice producers cannot get market for their produce because their price is far too high compared to imported ones. Indeed, the reality is that it is cheaper to import rice than to produce locally. While a 50kg of imported rice would get to the market at the cost of N6,500, the cost of production of local rice stands between N7800-N8000, no thanks to parlous infrastructure and the high price of paddy (unprocessed rice).

Chairman, Rice Farmers Association of Nigeria (RIFAN) Alhaji Abubakar Wodi, recently called for a total ban on rice importation, the development, he said, became necessary because rice farmers in the country have been experiencing glut due to importation.

Wodi said that more than 75 per cent of the paddy rice produced locally had remained unsold, adding that the latest report from Edo State indicated that the price of paddy rice had fallen drastically. “RIFAN chairmen have been phoning me to complain about the glut and the price fall in Edo and Sokoto where a 50kg bag of paddy rice is being sold at N2,000 and N2,500 respectively, as against N 6,500,” Wodi said

Indeed the Federal Government’s Rice Value Chain Transformation Agenda which implemented an effective dry season paddy production programme for the 2013-14, was the main contributor to the spike in farm gate availability of rice. There is, however, urgent need for state governments to intervene in order to provide palliatives for its farmers. They need to give them a guaranteed minimum price so as to ensure that they are not left at the mercy of middlemen.

Advocates of the previous rice policy wherein 110% import tariff was levied on imported rice have called for policy reversal, urging government to totally ban rice importation; protect its borders to reduce smuggling and provide incentives; introduce subsidies and improve on infrastructure to encourage local production.

Erstwhile Minister of Agriculture, Akinwumi Adesina, while defending the higher tariff policy during a public hearing at the National Assembly, had pointed out that the policy was meant to protect local investors, including farmers and millers, and to create jobs and wealth for Nigerians. He said the high tariff on rice has worked positively and helped in jump-starting great interest in domestic rice production. He noted that the government was planning to provide subsidised loans to rice farmers, rice collection centers and rice millers to help expand their activities. He added that the government would play the role of the buyer of last resort to ensure incentives to rice farmers.

The Chairman, Ebony Agro, Charles Ugwu, narrated how the quota policy has posed serious challenge to his business. He said: “my investment in the rice value chain since 2009 is now under threat. My warehouse is filled with unsold rice. The Central Bank is asking us to repay the loan that was used in establishing Tara Agro (a sister company) but we cannot repay because most of the funds are tied down in stocks.” He said we are further threatened by Customs as they are accusing us of exceeding our quota.

While speaking to The Guardian, he expressed fear that rice farmer may be discouraged from going back to the farm if they are unable to get market for their produce. He urged government to support the farmers by buying up their produce and putting it in the warehouse, then sell it to the rice millers at a subsized rate. He pointed out that rice merchants have flooded the market with foreign rice and created a glut. The glut, he said, has prevented the rice farmers from getting market for their produce. “This is because the processors who usually buy paddy from the farmers are not buying because we cannot sell what we have produced”.

He said “the market price of imported rice from Thailand is far too low and we cannot match it. We are working in an environment where power is too expensive and production of paddy in the country is at a high price compared to other countries. For instance, to produce a 50kg of rice would cost N7800, while similar product from India ranges from N6200-N7400. We cannot compete favourably even though quality of the local produce is better than the imported ones”.

Ugwu observed that the rice glut was caused by the mismanagement of the quota system by the Federal Government, because some importers who do not have rice mill made false claim of their mill to get the quota, and none of the advice given the agriculture minister was implemented.

He said the resultant glut in the market is affecting millers and the rice farmers, adding that if the rice farmers decide not to go back to the farm in the next cycle there would be inflation in the price of rice, as paddy would be in short supply, and there won’t be enough paddy for the millers to produce.

He said rice export in the country is not visible because the production cost is too high adding that, the world price for rice is $450, while our own rice cost $780-$850 per ton, though Nigeria has the potential to produce and export, but the price of rice has to come down.

The former Minister of commerce and Industry said since the country has the potential to grow and export rice; government should either ban the import of rice so that local millers can grow their capacity or place a high tariff on the rice import.

Investigations by The Guardian revealed that problem started brewing with the introduction of an import duty differential on rice (brown or polished) imported by rice investors compared to rice traders.  Investors that have milling capacity with verified Domestic Rice Production Plans (DRPP) enjoy an import duty of 10% and levy 20% while traders will pay an import duty of 10% and levy 60%.

The new rice policy also stated that importation of brown or polished rice should be limited to the national supply gap for import-grade rice to be determined by an inter-ministerial committee chaired by the Federal Ministry of Agriculture and Rural Development (FMARD), with membership drawn from the Federal Ministry of Finance (FMoF), Federal Ministry of Industry, Trade and Investment (FMITI) and the National Planning Commission (NPC); Rice import quotas at the preferential duty of 10% and levy 60%for 80% or more of the National Supply Gap will be issued to existing and new rice millers/producers.

Without waiting for determination of supply gap by the inter-ministerial committees or issuance of quotas, two Asian companies, had each imported 390,145.53MT and 244,126.63MT respectively of polished rice as at December 3, 2014 at the preferential duty of 10% and levy 20%, according to data from Nigerian Customs. 

The two companies together imported a total of 634,270.16MT of finished rice or 56% of the total imported finished rice under the new policy as at December 3, 2014. 

According to Customs, the importers agreed to pay any duty and levy differential if their eventual quota allocation turned out to be lower than what they have imported.