Description
Unleashing Agricultural Development in Nigeria through Value Chain Financing
WORKING PAPER
November 2010
Unleashing Agricultural Development in Nigeria
through Value Chain Financing
CENTRAL BANK OF NIGERIA
BANK OF INDUSTRY
F. Hartwich
J. Devlin
P. Kormawa
I.D. Bisallah
B.O. Odufote
I.M. Polycarp
i
1his document has been prepared by l. Iartwich, J. De·lin and P. Kormawa oí the Agribusiness
De·elopment Unit, United Nations Industrial De·elopment Organization ,UNIDO, , I. D. Bisallah
oí the Bank oí Industry ,BOI,, Nigeria, B.O. Oduíote and I.M. Polycarp both oí the De·elopment
linance Department, Central Bank oí Nigeria ,CBN,. Valuable inputs were recei·ed írom UNIDO
colleagues A. Goodwin ,lisheries, and D. 1ezera ,lruits,. lor comments please contact:
í.hartwich¸unido.org
Disclaimer: 1he document represents work in progress and is intended to generate comment and
discussion. It is not a íully polished publication. 1he ·iews expressed herein are those oí the
author,s, and do not necessarily reílect the ·iews oí the United Nations Industrial De·elopment
Organization.
1he document may be íreely quoted or reprinted but acknowledgement is requested.
Reíerence:
UNIDO, CBN, BOI ,2010,. Unleashing Agricultural De·elopment in Nigeria
through Value Chain linancing. \orking Paper. No·ember 2010. United Nations Industrial
De·elopment Organization ,UNIDO,. Vienna, Austria.
ii
Unleashing Agricultural Development in Nigeria
through Value Chain Financing
Working Paper, November 2010
iii
ACRONYMS
ACGSl Agricultural Credit Guarantee Scheme lund
ACP Aírican, Caribbean and Paciíic Countries
AGOA Aírica Growth and Opportunities Act
AGRA Alliance íor a Green Re·olution in Aírica
ACSS Agricultural Credit Support Scheme
AU Aírican Union
BOI Bank oí Industry
CACS Commercial Agriculture Credit Scheme
CAADP Comprehensi·e Aírica Agriculture De·elopment Programme
CBN Central Bank oí Nigeria
CM1 Cut, Make and 1rim ,Operation in apparel industry,
COMlAR Computer Model íor leasibility Analysis and Reporting ,UNIDO Soítware,
COSOP Country Strategic Opportunities Programme
DlI De·elopment linance Institution
DOC Day Old Chicks
LCO\AS Lconomic Community oí \est Aírican States
LML Lmerging Market Lconomies
LPAs Lconomic Partnership Agreements
LU Luropean Union
lAO lood and Agricultural Organization
lC1 lederal Capital 1erritory
llA lree latty Acids
lIAS loreign In·estment Ad·isor Ser·ices ,oí the \orldbank,
GDP Gross Domestic Product
GON Go·ernment oí Nigeria
IPAI Iigh Patogenious Asian Iníluenza
IQCl Iigh Quality Cassa·a llour
IAR Institute oí Agricultural Research
ICA In·estment Climate Assessment
IlAD International lund íor Agricultural De·elopment
IlDC International lertilizer De·elopment Corporation
II1A International Institute oí 1ropical Agriculture
LLLDS Local Go·ernment Lconomic Lmpowerment and De·elopment Strategy
MAN Manuíacturers Association oí Nigeria
MARKL1S Maximizing Agricultural Resources in Key Lnterprises and 1arget Sites
MlB Micro linance Banks
NLLDS National Lconomic Lmpowerment and De·elopment Strategy
NACRDB Nigerian Agricultural Credit and Rural De·elopment Bank
NGOs Non-Go·ernmental Organizations
NIllR National lreshwater lisheries Research Institute
NIOMR Nigerian Institute íor Oceanography and Marine Research
NIRSAL Nigerian Incenti·e-based Risk Sharing System íor Agricultural Lending
NPPAN National Palm Produce Association oí Nigeria
NSM Nigeria Starch Mills
N1MA Nigeria 1extile Manuíacturing Association
NVRId National Veterinary Research Institute
P\C PricewaterhouseCoopers
ReSAKSS-\A Regional Strategic Analysis and Knowledge Support System \est Aírica
iv
RMRDC Raw Materials Research and De·elopment Council
SLLDS State Lconomic Lmpowerment and De·elopment Strategy
SILPl Sa·annah Integrated Lxport Processing larms
SML Small and Medium Scale Lnterprises
SMLCGS Small and Medium Sized Lnterprises Credit Guarantee Scheme
UNIDO United Nations Industrial De·elopment Organization
US United States
USAID United States Agency íor International De·elopment
\ARDA \est Aírican Rice De·elopment Association
\B \orld Bank
v
vi
Table of Contents
LXLCU1IVL SUMMARY
J. IN1RODUC1ION...........................................................................................................J
2. S1UDY APPROACH AND ML1HODOLOGY ........................................................... 3
2.1 LN1R\ POIN1S IN VALUL CIAIN DLVLLOPMLN1...................................................................... 3
2.2 SPA1IAL DIS1RIBU1ION Ol VALUL CIAINS ................................................................................... 4
2.3 IDLN1Il\ING VALUL CIAIN lINANCING NLLDS......................................................................... 6
2.4 SOURCLS Ol VALUL CIAIN lINANCL........................................................................................... 11
3. ML1HODOLOGY AND DA1A COLLLC1ION........................................................J2
3.1 ML1IODOLOG\............................................................................................................................. 12
3.2 S1UD\ LOGIC .................................................................................................................................. 14
3.3 DA1A COLLLC1ION........................................................................................................................ 15
4. A ROADMAP IOR VALUL CHAIN IINANCL.........................................................J6
4.1 DLCIDING \ILRL 1O INVLS1...................................................................................................... 16
1.1.1 Dereíopvevt Potevtiaí ............................................................................................................... 1ó
1.1.2 íivavciaí veea........................................................................................................................... 1·
1.1.² 1orara. a íivavcivg .trateg, .................................................................................................... 1·
4.2 CROSSCU11ING CIALLLNGLS AND OPPOR1UNI1ILS ............................................................... 21
1.2.1 Privar, Proavctiov ava ´ovrcivg of ívpvt. ................................................................................ 21
1.2.2 Proce..ivg Capacit, ava 1ecbvoíog, ........................................................................................... 2²
1.2.² íva Maríet. ava 1raae........................................................................................................... 2:
1.2.1 Cbaiv Corervavce ava íivíage................................................................................................ 2ó
1.2.: Re.ovrce proavctirit, ava ívrirovvevtaí Perforvavce................................................................ 2¨
1.2.ó Macro ícovovic ava Poíic, Covte·t ......................................................................................... 2¨
1.2.¨ .raiíabiíit, of íivavce.............................................................................................................. 2¨
S. CONCLUSION AND RLCOMMLNDA1IONS ........................................................ 32
5.1 CIOOSING \ILRL 1O INVLS1 ..................................................................................................... 32
5.2 AGRICUL1URAL VALUL CIAINS AND 1ILIR lINANCIAL NLLDS .............................................. 32
5.3 DLSIGNING VALUL CIAIN lINANCL SUPPOR1......................................................................... 33
ANNLX: DIAGNOS1ICS OI VALUL CHAINS............................................................ 3S
..1 Ca..ara ...................................................................................................................................... ²:
..2 Cottov......................................................................................................................................... 10
..² íi.berie....................................................................................................................................... 46
..1 Mai¸e ......................................................................................................................................... :2
..: írvit. ......................................................................................................................................... :¨
..ó Paív Oií .................................................................................................................................... ó1
..¨ Povítr,........................................................................................................................................ óó
..º Rice ............................................................................................................................................ ¨0
..· ´o,beav ...................................................................................................................................... ¨ó
..10 1ovatoe. .................................................................................................................................. º0
LI1LRA1URL RLILRLNCLS ...................................................................................... 84
vii
Executive Summary
1he Central Bank oí Nigeria is proposing the Nigerian Incenti·e-based Risk Sharing System íor
Agricultural Lending ,NIRSAL, in response to challenges with agricultural de·elopment and lack oí
íinance íor agribusiness in Nigeria.
1his report looks at the needs íor íinance in ·arious agricultural ·alue chains in the country and
opportunities íor how banks can react to these, laying out new and inno·ati·e methods to increase
lending to the agricultural sector.
1he íindings presented in this report are based on a study oí selected agricultural product ·alue
chains in Nigeria, ten in total: cassa·a, cotton, íisheries, maize, íruits, palm oil, poultry, rice,
soybean, and tomato. 1he study was carried out by a team oí experts írom the Bank oí Industry,
Nigeria and the Central Bank oí Nigeria, with technical support írom UNIDO`s Agribusiness
De·elopment Branch, Vienna, and íollowed UNIDO methodology íor ·alue chain de·elopment
diagnostics.
1he report pro·ides a detailed analysis oí each ·alue chain, qualiíied iníormation on íinancing
requirements íor each segment oí the ·alue chains, and identiíies opportunities to íinance
operations along the chains. It íurther pro·ides actionable recommendations íor impro·ing
producti·ity, income and growth in the key ·alue chains through íinancing and technical assistance.
Ultimately, the selection oí target ·alue chains could be made on the basis oí de·elopment
objecti·es and íinancing needs oí the ·alue chains. Any íinancial support a ·alue chain and its
indi·idual actors will íurther depend on the íinancial attracti·eness oí the ·alue chain business
opportunities to the íinancing institution, and the íinancial products and incenti·e schemes a·ailable
to the íinancing institutions.
1he main íindings oí the report in relation to ·alue chains and their íinancing needs are:
• 1he potential íor the de·elopment oí agricultural ·alue chains in Nigeria is substantial and
promising, both írom the supply ,suííicient natural resources, and demand ,large domestic
market, opportunities íor export, perspecti·e.
• 1he ·alue chains examined are characterised by a preponderance of smallholders, and
relatively few processors who encounter se·ere challenges in the acquisition oí suííicient
quality raw materials, technology, and marketing. 1here are few lead firms that promote
impro·ing the operations oí their buyers and suppliers. Other íorms oí ·alue chain
coordination and selí-organization oí actors are rare and limited to new initiati·es like the
Commercial Agriculture. 1here is ·irtually no go·ernment support to ·alue chain
coordination.
• 1here are many de·elopment programmes that support ·alue chain de·elopment. In parts
they also deal with the issue oí íinance. Iowe·er, the type oí íinance they pro·ide is not
suííicient to co·er the needs oí the entire ·alue chain.
• Iinancial needs are particularly acute for farmers, who can rarely access a suííicient
amount oí íinance to operate their businesses proíitably. 1here many small agribusinesses
in primary processing which can increase proíitability through technological upgrading and
organization, but also íind it diííicult to access íinance íor this.
• 1he íinancial needs oí medium to large agro-processing units relate mainly to long-term
credit íor equipment ,upgrading technology and impro·ing quality, and credit lines to pre-
íinance agricultural production oí their suppliers.
• 1he existing íinancial products are tailored to needs íor equipment and short-term working
capital. Iowe·er they are ill-íitted to pro·ide money to agricultural producers that need to
íinance the entire cycle oí agriculture production which can take up to one year íor annual
viii
crops or more íor perennials and li·estock. larmers - and this is not only news írom this
report - ha·e terrible diííiculties in obtaining credit as they cannot pro·ide collaterals that
satisíy íormal íinancial institutions.
• Iinancial needs in other parts of the value chain are less acute, and depend on
relationships and chain organizations. In general the input industry and exporters appear to
ha·e better access to íinance, including through international markets
1he key recommendations to be taken into account in the design oí any ·alue chain íinance support
scheme ,including NIRSAL, are:
1. A wide range of innovative financial products and services such as insurance, o·erdraíts,
íactoring and leasing, as well as in·estment loans, guarantees, etc. are required to meet the
di·ersity oí needs. 1his also implies working with a combination of financial service
providers, not just the íormal banking sector ,e.g. micro-íinance institutions,, including building
·ertical linkages in the íinancial sector.
2. Lending to actors in agricultural ·alue chains requires a thorough assessment and
understanding of the value chain and careíul identiíication oí needs and opportunities on the
diííerent le·els oí the chain. Pro·iding large-scale loans to a íew e·entually promising agro-
processing units will not render quick-wins ií the rest oí the ·alue chain is not recei·ing
necessary support as well. Particularly, positi·e eííects on incomes and po·erty cannot be
achie·ed by looking at processing operation alone.
3. 1here is a need to build vertical linkages in the íinancial sector and to leverage the existing
chain linkages to pro·ide suííiciently comprehensi·e íinancial ser·ices to ·alue chains.
4. Speciíic considerations should be made íor accessing ·alue chain segments in rural areas
which are not well-ser·ed by íormal íinancial institutions, particularly commercial banks. In case
commercial banks are not present, alternati·e institutions must be identiíied, e.g. community
banks, cooperati·e groups, rural micro-credit institutions and others.
5. In the design oí any ·alue chain íinance support scheme one needs to be aware oí the existing
forms of formal and informal finance provision in speciíic ·alue chains. Despite the íact that
íinance to ·alue chain actors is commonly scarce and insuííicient, the existing íormal and
iníormal íinancial mechanisms may complement any additional support scheme. At times they
also can conílict with them when it comes to guarantees and collaterals.
6. Iinance is only one condition íor businesses in the ·alue chain to be proíitable.
Complementary conditions are crucial and ha·e to be accurately reílected in any analysis oí
íinancial attracti·eness. Demand for non-financial services exists at all points along the
chain ,impro·ed technologies, business planning, market de·elopment, management technical
assistance,. Pro·iding adequate technical assistance and íinancial ser·ices together in a
commodity chain will lead to more proíitable competiti·e businesses.
¯. Any scheme should build on existing models with proven track record in ·alue chain
íinance in the country. Banks can collaborate with these programmes beneíiting írom their
knowledge and expertise regarding the situation in particular ·alue chains. 1his may constitute a
íield íor achie·ing ´quick wins¨.
8. Most oí the commercial banks are not engaged in agricultural lending, and existing schemes to
encourage them to do so ha·e been less eííecti·e. 1his raises two questions: whether or not
commercial banks have a comparative advantage o·er other íinancial institutions ,such as
DlIs - NACRDB, BOI,, and which incentives would be required ,and at what cost, to entice
commercial banks to participate in agricultural ·alue chain íinancing·
1
1. Introduction
In response to challenges within the current scheme oí agricultural lending in the country, the
Central Bank oí Nigeria ,CBN, is proposing a new approach to íinance oí agriculture and
agribusinesses - the Nigerian Incenti·e-based Risk Sharing System íor Agricultural Lending
,NIRSAL,.
1his system intends to pro·ide incenti·es to ,a, stimulate inno·ations in agricultural lending, ,b,
encourage banks that are lending to agricultural sector, ,c, eliminate state dependency by banks
íor deploying loanable íunds to agriculture, ,d, le·erage commercial bank balance sheets íor
lending into agriculture, and most importantly ,e, ensure risk sharing approaches that will build a
business approach where banks share in the risk to lending to the sector ,AGRA and P\C
2010,. Value chain íinancing is one inno·ation that could encourage banks and other íinancing
institutions to increase lending to the agricultural sector.
1he iníormation in this report has been put together to support the eííorts oí the CBN and
other íinancing institutions interested in agricultural lending to design appropriate ·alue chain
íinancing products in Nigeria. 1he main outputs oí the study are:
,i, An o·er·iew oí de·elopment in most important agricultural ·alue chains.
,ii, linancial needs in most important agricultural ·alue chains identiíied, at the le·el oí the
whole chain as well as in each oí its segments.
,iii, A set oí recommendations íor the de·elopment oí íinancial strategies and products to
support agricultural ·alue chain de·elopment in Nigeria.
Value chain de·elopment has almost become a magic íormula íor sustainable agricultural
in·estments. An agricultural ·alue chain consists oí a series oí acti·ities that add ·alue to a íinal
product, beginning with production, linking with processing, getting the íinal product, and
marketing, sale to the end user or consumer and disposal aíter use. It is because oí the
interdependence and linkages between the acti·ities that a clear understanding oí the chain,
market íor the íinal product, and the ·arious actors oí the chain is important not only íor
íinancing or in·estment decisions, but íor de·eloping the entire chain. In ·alue chain íinancing,
an assured and proíitable market is required íor the producers and processors íor their products.
An assured market reduces íinancial risk, thus making it easier to obtain íinancing at lower cost
írom banks and other íinanciers. 1hereíore, banks and other íinancing institutions need to
understand in·estment opportunities at ·arious segments oí ·alue chains, to better de·elop and
pro·ide diííerent íinancial products that suit the ·arious actors and segments oí the chain.
Value chain íinance as a concept reíers to íinancial products and ser·ices that ílow to or through
any point in a ·alue chain in order to increase returns on in·estment, growth and
competiti·eness oí that chain. 1he pro·ision oí íinancing among ·alue chain actors, íor instance
processors gi·ing credit to íarmers to enable them to acquire inputs, is already an established
practice in many chains, although it may not be concei·ed oí in such terms.
Nonetheless, a thorough understanding oí ·alue chain íinance is important to address the
constraints that limit producti·ity and de·elopment oí ·alue chains in Nigeria. linancial
constraints at one point in a chain can impact other points, and sol·ing a credit problem in one
segment can ha·e knock-on eííects íor the rest oí the chain. Lqually, logistical or other non-
íinancial problems in one part oí a chain can oíten maniíest themsel·es as íinancial problems,
such as unreliable input supply leading to higher need íor working capital. 1hus, íinancial needs
oí chain actors should be ·iewed in combination with other inter·entions along the ·alue chain.
lrom a ·alue chain íinance perspecti·e, the risks and returns oí the íinance pro·ider are
considered along with the risks and returns to ·alue chain actors. linance pro·iders to a chain
range írom banks o·er micro-íinance institutions to other non-bank íinancial institutions.
2
In general, these pro·ide íinance and ser·ices to ·alue chain actors directly in·ol·ed in
production, processing or marketing oí products. Lach oí these ha·e diííerent incenti·es íor
íinancing the ·alue chain, ha·e diííerent return expectations, and diííerent abilities to manage
risk. 1his report has been put together to pro·ide a clear understanding oí some major
agricultural ·alue chains in Nigeria as well as their íunding needs and to guide decisions in the
implementation oí the NIRSAL.
A major hypothesis in this report is that any integrated support scheme íor agricultural ·alue
chain íinancing requires a more proíound understanding oí the underlying conditions íor ·alue
chain de·elopment. Such understanding is required íor two reasons: ,a, to design the íinancial
products that íinancing institutions can lay out to respond to the íinancial needs oí ·alue chain
actors, and ,b, to e·aluate the íinancing needs oí indi·idual ·alue chain actors beyond the
traditional criteria.
1his report is based on a study conducted within the íramework oí supporting the Central Bank
oí Nigeria in craíting a blueprint íor stimulating bank and other íinancing institutions lending to
agriculture through ·alue chain íinancing.
1he study examines ·arious segments oí the 10 most promising agricultural product ·alue chains
in Nigeria ,including cassa·a, rice, maize, soybean, cotton, ·egetables,tomato, íisheries, palm oil
poultry and íruits, and pro·ides qualiíied iníormation on íunding requirements íor each segment
oí the ·alue chain, which together would enable accelerated ·alue chain de·elopment. It
identiíies opportunities to íinance agribusinesses along selected ·alue chains. It pro·ides
iníormation to support decisions oí íinancial institutions as well as de·elopment agencies
interested in ·alue chain de·elopment in Nigeria.
1he study has been carried out by a team oí experts írom the Bank oí Industry, Nigeria and the
Central Bank oí Nigeria, with technical support írom UNIDO`s Agribusiness De·elopment
Branch, Vienna. 1his report pro·ides an o·er·iew oí major agricultural ·alue chains in Nigeria
and suííicient iníormation to elicit actionable recommendations íor impro·ing producti·ity,
income and growth in the key ·alue chains through íinancing and technical assistance.
1he report is organized as íollows: lollowing the introduction, Chapter 2 introduces the
approach oí the study making reíerence also to the concept oí ·alue chain de·elopment, spatial
segmentation and ·alue chain íinance. Chapter 3 introduces the methodology used íor data
collection and analysis. Chapter 4 de·elops main inroads into ·alue chain de·elopment
opportunities ·ia íinance on the basis oí iníormation gathered on 10 ·alue chains ,detailed
discussion oí those ·alue chains is pro·ided in the Annex,. Chapter 5 pro·ides a set oí
recommendations to support the public and pri·ate sectors institutions and particularly the
banking and other íinancial sectors in their pursuit to stimulate and support agricultural ·alue
chain de·elopment in Nigeria.
3
2. Study approach and methodology
2.1 Entry Points in Value Chain Development
1his study is grounded in the concept oí ·alue chain de·elopment. Value chains are mechanisms
that allow producers, processors, buyers, and sellers - separated by time and space - to add
·alue to products and ser·ices as they pass írom one segment oí the chain to the next, until the
product gets to the íinal consumer ,see ligure 1,.
Iigure J: Generic Value Chain with Public and Private Support Services
´ovrce: |^íDO 2010
Actors in a ·alue chain operate under certain constraints with regard to the a·ailability and access
to resources, intra- and inter-íirm organization, a·ailability and use oí knowledge and technology,
markets and the a·ailability and quality oí public and pri·ate support ser·ices in transport,
storage and íinance.
All oí these determine costs and returns at each segment and ultimately deíines the actors` proíit
margins as the product mo·es along the chain. Ií their margins turn negati·e the actors sooner
or later may drop out oí the ·alue chain. Ií a whole segment oí the ·alue chain íaces negati·e
margins then the de·elopment oí the ·alue chain is seriously constrained.
In such situations, policy makers and agencies concerned with the de·elopment oí ·alue chains
must consider measures that help actors in ·alue chain segments to restructure their cost base
and impro·e proíitability. 1his can be achie·ed, íor example, through introducing technological
inno·ations or more eííicient organization oí supplier-buyer relationships.
Value chain de·elopment can be supported and accelerated through a ·ariety oí ser·ices that
help to increase períormance oí actors in the chain, such as producers and processors. 1his can
be achie·ed íor example through impro·ed business planning and access to knowledge and
technology or through pro·iding support ser·ices in the íields oí market intelligence,
administrati·e support, initiation oí business relationships, contracting, transport, energy supply,
telecommunications inírastructure, íinance, etc..
Value chain de·elopment cannot come írom outside the chain but rather requires the initiati·e
oí pri·ate entrepreneurs who take action in the business processes in the ·arious segments oí the
chain, and also in the coordination between those processes.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Private Services (Transport, Warehousing, Certification, etc..)
Private Finance and Insurance Services
Public Services & Development Support (Policies, Regulations, Incentives, etc.. )
4
1here is a strong interdependence between the processes in the ·arious segments oí the chain.
lor instance, ií one segment is unproíitable or is generating inadequate or insuííicient output,
other segments are likely to be negati·ely aííected. lor example, ií the quality oí a product, such
as pineapples, is not appropriate, consumers will reíuse buying pineapple juice made írom them,
or ií the supply oí pineapples is not suííicient, pineapple juice producers cannot íulíil market
demands and may resort to import oí pineapple concentrates, as it is the case in Nigeria.
2.2 Spatial distribution of value chains
Value chains cut across regions. lor example, the palm oil and cocoa ·alue chains are rooted in
Nigeria`s Southern region where oil palms and cocoa are grown. Location speciíicity, howe·er,
must not extend o·er the entire chain. Rather the good - ií not optimal - location oí speciíic
transíormation and ·alue addition processes depends on the bulkiness oí the product, the
a·ailability oí labour and ·arious resources and costs oí transport and distribution to the market
and consumers. By no means, the location oí businesses oí one ·alue chain is bounded to one
geographical region or state. \hile production may occur in one region, processing, íurther
transíormation, whole sale and consumptions may occur in others ,see example oí the Leather
·alue chain in Box 1,. lor this reason, the ·alue chain approach is sometimes less compatible
with approaches that put geographic limits such as geographic cluster de·elopment, growth-pole
de·elopment or the bread basket approach.
Box J: Spatial location of businesses across Nigeria's leather value chain
Iides íor leather production are sourced in the Northern parts oí Nigeria and e·en across the Northern
border where cattle production is pre·alent. Meanwhile the treatment oí the hides and their
transíormation to leather can be períormed in Kano, which is also the centre oí trading íor hides. lurther
transíormation oí leather into products that are used íor íurniture, garments and shoes howe·er, may be
located in Lagos where there is ample access to semi-skilled labour and where the distribution to retailers
and shops can be organized in a more direct way. 1his last part oí the ·alue chain, howe·er, is only
rudimentarily de·eloped.
´ovrce: 1be avtbor.
Bounding ·alue chain support to businesses oí only one particular geographical region can
negati·ely aííect de·elopment opportunities in the chain. Indeed, ·alue chains can build part oí
their competiti·e strength írom the combination oí comparati·e ad·antages that ·arious
locations oííer to operate in its diííerent segments. 1he combination oí locations makes the
·alue chain competiti·e.
Part oí the need íor accelerated ·alue chain de·elopment in Nigeria may originate írom the íact
that most oí the country`s ·alue chains still do not make the best oí the opportunities íor spatial
segmentation oí businesses along the ·alue chain. Or worse, some ·alue chains ha·e not
succeeded to allocate processing and íurther transíormation industries at suitable locations.
ligure 2 pro·ides iníormation regarding the spatial distribution oí businesses in primary
agricultural production as well as processing. Production is measured through ·alue oí
agricultural production in 2006 allowing a comparison oí the most important crops ,Nwaíor,
Diao and Alpuerto 2010,. Only the most important products per state are depicted. No
distinction is made between the diííerent types oí processing. Simply the existence oí a
processing plant was enough to indicate that processing is taking place in a region. Despite the
limited iníormation base, the íigure pro·ides a clear indication that processing is not necessarily
located in the same regions as production. It íurther shows that processing industries are not
abundant and are oíten located around urban agglomerations such as Lagos and Kano.
Processing oí more bulky products is more dispersed and oriented towards the sites oí primary
production.
5
Iigure 2: Location of production and processing of main agricultural commodities
´ovrce: Preparea b, íí1. Ceo.patiaí íab, ^igeria
In conclusion, ·alue chain de·elopment can be initiated through the building oí competiti·e
businesses in any gi·en segment oí the chain. 1he existence oí such competiti·e and growing
businesses constitutes a kind oí segmental growth pole`. Iowe·er, de·elopment in one
segment may not be enough ií it does not spill o·er into the other segments oí the ·alue chain,
o·erall de·elopment oí the chain is limited to its weakest parts. lor policy makers and in·estors
it is thereíore important to identiíy growth poles in ·alue chains but also to íocus on the weaker
segments oí the ·alue chain and to deíine measures to strengthen those and remo·e bottlenecks.
6
2.3 Identifying value chain financing needs
Actors in the ·arious segments oí a ·alue chain require íinance to buy and transíorm products,
to expand operations or to upgrade and explore new markets. linancing needs ·ary across and
within ·alue chains. In this respect, the starting point íor analysis íor the design oí appropriate
íinancial products is to recognize the centrality oí cyclical trends, which aííect agricultural ·alue
chains.
1he appropriateness oí diííerent types oí íinance ,products, will ·ary depending on the segment
oí the chain, and on the purpose oí the credit ,need,. Lach segment oí the chain may require a
diííerent mix oí short, medium and long-term íinance. Ia·ing established the íinancial need, a
match can be made to the appropriate íinancial product on the basis oí corresponding tenor
,duration, and on the underlying risk oí the in·estment to be íinanced.
In practice, short-term credit needs, such as working capital, can be íinanced by an o·erdraít or
re·ol·ing credit line or on the basis oí assets a·ailable to business. Similarly, íixed assets can be
íinanced by term loans, mo·eable assets by ·ehicle & asset íinance, and agricultural inputs by
agricultural production loans ,short-term credit repaid in íull at end oí each season,. ligure 3
show the ·ariation in both the purpose oí íinance, and the type oí íinance, along segments oí the
chain.
Iigure 3: Lntry points for value chain financing
´ovrce: |^íDO 2010
1able 1 shows the ·ariation in both the purpose oí íinance, and the type oí íinance along
segments oí the chain. It illustrates that ·arious segments oí agricultural ·alue chains require
diííerent types oí íinance, and diííerent mixes oí short-, medium- and long-term credit as well as
other ser·ices.
In order to better understand the íinancial needs in diííerent segments oí a ·alue chain, it is
worth highlighting some general considerations íor assessing opportunities íor agricultural ·alue
chain íinance. lirstly, as with any borrower, íinance pro·iders to any ·alue chain actor need to
assess risks oí lending to the sector ,production,yield, price,market, and di·ersiíication,.
Secondly, íinance pro·iders need to assess the indi·idual creditworthiness oí the borrower,
which entails a process oí screening, and contract eníorcement. Creditworthiness depends on
borrowers` ability and willingness to repay. lrom a ·alue chain perspecti·e, these are both
correlated with a desire to preser·e a relationship with a íinance pro·ider, be it a íinancial
institution, a buyer, or a supplier. One option íor lenders is to e·aluate the stickiness` oí
relationships to assess whether direct íinancing oí producers or indirect íinancing oí their
suppliers or buyers is more appropriate.
7
1able Ja: Iinancing needs and corresponding types of finance
in value chain segments
Need/ purpose Type of finance
Working capital (including
credit to customers)
• Overdraft
• revolving credit line
• Asset-based finance – factoring (accounts receivable),
inventories etc
Input
Industry
Fixed assets (plant,
property)
• Term loan
• Commercial property finance
Inputs/land preparation • Short-term agricultural production loan
• Revolving credit line
• Supplier credit (from input industry)
• Advance payment (from processors)
Operating expenses • Short-term agricultural production loan
• Revolving credit line
• Supplier credit
• Advance payment
• Warehouse receipt system
Primary
Production
Equipment • Term loan
• Vehicle& asset finance (leasing, rental, instalment sales)
Working Capital
(including advance
payments to suppliers)
• Overdraft
• Revolving credit line
• Asset-based finance – factoring (accounts receivable),
inventories etc
Fixed Assets (plant,
property)
• Asset finance (leasing, rental, installment sales)
• Commercial property finance (warehouses, factories,
industrial premises)
1st/2nd Level
Processing
Equipment (machinery,
capital equipment)
• Term loan
• Vehicle & asset finance (leasing, rental, installment sales)
Working capital • Overdraft
• Revolving credit line
Wholesale,
Retail &
Marketing
Fixed Assets (incl.
wholesale warehouses,
transport vehicles etc.)
• Term loan
• Commercial property finance
• Vehicle & asset finance
Export Working capital (pre- and
post-shipment)
• Export credit line
• Letter of credit/forfaiting
• Bills of exchange
• Factoring
1able Jb: Crosscutting financing needs
and corresponding types of finance in value chains
Need/ purpose Type of finance
Storage Working capital • Overdraft
• Revolving credit line
• Asset-based finance – factoring (accounts receivable),
inventories etc
Fixed Assets • Commercial property finance
• Term loan
Trading Working capital • Overdraft
• Revolving credit line
Transport Working capital
Vehicles
• Vehicle & asset finance
• Overdraft
´ovrce: 1be avtbor.
8
1hirdly, the issue oí collateral is crucial íor the design oí appropriate íinancial products. Land is
usually a preíerred security as it is immo·able, howe·er the absence oí íunctioning rural land
markets is still a constraint and the costs oí eníorcement íor both mo·eable and immo·able
assets can be high.
A íourth íactor is the high costs oí pro·iding íinance to agricultural ·alue chain. 1he borrowers
generally lack credit history, may not ha·e records oí their business and are dispersed o·er large
areas. 1heir demand íor íinance is largely seasonal, necessitating a quick turnaround time oí
applications. Borrowers themsel·es are also sensiti·e to transactions costs, tra·elling to bank
oííices entails monetary costs, as well as opportunity costs íor their labour in times oí peak
acti·ity. Strategies to reduce costs can be adopted, such as streamlining oí procedures, standard
loan appraisal indicators, decentralization oí appro·als to branches, and appropriate route-
planning. linally, the degree oí íormality or iníormality in the ·alue chain is important in
determining access to íinance, as iníormal enterprises tend to be smaller, less transparent and
ha·e much greater diííiculties in accessing íinance.
1he íollowing paragraphs pro·ide íurther iníormation on the type oí íinancial ser·ices that
certain segments oí the ·alue chain require:
Input industry: Input pro·iders usually require íinance to in·est in íixed assets, such as
plant and property, equipment ,machineries etc., and íor working capital. As they also
extend credit to dealers, middlemen and íarmers who purchase their products, their working
capital requirements are substantial and highly cyclical. As íertilizers and pesticides are
usually imported, the íunding needs oí importers are limited and can easily be met by the
industry through íinance a·ailable on international íinancial markets.
Iowe·er other acti·ities require speciíic íinancing írom domestic pro·iders. Animal
breeding, ·arietal impro·ement, multiplication oí seeds and tree nurseries are crucial
acti·ities íor the producti·ity oí the sector, and are tied to local agro-ecological conditions,
thus cannot generally be leít to companies abroad. Usually, the number oí pro·iders oí
these acti·ities is relati·ely small in relation to the number oí agricultural producers,
howe·er, they play a pi·otal role in ensuring reliable, adequate and suííicient production.
1hus, their ability to obtain necessary íinance íor their operations impacts signiíicantly on
the ·alue chain actors íurther down the ·alue chain. linancing oí seed multipliers and other
input producers requires products that are adapted to the business cycle oí the operation
,i.e. seasonal demand,. Breeding and plant ·arietal impro·ement are usually pro·ided by the
public sector and international de·elopment agencies and there are a large number oí
signiíicant seeds and breeds on which no royalties íor intellectual property rights must be
paid, hence íinancing here is not as pressing. In the seed sector, there are strong globally
operating companies acti·e. 1hese usually pro·ide hybrid seeds which cannot be íurther
locally multiplied ,e.g. maize, oil palm, or planting materials íor which íarmers would need
to pay royalties ií they íurther multiply them.
Producers: In agricultural production, due to the cropping cycle, working capital
requirements are oí a diííerent nature than in con·entional production processes and
businesses. larming oí annual crops requires íinance at diííerent points oí the cropping
cycle íor acquisitions and acti·ities such as the culti·ation oí land, the seeding, íertilizing,
weeding, pruning, pest and disease control, and, depending on the crop, post har·est
handling and primary processing. Some oí these acti·ities simply require labour while others
imply the purchase oí inputs such as íarm implements, seeds, íertilizers, manure, pesticides
and har·esting equipment. Inputs are sometimes a·ailable in subsidized íorm írom
go·ernment and donor,NGO-sponsored programmes. Iowe·er such programmes usually
do not co·er the íull demand oí producers` íinancial needs. Short-term credit in the íorm oí
agricultural production loans are an option íor íinancing input acquisition, as well as
9
operating expenses throughout the cropping cycle. Other íacilities such as o·erdraíts or
re·ol·ing credit may also be appropriate depending on the risk proíile oí the producer.
In perennial crop production additional íinancial requirements occur írom clearing land,
planting trees and waiting until the íruits can be har·ested, which sometimes is only possible
se·eral years aíter planting. 1his is the case íor íruit trees and oil palm. Such long-term
in·estment carries signiíicant risk íor íinancial institutions as lenders, and high costs, e.g. íor
assessing creditworthiness. Long-term íinance in this case may be more eííiciently pro·ided
by processors or other ·alue chain actors who understand the nature oí the business and
may ha·e a contractual or long-standing relationship with a producer that reduces their
screening costs compared to banks. Similarly, íor mechanized production long-term
in·estment in íarm machinery such as tractors, machineries and others is required,. 1his can
come írom ·arious pro·iders, in the íorm oí term loans, or through asset íinance ,leasing,
rental etc.,. Li·estock production requires another set oí in·estments starting with the
acquisition oí animals, herd management, íeeding according to the íeeding cycles, and the
collection oí animal products such as meat and milk. Ience agricultural production,
depending on the product, requires a sequence oí íinancial commitments which - depending
on the producer`s disposition o·er resources - need to be met by a mix oí short, medium
and long term credits.
Large producers who ha·e acquired new portions oí land also need íinance íor clearing or
reclamation oí land. \hen producers are not able to access the ·arious elements oí that mix
oí íinance, they are not able to expand, access technologies, inno·ate, or e·en bring their
product to the market in time. In such cases, lack oí appropriate íinance and íinancial
products can render agricultural production ineííicient and coníine it to a small-scale. One
can e·en argue that lack oí íinance and appropriate íinancial products is one oí the main
reasons why agriculture in Nigeria as a whole has remained underde·eloped.
Iirst Level Processors: 1hese require long-term íinance íor in·esting in expensi·e
equipment, as well as business expansion. 1heir short-term íinance requirements are íor
working capital - this includes indirect supplier íinancing, whereby processors recei·e
íinance in order to pro·ide ad·ances to primary producers to ensure a reliable supply oí raw
materials. Asset-based íinancing ,on accounts recei·able, in·entories, is an option to meet
working capital needs. 1his requires an understanding on behalí oí the íinance pro·ider that
access to raw materials is crucial íor the processor, and producers cannot íinance
production otherwise. In this case processors are better able to manage the risk oí the
producers than a íinance pro·ider directly. Direct supplier íinancing may also be an option
where an understanding oí long-standing business relationships among producers and
processors reduces the risk íor íinance pro·iders to direct íinance suppliers. Iowe·er it is
highly dependent on the quality and reliability oí relationships in the chain. Long-term
in·estment into industrial premises can be met through commercial property íinance.
Second Level Processors: 1hese processors generally ha·e similar needs as íirst-le·el
processors in terms oí working capital and íixed in·estment. Iowe·er they tend to engage
less in íinancing oí suppliers, and they oíten require more sophisticated and more expensi·e
machinery. 1his generates need íor long-term íinancing, possibly through term loans or
asset íinance, such as íinancial leasing ,series oí payments with use oí machinery o·er
deíined period, ownership passes on íinal,lump-sum payment,, rental ,series oí payments
with use oí machinery o·er deíined period, with option to purchase at end oí period,, or
instalment sales ,series oí small payments in order to gain ownership,. 1he cost oí
maintenance oí machineries and equipment ·aries, and adds to íinancing requirements o·er
the liíe oí the assets, re·ol·ing credit linked to maintenance, and insurance, may be bundled
with long-term credit íor acquiring machineries.
10
Retail and Marketing: Lnterprises in this segment íace íewer constraints in accessing
íinance. 1heir working capital needs are generally lower as turno·er is less cyclical, and they
are closest to markets íor realizing cash írom in·entories. 1heir needs íor íixed assets in
terms oí property and other íixed assets also tend to be lower than processors, and can be
met through commercial property or term loans. \holesalers may ha·e more speciíic needs
in terms oí transport ·ehicles, íor which ·ehicle & asset íinance is appropriate ,including
íleet management íor large retailers,. lor small retailers, working capital still is a constrain.
Small shops oíten need to deíer repayment on short-term credit until they ha·e cleared their
in·entories and realized cash írom transactions, i.e. products ha·e been sold to end
consumers. Access to íinance is least problematic íor exporters, as these oíten interact with
lucrati·e export markets and are the closest to realizing hard currency írom their operations.
1rade íinance in the íorm oí letters oí credit, íoríeiting ,purchasing the recei·ables oí the
exporter,, and bills oí exchange can meet their needs. Managing exchange rate and
con·ertibility risk are oí speciíic concern to exporters, and íinancial ser·ices can be tailored
to meet this need, such as hedging products.
Storage: 1here are íew operators oí storage space and warehouses in the country. As they
usually operate under state programmes they do not require íinance. 1he warehouse
receipts system is a special scheme that allows íinance. \arehouse Receipts are documents
that pro·ide e·idence that speciíied commodities oí stated quantity and quality ha·e been
deposited at a particular location by a named depositor ,e.g. producers, íarmer groups,
traders, exporters, or processors,. 1he issuer oí the receipt holds the stored commodity by
way oí saíe custody. 1he issuer is legally liable ií goods are lost or damaged, e.g. through
theít, íire and incidences. 1he depositor can use the receipt to get a credit írom a íinancial
institution that accepts the receipt as collateral. In case the íinance institution does not
recei·e pay back, it gets access to the deposited goods ·ia means oí the receipt. In case oí
problems at the warehouse, creditors oí the issuer will not be able to access the stored
goods because the legal title remains with the depositor or bona íide holder oí the
warehouse receipt.
1ransport/1rade/Middlemen. 1hese roles are oíten períormed by other actors, e.g.
producers, traders or processors who organize own transport as well as purchase and sales.
1his is usually the case where processors do not need to employ the ser·ices oí traders and
middlemen to procure products. Iowe·er there are cases when specialized operators íulíill
transport and trading íunctions. In cases where transporters and traders are independent,
íinancial resources are required as working capital and íor the purchase oí means oí
transport ,·ehicle & asset íinance,.
1here are also complementary íinancial products and ser·ices, which play an important role in
raising long-term producti·ity and encourage in·estment. Insurance and sa·ings both reduce the
·ulnerability oí producers and small-scale businesses, enabling them to cope with shocks arising
írom illness or unía·ourable weather. Ia·ing sa·ings protects businesses, especially
smallholders, and pro·ides an alternati·e to selling oíí producti·e assets in times oí crisis.
Insurance products allow producers and agribusiness to better optimize in·estment decisions
and protect them írom losses in the íace oí potentially catastrophic e·ents, such as drought or
ílooding ,e.g. is indexed-based weather insurance,.
As is clear írom the abo·e discussion, actors in the ·arious segments oí the ·alue chain ha·e
diííerent capacities to access íinance. Access to íinance depends on the type oí contractual
relationships that actors maintain with buyers and sellers as well as contacts to íormal íinance
institutions and the capacity to pro·ide the required documentation and collaterals íor loans. 1he
incapacity oí certain chain actors to access íinance and credits jeopardizes the de·elopment oí
the entire chain. On the other side, proper access to íinance can help chain actors raise their
share in ·alue added and support marginalized actors to eííecti·ely participate in ·alue chains.
11
2.4 Sources of value chain finance
Sources oí íinance can be íormal íinancial institutions ranging írom commercial banks to
moneylenders and group-based sa·ings organizations. linance can also be obtained írom
iníormal agents in the ·alue chain, e.g. buyers pro·iding ad·anced payment or suppliers
accepting delayed payment. lor example, a ·egetable íarmer may negotiate a íorward contract
with a trader or retailer and ad·anced payment íor íarm inputs by the trader, who is then paid
back aíter the har·est has been sold. Oíten it is the actor with the easiest access to íinance that
pro·ides other parts oí the ·alue chain with íinance.
At times this can be oí beneíit to the ·alue chain, at times it also leads to the accumulation oí
rents in the hands oí the credit gatekeeper jeopardizing the generation oí proíits in other parts oí
the chain.
linancing one part oí the ·alue chain may oíten be ineííecti·e and risky ií it is not assured that
other parts oí the ·alue chain recei·e íinancing as well. 1here are ·arious ways to achie·e this:
1. In the case that a bank only maintain business relationships with one actor, e.g. a large
processor, it would need to assure that the processor, ·ia eííecti·e contractual
arrangements with suppliers and buyers, is able to íinance operations in other segments
oí the ·alue chain. 1his is oíten the case when processors procure primary agricultural
products írom small íarmers who do not ha·e access to íormal credit. 1his is the model
that íor example OLAM has experienced with rice íarmers ,See Box 2,.
2. A creditworthy processor can pro·ide guarantees íor loans that the bank hands out to
suppliers oí the same processor. 1he risk oí deíault is low as long as the processor has a
monopolistic position in the supply market. 1he same arrangements can work where
producers are well-organised into groups or cooperati·es, whereby the group pro·ides
the guarantee on behalí oí its members.
3. Cascade íinancing is an approach where one bank simultaneously íinances suppliers,
producers, and processors which maintain business relationships in the ·alue chain ,see
Box 2.1,. 1his entails a greater degree oí specialization by banks, and can lead to non-
íinancial ser·ices such as research and market analysis, due to the degree oí knowledge
generated írom pro·ision oí íinancial ser·ices to the chain.
Box 2: Rabobank's concept of cascade financing in the flower sector
All actors in a ílower ·alue chain, including bulb suppliers, green house manuíacturers, íertilizer
pro·iders, ílower producers, transporters, traders, wholesalers and retailers maintain a credit line with
Rabobank. 1he bank has accumulated intimate in-house knowledge oí production íactors, equipment
suppliers, and equipment buyers in order to e·aluate the creditworthiness oí businesses. All actors recei·e
their money and deposit it in a Rabobank account, so that the Bank can later debit their accounts íor loan
payments. lurther to the pro·ision oí credit the Bank in·ests in market analysis and technological
íoresight as a ser·ice to render businesses in the ·alue chain more proíitable in the íuture. In eííect,
Rabobank has locked up the íinancing íor the entire chain, and as such is in·ested in its success.
´ovrce: Coov, Cavpiov ava !evver 2010
12
3. Methodology and data collection
3.1 Methodology
1he study used the UNIDO methodology and approach holistic diagnostics oí agro-industrial
·alue chains` ,Iartwich and Kormawa 2009,. In this approach, the initial mapping oí the ·alue
chain is íollowed by a rigorous situation analysis oí ·arious segments oí the ·alue chain with
regard to ,1, primary production and sourcing oí inputs, ,2, processing capacity and technology,
,3, end markets and trade, ,4, go·ernance and linkages, ,5, íinance and ser·ice pro·ision, ,6,
resource producti·ity and en·ironmental períormance, and ,¯, and macro-economic and policy
context ,see 1able 2,. On the basis oí this situational analysis the study identiíied high-potential
opportunities íor in·estment and íinancing in the ·arious segments oí the ·alue chains.
1able 2: Holistic Value Chain Diagnostic Approach
Diagnostic Dimensions Parameters
Mapping 0.1 Product
0.2 Value chain actors and their functions
0.3 Flow of product and end-markets
0.4 Business interactions
0.5 Service provision
0.6 Distribution of value added
Dimension 1: Sourcing of
Inputs and Supplies
1.1 Primary product characteristics
1.2 Characteristics of primary producers and input providers
1.3 Contractual arrangements
1.4 Logistics
1.5 Infrastructure and transport facilities
1.6 Communication
Dimension 2: Production
Capacity and Technology
2.1 Production capacity
2.2 Technology
2.3 Knowledge use
2.4 Innovation
Dimension 3: End-Markets
and Trade
3.1 End-product characteristics
3.2 Consumer demand
3.3 End-buyer perspectives
3.4 Marketing and trade capacities
3.5 Competitors
3.6 Standards
Dimension 4: Value Chain
Governance
4.1 Actor domination
4.2 Participation in value added activities
4.3 Cluster concentration
4.4 Type of governance
Dimension 5: Sustainable
Production and Energy Use
5.1 Use of materials
5.2 Energy use
5.3 Use of water
5.4 Effects on bio-diversity
5.5 Emissions
5.6 Waste management
Dimension 6: Value Chain
Finance
6.1 Financial attractiveness
6.2 Financial risks
6.3 Norms and practices
6.4 Availability of finance
6.5 Financing gaps
Dimension 7: Business
environment and socio-
political conditions
7.1 Business environment
7.2 Product and trade regulations
7.3 Public and private service provision
7.4 Social and cultural context
´ovrce: |^íDO, fortbcovivg
13
In light oí the study objecti·es three key criteria were considered in the data analysis -
de·elopment potential, íinancial needs, and íinancial attracti·eness oí a ·alue chain. 1hese are
discussed in the íollowing paragraphs.
,a, 1he aereíopvevt potevtiaí oí a ·alue chain in general is deíined by the extent it is able to
contribute to ivcrea.ea ivcove, evpío,vevt and porert, reavctiov as well as the fooa .ecvrit, at
bov.eboía íereí. lollowing the abo·e mentioned UNIDO approach, the study collected
primary and secondary data on the speciíic ·alue chains, including the actors engaged,
the le·el oí de·elopment and critical issues ,see Chapter 4,. 1he study also ·eriíied these
results with iníormation on existing priorities oí the go·ernment.
,b, íivavciaí veea. are deíined by the short, medium and long-term íinancing requirements
that exist in the ·arious segments oí a ·alue chain and the sources oí íinance currently
a·ailable to respond to those needs. As with ,a, this iníormation was drawn írom the
situational analysis oí the speciíic ·alue chains drawing írom inter·iews and secondary
iníormation based on desk study. 1he iníormation is presented in íorm oí a table that
depicts íinancial needs in each oí the segments oí the ·alue chain. A rating oí high,
medium or low is applied, which expresses in relati·e terms whether certain segments in
the ·alue chain require more or less íunding ,no threshold ·alue is attached to high,
medium and low,. Likewise the estimation oí risk is relati·e to the other segments in the
chain, depending on the types oí collaterals that actors in the ·arious segments oí the
·alue chain can pro·ide and how risky their businesses may be.
,c, 1he fivavciaí attractireve.. oí a segment or a set oí segments oí a ·alue chain and íirms that
engage in it. linancial attracti·eness depends on the o·erall attracti·eness oí the chain
,market size etc.,, the business attracti·eness oí particular segments and actors. It is
essentially a calculation based on perceptions oí risk ,credit-worthiness oí the potential
recipients, and return ,proíitability oí the loans, interest rate and íees charged,. It is
important to emphasize that percei·ed, rather than actual, risk and return are what aííect
banks` lending and pricing decisions. 1hus, percei·ed íinancial attracti·eness depends on
the degree to which a bank is able to understand and e·aluate businesses in a ·alue chain.
1he tenor oí íinancing is also important, as pro·iding longer term loans requires banks
to ha·e access to long-term íunding, which can be problematic. Also, the reíinancing rate
banks íace íor íunding is aííected by macroeconomic íactors, and do iníluence their
decision to lend at certain rates. Preíerential and low interest loan schemes set up by the
go·ernment or central banks can alter the risk-return calculations íor lenders, and hence
the íinancial attracti·eness oí a chain or segment.
lormally, íinancial attracti·eness is oíten approached ·ia the discounted cash ílow
method measuring returns on in·estments or net-present ·alues. UNIDO`s methodology
and tool ,COMlAR, is able to deri·e such measures íor enterprises or íirms that engage
in diííerent parts oí the ·alue chain, as well as in the agro-industrial sectors. At the end,
the task oí e·aluating íinancial attracti·eness, including appraisal oí loans, is the daily
business oí commercial banks. Adapting or de·ising accurate appraisal methods íor
agricultural ·alue chains may pose challenges to those banks that are less íamiliar with
lending to agricultural businesses.
14
3.2 Study logic
1he logic oí iníormation pro·ided by this study is summarized in the ílow diagram ,ligure 4,.
1he report is generating three types oí outputs: ,1, an analysis oí the de·elopment potential oí
·alue chains, ,2, an analysis oí the íinancial needs in ·alue chains, with regard to particular
segments in the chain and ,3, a rather general set oí recommendations íor íinancial product
design. ,1, and ,2, will be able to contribute to the selection oí ·alue chains íor which íinancial
support should be made a·ailable. ,2, also contributes to knowledge on how ·alue chains
íunction and how they can be supported through íinancing mechanisms. 1his knowledge could
then be used in the design oí creati·e new íunding products to promote ·alue chain
de·elopment and the design oí a íinancing support scheme, such as the NIRSAL.
1hrough the iníormation made a·ailable in this study, policy makers may íind support in making
more balanced and e·idence-based decisions in which ·alue chains to in·est and how to in·est.
It is then up to the policy en·ironment and the banking system to de·elop measures that help to
impro·e the íinancial attracti·eness oí lending to actors in agricultural ·alue chains and to
support banks in the de·elopment oí íinancial products that address the particular needs oí
segments in speciíic chains.
Iigure 4: Study Logic - Contributions to Value Chain Iinance in Nigeria
15
3.3 Data collection
1he iníormation íor this report has been gathered by a team oí íi·e experts írom the Central
Bank oí Nigeria ,CBN,, the Bank oí Industry ,BOI, and the United Nations Industrial
De·elopment Organization ,UNIDO,. 1he team gathered iníormation írom a·ailable literature.
1he list oí consulted literature is gi·en in the Literature Reíerences at the end oí the report.
lurther the team conducted qualiíied personal and phone inter·iews with a range oí
representati·es oí key stake holders in agriculture and agro-industry de·elopment. In particular
the team organized the íollowing:
• A ·isit to the International Institute íor 1ropical Agriculture ,II1A, at Ibadan where it
spent íour days consulting researchers and a·ailable documentation on technological and
market opportunities and constraints in main agricultural ·alue chains. Special emphasis
was put on conditions oí primary agricultural production and micro-processing.
• A meeting with the Manuíacturers Association oí Nigeria ,MAN,. Special emphasis here
was put on discussing the location oí agro-industrial businesses, opportunities and
constraints íor the de·elopment oí agro-industry, access to íunding and requirements in
terms oí íinancial products.
• Inter·iews with selected agribusinesses in key industries such as cassa·a, íeedstuíí, oil
milling, íood processing and bioíuels.
• Inter·iews with selected commodity associations and íarmers groups that ha·e been
participating in schemes that pro·ide access to íinance.
• Inter·iews with de·elopment agencies that promote ·alue chain de·elopment in key
industries including agencies such as DlID, USAID, \orld Bank and the Commercial
Agriculture Project.
• Discussions with members oí the committee that o·ersees the conduct oí this study
,representati·es oí BOI, the Bankers Committee and the Central Bank oí Nigeria, about
the scope and orientation oí the study, preliminary íindings, and the recommendations
that it should be able to pro·ide.
16
4. A Roadmap for Value Chain Finance
1he next step in the analysis is to use the iníormation the study gathered on respecti·e ·alue
chains ,see Annex, to draw conclusions on how ·alue chains can be supported ·ia íinance. 1he
reílections on possible elements oí concerted actions towards ·alue chain de·elopment, ·ia
íinance, are labelled roadmap`.
4.1 Deciding where to invest
1his report does not pre-empt decisions on whether a ·alue chain should be subject to íinancial
and other de·elopment support or not, but it aims at iníorming the process oí making these
decisions. 1wo measures are introduced íor that purpose: the ·alue chains` de·elopment
potential and their íinancial needs.
4.1.1 Development Potential
De·elopment potential has to do with the opportunity to meet de·elopment goals and the
likeliness to achie·e them. Go·ernment de·elopment policies at the íederal le·el ha·e been set
by the National Lconomic Lmpowerment and De·elopment Strategy 2004-200¯ - NLLDS
,National Planning Commission 2004, which is complemented by an equi·alent policy on the
le·el oí the state ,SLLDS, and local go·ernments ,LLLDS,. 1he policy emphasizes, among
others, the creation oí more agricultural and rural employment opportunities, the increase oí
income oí íarmers and rural dwellers and impro·ed food security ,also re·ersing the trend oí
increased import oí íood which stood at 14.5° oí total imports in 2001,.
It aims to achie·e this ·ia a set oí measures including a, the strengthening oí research, extension,
training and capacity building, b, the reorientation oí the agricultural input supply and
distribution system, c, the pro·ision oí physical inírastructure such as íeeder roads, rural water
supply, rural communications etc., d, the setting up oí a multi-commodity marketing promotion
board, e, the pro·ision oí soít agricultural credit and rural íinance through the Nigerian
Agricultural, Cooperati·e and Rural De·elopment Bank ,NACRDB, and í, the íostering oí
eííecti·e linkage with industry to achie·e maximum ·alue addition,processing íor internal
marketing and export, among others.
As NLLDS goes in its second round the go·ernment has also de·eloped a Vision 20:2020 which
en·isages the country to be among the íirst 20 countries worldwide in terms oí industrialization,
democracy, human resources in the next 10 years. \ith regard to agriculture the ·ision
propagates a modern technologically-enabled agricultural sector that íully exploits the vast
agricultural resources oí the country ensures national food security and contributes
signiíicantly to foreign exchange earnings`. 1he three pillars oí the ·ision are: Guaranteeing
the productivity and well-being of the people, optimising the key sources oí economic
growth, and íostering sustainable social and economic development.
On the basis oí these policies the íollowing parameters ha·e been used to describe the
de·elopment potential oí a ·alue chain: Impact on income, employment, po·erty reduction, íood
security and export earnings,import substitution. Certainly there are other de·elopment
priorities such as en·ironmental saíety, sustainable use oí natural resources and attaining gender
balance. Iowe·er, these are not generally applicable to a ·alue chain. lor example, a ·alue chain
is not necessarily en·ironmentally saíer` than another ·alue chain. Rather it depends on how it
is de·eloped ií it becomes en·ironmentally saíe or not. 1he same argument applies to goals such
as sustainable resource use and gender equity.
1he likeliness oí achie·ing de·elopment goals is the second important parameter applied here to
decide on the de·elopment potential oí a ·alue chain. 1his can be approximated through the
potential íor increased product output that depends predominantly on the existing resource
17
endowment and the existing producti·e capacities, knowledge and skills. Again the indicators
reílect the ·ision 20:2020 arguments, in this case on resource exploitation and producti·ity.
\ith an intensi·e analysis oí the iníormation gathered íor each oí the ·alue chains regarding the
abo·e criteria a simple rating exercise was conducted ,see 1able 3,. Scores oí 3 ,high,, 2
,medium, and 1 ,low, were applied. 1hese scores reílect the qualitati·e interpretation oí the
a·ailable iníormation. Iigh` signiíies that the de·elopment potential oí the ·alue chain highly
positi·e aííected, low` means it is only marginally aííected. By combining the a·erages oí both
parameters - de·elopment impact potential as well as potential íor increased output - the íinal
score is calculated.
1able 3: Rating of development potential of agricultural value chains in Nigeria
De·elopment impact potential Potential íor increased
product output
1otal
score
Impact
on
incomes
Impact on
employment
Impact on
po·erty
reduction
Impact
on íood
security
Impact on
export
earnings,
import
substitution
A·erage Resource
endowment
Current
producti·e
capacities,
knowledge
and skills
A·erage
cassa·a 3 3 3 3 3 3 2 2.75
cocoa 2 1 2 0 3 2 1 1.55
cotton 2 3 2 0 3 2 2 2
dairy 1 1 2 3 3 1 1 1.5
íisheries 3 3 2 2 3 2 1 2.05
íruits 2 1 2 2 3 1 1 1.5
maize 2 2 2 2 2 2 2 2
meat,
leather
2 3 2 1 3 2 1 1.85
palm oil 2 2 2 1 3 2 1 1.75
poultry 2 2 3 2 2 2 1 1.85
rice 3 2 2 3 2 2 1 1.95
soybean 3 3 1 1 3 2 1 1.85
tomatoes 2 2 2 2 3 2 1 1.85
´ovrce: 1be avtbor.
It results that the ·alue chains with the highest de·elopment potential include cassa·a, rice,
meat,leather, soy-bean and íisheries.
Cotton, maize, palm oil, poultry and tomatoes also tend to be promising candidates íor ·alue
chain de·elopment.
1he abo·e results are consistent with some oí the studies conducted to support decision making
in agricultural and ·alue chain de·elopment in Nigeria o·er the last years.
• 1he go·ernment, in its aim to implement the NLLDS strategy, identiíied a number oí
priority sectors where it wanted to concentrate in·estments. Priority sectors where the
Go·ernment engaged in the ·igorous implementation oí so called Presidential Initiati·es
include ca..ara, rice, regetabíe oií, .vgar, íire.tocí, tree crop. ava cereaí..
• In 2008 the IlPRI-led Regional Strategic Analysis and Knowledge Support System \est
Aírica ,ReSAKSS-\A, in collaboration with the country`s CADDAP bureau calculated
the contribution oí agricultural subsectors including cereals, root crops, export crops,
li·estock, íishery and íorestry to agricultural GDP growth ,LCO\AS, lederal Republic
18
oí Nigeria and Aírican Union ,no date,,. It íound that cereaí. ava root crop. exhibit the
highest le·els oí contribution to agricultural incomes, each around 30° oí agricultural
growth under the current go·ernment`s strategy. 1he contribution oí the other
subsectors to growth are estimated to be around 12° íor export crops, 8° íor íisheries
and below 5° íor Li·estock and lorestry. lurther it was íound that a 1° increase in per
capita income arising írom cereals and root crops strategy would lead to a 1° and 9°
drop in po·erty respecti·ely.
• IlAD`s Country Strategic Opportunities Programme ,COSOP, íor Nigeria under its
Value Chain De·elopment Support Program has identiíied a number oí commodity
·alue chains that count with comparati·e ad·antages and which are important íor íood
security at both the rural household and national le·els. 1hese include ,a, cereals - maize,
rice, sorghum and millet, ,b, pulses: groundnuts, cowpeas, ,c, oil seeds, oil palm, cotton,
,d, roots and tubers: cassa·a, potatoes and yam, ,e, íruits and ·egetables: onions,
tomatoes, plantain and bananas, ,í, li·estock: poultry and small ruminants, and ,g,
íisheries.
A study initiated by DlID and the \orld Bank ,LML 2008, íocussed on ·alue chains in
an integrated manner including both agricultural and non-agricultural products. 1he
analysis centred on growth poles, meaning the location-speciíic subsectors that
experienced accelerated growth in the past, in íour states oí Nigeria: Lagos, Kano,
Kaduna and Cross Ri·er. 1he íollowing agricultural sectors were considered to count
with the highest potential íor upside ,deíined through potential íor growth, employment
and spillo·ers, as well as íeasibility ,deíined by actual competiti·eness, scope íor policy
reíorm and existing pri·ate sector capabilities,: In Kano: íood processing, meat and
poultry, and leather, in Kaduna: íood processing, meat and poultry and rice and in Cross
Ri·er: cocoa and oil palm. 1he dairy sector in Kano and Kaduna and the rice sector in
Kano were not considered because they do not count with suííicient upside potential and
íeasibility.
Caution may be applied in the blank application oí recommendations írom the abo·e policy
studies. \ith exception oí the DlID,\orld Bank exercise they only íocus on de·elopment
potentials at the le·el oí primary agricultural production not taking into account income and
employment in other segments oí the ·alue chain and the eííects that extended processing and
transíormation would ha·e on primary production.
Careíul interpretation oí the abo·e table is to be applied as other agricultural ·alue chains may
ha·e de·elopment potential as well. L·entually their geographic extension is limited, they do not
reach as many beneíiciaries or they íocus on niche markets.
In any case, de·elopment oí such ·alue chains may still make sense in a local de·elopment
context and in ·iew oí positi·e cost-beneíit ratios. 1he idea here was to íocus, in a íirst step, on
the most ob·ious ·alue chains while e·entually conducting íurther diagnostics íor other ·alue
chains applying the same methodology when additional time and resources are a·ailable.
Most importantly to note is that 1able 3 is only one oí the two pieces oí iníormation to decide
on a ·alue chain. 1he other parameter is íinancial needs.
19
4.1.2 Financial needs
linancial needs in agricultural ·alue chains in Nigeria tend to be high in general. 1his reílects
certain deíiciencies oí the current banking and lending scheme.
1he study makes an eííort, howe·er, to distinguish between íinancial needs in diííerent ·alue
chains. Some ·alue chains may require more short to medium-term íinance, e.g. to enable cereal
production, others may require, in particular, long-term íinance íor equipment.
In the study íinancial needs are deíined as the ratio between the amount oí a·ailable íunding and
the amount oí íunding required íor successíul operation oí the ·alue chain as a whole.
1able 4: Rating of financial needs of agricultural value chains in Nigeria
Input
industry
Primary
production
1
st
Le·el
Processing
2
nd
Le·el
Processing
Retail and
Marketing
1otal
score
cassa·a 2 3 3 2 1
2.2
cocoa 1 2 2 2 1
1.ê
cotton 1 2 2 1 1
1.1
dairy 1 3 3 2 2
2.2
íisheries 1 2 2 3 2
2
íruits 1 2 2 1 1
1.1
maize 1 3 2 2 1
1.8
meat, leather 2 3 2 3 2
2.1
palm oil 1 3 2 2 1
1.8
poultry 3 2 3 3 1
2.1
rice 1 2 2 3 1
1.8
soybean 2 2 2 3 2
2.2
tomatoes 1 3 2 2 1
1.8
´ovrce: 1be avtbor.
1he abo·e 1able 4 is an aggregation oí the existing íinancial needs gathered írom the detailed
discussions oí the ·alue chains in the Annex.
1he data is qualitati·e, 1 indicating low íinancial needs while 3 indicating high íinancial needs. In
some ·alue chains the processing segment requires more íunding, in others it is primary
production or the transportation and collection segment which needs íinance.
1he total scores indicate íinancial needs in each ·alue chain - a higher score reílects a higher
íinancial need.
4.1.3 Towards a Financing strategy
Bringing the two arguments, de·elopment potential and íinancial needs, together allows strategic
assessment on the ·alue chain in which to in·est. In·esting in those ·alue chains with the highest
de·elopment potential would make sense írom a de·elopment perspecti·e. Iowe·er, it is
possible that the ·alue chain does not ha·e high demands in íinance to íurther de·elop.
1hereíore the second dimension íinancial needs` looks into the issue where most íinance is
required. ligure 5 combines the two data sets on de·elopment potential` and íinancial needs`
,the last columns oí 1ables 3 and 4,.
20
Iigure S: Strategic decision matrix for financing of value chains in Nigeria
´ovrce: 1be avtbor.
Various interpretations can be made írom the abo·e íigure. Decision makers in ·alue chain
íinance may certainly be interested in the ·alue chains that ha·e higher de·elopment potential.
Iowe·er, there are ·alue chains which need less íinance ,e.g. tomatoes, maize, or cotton - the
latter has already recei·ed special íinance support,.
Pro·iding modest le·els oí íinance to those sectors may be an eííicient strategy to bring about
de·elopment. Other ·alue chains with high de·elopment potential may require more substantial
amounts oí íunding ,e.g. cassa·a, poultry, soybean, íisheries and rice,. lor those ·alue chains
íinance support should be pro·ided in íorm oí larger scale programmes that reach all actors in
the ·alue chain eííiciently.
ligure 5, howe·er, should not be interpreted in such way that ·alue chains with lower
de·elopment potential and less important íinancial needs should not recei·e any íinance. Rather,
there should be íunding schemes a·ailable that e·ery company and íarm in the agricultural sector
engaging in eííicient businesses can access easily.
21
4.2 Crosscutting Challenges and Opportunities
Comparing the iníormation írom the ·alue chains re·iewed, despite the speciíicities oí each
chain, a number oí common íeatures in and crosscutting challenges íor ·alue chain de·elopment
become apparent. 1hese are discussed below íollowing the structure oí ·alue chain diagnostics
applied in each oí the cases described in the Annex.
4.2.1 Primary Production and Sourcing of Inputs
Agriculture in Nigeria contributes about 33° oí GDP and o·er ¯0° oí employment. 1hese
íigures relate to primary production and do not include other segments oí agricultural ·alue
chains such as agro-processing, transport and trading. lrom 2004 to 200¯ agriculture grew at ¯°
annually and it is targeted to grow in the order oí 10° in the current period.
Iowe·er, the sector continues to íace mayor structural challenges, as it remains dominated by
semi-subsistence íarmers who put little emphasis on commercial íarming. lor example, a·erage
yields in maize, rice and cowpea only reach 3¯°, 19° and 35° oí their potential realized on
model íarms and research stations.
1he predominance oí the semi-subsistence íarming partly goes back to colonial times when the
British propagated the continuation oí traditional Aírican land tenure systems to a·oid problems
with social uphea·als such as caused by economic shocks to plantation agriculture in Last Aírica
,Ijere 19¯4,.
1oday, more than 80 percent oí the total íarm holdings are below 6 hectares. Risk minimization
strategies oí poor íarmers and the íact that many,a big amount oí the products are used íor
home consumption ha·e írustrated many eííorts to introduce more proíit-oriented models.
In consequence íarmers stay with the traditional production system, which pro·ides limited
potential íor income and expansion oí production. Main challenges in primary agricultural
production in Nigeria today include:
• 1he non-aííordability and non-a·ailability oí íarm inputs such as íertilizer, impro·ed
seeds and means oí pest management that render production more proíitable.
• Lack oí mechanization and use oí impro·ed knowledge and technology in production
and post har·est handling. 1he existing programmes to diííuse useíul knowledge and
technology are ineííicient.
• Considerable post-har·est losses oí íarm produce due to poor post-har·est handling and
inadequate agro-processing and rural inírastructure. 20 percent oí grains and o·er 40
percent oí all íruits and ·egetables may be lost this way.
• Inadequate transport and marketing systems with little ·ertical integration in the ·alue
chains and íew price incenti·es and sales opportunities that would trigger extended
production.
• Insuííicient use oí irrigation. Less than one percent oí arable land is irrigated. Scaling up
oí irrigation is particularly important in the critical íood belt areas.
• Lack oí public ser·ices such as road, energy and water supply.
• Policy related challenges. \hile the abolition oí the Nigerian go·ernment-instituted
commodity marketing boards may ha·e had some positi·e eííect with regard to
transparent use oí íunds and better reaction to price signals there is still much support
required till each oí the ·alue chains would reach competiti·eness beyond national
borders.
22
• Lack oí íinance. \ithout money to purchase inputs and labour íarm proíitability cannot
be impro·ed. In íact, the íinance intensity in the smallholder sector is substantially lower
than in the commercial íarming sector ,see also section 4.2.¯,.
All these íactors in combination with rapidly changing demographics ha·e lead to a situation in
which Nigeria is obliged to import substantial amounts oí íood. Nigeria currently imports large
quantities oí grains - 2 million tons oí rice in 200¯-2008 - as well as signiíicant amounts oí
li·estock and li·estock products mostly through unrecorded iníormal border trade. In the oííicial
statistics at lAO ,www.íaostat.org, the imports oí wheat and sugar in the order oí USD 800
Million and USD 400 Million respecti·ely, rank highest.
Commercial and export agriculture plays a limited role in Nigeria. Large íarm holders account íor
about 5 percent oí all íarm holdings. Some commercial agriculture dates back to colonial times
when, despite the British quest to lea·e peasant` agriculture intact, plantation crops such as oil
palm, groundnut and cocoa were propagated íor export. More recently commercial íarming has
sprung up in response to existing market opportunities such as in grain and starch, animal íeed,
poultry, íish, íruit and ·egetables and others and the mere necessity oí agricultural processing
companies to source primary production which otherwise they cannot acquire in suííicient
quantity and quality írom the traditional sector.
Iowe·er most oí the medium to large-scale agricultural enterprise initiati·es do not originate
írom entrepreneurs oí the traditional sectors but reílect the in·estment strategy oí already
established business owners írom other sectors and the urge oí certain processors to assure the
quality and quantity oí primary materials, through ·ertical integration.
Iigure 6: Nigeria's main agricultural exports
´ovrce: í.O´1.1, 2010
Supply and distribution oí seeds is largely propagated by public and de·elopment agencies.
Various NGOs, research institutes and extension ser·ice pro·iders are used to bringing seeds to
the íarmers while pri·ate multiplication and distribution maintains a somewhat less prominent
proíile gi·en the dominance oí the public and de·elopment sector as well as the limited capacity
oí íarmers to recei·e credits and purchase impro·ed seeds. 1he íew pri·ate seed producers
,among those Premier Agro, Alheri Seeds and Oba Super larms, use a chain oí wholesalers and
retailers to reach the íarmers.
23
Chemical íertilizers are mainly imported to Nigeria. 1he establishment oí íertilizer íactories in
Kaduna and Port Iarcourt by the lederal Go·ernment in the 1980s was meant to reduce the
country`s dependence on íertilizer imports but turned out to be a íailure. lurther, nine pri·ately
owned íertilizer-blending plants around the country ha·e either been closed or operate largely
below installed capacities. Main reasons íor the íailure oí the pri·ate íertilizer production and
distribution system include the lack oí íinance and insuííicient capacity to reach small-scale
íarmers. 1he go·ernment procures and distributes, ·ia pri·ate contractors, íertilizers to íarmers
at subsidized prices on an annual basis.
1he aim oí this go·ernment action is oíten political and its eííecti·eness is in many cases
questionable.
1
Notwithstanding the subsidy, íertilizer use has remained largely inadequate and
out oí reach íor small-scale íarmers ,Kormawa et al. 2002,. Some positi·e results ha·e been
achie·ed in the pro·ision oí subsidies through a ·oucher system. Iowe·er, such systems usually
require substantial additional support such as pro·ided in the past through USAID and IlDC. In
any case, small-scale íarmers in Nigeria ha·e continued to harness and apply local organic
manure on their íarms. In some regions, local organic manure, especially íarmland manure, is the
most common íorm oí soil íertilization. Other íorms oí organic íertility impro·ements such as
green manure and compost are uncommon.
Go·ernment programmes íor pest and disease control to support small scale íarmers ha·e
already been established in the 1950s but currently only reach marginal le·els oí operation. 1he
local production oí pesticides and other agrochemicals is carried out by a number oí local
companies using imported inputs. 1he rest is imported directly and distributed by local
distributors and,or international agrochemical companies. As a result, these agrochemicals are
too expensi·e to the small íarmer.
Currently the National Veterinary Research Institute in Jos is the only premier institute íor
animal ·accine production. 1here appears no ·eterinary drug manuíacturing outíit in the
country. 1hus, all drugs are imported. Use oí ·accines and ·eterinary drugs is sporadic among
small herders and animal rearers. Use oí drugs is somewhat more pronounced in the poultry
production industry where many small to large poultry íarms use drugs and additi·es. 1hese
products tend to be more eííecti·ely distributed by the importers than other ·eterinary drugs.
Producers and distributors oí agricultural inputs oíten engage in schemes where they pro·ide
technical assistance to their íarmer clients as well as allow them delayed payment, e.g. till aíter
selling the har·est. \hile branches oí international agrochemical companies may be able to
reíinance these acti·ities through their mother companies, local business and particularly small
input traders and retailers may require access to working capital and short to medium loans that
help to bridge the time until íarming has gone through its seasonal cycle.
4.2.2 Processing Capacity and Technology
\hile agriculture employs ¯0° oí the national workíorce, íormal acti·ities in an agro-industry
,mostly íood, tobacco and be·erages, employ 1° oí the total ,íormal and iníormal, workíorce
while iníormal agro-industry may employ another 3° oí the total workíorce ,PAK Programme
2004,. Industry purchases írom íarmers are likewise low, at less than 10° oí output. Indeed,
many agricultural products are sold in local or export markets with little or no ·alue added
through processing. 1he abo·e pro·ides some e·idence íor the statement that there is a large
untapped opportunity íor local, regional and international markets íor processed agricultural
products írom Nigeria.
1
A study of USAID (2000) revealed the negative impact of government subsidies on the development of
competitive agri-markets. It argues that the procurement and distribution of fertilizer through public sector
agencies was inefficient and ineffective and that the government’s role in the inputs markets essentially limited
private sector participation.
24
Iowe·er, the Nigerian agro-processing sector íaces substantial challenges. lor example, some
domestically processed crops, such as rice and palm oil, are produced at twice the world price.
Post- har·est technology ,storage, processing, and distribution, is in a poor state and the number
oí processed products is ·ery limited. lor example, cassa·a could be widely used in the agri-íood
industry ,bakery, coníectioneries, canned íruits and jams, etc., and industrial raw material ,starch,
chips, adhesi·es, animal íeeds, ethanol and pharmaceuticals,. Rice can be processed into ílour,
crisps, ílakes, puííed rice, rice pudding, laundry starch, cosmetics, rice wine, beer and spirits.
Plantain and banana are also potential sources oí ílour, chips, ílakes, íla·ouring and wine, but
most oí plantain and banana today is merely har·ested and eaten. 1he use oí by-products in
processing e.g. íor energy production or animal íeed ,a way to reduce production costs, íalls íar
short.
In general one needs to distinguish between the artisanal processing sector and the industrial
processing sector, both oí which bear large potentials íor impro·ement:
• 1he artisanal processing sector is characterized through rudimentary or intermediate le·el
household technological practices as well as pri·ately owned small-scale commercial
milling, baking, production and transíormation technologies. linished products írom
these are used in household recipes and oíten do not lea·e the ·illage. Only when
íarmers produce a surplus the product gets sold, though mostly in its raw, unprocessed
status lea·ing little scope íor local processors to grow. Generally, adoption and use oí
impro·ed posthar·est technologies are e·ident but inadequate. 1he interaction oí
research, local knowledge, and extension and de·elopment agencies has led to the
a·ailability oí a large number oí artisanal post-har·est technologies and practices. 1he
extent to which these actually reach íarm households and local processors and become
accepted, adopted and utilized is certainly limited. L·en the initial processing acti·ities
such as drying oí har·ested crops and processing íor indi·idual household consumption
can be time consuming and ineííicient. 1his puts a serious burden on rural households,
especially on women who do most oí the small scale processing. A signiíicant quantity oí
íarmers` har·est rot because oí lack oí storage and processing íacilities, but quite oíten,
íarmers are íorced to sell their crops when prices are lowest because oí a combination oí
problems oí preser·ation, processing and íinancial le·erage.
• Processing oí agricultural products on a larger scale is location speciíic. Depending on
the bulkiness or perishability oí the product certain industries will locate rather close to
the origin oí production ,e.g. oil palm, cassa·a, soybean or milk, or closer to the centre
oí trade, distribution, or export ,e.g. meat, cocoa,. Larger grain and oil mills are íor
example located in Port Iarcourt, Lnugu, Aba, Ibadan, Kano, Kaduna and Lagos, where
íinished end products such as ílour, coníectioneries, milk, be·erage, baby íoods, oils,
poultry and li·estock íeeds are produced. Iowe·er, the industry is largely
underde·eloped, particularly when considering the huge domestic and regional market
potentials. Some oí the main constraints oí agro-processors in Nigeria include:
o Competition írom cheaper products abroad and lack oí competiti·eness
o Unía·ourable cost structures due to inappropriate technology, lack oí know-how
and unskilled workíorce.
o Lack oí constant supply oí primary products oí suííicient quality. Particularly
producers oí staple crops may choose to not deli·er when they see other
opportunities íor local sales and consumption.
o Insuííicient application oí quality standards, in consequence, not meeting the
demands oí consumers and international buyers.
25
o Insuííicient de·elopment oí transport and storage íacilities that a·oid damage,
contamination or perishability oí products.
o Constraints because oí poor road, energy, water supply and telecommunication
inírastructure, go·ernment bureaucracy and lack oí business support ser·ices.
It is important to note that processors do not only require access to íinance íor equipment and
machinery as well as working capital. 1hey also require a certain amount oí íunding that enables
them ad·anced payment to suppliers, a category íor which banks and micro-credit schemes
usually do not ha·e any product on oííer. On the le·el oí small to medium as well as artisanal
processors íunding sources are extremely limited íor all sorts oí loans. Larger processors may
ha·e access to expensi·e working capital loans but long-term íinancing íor equipment is oíten
extremely diííicult to get. linally, any credit product oí Nigerian banks is meeting the
requirements íor ad·anced payment oí suppliers up to a year.
4.2.3 End Markets and Trade
1he current marketing system íor agricultural products in Nigeria is largely de·oid oí any
go·ernment inter·entions. 1he markets íor traditional íood products are characterized by
íluctuations in supply, supply and demand determine product prices. Indi·idual traders carry out
marketing and they operate íreely in both rural and urban markets.
Common marketing channels íor íood commodities include three alternati·es: a, the mo·ement
írom the producer through the rural collector to urban markets, retailer and end consumers, b,
the mo·ement írom the producer to a rural market where transporters carry them to urban
markets and wholesalers who pass the product to retailers and consumers, and c, the mo·ement
írom the producer to larger buyers who directly process or prepare íor export.
Lately a shiít oí local consumer beha·iour with regard to íood can be witnessed. L·en less-well
endowed rural and urban households ha·e become aware oí the high costs oí lengthy
preparation oí raw íoods at home and those who íind less time íor it, íor example due to
spending more time in commercial agriculture, look íor semi-processed íood products and e·en
íast-íood solutions they can just purchase. Instead oí making gari at home a íamily would just
buy gari. Ience the market íor semi-processed íoods products increases.
Maize and sorghum are used increasingly as partial substitutes íor wheat in bakery, biscuit and
pastry industries as well as raw materials in the be·erage and brewing industries. Iousehold
consumption oí these crops has resulted in their limited a·ailability íor industrial use. 1hus some
industries now engage in direct production oí maize and sorghum in order to meet their
requirements.
Product and market de·elopment is only to be de·eloped among Nigerian íood processors.
Packaging is kept low cost and new ideas íor new product design rather come írom outsiders oí
the de·elopment community than írom company itselí.
26
OLAM Farmers
First Bank
Credit
Input Advances
Product Delivery
4.2.4 Chain Governance
Presently there are íew or no íormalized íorward and backward linkages between small-scale
íarmer groups, cooperati·es, or associations with agro-industries. Outgrower schemes and
contract íarming are still largely unknown, with some exceptions where a íew lead íirms ha·e
tried to introduce them. lor example breweries such as Diageo Plc ,Guinness Nigeria, and
International Breweries ,JIB, source sorghum and barley írom íarmers under speciíic contract
arrangements. British American 1obacco runs an outgrowers scheme with tobacco íarmers in
Oyo State. Nestlé Nigeria Plc engages in a strategy oí buying írom Nigeria and selling in
Nigeria` which íoresees contracting with íarmers to source raw materials locally, e.g. cocoa,
sorghum and soybeans. Outgrower schemes are also known in the cotton sector.
Outgrower schemes promote ·ertical integration in ·alue chains. An agro-industry company
commits itselí to purchase the products and usually also supports production through supply oí
íarm inputs, credit, land preparation and the pro·ision oí technical ad·ice. Burdened with debts
and soaring seeds and íertilizer costs, contract íarming oíten appears to be a good solution íor
íarmers. Despite the many beneíits, outgrower schemes are also criticized íor the way they allow
buyers gain power o·er íarming communities while limiting their capacity to produce íood.
\ithout íurther extending this discussion this report takes the position that outgrower schemes
require clear social standards and a go·ernment that monitors and eníorces them.
Other sectors such as cereals, cassa·a, íruits and ·egetables, soybean and oil palm ha·e
experimented with schemes similar to that oí outgrowing. Iowe·er, due to the existence oí an
alternati·e market to which íarmers can sell and the associated high risk íor agro-processors to
pro·ide inputs and credits they ha·e not materialized into a íormal contract. Rather they remain
·erbal commitments that both parties oíten do not comply with. 1here are, howe·er, examples
oí good and best practices as in the case oí OLAM Nigeria Plc in the rice sector ,see Box 3,.
Box 3: Iinancing smallholder rice production ÷ 1he OLAM Nigeria P1C Scheme
In 2004 OLAM bought one oí the many unused rice mills in the country. 1ogether with the USAID-
íunded project MARKL1S` it started a scheme to multiply rice, pro·ide seeds, íertilizer and other íarm
inputs to íarmers to assure the procurement oí high quality rice which they could process in their mills in
order to compete with imported rice.
It got a loan írom list Bank to íinance the purchase oí inputs. 1he scheme started with 250 íarmers 5
years ago and reached around 22.000 íarmers today. OLAM managed the accounts oí íarmers who
recei·ed inputs, íarmers reimbursed when deli·ering the product to the íactory. 1he loan did usually not
exceed 10° oí the product ·alue. Aíter 4 years OLAM íound it too diííicult and risky to manage
accounts íor so many íarmers and switched to a system where íarmers had to pay íor inputs in cash.
\here applied successíully, outgrower schemes can attract íinance írom commercial banks and
open up opportunities íor more creati·e íunding schemes in which íarmers get access to íinance,
through the agro-industry company or directly upon prooí oí stable contractual relationships
with a buyer in the past.
27
\ith regard to the situation oí inputs and supplies to primary agricultural production there
seems to be a bias toward the de·elopment and dissemination oí impro·ed crop ·arieties and
íertilizer subsidies ·ia the state and de·elopment agencies. Knowledge, technology, market
inírastructure and credits that need to go in hand with impro·ed seeds and íertilizer are made
a·ailable less eííecti·ely throughout the country. O·erall primary agricultural production makes
limited purchases írom industry - íertilizer and seeds are estimated to be less than 15° oí
requirements due to lack oí credit to íarmers, and inadequate supply and distribution ,PAK
Programme 2004,.
4.2.5 Resource Productivity and Environmental Performance
Ln·ironmental degradation, perpetrated by oil companies but also by careless land use and
destruction oí natural resources such as íorests, pastures and ecosystems, has eroded Nigeria`s
resource base, notably land and water. 1his situation is íurther compounded by incessant socio-
economic conílicts and resti·eness among young people, which ha·e hampered de·elopment
eííorts and se·erely compromised the careíul use oí natural resources in Nigeria.
lew concrete in·estment opportunities seem to exist in the natural resources sector. Iowe·er,
banks may need to be careíul not to íund agricultural projects which jeopardize the sustainability
oí the interaction in terms oí social, economic and en·ironmental standards.
4.2.6 Macro Economic and Policy Context
Non-1ariíí Barriers that ha·e been introduced by Nigeria in 2002 to protect its agricultural
sector include bans íor the imports oí sorghum, millet and wheat ílour, pasta and biscuits as well
as írozen poultry till the year 2011 at least.
Generally, the lack oí basic inírastructure such as roads, transportations, potable water,
electricity, communication, inhibits eííiciency and agricultural production capacity, impairs the
quality oí rural products and is an enormous strain on the labour íorce. Many oí the rural
communities are ser·ed by dirt tracks, which are impassable during the wet season.
A related problem is the lack oí a reliable and inexpensi·e transport system. \here the transport
system is poor the relati·ely íew traders who can mo·e commodities írom remote ·illages
dominate the market.
Sporadic a·ailability oí electricity írom the grid íorces many businesses to run their own
expensi·e power plants. 1his is also the case íor water supply íor which many agro industries
resort to selí pro·isioning, because public water supply is not a·ailable or not reliable íor
industrial use.
4.2.7 Availability of Finance
A·ailability oí íinance íor agricultural ·alue chains in Nigeria reíers to ·olume - ha·ing an
adequate amount oí íinance a·ailable - as well as to design - ha·ing access to appropriate and
aííordable íinancial and complementary products and ser·ices.
Lííecti·ely increasing the ·olume oí a·ailable íinance requires careíul design oí the products to
meet the íinancial needs oí the ·arious chain actors. Presently, almost all segments oí the
examined ·alue chains ha·e diííiculties in accessing adequate and suííicient íinance íor
in·estment into íixed assets, equipment, technologies etc. and íor working capital.
1his constrains the choices they make in running their businesses, encouraging the adoption oí
risk management strategies, such as adopting lower yield crop ·arieties due to inability to access
inputs, which result in lower producti·ity and impede the de·elopment oí the chain.
Most oí the adult population in the country is unbanked`, with the proportion lowest in rural
areas ,86 percent in rural areas do not ha·e a bank account, ·ersus ¯4 percent o·erall,. 1he size
28
oí the population makes this a ·ery large market íor íinancial ser·ice pro·iders to mo·e into.
Precise estimates oí demand íor agricultural íinance are diííicult to íind, but indications on credit
needs írom NACRDB`s recapitalisation and applications to commercial banks are substantial.
\hilst micro and small enterprises require relati·ely little capital in·estment to start up, as
businesses expand o·er time they attain eííecti·e demand íor loans in range oí N50,000 to
N500,000 depending on the acti·ity, whereas loans sought to co·er working capital requirements
generally range írom N20,000 to N250,000 ,Chemonics, 2004,. Smaller loans are also in demand,
which is somewhat met by subsidized credit programmes, although these are mainly supply-
dri·en.
1he sources oí íinance a·ailable to the chains can be broadly di·ided into the íormal and the
iníormal sectors. lormal sources comprise licensed íinancial institutions such as commercial
banks, de·elopment banks including the Nigeria Agriculture, Co-operati·e, and Rural
De·elopment Bank ,NACRDB,, community banks, microíinance banks ,MlBs,, íinance houses,
cooperati·es and NGOs. Iníormal sources oí íinance, such as íamily and íriends, business
colleagues or partners, clubs,societies, sa·ings and loan associations, and moneylenders pro·ide
the bulk oí external íinancing. Access to íinance, and to a smaller degree cost oí íinance, were
íound to be the second most constraining íactor on businesses in Nigeria aíter electricity. In
eííect most businesses rely on internal íinancing, through retained earnings, to meet their needs,
with the situation most pronounced íor smaller enterprises. Only about 5 percent oí SMLs are
estimated to ha·e access to loans ,see ligure ¯,.
\hile se·eral studies ,lAO,lRN 2004, USAID 2005, LlinA 2010, ha·e íound that a signiíicant
proportion ,approximately one quarter, oí Nigerian businesses and indi·iduals use iníormal
ser·ices to access íinance, reliable iníormation on iníormal ser·ices outside the business
relationships oí ·alue chains is scarce. 1he most predominant íorm oí iníormal íinance are
esusu` associations ,also adashi orajo,, akin to iníormal group lending schemes, whereby
members contribute a íixed amount periodically, and part oí the accumulated íunds are granted
to members in rotation until each has beneíited. Iníormal money lenders, sa·ing and credit
associations, credit unions, cooperati·es, and producer and processors` associations, are other
sources oí iníormal íinance. Moneylenders tend to be ·iewed as highly exploitati·e, as they
charge high to exorbitant rates oí interest, and only oííer short repayment periods ,LíinA 2010,.
1he sa·ing and credit associations operate in more íormalized ways, and may or may not be
registered. 1hey mobilize capital through shares, membership íees, regular contributions and
sa·ings, and some borrow írom íormal íinancial institutions ,íor example the cooperati·e
íinancing agency in Bauchi,. Iowe·er, sa·ings and credit cooperati·es must be registered under
the Cooperati·e Association Act, and smaller credit societies oíten come together to íorm credit
unions.
1he source oí loans, whether írom íormal or iníormal sources, oíten depends on the purpose.
lormal sources are seen as being able to pro·ide large loan amounts and banks are the easiest to
access among the íormal institutions. Iowe·er, 63.5° oí the adult population oí Nigeria is
considered to ne·er ha·e had access to íormal loans írom Bank. ,LlinA 2010,. 1he írequently
cited barriers to getting loans írom banks are high collateral demands, high interest rates charged,
bad experiences oí relati·es,associates who ha·e been pursued íor íailure to repay, and
unía·ourable repayment terms.
1he most írequently cited beneíits oí iníormal íinance sources are their proximity to users, ease
oí access, less cumbersome, more trust in the institutions, and minimal interest charges ,LíinA
2010,. 1he iníormal credit institutions are patronized because oí their response to íarmer`s needs
but loans granted are low and unable to pro·ide íor higher cost in·estments such as processing
machines and storage íacilities.
29
1here are approximately 900 licensed microíinance banks ,MlBs, in the country, although they
are geographically concentrated in urban areas, especially around Lagos, and ha·e limited
rele·ance íor agricultural ·alue chain segments in the rural areas. 1his is especially the case in the
North oí the country, which has the lowest concentration oí MlBs. 1his is compounded by
negati·e perceptions oí MlBs due to unproíessional practices oí some operators. 1he Micro
Credit lund ,MCl, launched in 2008 and the introduction oí a Microíinance De·elopment
lund ,MDl, ha·e yet to make signiíicant impacts. Scarce data on cooperati·es prohibits analysis
oí that system`s outreach but it is generally understood that cooperati·es and credit unions
continue to be capacity and capital constrained, limiting their pro·ision oí íinancial ser·ices.
Iigure 7: Availability of credit to Nigerian business
´ovrce: !oría ßaví 200º
\hile iníormal sources oí íinance are ílexible and íill a gap íor agribusinesses, they also lea·e
them in a more precarious íinancial situation that is not conduci·e to long-term de·elopment oí
the chain. 1he argument íor íocusing on íormal íinance lies in its eííecti·eness to pro·ide a
wider range oí ser·ices at scale and to oííer a pooling oí risks which iníormal íinance cannot.
lormal íinancial institutions ha·e diííerent approaches and target markets íor lending. In
general, larger enterprises are signiíicantly better positioned to a·ail oí íinance írom commercial
banks. 1he constraints in accessing íinance are toughest íor domestic íirms, with exporters and
íoreign íirms ha·ing easier access to íinance ,the latter oíten írom o·erseas sources,.
Similarly small íirms complain more oíten than do medium or large íirms, and are the most
reliant on internal íinancing íor both short-term needs ,see 1able 5, and e·en more so íor long-
30
term needs. 1he ·ery low reliance on bank borrowing ,1 percent, is stark in international
comparisons ,30 percent Brazil, 32 percent India, 1¯ percent South Aírica,.
1able S: Sources of short-term finance in Nigeria, by firm size
´ovrce: íC. ´vrre,, !oría ßaví 200º
lurthermore most short-term credit is obtained íor íinancing imports and is usually secured on
the shipment, pro·iding an extra hurdle íor segments íurther remo·ed írom such markets.
loreign íirms ha·e the highest rate oí use oí o·erdraíts and lines oí credit, íi·e times more than
domestic íirms. It is not clear whether this is because íoreign íirms are more used to resorting to
íormal sector banking íacilities or ií they are appro·ed more oíten. In terms oí industries, a
precise breakdown is not a·ailable íor the ·alue chains examined here, howe·er the ICA sur·ey
oí 2008 íinds that íood manuíacturing has better access to credit írom íormal sources than the
cotton,garments sector ,11 percent ·ersus less than 1 percent íor o·erdraíts, and 5.5 percent
·ersus 1 percent íor lines oí credit,.
O·erdraíts usually also require security, and although they are considered short-term
instruments, they are oíten rolled o·er, resembling medium-term instruments. 1his can make
them popular íor eííecti·ely íinancing capital assets and the pre-íinancing oí agricultural
production oí supplying íarmers. Moreo·er the slow reaction oí the large banks to re·ise base
lending rates makes them attracti·e as source oí credit when rates are rising, but disad·antage
them when rates are íalling.
Supplier credit is a·ailable írom commercial banks, usually to co·er the period between the time
an order is placed and the time an in·oice becomes payable. 1hese also can pro·ide íinancing to
key distributors oí large manuíacturing companies. 1his usually in·ol·es that the bank pays the
manuíacturer as soon as goods are supplied to the distributor, and subsequently recei·es
payment írom the proceeds oí the goods supplied.
Leasing ser·ices are a·ailable írom specialized pro·iders ,e.g. C&I Leasing, and Leasing
Company oí Nigeria,, with operational leases being more common than íinancial. lactoring
ser·ices are pro·ided by a small number oí íinance companies, but the practice is not yet
common and the market lacks depth as oí now. 1his type oí íinance is a·ailable on a selecti·e
basis and in limited quantities, with rates reílecting the borrower`s creditworthiness.
linancial literacy is a problem íor impro·ing access to íinance íor agricultural ·alue chains.
Knowledge oí íinancial ser·ices in general is low in Nigeria, and lowest íor ser·ices that could
work well íor more rural and smaller entrepreneurs such as mobile,branchless banking ,mobile
telephone,, microíinance ser·ices, and risk-mitigation products such as insurance - personal
sa·ings is the most widely used tool to mitigate risk.
31
1he lack oí widespread contractual relationships in some oí the ·alue chains ,e.g. cassa·a, limits
the ability oí commercial banks to proíitably enter lending to such chains. lor these chains,
either stronger,special incenti·es would be required, or other actors drawn upon, such as MlBs
who may be better able to meet the íinancial needs oí small-scale producers and processors.
Commercial banks could then be enticed to target larger scale commercial producers and
processors, to meet in·estment in equipment and working capital needs. Problems in input
markets, íor sourcing oí raw materials, ha·e knock-on eííects on the chain through higher
working capital requirements and longer periods to break-e·en on íixed in·estment due to
operating below capacity.
lixed assets oí smaller, íirst le·el processors ,e.g. cotton, tend to consist oí mo·able property
,·ehicles, equipments, etc., which are less likely to be accepted as collateral by commercial banks.
Iowe·er the increasing emphasis on and reach oí credit bureaux is a íacilitating step in opening
up lending on basis oí ·eriíied credit histories. Second-le·el processing tends to ha·e more
immo·able property which is more acceptable to banks as collateral íor lending.
1here ha·e been ·arious schemes launched to accelerate lending to agricultural ·alue chains and
small and medium enterprises such as the Agricultural Credit Guarantee Scheme lund ,ACGSl,,
the Agricultural Credit Support Scheme ,ACSS,, the Commercial Agriculture Credit Scheme
,CACS,, Small and Medium Sized Lnterprises Credit Guarantee Scheme ,SMLCGS,. \hile a
detailed assessment oí their impacts is not a·ailable, it is clear that a streamlined approach to the
sector has become imperati·e, and with NIRSAL the opportunity exists to build on the lessons
learned írom earlier schemes. 1he main strength oí this approach is the íocus on incenti·ising
pro·iders oí íinance to agricultural ·alue chains, to make the ílows oí íunds and ser·ices to this
sector sustainable. Another key aspect is designing products that íit with the íinancial needs oí
the ·alue chains and their segments to ensure a demand, rather than supply dri·en approach.
32
5. Conclusion and Recommendations
Value chain íinance means linking íinancial institutions to the ·alue chain and oííering íinancial
ser·ices to a set oí actors, allowing them to upgrade their businesses and build sustainable
business relationships in the chain. Value chain íinance has two implications íor íinancial
institutions: ,1, it suggests a re·ision oí the practice oí lending to indi·idual business taking into
account the interrelatedness oí business operations in the chain and ,2, it guides towards new
ways oí securing loans to businesses beyond traditional collaterals making use oí the ílow oí
product. It pro·ides tremendous potential íor unleashing existing production and marketing
opportunities, scaling up oí businesses and impro·ing production and income oí the many
actors that are and potentially can be part oí the ·alue chains. Value chain íinance is rather a new
concept to the íormal banking sector in Nigeria. 1hereíore, any íinancial scheme íostering ·alue
chain de·elopment ·ia the íormal banking sector must take into consideration the need to
intimately understand businesses in the agricultural ·alue chain and the inter-linkages between
them.
5.1 Choosing where to invest
Gi·en the enormous need íor íinance across ·alue chains in Nigeria a decision on which value
chain íinancial support schemes should target is a diííicult task. 1his study suggests that the
decision is best made on the basis oí iníormation that takes into account ,a, the development
potential oí a ·alue chain and ,b, its financial needs. \e ha·e pro·ided the tool to make this
decision. In the end, the type oí íinancial support a ·alue chain and its indi·idual actors will
recei·e depends also on ,c, the financial attractiveness oí the ·alue chain business
opportunities to the íinancing institution, and ,d, the financial products and incenti·e schemes
a·ailable to the íinancing institutions.
5.2 Agricultural value chains and their financial needs
Conclusions oí the study with regard to the situation in the ·alue chains and their íinancial needs
are summarized as íollows:
• 1he potential íor the de·elopment oí agricultural ·alue chains in Nigeria is substantial
and promising. On one side there are suííicient natural resources ,land, water, di·erse
climate, and labour a·ailable íor boosting agribusinesses and incomes. On the other side
there is a large domestic market with promising opportunities íor regional,export market
íor some product categories, which are hea·ily undersupplied írom domestic production.
• 1he ·alue chains examined are characterised by a preponderance oí smallholders, and
relati·ely íew processors who encounter se·ere challenges in the acquisition oí suííicient
quality raw materials, the use oí appropriate and modern technology, and the marketing
oí products gi·en international competition. In many íoods staple sectors there are also
many small processing units that engage in milling, grinding, peeling and other operations
oí primary processing with little potential in ·alue addition.
• Diííerent actors in the chains examined are not well integrated or well coordinated.
1here are some experiences with outgrower schemes and contract íarming. 1hese ha·e
worked well only in ·alue chains with buyer monopolies. 1here are íew lead íirms that
promote impro·ing the operations oí their buyers and suppliers. Other íorms oí ·alue
chain coordination and selí-organization oí actors are rare and limited to the new
initiati·es like the Commercial Agriculture. Some parts oí the ·alue chains recei·e direct
support írom go·ernment, e.g. subsidized íertilizer. Iowe·er, there is ·irtually no
go·ernment support to ·alue chain coordination.
33
• 1here are many de·elopment programmes that support ·alue chain de·elopment and
partly also deal with the issue oí íinance. Iowe·er, the type oí íinance they pro·ide is
not suííicient to co·er needs oí the entire ·alue chain.
• linancial needs are particularly acute íor íarmers who need to buy seeds, íertilizer, other
inputs and bear the costs oí land preparation, cropping, har·esting, transport etc.
larmers can get access to íinance directly through relationships with money lenders and
íinancial institutions and indirectly through input suppliers ,granting delayed payment,
and through buyers ,granting ad·anced payment or in-kind distribution oí inputs,. At
best, íarmers ha·e access to a combination oí those íunding sources but the total amount
oí íinance a·ailable is rarely suííicient to allow íarmers operate their businesses
proíitably. linance is a major bottleneck íor impro·ed íarmer income.
• 1he existing íinancial products are tailored to needs íor equipment and short-term
working capital. Iowe·er they are ill-íitted to pro·ide money to agricultural producers
that need to íinance the entire cycle oí agriculture production which can take up to one
year íor annual crops or more íor perennials and li·estock. larmers - and this is not only
news írom this report - ha·e terrible diííiculties in obtaining credit as they cannot
pro·ide collaterals that satisíy íormal íinancial institutions.
• 1here are many small agribusinesses engaging in the primary processing oí íood staples
and operating on low proíit margins ,like cassa·a, cereals, etc.,. 1hese businesses can be
impro·ed through technological upgrading and organization. 1his requires limited
amounts oí íinance which they oíten íind diííicult to get.
• linancial needs also exist at the le·el oí medium to large agro-processing units who,
despite oíten ha·ing suííicient capacities, need equipment loans to upgrade the
technology and match quality oí competitors on the market. Long-term loans íor
equipment and machinery are diííicult to get írom banks. Agro-processors oíten also
need to pre-íinance agricultural production oí their suppliers, this credit line ,usually íor
one year, is oíten not a·ailable. Some processors ha·e thereíore opted to engage on
their own in primary production requiring substantial íinance íor land preparation, tree
planting, etc.
• Other parts oí the ·alue chain also need íinance but their needs are less acute. lor
example, transporters, traders, and storage pro·iders oíten operate their businesses in
aííiliation to larger buyers or input pro·iders and may recei·e íinance írom them. In
cases where they operate independently, they need íinancing íor working capital and
equipment. 1he same applies to wholesalers and retailers. 1he input industry and the
exporters appear to ha·e better access to íinance, including through international
markets.
5.3 Designing Value Chain Finance Support
1he study also pro·ides the basis íor some general recommendations which should be taken into
account in the design oí any ·alue chain íinance support scheme ,including NIRSAL,.
1. A wide range oí inno·ati·e íinancial products and ser·ices is required to reach chain
actors such as producers, traders, processors, and agri-companies. Some oí these
products include o·erdraíts, íixed asset loans, íactoring and leasing, as well as in·estment
loans, guarantees, insurance etc. 1here are also a number oí íinancial products and
methods that are particularly adapted to ·alue chain íinance such as third party
guarantees, securing loans upon cash ílow records and cascade íinancing. 1he suitability
oí these depends on the type oí ·alue chain and the particular segment in the ·alue chain
to be targeted.
34
2. Lending to actors in agricultural ·alue chains requires a thorough understanding oí the
·alue chain and careíul identiíication oí needs and opportunities on the diííerent le·els
oí the chain. Pro·iding large-scale loans to a íew e·entually promising agro-processing
units will not render quick-wins ií the rest oí the ·alue chain is not recei·ing necessary
support as well. Particularly, positi·e eííects on incomes and po·erty cannot be achie·ed
by looking at processing operations alone.
3. In general, rural areas in Nigeria are characterized by the lack oí íormal íinancial
institutions, particularly commercial banks. 1his negati·ely aííects those segments oí
agricultural ·alue chains that are located in rural areas. Any íinancial scheme íostering
agricultural ·alue chain de·elopment needs to take into consideration how it addresses
the needs oí actors located in rural areas. In case commercial banks are not present
alternati·e institutions must be identiíied, e.g. community banks, rural micro-credit
institutions and others.
4. 1here is a need to build ·ertical linkages in the íinancial sector to pro·ide suííiciently
comprehensi·e íinancial ser·ices to ·alue chains. lor example, pro·ision oí an
in·estment loan to a processing company proposes collaboration with microíinance
institutions to pro·ide input loans to producers. 1he microíinance institutions, agro-
insurance pro·iders and banks need to link up to align their ser·ices in a ·alue chain
context.
5. In the design oí any ·alue chain íinance support scheme one needs to be aware oí the
existing íorms oí íormal and iníormal íinance pro·ision in speciíic ·alue chains. Despite
the íact that íinance to ·alue chain actors is commonly scarce and insuííicient, the
existing íormal and iníormal íinancial mechanisms may complement any additional
support scheme. At times they also can conílict with them when it comes to guarantees
and collaterals.
6. linance is only one condition íor businesses in the ·alue chain to be proíitable.
Complementary conditions relate to existing and potential markets, supplies, technology,
as well as horizontal and ·ertical integration among chain actors, chain go·ernance and
the policy and ser·ice en·ironment. 1hose ha·e to be accurately reílected in any analysis
oí íinancial attracti·eness. lurther, pro·iding íinance alone without adequate technical
assistance and in a commodity chain will not enhance producti·ity and lead to more
proíitable competiti·e businesses. Businesses along the chain need access to business
planning, technological upgrading and market de·elopment and expansion strategies.
1hey also need assistance in the areas oí management, training, íinancial systems, etc.
¯. 1here are many de·elopment programmes that promote the de·elopment oí agricultural
·alue chains in the country. Many oí these programmes ha·e íocused, partly, on íinance
issues and de·eloped some successíul models oí íinance. Banks can collaborate with
these programmes beneíiting írom their knowledge and expertise regarding the situation
in particular ·alue chains. 1his may constitute a íield where quick wins` can be
achie·ed.
8. Most oí the commercial banks are not engaged in agricultural lending, and existing
schemes to encourage them to do so ha·e been less eííecti·e. 1his raises two questions:
whether or not commercial banks ha·e a comparati·e ad·antage o·er other íinancial
institutions ,such as DlIs - NACRDB, BOI,, and which incenti·es would be required
,and at what cost, to entice commercial banks to participate in agricultural ·alue chain
íinancing·
35
Annex: Diagnostics of Value Chains
1his annex pro·ides iníormation on the le·el oí de·elopment and the need íor íinance in 10
selected promising agricultural ·alue chains in Nigeria.
A.1 Cassava
Cassa·a is a major staple crop in Nigeria and consumption cuts across all regions and income
strata. In terms oí production, cassa·a is the second most important agricultural commodity in
Nigeria, aíter yam.
Mapping the chain
Main actors in the chain include pro·iders oí íertilizer, small to medium scale íarmers,
processors, retailers and to limited degree industries that engage in the production oí animal
íeeds, ílour íor baking, brewing and pharmaceutical use, starch production íor industrial use and
glucose production. Processing oí íresh cassa·a to gari and íuíu by small scale processors is the
most important processing acti·ity. 1his sector still absorbs more than 90° oí the total cassa·a
production oí the country.
ligure A.1 pro·ides an o·er·iew on main segments oí the cassa·a ·alue chain. In addition one
may also consider actors in the input industry and diííerent ser·ices such as transport and
trading. Pri·ate ser·ice pro·iders include middlemen, traders and transporters, suppliers oí
processing equipment, suppliers oí packaging materials and, to a limited degree, íinancial ser·ice
pro·iders. Public and de·elopment cooperation support is also pro·ided on behalí oí research
and extension agencies, most oí which íocus on primary production and small-scale processing.
Iigure A.J Map of Cassava Value Chain in Nigeria
Source: Markets ,2009,
Primary Production and Sourcing of Inputs
Cassa·a is a major starch-pro·iding íood staple in Nigeria grown by small-holder íarmers. In
addition to the root, the lea·es oí the cassa·a plant are edible and rich in protein. Cassa·a grows
in poor soils, is drought tolerant and can be intercropped with other crops. 1raditional cassa·a-
based íarming systems are characterized by ·irtually no use oí purchased input such as íertilizers,
herbicides, pesticides and impro·ed seed material.
36
Iowe·er, intensiíication through weeding, use oí íertilizers and agrochemicals as well as the use
oí impro·ed planting materials can increase the yield substantially, up to 25 tons per ha and
more. Cassa·a is ·egetati·ely propagated. Lach plant pro·ides multiple cuttings and schemes oí
rapid multiplication that ha·e been already introduced in ·arious regions oí Nigeria. Iowe·er,
propagation rates are still low in comparison with seed based propagation.
1he production oí cassa·a stagnates at a le·el where it is hardly able to meet the national
demand. Particularly the cassa·a processing industry is not able to procure suííicient primary
products. Limited production is partly due to the lack oí proíitability oí the traditional
production systems. Lack oí proíitability in cassa·a production has been attributed, in parts, to
,i, high labour cost in production ,ii, high cost oí cassa·a har·esting and transport, and ,iii,
unreliable supply and high cost oí utilities ,Olomola, 200¯,.
Suitable knowledge and technology to render cassa·a production among small scale íarmers
more proíitable occurs to be readily a·ailable írom ·arious sources oí research but diííusion and
implementation oí it seems to be hampered by an ineííicient extension system, lack oí íinance
and problems oí íarmer`s accessing buyers and markets ,Presidential Initiati·e on Cassa·a
Reports, 2003,. 1he Presidential Initiati·e on Cassa·a, set up in 1999, constituted a major eííort
to build up the domestic producti·e capacity. 1he initiati·e íocused on pro·iding planting
material and íertilizer to íarmers. Iowe·er, many small-scale íarmers ha·e struggled to beneíit
írom the scheme, e·entually temporal a·ailability oí inputs could not make up íor structural
deíiciencies regarding the access to markets and íinance.
Iowe·er, the sector has experienced the emergence oí large-scale íarming oí cassa·a by
commercial íarmers. Proíitability oí such íarm operations seems to be rather high although the
costs, consisting largely oí depreciation oí íixed assets, non-labour inputs such as seeds, íertilizer
and chemicals, and hired labour, are quite substantial and cannot be borne without additional
íinance. Also the technical and operational capacity required íor such type oí large estate
production is not inherently a·ailable among entrepreneurs traditionally engaged in processing
and sales.
Processing Capacity and Technology
1hough cassa·a can be leít on the íield un-har·ested íor a long time, once har·ested the roots
are susceptible to physiological deterioration. Roots aíter 48 hours ha·e little market ·alue
limiting the range o·er which íresh roots can be marketed. Deterioration can be delayed by
waxing or storage in plastic bags íollowing a íungicidal treatment.
Cassa·a contains up to ¯0° oí water. 1he bulkiness oí íresh cassa·a plus the costs íor loading
and unloading makes it diííicult to transport o·er a longer distance. Cassa·a`s bulk is
substantially reduced when processed. Processing also increases shelí liíe.
Most cassa·a in Nigeria is processed in the so called fre.b ca..ara raíve cbaiv` by iníormal ,oíten
artisanal, small-scale processing units which transíorm íresh cassa·a into products such as gari
and íuíu. 1his sector may account íor more than 90° oí the actual processing capacity. lor
íresh cassa·a processing` the roots must be peeled, chipped, soaked,íermented, dried, and
sometimes grated. lresh cassa·a processing is labour-intensi·e and time consuming ,Sanni et al.
200¯,. Peeling represents the most labour-intensi·e operation, non-mechanized and traditionally
done by women and sometimes children. Storage space íor íresh and processed cassa·a is oíten
scarce and,or not adequate. O·erall there is a strong need íor mechanization in order to reduce
labour costs. 1he absence oí equipment is a major constraint to íurther mechanization oí cassa·a
processing. Some oí the processing equipment needed íor cassa·a processing include peelers,
washers, graters and chippers, extractors, pressers, siíters, dryers, con·eyors, cookers and boilers
,Sanni et al, 2006,. linance íor the purchase oí such equipment is oíten not a·ailable. All these
íactors contribute to the íact that many ,ií not most, cassa·a processing units operate with no or
only marginal proíitability ,Sanni et al. 200¯,.
37
1he so called ar, ca..ara raíve cbaiv` processes cassa·a into ílour and starch and íurther into
industrial products such as íeedstuíí, ílour, starch and glucose. Additional transíormation allows
íor the production oí ethanol which lately is picking up, only limited by the low prices íor íuel in
the country. Usually the industry makes use oí more sophisticated and larger-scale processing
equipment such as distillers, adhesi·e reactors, íermenters, íryers, pelletizers, packaging
machines, as well as grinders and millers ,Sanni et al. 2006,. A number oí industrial cassa·a
processing plants ha·e already been set up, including LKIA which produces glucose syrup and
NSM and MA1NA which produce starch. All oí them operate below their capacities as they
ha·e not been able to achie·e continuous supply oí raw materials. 1he perishability and
bulkiness oí íresh cassa·a requires that these industries be located close to production centres or
in ·illages. Iowe·er, industry still needs to sol·e problems in procurement oí primary products
and relationships with suppliers while also increasing eííiciency through better equipment,
technology and know-how. Omolola ,200¯, íinds that business in starch processing operate with
barely enough re·enues to co·er the costs oí production, let alone costs oí capital remuneration.
Consequently, no proíit is realized. Major constraints to processing are equipment related
íinance, low proíit, road transportation diííiculties, insuííicient supply oí cassa·a roots, high
costs oí production and low demand íor cassa·a products. Due to these reasons, some industrial
processors in Nigeria ha·e already switched o·er to gari processing where demand is high.
End-Markets and Trade
Lnd-products: Cassa·a products in Nigeria are common and di·erse. 1hey include Abacha
,sliced pieces oí cooked cassa·a,, chips, ílour, íuíu ,íermented wet-paste,, Gari ,íermented
granular ílour,, pellets, starch and tapioca ,gelatinized dried cassa·a starch, ,Lzedinma et al.
200¯, Philip et al. 2005,. Products that go through íurther transíormation, usually on the basis oí
starch or pellets, include glues and adhesi·es, bread extenders, thickening and bodying agents in
íood processing, laundry starch, alcohol, paper sizing and bonding, as well as textile sizing and
strengthening. Root peel, pellets, tapioca and broken roots are also used as íeedstuíí íor
li·estock. lurther high quality cassa·a ílour ,IQCl, can be used up to10 percent and more as a
substitute íor wheat ílour in bread and other wheat based products.
Lnd-markets: Great imbalances continue to exist between the demand and supply oí cassa·a in
Nigeria. 1he demand íor products írom cassa·a processing largely exceeds the supply. 1he
absence oí appropriate market links and outlets íor cassa·a products is a particular constraint to
íurther de·elopment oí the ·alue chain. \hile industrial demand íor cassa·a-based products is
still low and does not pro·ide enough incenti·es íor increases in cassa·a production the bulk oí
the product is sold to small traders or directly to local households. Communities that thri·e in
cassa·a production and processing are usually located close to market places where they can
eííiciently sell cassa·a products. Certain roadside markets ha·e already strongly de·eloped as
they are close to consumer markets. Product marketing with the exception oí a íew larger scale
industries is poor and limited to traditional marketing channels. Ií íarmers and small scale
processors could be capacitated to eííiciently and eííecti·ely chip, grind, and dry cassa·a they
could increase the ·alue oí their products which in turn could be easier marketed to bulk
purchasers, traders and commercial buyers.
Competitors: 1he international demand íor starch products is substantial and world market
prices are currently high. Iowe·er, the lack oí primary products, comparati·ely high production
and processing costs and the poor marketing practices ha·e depri·ed Nigeria to engage in
international trade oí cassa·a products.
Quality and standards: lresh cassa·a contains cyanogenic glycosides. Ií cassa·a is inadequately
processed this creates a potential health hazard. Lííecti·e processing, essentially in·ol·ing root
disintegration and remo·al oí the cyanogenic compounds with water, ensures the saíety oí
products. Proper handling oí íresh cassa·a already during the storage and transport, peeling and
íurther processing is critical íor generating products that can be used in íurther transíormation
38
and more sophisticated end-markets. 1he cassa·a sector is characterized to a large extent by a
lack oí grades and standards. Small-scale processing units íind it diííicult to produce
homogenous products and temporal hazards in processing, at times, jeopardize the quality oí
products.
Chain Governance and Linkages
Lead íirms: 1here are no lead íirms which source major percentages oí the primary or semi-
processed products. Processors are unable to exceed product quality gi·en the limited supply oí
products and the lack oí accepted standards across the producer and processor community.
Coordination mechanisms: O·erall the coordination among actors in the ·alue chain is poor.
1here are no outgrower and contract production schemes and the lack oí primary products
makes it diííicult íor buyers to make suppliers comply with quality criteria. Also there are no
standards that are suííiciently accepted by producers and small processors. 1he setting up oí
larger commercial íarms which also handle processing opens up the possibility to de·elop
customized outgrower support programmes between commercial íarms and industrial buyers.
1ype oí go·ernance: 1he sector is mainly characterized by a polypolistic market structure where
a large number oí producers and processors pro·ide products to a large number oí consumers
making use oí many transporters and traders. 1here is no leadership that ensures a better
organization and integration oí the ·alue chain in a way that contractual arrangements between
buyers and suppliers are transparent enabling íair and transparent deli·ery and payment and
pro·iding incenti·es to more production oí higher quality products.
Resource Productivity and Environmental Performance
1raditional cassa·a processing is an acti·ity, which due to contamination, odour and noise, is
banned írom urban areas by law. 1he process uses a substantial amount oí water and energy
which also contributes to its high costs. Cassa·a peel is usually used as animal íeeds but water is
usually contaminated with cyanogenic substances. A number oí alternati·e energy and water
sa·ing technologies is a·ailable but due to the lack oí standards oí cleaner production and higher
costs usually do not get into use.
Macro Economic and Policy Context
Central and state go·ernments try to iníluence the cassa·a sector mostly through the pro·ision
oí subsidized íertilizer. 1here is no limit to the export oí cassa·a. Iowe·er the domestic market
absorbs almost all products. In relation to producers oí cassa·a-based íeedstuíí írom Asia, the
Nigerian cassa·a sector still lacks competiti·eness. Some eííorts ha·e been made to ·enture into
the export oí cassa·a products to the Luropean Community ,LU, with mixed success, the major
limitation being a íixed 145,000 tons per annum quota granted íor ACP countries by the LU.
Availability of Finance
linancial attracti·eness: Gi·en the limited proíitability oí processing businesses, their íinancial
attracti·eness is generally low. linancial attracti·eness is also limited due to the limited scale oí
the predominant small-scale processing and the inadequate liability status oí the communities,
íarmers groups and indi·iduals engaged in processing. Some agro-industrial processing plants are
the exception but also here there are constraints due to lack oí supplies and unsecured marketing
opportunities that many oí the plants íace. 1he íinancial attracti·eness oí production seems to
be somewhat better, ií adequate use oí knowledge and technology is gi·en. Iowe·er, also here
in·estors in commercial cassa·a íarming are the exception. linance íor working capital and the
purchase oí small processing equipment íor íarmer groups, cooperati·es and indi·idual íarmers,
be it by registered associations, cooperati·es, NGOs, in·estor groups or indi·iduals, is ·irtually
inexistent.
39
Capital intensity: Processing oí cassa·a requires a number oí equipment such as peelers, washers,
graters and chippers, extractors, pressers, siíters, dryers, con·eyors, cookers and boilers all oí
which require access to íinance. 1he mobility oí such equipment does not allow to use it as
collateral in which case other means oí securing loans must be íound. Lquipment and
machinery íor larger processing plants are substantial and gi·en their stationary character are
more suitable íor securing loans. Iowe·er, banks always require additional guarantees and
collaterals.
Lxisting íormal and iníormal íinance schemes: 1here are a number oí micro-credit schemes that
allow íarmers and small processors to co·er parts oí their íinancial needs. 1hese schemes,
howe·er, are only a·ailable in certain regions where such schemes operate, usually with support
oí the international de·elopment cooperation. 1hey are by no means suííicient to co·er the
needs oí the entire sector. Gi·en the absence oí íormal íinancing írom banks and other
institutions, íinance through buyers remains the only alternati·e source oí íunding. Iowe·er,
due to the iníormality oí business transactions in the chain the option is hardly explored. Most
buyers are suííering írom lack oí íinance themsel·es and lending to suppliers is considered
mostly too risky.
Some larger processing plants also ha·e access to íinancing schemes that are based on the
deli·ery oí íinal products to buyers. Such schemes pro·ide access to íinance upon the a·ailability
oí íinal products that are ready to be deli·ered to buyers. Accordingly, larger buyers can access
credits upon the receipt oí products which ser·e as a collateral till they get sold to end-buyers.
1here is no record oí an integrated íinance scheme in the cassa·a ·alue chain in which a
simultaneous pro·ision oí íinance to ·arious interrelated actors in the ·alue chain is realized.
Finance requirements
1he abo·e analysis has enabled a nuanced identiíication oí íinancial requirements in the ·arious
segments oí the ·alue chain ,see 1able 4.1,
1able A.J Iunding requirements in the cassava value chain
I
n
p
u
t
i
n
d
u
s
t
r
y
S
m
a
l
l
s
c
a
l
e
f
a
r
m
i
n
g
C
o
m
m
e
r
c
i
a
l
F
a
r
m
i
n
g
T
r
a
d
i
n
g
&
T
r
a
n
s
p
o
r
t
F
r
e
s
h
c
a
s
s
a
v
a
p
r
o
c
e
s
s
i
n
g
D
r
y
c
a
s
s
a
v
a
p
r
o
c
e
s
s
i
n
g
E
t
h
a
n
o
l
p
r
o
d
u
c
t
i
o
n
F
o
o
d
P
r
o
c
e
s
s
i
n
g
W
h
o
l
e
s
a
l
e
/
R
e
t
a
i
l
E
x
p
o
r
t
Need/
purpose
Working
capital
(planting
material
producers)
Working
capital
(inputs,
labour,
transport)
Working
capital,
fixed
assets
Working
capital,
vehicle
Working
capital,
equip-
ment
(short-
medium
term)
Working
capital
(processing
& supplier
credit),
equipment
Working
capital,
equip-
ment
Working
capital,
equip-
ment
Working
capital
Fixed
assets
(storage,
vehicle)
Working
capital
(pre- and
post-
shipment)
Volume
needed
low high high low
(through
process-
ors)
high medium high high low medium
Risks high medium medium high low low medium low low
Interest low low medium low medium high high high high
40
A.2 Cotton
In Nigeria, cotton is grown in the northern and central regions oí the country as a cash crop.
1he íibre most oíten is spun into yarn or thread and used to make a soít, breathable textile,
which is the most widely used natural-íibre cloth in clothing today. Nigeria is one oí the leading
cotton producing countries in \est Aírica.
Mapping the chain
1he ·alue chain in cotton includes cotton growing, cotton ginning, yarn spinning, íabric
wea·ing, íabric íinishing ,dyeing and printing, and garmenting ,A.2,. 1he actors in the chain are
mainly suppliers oí inputs ,seeds, agrochemicals and íertilizers,, small to large-scale íarmers,
buying agents, and small and large-scale processors. 1he cotton industry sector is dominated by
ginneries , textile mills which absorb 100° oí the cotton production in the country. Currently
there is no organized garment industry in Nigeria and raw textiles are exported.
Iigure A.2: Map of Generic Cotton Value Chain
´ovrce: Paríe., vo aate
Primary Production and Sourcing of Inputs
Cotton production declined írom an output oí 220,000 tons in the 19¯0s to 28,000 tons in the
1980s. Certain adjustments and price liberalization introduced in 1986 were able to re·i·e the
production to ¯0,000 tons by 1996. Misbahu ,2010, reports that Nigeria has abundant arable
land under cotton culti·ation with potential to employ two million people within related
acti·ities oí planting, weeding, har·esting and transportation. It is estimated that about 650,000
hectares oí suitable land is a·ailable íor cotton íarming in Nigeria. Iowe·er, currently only a
third oí the potential land is exploited to produce some 300,000 tons oí seed cotton by an
estimated 250,000 mostly smallholder íarmers.
In Nigeria, there are two major cotton zones, namely the North and the South with diííusion
into the Central part oí the country. 1he Northern cotton zone comprises Katsina, Kaduna,
Zamíara, Kano, Jigawa, Bauchi, Gombe, Plateau, \obe, Borno, 1araba and Adamawa states
while the Southern cotton zone comprises Kwara, Ogun, Ondo and Oyo States. 1he central
zone is represented by Niger and 1araba states.
41
About 80° oí cotton íarmers are small scale holders with an a·erage land holding oí 2 hectares.
lew large-scale íarmers exist with about 15.2 hectares holding capacity while crop har·esting is
seldom mechanized with large íarmers employing the traditional hand picking method three
times a year. 1he area under cotton production has remained stagnant at 400,000 hectares
between 2003 and 2008. Similarly, Nigeria has the lowest yield per hectare not only in the world,
also substantially lower than ·is-a-·is neighbouring lrancophone countries. 1he yield declined
írom 250 kg,ha in 2003 to 230 kg,ha in contrast to global impro·ement in yield írom 618 kg,ha
to ¯18 kg,ha ,UNIDO, 2009,.
Iand-picked cotton is oí high grade and achie·es a better price than the machine har·est
,RMRDC, 2004,. Cotton in Nigeria is largely handpicked with a minimum oí mechanical means.
It is highly labour intensi·e, engaging mostly women and sometimes children. 1he absence oí
equipment is a major constraint. 1he bulkiness oí cotton plus the costs íor loading and oíí-
loading makes it diííicult to transport o·er a long distance.
Limited production oí cotton is partly due to lack oí proíitability in the traditional production
systems arising írom high cost oí labour, har·esting and transportation. Generally, íarmers
accord higher priority to íood crops than cotton and thereíore reduce the area culti·ated in
reaction to high íood prices, low cotton prices and other market dynamics. Lack oí aííordable
íinance at critical times results in delay oí input supply and also aííects production. Other íactors
are unreliable supply and high costs oí seeds, íertilizer, chemicals, equipment hiring, crop le·ies,
etc. Small scale íarmers íind it diííicult to procure impro·ed seed ·arieties, appropriate packing
materials and storage due to lack oí íinance, thereby jeopardizing the quality oí products. 1he
sector also suííers írom constraints in weight and measurements, quality standards, appropriate
packaging materials ,polypropylene, and storage íacilities, contamination, equipment,
uncontrolled practices oí íarmers, absence oí institutional arrangement íor commodity grading,
etc. 1he International 1extile Manuíacturers lederation reports Nigerian lint to be some oí the
most contaminated in the world, along with national origins írom Nigeria, 1urkey, India,
1ajikistan, Pakistan and Uganda. Production is still largely unstandardised and this impacts
negati·ely on producti·ity and íibre quality.
Processing Capacity and Technology
Most oí the cotton produced is processed by ginneries located in the cotton production zones in
the country. Only an insigniíicant quantity is ginned iníormally by traditional methods. A decade
ago, there were around 50 ginneries in Nigeria. Iowe·er, due to reduction in cotton production
and obsolete equipment, the number oí acti·e ginneries in Nigeria during the 2008,2009 season
reduced to 15 oí which 13 are currently reported to be acti·e, 11 in the North \est and 2 in the
North Last. 1he national a·erage output has been maintained between 150,000 tons and 300,000
tons. Iowe·er, the cotton ginning capacity oí Nigeria is 650,000 tons ,Misbahu 2010,.
Cotton is processed into lint and by-products as cotton seed. 1he cotton lint is íurther
transíormed into yarn and íabric ,grey íabrics, bleached íabrics, dyed and knitted íabrics, íor
garment industry. In addition, the cotton seeds are transíormed into edible oil and animal íeeds.
Nigeria has o·er íorty textile íactories established since 1960s with large-scale ,mostly integrated,
processing equipment íor spinning, wea·ing, dyeing and íinishing across the country. Similarly,
there are small-scale and large edible oil and íeed mills established at locations close to the
ginneries. Iowe·er, most oí those industries ha·e been run down to an extent that they are not
operational or operate on a capacity utilisation oí less than 30°. Alternati·e íibres such as
polyester chips were initially imported and con·erted to íibre in Nigeria. Currently, howe·er, all
the companies that con·ert chips to íibre ha·e closed down. 1his means that the íibre and
cotton yarn as well as synthetic yarn ha·e to be imported.
1he Nigerian textile industry was once the largest employer oí labour aíter the lederal
Go·ernment. 1he growth and expansion oí the textile mills contributed numerous employment
42
opportunities in the sector, adding to successíul cotton production which opened up seasonal
jobs and cash ílow to the rural íarmers. It employed o·er 300,000 workers in the mid 1980s.
1his employment le·el has howe·er dropped steadily thereaíter such that with the closure oí 25
,out oí 50, textile mills since 2002. In 2003, 5¯,000 workers remained employed in the industry
and the local textile industry now shares just 2¯° oí the home clothing market ,UNIDO 2009,.
1he capacity utilization íell to a dismal 25° in 2010. L·en the existing capacities now operate at
a skeletal le·el and many more are on the brink oí closure. Critical challenges includes ,i, inílux
oí counteríeit and smuggled textiles mainly írom China, ,ii, scarcity and high cost oí LPlO
,black oil,, ,iii, escalating cost oí gas, ,i·, expensi·e alternati·e source oí energy, ,·, costly and
poorly distributed power supply, ,·i, limited market access íor the Nigerian íabrics, ,·ii, high
cost oí water, steam and labour, ,·iii, and lack oí aííordable credit line. In sum, at the processing
stage, o·erhead costs, licensing and energy are the major high íinancial costs components in
processing. In ·iew oí these constraints, the lederal Go·ernment has released the sum oí N100
billion at a single digit interest íor the re·i·al oí the textile sector which is currently being
managed by the Bank oí Industry.
Garment industry is yet to be established in Nigeria. Iowe·er, a íew companies, associated with
the Nigeria 1extile Manuíacturing Association ,N1MA,, are engaged in knitting, processing and
garmenting. 1his includes Cotsyn ,Sunílag group,, lemro group 3 Nig. Ltd, \est Aírican
1hread Co. Ltd, Adhama 1extile & Garment Ind. Ltd, Rosies 1extile Mills Ltd. 1here are also
other companies that are in·ol·ed in cut, make and trim ,CM1, operations such as Sam and
Sara, Ruíí n 1umble, Viratex. Other groups are in·ol·ed in íashion designing and tailoring oí
outíits which cater to the populace on made to measure basis.
1he constraints coníronting the garmenting segment include illegal importation oí garments as
well as second hand clothing, the strong culture oí the populace which makes them preíer
traditional dressing habits, degradation oí inírastructure which has contributed to a high cost oí
production, and existing delays in processing export incenti·es. Opportunities in garmenting are
growing urbanization which is iníluencing the dressing habits, increasing demand due to
expansion oí schools and íactory acti·ities which call íor more school wear and work wear
respecti·ely, expansion oí the hospitality industry which demands íor more made up articles
such as towels, bed sheets, pillow cases, mattresses ticking, etc, and the possibility oí exporting
through the AGOA íramework.
End-Markets and Trade
1he deregulation oí the cotton sector in 1986 ,through the abolition oí commodity marketing
board, sought to remo·e all íorms oí barriers to participation in the market and to
establish,create a state oí eííecti·e competition in the market with the Go·ernment still dictating
prices on a regional basis. As a result, the northern cotton market witnessed the rise oí a
signiíicant number oí indi·idual buyers and sellers gi·en the new íreedom oí entry and absence
oí persistent price discrimination. Price íixing was decentralized and ·aried írom one buying
point to another. Marketing margins were substanti·e and ·aried írom one channel to another
re·ealing imperíection in the pricing system. Similarly, ílaws were also noticed with regard to
uníair practices, íraud against sellers and buyers, pre-emption and undesirable bi- and multilateral
agreements. All this contributed to the íact that the cotton market still does not eííecti·ely and
transparently pro·ide price signals bringing together demand with supply ,Onu et al. 2008,.
About 33° oí the worldwide cotton production is traded internationally. 1he dominant
exporters are US, Uzbekistan, lrancophone Aírica and Australia which account íor two-thirds oí
world exports. In Aírica, production and export ha·e maintained an upward trend. Iowe·er,
due to low le·els oí de·elopment oí the textile industry especially in \est Aírica and Nigeria in
particular, the international demand has been ·ery low.
43
1he consumption pattern is usually determined by the size oí the textile industries oí the
dominant cotton consumers. China, a leading textile producer, absorbed more than ' oí the
global cotton output. Since 1989, Nigerian cotton is exported in the international market but
declined due to se·eral constraints in the industry. In spite oí this, there is still an increased
demand írom cotton consuming nations such as China, India and 1urkey. Prices oí cotton in the
international market ha·e been unstable but tend to be on the rise. Nigeria has also been
in·ol·ed in cotton seed import as production íaced more se·ere constraints while export has
been on the decline.
Chain Governance and Linkages
Great imbalances continue to exist between the demand and supply oí cotton in Nigeria.
Demand íor products írom cotton processors largely exceeds the supply. Ginneries ser·e as the
main market links and outlets íor cotton. 1his is supported by a chain oí indi·iduals and
ginneries as buyers and sellers,producers. 1he majority oí the buyers and sellers are below the
age oí 50 and ha·e little education.
\hile industrial demand íor cotton products is still ·ery high, this does not signiíicantly
contribute to higher cotton production as íarmers preíer to produce íood crops which are easy
to sell on local markets. Communities that are in cotton production are usually located close to
the market places where they can eííiciently sell to buyers because oí storage and transport
logistics constraints. A·ailability oí aííordable íinance to íarmers, commercial buyers and
ginneries is a serious constraint to enhanced demand and supply acti·ity in the ·alue chain.
1here is no lead íirm in the sector but a network oí ginneries and indi·idual buyers. 1here is no
leadership that promotes a better organization and integration oí the ·alue chain.
Processors, represented by ginneries compete with indi·idual buyers to source íor primary
products while secondary products are sourced within and amongst the processors. \ith the
abolition oí commodity market there no coordination amongst the producers.
Some buyers and processors ha·e de·eloped iníormal outgrower schemes pro·iding credit to
íarmers to purchase inputs in exchange íor their products aíter har·est. It is diííicult íor buyers
to make suppliers comply with quality criteria since there is no íormal contract. Also there are no
standards that are suííiciently accepted by producers and ginneries.
Resource Productivity and Environmental Performance
Cotton production has íew negati·e impacts on the en·ironment which relate to the use oí agro-
chemicals. Iowe·er, cotton processing is an acti·ity that in·ol·es dry and wet processes where
hazardous chemicals are sometimes used. In the wet processes substantial amounts oí water and
energy are used which contributes to costs. A number oí alternati·e energy, water sa·ing and
pollution-íree technologies are a·ailable but the lack oí standards oí cleaner production and
higher costs usually do not allow íor adoption.
Macro Economic and Policy Context
In 2004, the Nigerian go·ernment introduced an export subsidy to promote non-oil exports. 1he
subsidy also hat unintended eííects on other parts oí the ·alue chain. As cotton growers were
exporting cotton on an accelerated basis to take ad·antage oí the export incenti·e, the Nigerian
textile industry experienced a signiíicant shortage oí raw material which íorced them to import
higher-priced cotton, thereby signiíicantly increasing their production costs. Iowe·er, the
distortionary eííect oí the export subsidy on diííerent segments oí the textile chain was among
the key issues that aííected the sector`s sur·i·al ,lIAS 200¯,.
In Nigeria and \est Aírica in general many countries ha·e ·entured into the export oí cotton
products to the lar Last and the US under the American Growth and Opportunity Acct
44
,AGOA, with mixed success. 1he major limitation to this export market is the ability to meet
export requirements.
Availability of Finance
1he attracti·eness oí íinancial support in the ·alue chain is pronounced at the processing
segment compared to primary production le·el. Iowe·er, the apparent constraints are lack oí
supplies, land preparation, har·esting logistics and post har·est logistics. 1hus, with adequate
íinance, knowledge and logistics to the íarmer, the production le·el would be increased.
Iowe·er, in·estors ,·ery íew, in commercial cotton íarming do not necessarily íace this type oí
constraint due to their scale. lurther, there is a lack oí íinance íor working capital and the
purchase oí small utility equipment íor íarmer groups, cooperati·es and indi·idual íarmers.
1he small scale íarmer does not engage in the processing oí cotton due to the cost and
sophistication oí the machinery and the technology in·ol·ed. Most oí the equipment required is
tractors, sprayers, transport ·ehicles, har·esters, packaging materials, storage, etc. all oí which
require access to íinance. 1he mobility oí such equipment does not allow íor using it as collateral
in which case other means oí securing loans must be íound. Secondary products require larger
processing plants which are substantial and gi·en their stationary character are more suitable íor
securing loans. Iowe·er, banks would always require guarantees and collaterals.
In general, there are a number oí micro-credit schemes that allow íarmers to co·er part oí their
íinancial needs. 1hese schemes, howe·er, are only a·ailable in certain regions, usually with
support oí the international de·elopment cooperation. 1hey are by no means suííicient to co·er
the needs oí the entire sector. Gi·en the absence oí íormal íinancing írom banks and other
institutions, sourcing íinance through buyers remain the only alternati·e source oí íunding.
Iowe·er, due to the iníormality oí business transactions in the chain the option is hardly
explored. Buyers are also suííering írom lack oí íinance.
Some larger processing plants also ha·e access to íinancing schemes that are based on the
deli·ery oí íinal products to buyers. Such schemes pro·ide access to íinance upon the a·ailability
oí íinal products that are ready to be deli·ered to buyers. Accordingly, larger buyers can access
credits upon the receipt oí products that ser·e as collateral till they get sold to end-buyers.
Finance requirements
1he abo·e analysis was meant to enable a nuanced identiíication oí íinancial requirements in the
·arious segments oí the ·alue chain ,see 1able 4.2,
45
1able A.2 Iunding requirements in the cotton value chain
I
n
p
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t
i
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s
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F
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g
,
t
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a
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P
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y
P
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(
C
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)
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)
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x
p
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t
Need/
purpose
Working
capital
(inputs,
labour,
transport)
Working
capital,
fixed
assets
Working
capital,
vehicles
Working
capital,
equipment
(short-
medium
term)
Working
capital,
equipment
(medium-
long term)
Working
capital,
equipment
(short-
medium
term)
Working
capital,
equipme
nt
(medium
-long
term)
Working
capital
(pre- and
post-
shipment)
Volume
needed
none high high low
(through
processor
s)
high high high high medium
Risks high medium medium high high high high low
Interest low low medium low medium low high high
46
A.3 Fisheries
Mapping the chain
In Nigeria most íish are har·ested by artisanal íishers in small amounts using basic technologies
such as dugout or plank canoes and ·arious nets. 1he íish mongers,processors represent the
íirst segment oí the íish market chain buying íresh íish directly írom íishers as the latter land the
íish at the shores in boats or canoes. 1he íish could be sold íresh thereaíter, or processed by
smoking or sun-drying. Reírigeration is ·ery rarely used due to lack oí electricity in the íishing
·illages.
Processed íish is usually sold in bulk to wholesalers. lishers rarely break allegiance to a íish
monger to whom there is oíten a close aííiliation - especially ií the monger had pro·ided soít
loan,credit - e·en ií the íisher would get higher prices elsewhere.
lish wholesalers íorm a particularly important link írom the northern regions where they are
in·ol·ed in weekly transportation oí processed and smoked íish to distant southern Nigerian
markets oí Lagos, Onitsha, Lnugu and Ibadan. 1hese markets recei·e o·er ¯0° oí the íish
products írom the northern region ,lAO 2002,.
Iigure A.3: Map of fisheries Value Chain
´ovrce: 1be avtbor.
1he íish retail marketers represent the íar end oí the íish marketing chain. 1his acti·ity is ·ery
important íor li·elihoods in southern Nigeria where demand íor smoked,dried íreshwater íish is
high. 1he retail íish market is almost exclusi·ely the acti·ity oí women, except íor the northern
region where men acti·ely participate. Retail sales are usually dominated by locals oí the area
where the íish markets are situated. Access to retail íish marketing is not restricted, but
entrepreneurs must belong to any oí the existing local iníormal associations ,unions, set up to
protect their interest and to íacilitate their dealing with the wholesalers.
47
Some íresh products are sold directly to hotels and restaurants. 1hey are supplied by íish
·endors, who in turn contract íish íarmers and reser·oir íishers to supply an agreed proportion
oí íish. 1he ·endors íinance the íishers, as they would otherwise not be creditworthy ,lAO,
200¯,.
Primary Production and Sourcing of Inputs
1he inland íishery is dominated by artisanal íishers who are characterized by low capital and
technology input. lishing is practiced year-round. Very basic har·esting methods such as gillnets,
cast nets, liít nets, beach seines, driít nets and ·arious basket traps are most oíten used.
Landing sites are scattered along ri·ers and lake shores. Access to such communities is generally
easier than to coastal íishing communities. 1he majority oí inland íish har·ests ,60°, occur in
three areas: Upper Ri·er Benue, Lake Chad and the Nguru-Gashua \etlands ,lAO 199¯,.
Inland íisheries pro·ide employment íor approximately 20,000 households. It is, howe·er, oíten
a secondary source oí income - behind agriculture - pro·iding roughly 24 to 28° oí total
incomes íor those households. Capital input is generally limited to a boat and gear. According to
a lAO ,200¯, study, a typical in·estment íor an a·erage íisher is N ¯,000 to N 15,000 íor a boat
and another N 5,000 íor gear.
Inputs, such as íish gear dealers, boat builders, outboard engine mechanics and net íabricators
are íew in each community and the demand íor their ser·ices depends on íishing intensity.
Iowe·er, the increasing cost oí inputs oíten results in reduced input replacement, leading to
continuous use oí input beyond its designed liíe span, írequent breakdown and ultimately
irregular íishing trips and low catches. lorest depletion and scarcity oí wood also aííects
processors and boat builders. Inírastructure and transport are basic.
Aquaculture was introduced in Nigeria in the 1950s, but íailed to meet expectations, pro·iding
only 5-6° oí domestic demand ,lAO, 200¯,. In recent years, the demand - supply gap has
widened, resulting in a renewed interest in aquaculture that is projected to continue. 1he new
strategy íocuses largely on the pri·ate sector. lrom the 2,642 íish íarms identiíied, íewer than
100 are state-owned ,lAO, 200¯,. 1he main species íarmed is the Cíaria. .pp, more commonly
known as Catíish. Subsistence íish íarms produce approximately 0.2 - 1.5 t,ha,yr, while
integrated íarms can produce 1.5- 3.5 t,ha,yr, and intensi·e re-circulation íarms can produce 0.2
- 1.0 t,m°,yr. ,lAO, 200¯,
1he most important input íor aquaculture is íish íeed. 1he supply oí quality íish íeed is not
without challenges. leed millers íocus mainly on the poultry industry, lea·ing íish íeed as a
secondary acti·ity oí oíten poor quality. 1his has resulted in many commercial íish íarmers
producing their own íish íeed on-site. 1otal output oí íish íeed is about 25,000t,yr to 30,000t,yr
íor medium and small-scale íarms while high-tech producers import 6,000t,yr oí íish íeed íor
intensi·e culture systems ,lAO, 200¯,. 1he second most important input íor aquaculture is
íingerlings. Some high-tech íarms are capable oí turning out 3 to 4 million íingerlings per year.
1he production oí íingerlings has increased írom 3 million in 2001 to about 30 million in 2004
,lAO, 200¯,. Quality íingerlings are widely a·ailable and supply adequately satisíies the demand.
Processing Capacity and Technology
lish processing is done almost exclusi·ely by women, except in northern regions where men
acti·ely participate. Similarly, íish marketing is controlled by women, except wholesale and
distant trade that is dominated by men in inland communities. Inland artisanal íishers process
íish mainly through íish drying and smoking. In 1995,96, the trade oí dried catíish was ·alued at
o·er US>10 million and employed thousands oí people in processing, transportation and
marketing.
48
In response to increased local aquaculture, íish íeed production is also increasing. In coastal
areas íish waste írom industrial processing plants are taken by íeed producers. Clupeids are sun-
dried, crushed and packaged as íish meal íor national distribution. In the Lake Chad íishery,
stunted 1ilapia, broken dried Clarias and insect-iníested íish are dried, pul·erized and packaged
íor íish meal. 1otal output íor the íish íeed industry is estimated at 45,000t,yr, worth N 5.4
billion ,lAO, 200¯,.
Processing technologies remain ·ery basic íor the artisanal íishery. As a result, post-har·est
losses can be as high as 40° ,lAO 200¯,. 1he traditional smoking kiln .goao is a clay type o·en
or drum o·en and is the most widely used íorm oí processing. 1he major energy source is wood,
which is increasingly in short supply. lish processing is time consuming and arduous. 1he
smoked product bavaa, is oíten charred, ·ery dry and brittle. It is oí ·ery low quality, but its long
shelí liíe ensures that demand íor bavaa remains high. 1he high shelí liíe also íacilitates wide
distribution throughout the country to meet demand írom lower-income strata.
lish is also dried in the open air using simple shel·es. A ·ery limited amount oí íish mongers use
reírigeration units to keep íresh íish cool while they are transported írom the landing sites to
markets inland.
End-Markets and Trade
1ransporting íish products is most commonly done through public transport. Iowe·er, this
increases risk due to irregular ser·ices and increased expense. As a result, íishers are sometimes
íorced to sell their catch to a·oid spoilage.
1he limited public transport system oíten leads to situations where the market can be dominated
by a small group oí traders with access to pri·ate transportation. 1heir iníluence is enhanced by
the remoteness oí the ·illages and the perishable nature oí the product. 1his oíten leads to
relationships where íishers are entirely dependent on traders to purchase their har·ests and in
many instances, pro·ide credit. 1his also allows traders a greater degree oí íreedom to set prices
and loan interest rates as they see íit. 1he traders are, howe·er, pro·iding ser·ices that are
essential to the economy oí íishing communities that many íormal institutions are reluctant to
pro·ide.
Nigerians consume about 1.2 million tons oí íish per year ,lAO, 200¯,. lresh and processed íish
is widely marketed throughout the country, though a signiíicant portion oí íish is imported.
lresh íish sellers market their products in the neighbourhood, communities and urban centers
while smoked íish dealers can distribute their products much íurther. 1he principal asset oí the
íresh íish dealer can be deep íreezers located at neighbouring markets, howe·er, these are oíten
lacking. Generally, íish preser·ation is done through smoking, drying and icing.
lreshly írozen íish is a·ailable in all major cities oí the country all year. 1he retail market price
íor marine íish is approximately N 200 - 250,kg ,lAO, 200¯,. lreshwater íish are a·ailable in all
major cities throughout Nigeria all year due to the presence oí íish íarms throughout the
country. 1he market price íor íreshwater íish is higher than marine íish at N350 - 400,kg.
larmed catíish are a·ailable at N450 -500,kg at the íarm gate and can oíten reach N¯00,kg in
northern cities ,lAO, 200¯,. Smoked íish are oíten sold along major highway routes between
cities. Storage íacilities íor unsold íish exist at these sales points.
In cities, municipal authorities designate speciíic areas íor íish markets that ha·e suííicient room
íor processing and storage capabilities. Chain stores and supermarkets exist íor high-end
consumers where íish are displayed on ice in reírigerated cabinets and species include Croakers,
Shinenose, Baraccuda, Shrimp and Lobster. Products are sold at a íixed price per kg. lish
producers in Nigeria are unable to meet demand íor íish products, lea·ing Nigeria to rely hea·ily
on imports to help meet demand. According to the lAO ,200¯,, imports contribute between
650,000 to ¯00,000t,yr ,56° oí consumption,.
49
Smoked íish oí ·arious species are popular in Nigeria. Clupeids ,marine and íreshwater,, íarmed
íish such as Cíaria. íeterobravcbv. and Carp, and ri·erine species such as íeteroti., Cbri.,cbtb,. and
C,vavarcbv. are all popular to consume smoked ,lAO, 200¯,. Both íresh íarmed catíish and
smoked catíish are traded within the region. Reliable numbers are diííicult to attain due to the
large amounts that are unreported. A signiíicant amount oí íresh products are sold directly to
hotels and restaurants. lish ·endors are contracted by hotels and restaurants while ·endors in
turn contract íish íarmers and reser·oir íishers. 1he emerging íast íood industry in Nigeria is
increasing the demand íor speciíic species, sizes and ·alue added ,lAO, 200¯,.
1here is currently no standard and accreditation system íor the inland artisanal íishery and small-
scale íish íarming. Iowe·er, the lisheries Society oí Nigeria is participating in training courses
to enable them to undertake setting standards and pro·iding accreditation.
Chain Governance and Linkages
Channels íor iníormation sharing with regard to prices along the ·alue chain are limited. In rural
areas in particular, organizations are less cohesi·e and little iníormation is exchanged.
Competition among artisanal íishers is oíten muted due to the role played by traders who
exercise a strong degree oí control o·er prices. Rural íishers ha·e ·ery íew alternati·es but to sell
their har·est to a trader. Collusion in price setting is ·ery likely. 1he situation is better near urban
centres where organized groups ensure better access to iníormation.
1here are se·eral upgrading and de·elopment opportunities along the ·alue chain that should
recei·e íurther study:
• Use oí high eííiciency smoking o·ens which decrease losses and reduce en·ironmental
impact.
• Increased use oí by-products íor íish meal production, among other potentially income
generating acti·ities.
• Better access to transport íacilities pro·iding íishers with more options íor transporting
íish to markets and would help create competition.
• Use oí hygienic solar drying racks that impro·e the quality oí dried íish.
• Increased use oí ice - including possible ice plant introduction - helping to preser·e the
quality oí íresh íish.
• Upgrading oí market sites to ensure hygiene standards, application oí better íish
preser·ation technologies to increase the quality oí íish.
• Impro·ed íish íeed production centres in rural areas to supply small-scale aquaculture
íarms.
Resource Productivity and Environmental Performance
\ith regard to small-scale aquaculture íarms, there is limited knowledge oí proper use oí water
resources. Poor quality íish íeed sinks and can create silt in the water. Moreo·er, knowledge oí
íish health and disease management, water quality management ,sustainable remo·al oí nitrogen
írom water system, water pollution reduction, and water recirculation and ílow through
technology, remains limited.
O·eríishing in inland areas suggests that there is insuííicient training with regard to
en·ironmental management issues. Nonetheless, some traditional íorms oí management ha·e
succeeded in sustainable managing stock le·els.
50
Macro Economic and Policy Context
lisheries is one oí the eight proíessional Departments in the lederal Ministry oí Agriculture and
Rural De·elopment and is headed by a Director oí lisheries. State Directors oí lisheries also
head similar Departments in their respecti·e Ministries oí Agriculture. 1he lederal Department
oí lisheries ,lDl, is responsible íor policy íormulation, programme de·elopment, regulations
and quality control. Nigeria has two lederal lisheries Research Institutes: Nigerian Institute íor
Oceanography and Marine Research ,NIOMR,, Lagos, and National lreshwater lisheries
Research Institute ,NIllR,, New Bussa. Nigeria also has uni·ersities with íull-íledged
departments oí íisheries and aquaculture: Marine lisheries at the Uni·ersities oí Lagos and oí
Calabar, and lreshwater lisheries at the Uni·ersities oí Ibadan, Abeokuta, Makurdi, Umudike,
Akure, Minna and \ola. Nigeria also has three lederal Colleges oí lisheries at Lagos, New Bussa
and Baga-Maiduguri. Pri·ate institutions such as the íi.berie. ´ociet, of ^igeria and the Catfi.b
íarver. ...ociatiov of ^igeria are playing a greater role in íishery de·elopment. 1here are iníormal
institutions as well, such as community based organizations íor the management oí íisheries.
Availability of Finance
Artisanal íishers ha·e ·ery restricted íinancing options. lishers are ·ery oíten poor and spend
most oí their income on immediate needs such as íood, lea·ing them unable to pay íor capital
items, the education oí their children, medical ser·ices, clothing, transportation and other items
,lAO,DlID, 2002,.
\ith little capital or net worth to put up as collateral, íinancial institutions deem íishers too high
a risk, e·en at increased interest rates. 1his lea·es artisanal íishers to depend on small personal
sa·ings, loans írom íriends, relations, money lenders and traders ,Box A1,.
Box AJ: Capital investment and output
in fisheries value chains in Nigeria (N billion in 200S)
´vb·.ector Capitaí ívre.tvevt Output
Industrial 55 12.30
Artisanal 16.50 86.90
Aquaculture ¯.00 16.50
Ornamental 0.03 0.03
1otal ¯8.53 115.¯3
´ovrce: í.O 200¨
Finance requirements
1here is ·ery little recourse to íormal íinancial institutions, although there are currently NGOs
and se·eral projects aimed at íacilitating access to credit. 1he lack oí capital in·estment is a
major íactor iníluencing the adoption oí impro·ed technology in the íishing communities. As
stated abo·e, íishers rely on personal sa·ings and on traditional sources oí credit ,relati·es,
íriends, money lenders, etc, íor in·estment capital. 1he íunds a·ailable at this le·el are limited
and cannot meet the capital requirement oí impro·ed technology. As a result, artisanal íishermen
are unable to in·est in equipment that would raise producti·ity, allow micro-enterprises to
expand and ultimately increase incomes.
51
1able A.3 Iunding requirements in inland aquaculture and artisanal fisheries value chain
I
n
p
u
t
i
n
d
u
s
t
r
y
A
r
t
i
s
a
n
a
l
f
i
s
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s
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p
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T
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a
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r
/
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a
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/
D
i
s
t
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i
b
u
t
o
r
P
r
o
c
e
s
s
o
r
s
R
e
t
a
i
l
e
r
s
/
S
h
o
p
k
e
e
p
e
r
s
E
x
p
o
r
t
Need/
purpose
Working
capital
(operating
expenses),
fixed assets
(equipment)
Fixed assets
(equipment
Working capital
(operating
expenses), fixed
assets
(equipment)
Fixed assets
(processing
equipment)
Working capital
(operating
expenses)
Working capital
(operating
expenses), fixed
assets (quality
assurance
systems)
Volume
needed
high high medium high medium medium
Risks
high medium medium medium low medium
Interest
high medium medium medium low medium
´ovrce: 1be avtbor.
52
A.4 Maize
Maize is an important grain crop in Nigeria, being both the major íeed grain and an important
staple íood. 1he crop is produced in all the agro-ecological zones in the country. Iowe·er, the
North Central Zone is the leading producer accounting íor one third oí total maize produced in
the country. Aggregate a·erage yields are low, ranging írom 1.14 tons,ha in NL to 1.9 tons,ha
in SL. larmers culti·ate maize both as sole and mixed crop largely depending on the production
location and objecti·e. Medium to large-scale maize íarmers culti·ate maize as sole crop and
íollow some deíined crop rotation patterns. Smallholders generally practice mixed cropping
,maize, with other íood crops as a means oí security, should maize crop íail due to weather or
una·ailability oí inputs.
Mapping the chain
1wo types oí maize are culti·ated in Nigeria - white and yellow. lor each oí these, high yielding
·arieties ha·e been de·eloped by the International Institute íor 1ropical Agriculture ,II1A, and
the Institute íor Agricultural Research ,IAR,. Maize is either har·ested green or dry, though
much oí the maize marketed is the one har·ested dry. 1he market structures and ·alue chains oí
yellow and white maize are not ·ery diííerent, but depend on the end uses. \hite maize is mostly
íor human consumption, though some is used as poultry íeed. \ellow maize is ·irtually all used
íor poultry íeed and consumption. ligure A.4 below illustrates a simpliíied chain oí the most
predominant stages oí ·alue addition oí maize.
Iigure A.4 Predominant Maize value chains in Nigerian
´ovrce: 1be avtbor.
A number oí ·alue and market chains exist íor maize in Nigeria. 1here are many similarities
between the yellow and white maize market chains aíter purchase by the medium ,assemblers, or
large processing companies. Bulking oí quantities íor white maize is done by assemblers who
initially buy maize írom íarmers and transport it to a central location. A large proportion oí the
maize íor human consumption is milled in large-scale mills and sold in bulk and then to retail
markets.
Maize
farmers
Ilour
mills
Food
Processing
Ieed
Mills
Assemblers
Poultry
Input
suppliers
White
Maize
Yellow
maize
Household
Processing
Assemblers
Consumers
53
Primary Production and Sourcing of Inputs
Increasing maize production in Nigeria has recei·ed the attention oí the Nigerian Go·ernment,
de·elopment partners and pri·ate sector in·estors o·er the past two decades. In this respect,
se·eral agricultural de·elopment programmes ha·e or are being implemented at the State and
lederal le·els to promote producti·ity and production oí maize. Such projects ha·e íocused on
addressing the generally obser·ed ineííicient and uncompetiti·e maize commodity systems,
mainly illustrated by low yields and high transaction costs post har·est. Maize production
requires in·estments íor impro·ed seed, íertilizer use and machinery. Iowe·er, due to high price
·ariability and costly inputs smallholder íarmers are incapacitated or íind it uneconomical to
in·est in these yield impro·ing technologies.
1he íew medium to large-scale maize íarmers use impro·ed maize production technologies,
particularly impro·ed maize seed ·arieties, sound agronomic practices, íertilizer and herbicide
application and post-har·est handling techniques. Although the íertilizer industry is de-regulated
in Nigeria, the supplies oí adequate íertilizer in time and at aííordable prices ha·e remained a
major problem responsible íor low maize yields. Increasing the pri·ate sector supply oí íertilizer,
seeds, pesticides and mechanization is required to increase producti·ity and supply oí maize to
local markets.
Currently poor producers suííer substantial losses írom íailure to e·acuate products írom
producing areas and get them to the most proíitable markets at the right time due to poor roads
and unreliable transport. 1hese losses reduce proíits íor producers, reduce proíits íor traders and
manuíacturers and raise prices íor consumers. Rent-seeking beha·iour by state oííicials is
widespread in the maize industry ,and not only within the transport component,, and must be
reduced ií the beneíits oí increased maize demand are to be translated into increased income íor
poor producers.
Processing Capacity and Technology
1here is already suííicient capacity installed in the country íor íirst-stage processing oí all maize
produced. medium to large-scale mills are usually better established and ha·e better access to
íormal íinancing.
Village-le·el mills are less well established and may require technological upgrading and training
oí operators, otherwise the business opportunities they pro·ide are just too insigniíicant. Among
those are many unlicensed or iníormal` traders and millers who pro·ide milling ser·ices directly
to households. \hile the small-scale processors at ·illage le·el are mostly grinders, some
medium and large-scale companies ha·e made signiíicant in·estments in processing machinery
and inírastructure ,storage, milling, packaging, etc.,.
1he secondary-stage industry consists oí dry and wet milling industry and the animal íeed
industry. Most oí the large-scale mills are concentrated in Lagos, Kaduna and Kano. Scientists at
the II1A report that pre- and posthar·est contamination oí aílatoxin in maize is a major health
deterrent íor people and li·estock in Nigeria. It is reported that more than 60 percent oí
har·ested maize in Nigeria ha·e high le·el oí a íungi poison called Aílatoxin.
Pre- and posthar·est practices that reduce aílatoxin contamination include: the use oí resistant
culti·ars, har·esting at maturity, and rapid drying on platíorms to a·oid contact with soil,
appropriate shelling methods to reduce grain damage, sorting, use oí clean and aerated storage
structures, controlling insect damage, and a·oiding long storage periods.
End-Markets and Trade
Maize demand in the country is estimated to increase at an a·erage oí 3.2 percent per year,
largely due to population increase and urbanization. Apart írom being eaten as it is on the cob,
maize is used as íood in íorm oí porridges, cornílakes and popped grains. Iowe·er, more than
54
60° oí Nigeria's production oí maize is consumed by the industrial sector íor production oí
ílour, beer, malt drink, cornílakes, starch, syrup, dextrose and animal íeeds.
Domestic demand íor maize continues to be largely dri·en by the e·olution oí traditional
markets ,e.g. íeed and íood markets, as well as by industrial use and the de·elopment oí
alternati·e uses íor maize. 1raditionally considered a subsistence crop, maize is now transíormed
into a commercial crop due to the demands oí the íeed and poultry industries. Maize producers
ha·e become more market oriented and open to the adoption oí impro·ed technologies. In the
next two decades, the composition oí demand íor maize will likely change, with íeed use oí
maize increasing more rapidly than íood use. As a result oí projected íaster growth in íeed use,
the market íor yellow maize will expand relati·e to that íor white maize. A lot oí the maize
produced in the guinea sa·annah zone oí the country is transported to diííerent parts oí the
country,.
1he íeed industry uses primarily yellow maize íor the purposes oí animal íeed manuíacturing.
Although yellow maize is used, it comprises a small portion oí the total íeedlot requirement as
yellow maize is much more expensi·e than white maize. \ellow maize is mainly used in broiler
and layer íeed rations.
Ahmed et al ,2005, identiíied the íollowing constraints in the maize market: ,i, inadequate
access to íormal credit íacilities, ,ii, inadequate security íor goods in transit, ,iii, poor market
inírastructure, ,i·, unoííicial charges by a di·erse range oí actors and ,·, lack oí íormal
insurance. 1he same study suggests the inter·entions to enhance the períormance oí the maize
commodity chain. 1ransport sector impro·ements are essential across the maize distribution
chain. 1his requires a concerted eííort írom central, state and local go·ernments, together with
donor support.
Chain Governance and Linkages
In general, the large-scale ílour and poultry íeed mills through the maize and grain merchants
play an important role in directing the maize market. Quality oí maize deli·ered to processors
remains a major problem in the supply chain. Coordination among the many and spatially
dispersed smallholder maize íarmers is diííicult to achie·e.
1here are also se·eral itinerant buyers, but large number oí consumers. Outgrower schemes and
contract íarming models ha·e been tried in the main maize producing states, but this has not
been successíul. Due to the inadequate access to producti·ity enhancing inputs, it has been
diííicult to introduce standards. Poor quality, due to poor drying and storage leads to high le·els
oí contamination and iníestation oí aílatoxins - which poses health hazards to both humans and
li·estock.
Gi·en the uncoordinated nature oí the market, there is no clear leader in the entire chain, though
the speciíic ílour or li·estock íeed millers could push íor a better organization and integration oí
the ·alue chain oí the many smallholders in a way to ensure quality oí maize deli·ered to the
mills. 1he International Institute oí 1ropical Agriculture ,II1A,, Institute oí Agricultural
Research ,IAR,, Zaria and the Maize larmers Association are the main partners in maize
production.
Resource Productivity and Environmental Performance
Producti·ity oí maize in Nigeria is low, with yields on íarmers` íarm a·eraging 1.5 t,ha. Research
results írom II1A indicates that by using impro·ed seeds and agronomic practices maize íarmers
in Nigeria can double yields to 3 t,ha.
In areas where íarmers culti·ate high yielding maize ·arieties they tend to use high le·els oí
íertilizer and pesticides. Uncontrolled use oí high doses oí íertilizers and pesticides leads to
55
en·ironmental degradation and imbalances in pest populations. Improper application oí
pesticides may ha·e hazardous eííects on humans.
Macro Economic and Policy Context
As a major íood security and income earning crop íor se·eral households, maize production
recei·es special attention írom the go·ernment. Pre·ious and present eííorts to impro·e maize
production include: impro·ing access oí small íarmers to modern producti·e technologies, credit
and extension ad·ice, while at the same time opening up rural communities to impro·ed
transport and marketing oí agricultural produce. In line with these set goals, se·eral agricultural
de·elopment programmes with support oí state and íederal go·ernments are or ha·e been
implemented.
lertilizer policy aííects maize production more than any other crop. O·er the years, the íederal
go·ernment has undertaken ·arious policy reíorms and campaign by to encourage the use oí
íertilizer. Iowe·er, there ha·e been inconsistencies in íertilizer policy in Nigeria o·er the years,
which aííects the íertilizer usage rate, the quantity oí íertilizer distributed, the price oí íertilizer,
íactors which ha·e signiíicant eííects on maize production. It is recommended that íor íertilizer
policy to aííect crop production positi·ely in Nigeria, the distribution oí íertilizer to íarmers has
to be impro·ed. Go·ernment should also ensure íarmers are educated on íertilizer usage rate.
Availability of Finance
Maize íarming is proíitable ií íertilizer is a·ailable at aííordable prices. Market is not a problem
as the demand íor maize, both íor human consumption and as li·estock íeeds, exceeds domestic
production. Se·eral ·alue added products with assured local market render the processing
businesses also íinancial attracti·eness. linancial attracti·eness in processing increases with scale
oí processing.
Inter·iews with maize íarmers re·ealed that ·ery íew small-scale íarmers are able to meet bank`s
criteria to access credit and as a result ·ery little utilization oí íormal credit occurs by small-scale
íarmers íor maize production. 1he pro·ision oí collateral and being part oí a registered
commodity group with an acceptable accounting system is oíten beyond the reach oí most small-
scale íarmers. Iowe·er, a number oí iníormal loaning acti·ities occur íor oíten short and ·ery
speciíic acti·ities, íor example by maize shelling ser·ice pro·iders to íarmers, who are paid once
the crop is sold. 1he greatest need oí íarmers íor credit is to purchase íarm inputs.
1here are a number oí micro-credit schemes that allow íarmers and small processors to co·er
parts oí their íinancial needs. 1hese schemes, howe·er, are only a·ailable to target groups oí
certain agricultural de·elopment programmes.
56
Finance requirements
1he abo·e analysis was meant to enable a nuanced identiíication oí íinancial requirements in the
·arious segments oí the ·alue chain
1able A.4 Iunding requirements in the maize value chain
I
n
p
u
t
i
n
d
u
s
t
r
y
S
m
a
l
l
s
c
a
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f
a
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m
i
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C
o
m
m
e
r
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i
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l
F
a
r
m
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n
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L
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c
a
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s
o
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r
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g
,
t
r
a
d
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a
n
d
m
i
d
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m
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n
M
a
i
z
e
m
i
l
l
i
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g
(
s
m
a
l
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-
s
c
a
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)
M
a
i
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m
i
l
l
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g
(
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n
d
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s
t
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i
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)
M
a
i
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e
–
L
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v
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t
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c
k
f
e
e
d
B
r
e
a
k
f
a
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t
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F
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s
s
i
n
g
W
h
o
l
e
s
a
l
e
E
x
p
o
r
t
Need/
purpose
Working
capital
Working
capital
Working
capital,
fixed
assets
Working
capital,
vehicles
Working
capital,
equip-
ment
Working
capital,
equip-
ment
(long-
term)
Working
capital,
equip-
ment
Working
capital,
equip-
ment
Fixed
assets
(warehous
e
transport)
Working
capital
(pre- and
post-
shipment)
Volume
needed
high high high medium low medium high low medium medium
Risks high high medium medium high low low low low low
Interest low low low medium low medium low low high high
57
A.5 Fruits
Nigeria produces a wide ·ariety oí íamiliar tropical íruits including citrus, mango, papaya, gua·a,
pineapple, banana, watermelon and a ·ariety oí little-known indigenous Aírican íruits such as the
Aírican star apple, hog plum, nati·e pear and Aírican or wild mango.
According to lAO ,lAO Stat,, the country produces about 9.5 millions oí tons oí íruits, and is
the eighth largest producer oí mango globally. Other notable íruits produced are pineapples, and
gua·as, in which the country ranks as the third largest producer in the world. In spite oí these
strong positions in terms oí global production, Nigeria is rarely mentioned when it comes to
íruit export because most oí the íruits produced in the country do not reach the global market
due to the ·ery poor inírastructure ,roads and cold stores,.
1he country`s di·erse agro-ecological zones range írom humid in the south to sub-humid in the
middle belt and semi-arid,arid in the north. lresh íruits are inherently more liable to
deterioration under tropical conditions characterized by high ambient temperatures and
humidity, and a high incidence oí pests and diseases. Consequently, post-har·est losses oí íruits
and ·egetables are extremely high in Nigeria ,Olawale 200¯,, exacerbated by poor marketing,
distribution and storage íacilities.
Mapping the chain
1he typical marketing system íor íruits and ·egetables in Nigeria consists oí three stages ,see
ligure A.5,. In the íirst stage, small holder íarmers oííer small surpluses to traders in the ·illage
markets or íirst assembly points. lrom here the district le·el traders mo·e the accumulated
produce along the market channel to secondary collection centers. 1he third stage in·ol·es the
mo·ement oí the produce to central wholesale markets in urban centers through wholesalers.
1he produce is transported írom the íarm gate to the primary and secondary collection centers
primarily as head loads or by means oí íarm animals, carts, bicycles, motorbikes and motor
·ehicles oí all sorts and írom there to urban central wholesale markets mainly in open, non-
reírigerated trucks with capacities ranging írom less than 10 tons to up to 30 tons. lew
wholesalers undertake grading oí the íruits and supply íresh precuts to supermarkets.
Iigure A.S: Mapping of the generic fruit value chain in Nigeria
´ovrce: 1be avtbor.
58
1here are ·ery íew íactories processing íresh íruits into juice concentrates in Nigeria and those
existing are operating at less than 30° oí their capacity due to high aggregation cost oí raw
materials írom small holder íarmers in diííerent states. Most processing oí juice concentrate into
juice is done by a íew large-scale industries which source their concentrates írom abroad.
Primary Production and Sourcing of Inputs
1he íruit production pattern in Nigeria is characterized by a large number oí small holder
íarmers with land holdings oí less than 2 hectares. 1he íruit orchard owners in the country lack
the necessary support including education to íarmers, good roads, and reírigerated ·ehicles íor
transporting the perishable goods to main markets. 1he use oí íertilizers and pesticides are ·ery
rare in íruit orchards oí small holders.
Supply oí íresh íruits to the íresh íruit processing companies is done on an iníormal basis. 1hus
most oí the íew processors produce below their installed capacity. lruits are procured locally by
these companies írom independent traders with iníormal links to the company. 1he companies
determine the price and usually oííer the a·erage between the seasonal and oíí-seasonal price.
1he companies preíer to buy in the glut season when prices are low since íresh íruit market
demand is little. 1he processor may pro·ide transport and in some cases pro·ides some pre-
íinance to traders.
Processing Capacity and Technology
Beíore 2002, 95 percent oí the íruit juice consumed in Nigeria was imported as ready-to-drink
íruit juice. Aíter the import ban oí 2002 on ready-to-drink juices, some large Nigerian íood-
processing companies ha·e started to in·est in íacilities íor íruit juice packaging.
lor example, in 2002, Coca-Cola Nigeria Plc in·ested o·er >200 million in íruit juice processing
and a packaging plant, and mo·ed into íarming to obtain concentrate íor its li·e Ali·e Brand. In
2006, Dangote Group established production oí the "Dansa" brand oí íruit juice. SCOA Nigeria
Plc íollowed suit through the setting up oí its >8.5 million tropical íruit juice processing plant in
Lagos.
Presently, the demand íor already packaged íruit juice products is estimated at slightly more than
200 million liters and companies that engage in íruit juice packaging ha·e continued to depend
on imported concentrates. 1hough Nigeria has ·ast areas oí íruit íarms, it has ne·er been able to
supply the raw material to its íruit processing industries mainly due to absence oí the necessary
inírastructure.
End-Markets and Trade
1he market íor íruit juice concentrate is huge. Nigeria's íruit juice market has grown 60 percent
o·er the last íi·e years and this growth is due to increasing incomes oí Nigerian consumers, an
expanding middle class and greater health-consciousness oí consumers. 1he market íor íruit
concentrate, pre-mix and syrup ,concentrates, has thus risen írom 1.5 million kg in 2002 to
about 30 million kg in 200¯. Nigeria`s demand íor consumer-pack íruit juice was estimated at
more than 400 million liters. Most oí this juice is made írom imported concentrate. Nigeria
imports concentrates írom the LU, South America, Asia, and South Aírica.
In Nigeria, the expanding middle class, increasing urbanization and a growing number oí
supermarkets which can source íruits has made the practice oí multiple handling oí the íresh
íruit írom íragmented small holder íarms less oí an option. In the absence oí larger well-
managed commercial íarms there is a need to promote smaller out-grower íarmers under the
close super·ision oí the retailer ,distributor,.
In this case, small holder íarmers are pro·ided with quality seeds, agricultural inputs and
technical and extension ser·ices by the manuíacturers and retailers. In return the íarmers need to
59
pro·ide the íruits íor íurther processing and packaging at a predetermined price. 1his is a win-
win situation where the manuíacturers or distributors get raw material oí desired quality and
quantity while the íarmers are assured oí market outlet íor their íruits and reduction oí post
har·est losses.
1he major íeature oí the world market oí íresh íruit and íruit juices is the geographical
concentration oí production. 1he two main players in the production oí íruit juices are Latin
America and the USA. 1he export oí íruit juices írom these two regions amount to 35 percent oí
the world market. 1he major player in juice export is Brazil, which has a share oí 20 percent oí
world export.
International trade in íruit juice takes place in the íorm oí írozen concentrated íruit juice ,lClJ,,
in order to reduce the ·olume used, so that storage and transportation costs are lower. 1he
Luropean Union is by íar the largest importer oí íruit juices, accounting íor o·er 63 percent oí
world íruit juice imports. Southern Iemisphere countries - de·eloping countries and Australia -
are increasing their presence in international trade by pro·iding oíí-season íruits to the North.
1his has been ía·oured by the impro·ements in storage and transportation technologies. Nigeria
has to impro·e its inírastructure, quality assurance system and traceability to increase its share in
the global market oí citrus íruits and mango.
Chain Governance and Linkages
1he íresh íruit sector is mainly characterized by a long chain oí middlemen írom the íarm
through the ·illage, district to state and national wholesale markets. A small proportion oí the
íresh products is sorted, graded and packed íor the supermarkets. 1he íollowing are the leaders
in íruit juice production in Nigeria:
• Chi Limited, lruit Drinks
Choppee lruit Drink and Industries Limited, Chopee Pineapple Drink,Vanilla, Peach,
Apple & Orange
• Classic Be·erages Nigeria Limited, Manuíacturers oí Virgin soít drinks, La Casera etc
• lormosa Bottling Company, Sparkling íruit Juice drink, Iealth \ater, 1able \ater, Pet
Preíorms, Bottles, Caps and Plastic Products.
• lumman Agricultural Products Industries Ltd, íruit juices.
None oí these industries source suííicient íruits írom local suppliers. 1hey import almost all the
íruit juice concentrate they require írom abroad mainly írom companies in Lurope, South
America, Asia and South Aírica.
Macro Economic and Policy Context
In 2002, the GON placed an import ban on íruit juice in consumer packs and lowered the tariíí
on concentrate to 5 percent. \ith local íruit production remaining low, processors ha·e
continued to depend on imported concentrates.
Finance requirements
1he abo·e analysis is meant to enable a nuanced identiíication oí íinancial requirements in the
·arious segments oí the ·alue chain ,see 1able A.5,
60
1able A.S Iunding requirements in the fruits value chain
I
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p
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S
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R
e
-
c
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t
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t
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t
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n
P
a
c
k
a
g
i
n
g
D
i
s
t
r
i
b
u
t
i
o
n
Need/
purpose
Working
capital
Working
capital
(inputs)
Working
capital
(inputs),
fixed assets
(equipment/
machinery,
storage)
Working
Capital,
Vehicles
Working
capital,
fixed assets
(storage),
equipment
(machinery)
Equipment
(machinery)
Working
capital,
equipment
(machinery)
Working
capital,
vehicles
(incl.
storage)
Volume
needed
high high high low
(through
processors)
high high high high
Risks high high medium medium high low low low
Interest high low low medium low high high low
61
A.6 Palm Oil
Mapping the chain
\hile palm oil production and processing is coníined to states in Nigeria`s South its
consumption cuts across all regions and income strata. Major actors in the ·alue chain include
pro·iders oí íertilizer, seeds, and other inputs, small to medium scale íarmers and large-scale
,estate, plantations as well as medium and large-scale oil mills íor crude and reíined edible oil
production. Secondary processors oí prominence in the chain include small and large-scale
animal íeed millers and producers oí soap.
In addition, there are small and large-scale buyers íor bulk storage and repackaging in retail
plastic containers that are ·ery acti·e and dominant in the chain. Middlemen, transporters,
suppliers oí processing equipment, suppliers oí packaging materials and, to a limited degree,
íinancial ser·ice pro·iders are íound at ·arious segments oí the ·alue chain. Public and
de·elopment cooperation support is also pro·ided by research and extension agencies, mainly to
public or pri·ate palm oil plantations, most oí which íocus on primary production and
traditional small-scale processors.
Primary Production and Sourcing of Inputs
Until the 1960s, Nigeria was the world`s largest producer oí palm oil accounting íor 43° oí
global palm oil production. Iowe·er due to the o·er-reliance on traditional production methods,
excessi·e tapping oí palm trees íor palm wine, and the ci·il war between 196¯-¯0 that was
íought in areas where palm acti·ities were predominant primary production has experienced
signiíicant drawbacks. Iowe·er, due to ·arious reasons Nigeria`s ability to keep up with the
global rise in demand was curtailed. Production increased írom 640,000 tons in 19¯5 to 898,000
tons in 1995. Nigeria is now the third largest producer oí palm oil aíter Indonesia and Malaysia
with an annual production ·olume oí 1.28 million tons. Its output has now declined to a meagre
1.¯° oí the total world production which is inadequate íor local consumption, put at about 2.¯°
,MAN, 2010,.
Similarly, the deregulation oí the commodity marketing board aíter independence, as with other
agricultural sectors, impacted negati·ely on the sector depri·ing it oí the needed promotional
ser·ices and outright control oí output and sales. 1he policy eííecti·ely undermined many
íarmers` abilities to obtain appropriate prices íor their produce. As a result, small scale íarmers
remain depri·ed oí access to íinance, íertilizers, agrochemicals and other logistics and inputs
beíore and during har·est. 1hough go·ernments do inter·ene, organized channels and networks
oí iníormation are not a·ailable. Similarly, adequate capital base or soít credit to íarmers,
associations and cooperati·es íor input procurement, represent constraints, and transportation
and other ser·ices are ·ery limited and sometimes nonexistent, with the exception oí public íarm
estates or processors` estates. 1he ecological distribution oí palm tree in Nigeria is
predominantly in the southern part, especially in the wet rain íorest and sa·annah belt. It also
exists in the wet part oí North central, in areas like southern Kaduna, Kwara, Benue, Niger,
Plateau, 1araba and Nassarawa as well as the lederal Capital 1erritory ,lC1,, Abuja.
1he smallholder íarmers account íor o·er 80° oí palm oil production in Nigeria with an a·erage
oí 1-5 hectares held by an indi·idual, sometimes characterized by mixed cropping to maximize
land usage. Iowe·er, a large chunk oí oil palm exists in the wild or semi-wild state. In addition,
go·ernment and pri·ate companies also own íairly large plantations. 1hus, there is an estimated
2.5 million hectares oí culti·ated land in Nigeria, represented by 2.3 million hectares ,wild gro·e,,
11¯,625 hectares ,small holders, and 96,465 hectares ,public and pri·ate estates,.
62
Processing Capacity and Technology
Palm oil is the íirst primary product that is processed in the ·alue chain. In Nigeria, the
processing oí the palm oil has been dominated by the traditional, cottage semi-mechanized
processing equipment. Sur·eys and discussions with the National Palm Produce Association oí
Nigeria ,NPPAN, re·ealed that there is a limited number oí automated processors in the
country, mostly in the South Last and South, namely in Ri·ers, Imo, Cross Ri·ers and Ldo
States. Production is still dominated at the ·illage le·el by indi·iduals and cooperati·es as most
public processing plants and plantations ha·e remained closed with obsolete equipment which is
abandoned.
Similarly, there are currently no existing capacities íor the production oí secondary palm oil
products in the country. UNIDO, in collaboration with some pri·ate initiati·es, is pioneering the
introduction oí new technologies in the sector, one oí which is by cutting the aged old trees and
transíorming them into dry logs íor the íurniture industry. New seedlings would be planted to
replace the old palm trees cut down. Consequently, the poor íarmers would ha·e opportunities
íor additional income generation acti·ities and employment.
1he ·egetable oil industry is capable to process 900,000 tons oí palm oil annually. Iowe·er, due
to the inadequate supply oí the product se·eral oí the palm oil reíineries are operating at less
than 25° oí installed capacity. Consequently, the major end users oí palm oil and its deri·ati·es
which include industries producing soaps, biscuits, noodles, sa·oury and milk íind it diííicult to
get regular supplies oí palm oil deri·ati·es locally.
Other challenges oí the industry are that most oí the palm oil reíinery plants are old using
ineííicient semi-automatic equipments and technologies. Iowe·er, there are eííorts underway to
reju·enate oil palm processing plants ,see Box A.2, At the ·illage le·el, small-scale processing oí
dominates, usually producing low quality palm oil with high le·el oí lree latty Acids. Most oí
the large-scale oil palm estates were established by state go·ernments. Pri·atization oí these
estate íarms sometimes íaces local discontent. 1he land tenure system and land laws also impede
large-scale in·estments íor the establishment oí estate íarms similar to those in Malaysia.
Box A.2: Investing in Palm Oil Industry Upgrading in Imo state
Some states in Nigeria, particularly Imo, Ri·ers, Cross Ri·er and Akwa Ibom States, are currently taking
action to reju·enate the aging state-owned palm estates and to upgrade the reíineries. UNIDO in
collaboration with some pri·ate interest groups including Bank oí Industry ,BOI, promote the adoption
oí new production and processing technology in Imo State wherein, among others, the old trees will be
cut and con·erted into high resistant logs íor the íurniture industry. In their place, new palm seedlings
will be planted. Application oí this scheme is expected to pro·ide income íor the small scale íarmers and
reju·enate the oil palm sector. 1he scheme expects to attract pri·ate in·estors and support in·estments
through preíerential loan agreements. Possible areas requiring íinance include establishment oí nurseries,
land preparation and access roads, purchase oí impro·ed seedlings, íertilizers, agrochemicals, har·esting
equipments, tractors, and establishment oí appropriate storage íacilities and upgrading existing reíineries.
End-Markets and Trade
Palm oil is an edible plant oil which is deri·ed írom the íruits oí palm trees. 1he oil is extracted
írom the pulp oí the íruit. lrom its seed is also deri·ed a secondary oil known as palm kernel oil.
Palm oil is naturally reddish in colour because it contains a high amount oí beta-carotene. Both
oils ha·e some draw backs as they are two oí the íew highly saturated ·egetable íats. Palm oil is a
common cooking ingredient in Nigeria and has increasing use in the commercial íood industry in
Nigeria and other parts oí the world. Similarly, there is no part oí the palm tree that is
considered waste. In Nigeria, the deri·ati·es oí palm tree include broom, building materials,
basket and mats, palm wine, local gin ,or ogogoro`, and logs.
63
Since the emergence oí palm oil in Nigeria, there has been limited transíormation and uses oí its
primary or secondary products íor either íood or non-íood applications. In ad·anced economies,
howe·er, palm oil is used in the manuíacturing oí many íoodstuíís including many industrial
applications as can be seen in the Box A.3 below.
Box A.3: Iood and non-food uses of palm oil
Iood Uses Non-food Uses
Cooking Oil
Deep írying oils
Margarines and spreads
Bakery íats ,shortening,
Cocoa butter alternati·e íats
Coníectionery íats
Ice cream íats
Iníants nutrition íats
Other íood applications
Cosmetics and personal care
Soaps
Candles
Pharmaceuticals
Lubricants and Grease
Suríactants
Industrial Chemicals
Agrochemicals
Coatings
Paints and lacquers
Llectronics
Leather
Biodiesel
It is only in Aírica that palm oil is retailed as a product in its own right. Iowe·er, market
potential íor oils and íats looks good in the íuture, considering the rapid increases in
consumption. Iowe·er, palm oil is one among se·eral other major oils and íats produced and
traded in the world with substitutes as soybean, canola and sunílower oils. Palm oil represents
59° oí the world export oí ·egetable oils and 33° oí production. Nigeria`s contribution to
exports is rather insigniíicant, due to increased local demand.
According to NPPAN, production has remained low íor a number oí reasons, among which are:
absence oí good quality seedlings, nonexistent or poor processing íacilities, storage, and
transport logistics commonly íaced by smallholders. Indi·idual smallholders thereíore preíer to
sell to on-the-íarm cottage or cooperati·es mills or middlemen who buy on behalí oí medium or
large-scale processors who ha·e the ad·antage oí e·acuation logistics, storage and transport
logistics. 1o íurther ease some oí these constraints oí e·acuation írom producers, collection
depots ha·e been established at designated locations in some major cities in the palm oil
producing states, managed by pri·ate owners to pool and sell oíí to buyers írom íar distances in
the North and other parts oí the country. \ith regards to íinance, there is currently no a·ailable
and aííordable íinance to íarmers, commercial buyers and millers which is a serious challenge to
ensuring smooth demand and supply acti·ity in the ·alue chain. NPPAN is ad·ocating íor soít
credit with longer tenure which is not a·ailable in commercial banks.
NPPAN obser·ed that most oí the major consumers oí palm oil in the country i.e.
manuíacturers oí noodles ha·e rejected palm oil supplied or processed at ·illage mills as a result
oí poor quality due to high le·el oí lree latty Acids ,llA,. Uníortunately, there is no
institutional íramework to ensure eníorcement oí quality benchmarks that would íacilitate better
relationships in the ·alue chain. 1here is also the problem oí obsolete production technology in
64
the sector. NPPAN is constrained to rely hea·ily on go·ernment inter·ention to address these
challenges in the sector as pri·ate initiati·es are nonexistent.
Chain Governance and Linkages
1here are no lead íirms but the acti·ity in the ·alue chain is dri·en by small scale buyers and
sellers as major consumers such as the local multinational companies in the íood industry preíer
to import, rather than rely on local production. 1he role oí middlemen and designated pri·ate
storage depots largely iníluences demand and supply in the ·alue chain. 1he NPPAN has not
been able to organize or establish a coordinated acti·ity in the ·alue chain. Iowe·er, NPPAN is
currently exploring partnering with state and local go·ernments íor support íor the reju·enation
oí the sector to establish modern automated processing units that could process high quality
palm oil with low llA in the three senatorial districts oí Akwa Ibom as a model íor other palm
oil producing states. Like other sectors, the palm oil sector has great potential íor growth
because oí its increasing use as a substitute íor other oils and íats hence the need to support and
upgrade the ·arious capacities in the production, processing, marketing and other support
ser·ices which are beneíicial to all stakeholders.
Resource Productivity and Environmental Performance
• Practices in resource use ,water, energy, waste, materials,
• Standards oí cleaner production applied
• Alternati·e technology used
• People trained in en·ironmental management
• Consumer awareness about situation in the chain
Macro Economic and Policy Context
All stakeholders including the Nigerian go·ernment ha·e appreciated the declining state oí the
palm oil sector in Nigeria. 1he National Palm Produce Association oí Nigeria ,NPPAN, has
called on the go·ernment to make deliberate eííorts to regenerate the sector to meet local and
industrial demand.
Availability of Finance
1he problem oí lack oí a·ailable and aííordable íinance has remained a great challenge íor the
palm oil sector. 1he acti·ities oí the Nigerian Agricultural, Cooperati·e and Rural De·elopment
Bank ,NACRDB, ha·e not impacted production: small scale íarmers ha·e remained disillusioned
about obtaining the required íinance to enable them to produce competiti·ely. According to
NPPAN, in Akwa Ibom, small scale íarmers are supported with íree seedlings, money ,around
>130, íor land clearing and subsidized íertilizer. Notwithstanding this, they íace other challenges
such as lack oí access roads to íarmlands and har·esting including e·acuation oí palm íruits
during har·est. Pri·ate plantation owners do not necessarily experience such challenges as their
scale oí operations is higher.
Finance requirements
1he abo·e analysis was aimed at re·ealing a nuanced identiíication oí íinancial requirements in
the ·arious segments oí the ·alue chain ,see 1able A.6,
65
1able A.6: Iunding requirements in the palm oil value chain
I
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Need/
Purpose
Working
capital,
equipment
(machinery)
Working
capital, fixed
assets
(property/
land),
equipment
Working
capital,
vehicles
Working
capital,
equipment
Working
capital,
equipment
Working
capital (pre-
and post-
shipment)
Volume
needed
none high high low
(through
processors)
high high medium
Risks high medium medium high high low
Interest low low medium low medium high
66
A.7 Poultry
Mapping the chain
1wo distinct sub-·alue chains can be identiíied in the Nigerian poultry sector: 1raditional sector
and commercial sector. 1he commercial sector is comprised oí commercial íarms and the
industrial sector ,see ligure A.6,. 1he industrial and commercial sectors are interwo·en while the
traditional sector can rely on its own multiplication oí chicken also oíten using exotic breeds.
1he starting point íor the commercial sector is the production oí day-old chicken ,DOC, that
are sold to commercial íarms and backyard producers. Commercial íarms engage in egg
production while also marketing the spent layers. Backyard producers rather engage in broiler
production. Both products are channelled through weekly and daily markets to consumers. 1he
simpliíied map in ligure A.6 does not include the poultry íeed industry and the animal health
and ·accinations ser·ices. Both are important inputs and constitute a substantial amount oí
production costs exceeding those oí day-old chicken. lurther actors to mention are transporters,
middlemen and retailers who are also instrumental in the distribution to the íinal producers.
Iigure A.6: Mapping of poultry value chain in Nigeria
´ovrce: 1be avtbor.
Primary Production and Sourcing of Inputs
Beíore the outbreak oí Iigh Patogenious Asian Iníluencia ,IPAI, in 2006, poultry population in
Nigeria was estimated at around 150 million, with a large majority ,85°, oí local backyard breeds
and a minority oí exotic breeds ,15°,. Lxotic birds count with higher producti·ity and pro·ide
the opportunity íor a higher annual oíí-take, especially when reared under intensi·e commercial
67
production systems. 1oday commercial poultry population is estimated to be about 24 million
layers and 40 million broilers.
Up to 80 percent oí the day-old chicken are produced and used in the southwest oí the country,
the southeast and northwest regions source all day-old chicken írom other regions. A íew
hatcheries in Plateau State ,northeast, supply day old chicken íor that zone and send a substantial
quantity to Kano State in the north central,northwest area. ligure A.¯ shows a map with the
substantial dispersion oí poultry production with a concentration around urban centres.
Iigure A.7: Poultry raising hubs in Nigeria
´ovrce: Preparea b, íí1. Ceo.patiaí íab for |´.íD
Both major ,branded, íeed millers and smaller toll milling companies are important actors,
handling about 40 percent oí about 1.2 million tons per year oí compound íeed produced in
Nigeria. 1here are three types oí íeed millers, namely custom, toll and integrated íarms. 1he
custom millers mill and market their íeeds under registered trade names. 1he dominant trade
names in the market include Amo Sanders, Guinea leed, 1op leed and Li·estock leed amongst
others. Some oí these custom millers ha·e adopted íranchising as an operational method íor
achie·ing a wider reach across the country.
1he toll millers are spread across major locations with signiíicant concentrations around small-
to medium-scale poultry íarms. 1hey operate by milling íeed to the speciíication oí customers
,poultry and catíish íarmers, and charge a íee per quantity milled. 1he customers either bring
their own íeed ingredients or purchase them írom the millers ií the millers ha·e them in stock.
1he third category oí íeed millers is the integrated poultry íarms, which own íeed mills and
produce íeed íor their own use. 1he íeed millers acquire their grains írom grains
merchants,buying agents who source their grains mostly írom the northern parts oí the country.
1hese merchants ha·e established networks íor aggregating grains írom smallholder íarmers and
ha·e mastered the logistics oí grain transportation across the country. 1he íeed mills mostly
68
depend on importers íor the supply oí imported íeed ingredients such as íish meal, lysine
methionine and soy meal etc. 1hese importers also use intermediaries to reach the íeed millers,
these are spread across the country but ha·e a higher concentration in the south.
Poultry shops generally market ·arious inputs oí the poultry sub-sector, one oí which is branded
íeeds obtained írom custom íeed millers. Poultry íarms that do not ha·e their own íeed mills
thereíore ha·e the options oí patronizing the toll millers, custom millers or poultry shops.
1he Nigerian poultry sector, despite many problems such as a rise in the price oí íeed, a·ian
iníluenza, the global íinancial crisis and inadequate credit, is still in expansion. 1his will lead to
an increase in backyard and small-scale producers, particularly in urban and peri-urban zones,
increasing the concentration oí poultry and raising concern about human and poultry health.
Breeders and hatcheries play critical roles in the commercial poultry industry because they supply
day-old chicks to all commercial íarms.
Processing Capacity and Technology
1here are designated abattoirs in major towns and cities across Nigeria. In most cases, it is the
large-scale poultry íarms that process their table birds into írozen chicken, and chicken and
turkey parts. Industry experts indicate that about 90° oí broiler production is slaughtered,
processed and sold as írozen chicken, while the rest are sold li·e on the open market and
slaughtered in households. About 50° oí broilers produced are processed in automated
slaughtering plants and stored in cold rooms beíore distribution and sale.
1he transportation oí poultry products is mainly by road, although occasionally, the air íreighting
oí day-old chicks is carried out o·er long distances. Usually the big hatcheries transport day-old
chicks in appropriately designed ·ans. Otherwise, other types oí ·ehicles ,cars, buses, truck,
motorcycles etc, are used. lrozen chicken are usually transported by processors to their sales
outlets, supermarkets and major customers in cool ·ans and reírigerated trucks. Retailers use all
types oí ·ehicles including motorcycles.
End-Markets and Trade
Li·e table birds are put in plastic and cane basket cages and then transported in all types oí
·ehicles. 1able eggs are packed in crates. 1he crates are stacked in cartons that are then
transported in all types oí ·ehicles. Li·e birds írom the rural sector are sold mainly by women
and children on ·illage market days, which oíten attract buyers írom other ·illages and urban
market agents. Some oí these agents assemble large numbers oí chickens bought írom a number
oí markets and con·ey them in large baskets in trucks to southern cities and towns íor sale.
1here is a concentration oí commercial poultry íarms based on exotic poultry in the South oí the
country ,especially the South-\est,, while most oí the rural poultry sector based on
indigenous` chicken and guinea íowl is íound in Northern Nigeria. 1hese regional
specialisations íorm the basis oí the inter-regional trade. 1he products oí commercial poultry,
especially írozen chicken, are mo·ed írom the Southwest to the North, in most cases, through
the lederal Capital 1erritory. On the other hand, the products oí rural poultry - li·e chicken and
guinea íowls - are mo·ed írom the North to the South, especially the Southwest.
1his inter-regional trade in poultry products has implications íor the transmission oí poultry
disease. 1he mo·ement oí signiíicant numbers oí li·e poultry írom the North to the South
pro·ides a potential route íor the transmission oí a·ian iníluenza and other poultry diseases.
Poultry products írom the South to the North are mostly processed, írozen and containerized,
thus minimizing the potential oí disease spread írom the South to the North.
69
Chain Governance and Linkages
In the ·arious poultry ·alue chains, go·ernance relationships typically in·ol·e relationship-based
interactions among actors. 1hey tend to be codiíied through the actions oí traders and collectors,
which mediate the exchange between producers and retailers. Iníormant inter·iews re·ealed
limited competition among li·e bird traders and collectors, with a small, poweríul group oí
collectors and distributors cornering large portions oí the business. 1raders also play an
important role in pro·iding credit to retailers, locking them into a relationship and limiting
retailers` bargaining power
lormalized standards in the poultry sector are oíten ad-hoc, with limited coordination among
chain actors to pro·ide consistency in the quality, íood saíety, or disease status oí poultry and
poultry products. Lnd consumers ha·e little input on the quality- and saíety-based attributes oí
li·e birds and poultry meat, and their willingness to pay íor higher quality probably is quite low.
1he go·ernment and industry associations play an important role in the poultry sector uniíying
interests oí commercial íarms. 1hey ha·e been able, to a certain extent, to closely monitor the
industry to ensure that rules are íollowed. 1he go·ernment controls the importation oí
grandparent and parent stock, sets rules íor hatchery operators, bans the importation oí ·arious
poultry products, insists on hygiene and bio security, and sanctions producers ,especially the not-
so-poweríul ones, that are not in compliance ,Akinwumi et al 2009,.
Availability of Finance
1he poultry sector has been able to attract íinancing írom the íormal sector. Gi·en the
proíitability oí the sector, medium to large egg producers, day-old chicken producers as well as
íeedstuíí producers ha·e been able to acquire íinance írom ·arious íinancial institutions.
Iowe·er, prospects íor growth suggest that the need íor íinance is substantial.
Finance requirements
On the basis oí the abo·e analysis the íinancial requirements in the ·arious segments oí the
poultry ·alue chain are identiíied as íollows ,see 1able A.¯,
1able A.7 Iunding requirements in the poultry value chain
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,
,
w
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s
a
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e
t
a
i
l
Need/
Purpose
Working
capital
Working
capital,
equipment
Working
capital,
equipment,
vehicles
Working
capital, fixed
assets (plant),
equipment,
vehicles
Fixed assets
(wholesale
warehouses/ storage)
Volume needed high high high low low
Risks low high medium low low
Interest low low Low low high
70
A.8 Rice
Rice is one oí the major íood commodities and is oí growing importance in Nigeria, in terms oí
consumption and policy. Rice production in Nigeria has not been able to match the growing
demand stimulated by increasing population growth, rapid urbanization, increasing incomes and
consumers` changing preíerence in terms oí cost, ease and short time oí preparation. Although
rice plays a relati·ely minor role in the diet oí many Nigerians compared to other carbohydrate
sources ,cassa·a, maize and yam, supplying less than 10 percent oí daily calories, Nigeria is the
largest rice importing country in \est Aírica. Lstimates írom \ARDA indicate that per capita
rice consumption has increased steadily since the 1980s, increasing írom 15.4kg,year in the
1980s to 25.4kg,year in recent years ,\ARDA 2006,.
Mapping the chain
Value chain actors are íarmers, threshers, millers, polishers, wholesalers, retailers and importers
,see ligure A.8,. Rice íarmers tend to períorm most oí these íunctions, except milling, which is
usually done by a cottage industry or large-scale rice mill. 1hreshing is usually done on the íield
either by machine or by hand, while drying is usually done on drying íloors or tapelines oíí íarm.
Many íarmers and íarm groups are now acquiring mechanical threshers. Rice consumers are
increasingly demanding quality polished rice without impurities. 1hus, there is growing demand
íor modern cost eííecti·e threshers.
Iigure A.8: Map of Nigerian Rice Value Chain
´ovrce: |´.íD 200·
Milling and transport are the acti·ities oí the next actors in the ·alue chain. Rice íarmers are
generally reluctant to ha·e their rice stored at any place but on the íarm or at their home. 1his
has implications íor warehousing. In the case where rice is stored by the íarmer, milling takes
place at a local mill on a íee basis. Other larger producers take the rice to be processed in
commercial mills that are oí ·arious sizes and ha·e quite diííerent eííiciency le·els, though larger
scale mills are generally more eííicient. Most íarmers sell the milled rice to wholesalers in the
market. Like with paddy, íarmers generally do not store milled rice, but sell it at the open
71
markets to local wholesalers, who later sell to retailers in the community and nearby places or
transport it to larger communities íor sale to retailers.
Primary Production and Sourcing of Inputs
Rice is culti·ated both on upland and in irrigated schemes in Nigeria. Box A.4 pro·ides an
o·er·iew on major locations oí rice production in the country. Upland rice production requires
lower labour input and generally produces lower yields. O·er the last 20 years, yields rose in rain-
íed and irrigated lowland en·ironments but remained ·ery low in upland en·ironments,
a·eraging about 1 M1 per hectare. Small-scale íarmers in the uplands ,the majority oí whom are
women, do not usually ha·e access to irrigation, and íarm in highly ·ariable conditions. Upland
rice culti·ation is characterized by slash-and-burn practices, primarily in the humid íorest zone.
1his production system is unsustainable due to increasing population pressure on land íorcing
upland rice íarmers to drastically reduce íallow periods or expand culti·ation toward marginal
soils leading to increasing erosion and degrading soils, and consequently leading to signiíicantly
reduced yields.
Rice production under irrigation schemes has pro·en to be the most ideal in Asia, this has not
been the case in Nigeria, largely due to poor planning, weak inírastructure management and
inadequate íunding íor operations and maintenance. 1he problems with maintaining and
operating irrigation schemes are numerous and ·ary by location. Agronomic constraints
identiíied in the large-scale irrigation schemes in Nigeria include alkalinity, salinity, nitrogen use
eííiciency, iron micronutrient toxicity, disease and pest management. 1here are also problems
associated with the low le·els oí mechanization, lack oí in·ol·ement oí íarmers, extreme
temperatures, access to inputs and credit and population íactors. Also, the irrigated schemes are
mostly made up oí small-scale íarmers with limited ability to íinance needed in·estments.
Box A.4: Major rice production ecologies and states
Production
Lcology
Major States Covered Share of
total
Rice
Area
Share of
1otal
Production
Average
Yield/Ha
Potential
Yield/Ha
(author
est.)
Rain-íed
Upland
Ogun, Ondo, Abua, Osun, Lkiti, Oyo, Ldo,
Delta, Niger, Kwara, Kogi, Sokoto, Kebbi,
Kaduna, lC1, and Benue
30° 1¯° 1.¯ M1 3.5 M1
Rain-íed
Lowland
ladama`,
Adamawa, Lbonyi, Ondo, Lkiti, Ldo, Delta,
Ri·ers, Bayelsa, Cross Ri·er, Akwa Ibom,
Lagos, and all major ri·er ·alleys
4¯° 53° 2.2 M1 5 M1
Irrigated Adamawa, Niger, Sokoto, Kebbi, Borno,
Benue, Kogi, Anambra, Lnugu, Lbonyi, Cross
Ri·er, Kano, Lagos, Kwara, Akwa Ibom, Ogun
1¯° 2¯° 3.5 M1 6 - ¯ M1
Deep \ater
lloating
llooded areas: Rima Valley in Kebbi State and
deep ílooded areas oí Delta State
5° 3° 1.3 M1 2.5 M1
Mangro·e
Swamp
Ondo, Delta, Ldo, Ri·ers, Bayelsa, Cross Ri·er,
Akwa Ibom
1° 1° 2.0 M1 4 M1
´ovrce: í¸eaivva 200º
Among the rice producing states, Kaduna is the largest producer oí rice in the country
generating suííicient surpluses oí paddy to supply other states. Demand íor rice is strong as a
result oí high income elasticity and its con·enience to prepare. As the íourth largest crop, growth
oí the rice ·alue chain should ha·e an impact on agricultural growth in the country. Rice trading,
processing ,parboiling, drying, milling, packaging, and íarming pro·ides a major source oí
employment and income íor large numbers oí people, thus ha·ing a strong de·elopment impact.
A major issue that requires attention is increasing rice producti·ity and enhancing quality oí
domestic rice. Planting oí high yielding ·arieties by íarmers, application oí yield enhancing
72
technologies, better management practices and the introduction impro·ed drying and milling
technologies are required íor upgrading the rice ·alue chain. Lqually important, a business model
that integrates the many smallholder rice íarmers in a commercially oriented production and
processing system is required.
Rice culti·ation also takes place in rain-íed lowlands ,ladama,, which includes inland basins,
ri·er ílood plains and inland ·alleys. 1hese production ecosystems are ·ulnerable to íloods and
droughts, thus water control technologies, which can signiíicantly increase yields, are required.
1here is a signiíicantly higher potential to increase rice production in this area, due to
go·ernment eííorts through the ladama project.
Nigerian rice consumers preíer parboiled rice. Imported rice largely írom Asia dominates the
market. 1he locally commercial rice - Oíada Rice is aromatic rice, gaining increase preíerence by
local consumers particularly in the Lagos area.
Processing Capacity and Technology
Domestic processing in Nigeria is constrained by lack oí adequate technologies and equipment
íor threshing, parboiling, milling, destoning and polishing, resulting in reduced quality. 1here is
great opportunity to increase quality standards through in·estments in impro·ed post-har·est
handling and processing practices in the rice ·alue chain. 1here is little mechanization in post-
har·est handling. Manual threshing by smallholders is ineííicient and leads to poor grain quality.
In response to the growing local demand íor rice, se·eral pri·ate rice companies ha·e planned
íuture in·estments in rice processing. 1hese companies intend to increase milling capacity
signiíicantly. Iowe·er, the problem oí organizing supplies and ensuring quality oí paddy
obtained írom the smallholder íarmers remain a problem. In some states, eííorts are being taken
by the state go·ernment to re·italize some old milling íacilities to stimulate producti·ity.
1he majority oí small scale millers process paddy on a íee basis rather than purchasing paddy
and selling rice. Parboiling - an expensi·e procedure íor processors located in peri-urban areas
as a result oí the high costs oí íirewood - is generally conducted by the producers or a
specialized, rural-based agent. 1he distribution oí the ·arious processing tasks among diííerent
operators reduces risk to each, increasing the resilience oí the ·alue chain. Iowe·er,
impro·ements in rice quality consequently require simultaneous upgrading by actors at se·eral
stages in the chain.
End-Markets and Trade
1here are two distinct markets íor rice in Nigeria. larmers are essentially subsistence producers
and consume most oí the rice that they produce. 1he marketed surplus` is sold to millers, at
local market places or in urban areas where consumption oí domestically produced rice is oí
growing importance. Nigeria imports substantial ·olumes and ·alue oí rice annually. 1hese
imports ha·e in íact set the domestic rice price in recent years. In order to meet the soaring
demand íor rice o·er the years, the country has resorted to imports to bridge the deíicit. Apart
írom oííicial imports to Nigeria, it is reported that substantial rice imported to Benin Republic is
re-exported to Nigeria. It is also reported that in recent years, paddy rice is being imported to be
milled in the country. Most oí the milled rice is transported to urban areas where demand íor
rice is on the increase.
Supporting markets are many íor rice and including seed, pesticide, íertilizer, warehouse receipts,
crop insurance, etc. 1hough important in support oí a ·iable rice economy, these markets need
to be de·eloped to better ser·e the ·alue chain actor eííecti·ely.
Competition íor domestic rice comes írom imported rice coming mostly írom Asia. Imported
rice is in most cases oí higher quality and better presented than local rice, thus urban consumers
73
preíer to purchase imported rice. Smuggled rice írom across the Benin border is a major concern
íor in·estors in domestic rice production and milling.
Chain Governance and Linkages
Vertical cross relationships in·ol·e acti·ities írom the íarm to the domestic market. Apart írom
the large-scale rice processing mills, which tend to integrate producers in the processing
acti·ities, the small rice production systems are less integrated. As these become integrated,
warehouse íacilities would need to be made a·ailable. At the milling and wholesale le·els
impro·ed technologies will ha·e to be de·eloped and implemented to insure that the rice íor
domestic market is oí high grade. Among other things this implies the consideration oí a grading
system which has integrity and that is consistent with international standards. In order to make
this eííecti·e, these grades will ha·e to permeate the rice production and distribution system.
1his would ha·e to be linked and also applied at the producer le·el. At this le·el, cooperation
between rice producers and processors is required to ensure that producers get better seeds and
other inputs so that they produce paddy that meet the standards and requirements oí the
processors. Public sector actions to encourage and íacilitate acti·e participation oí pri·ate sector
pro·iders oí ser·ices ,like tractor ser·ices, are required.
1he rice market is largely iníluenced by imported rice írom Asia. In this case, e·en the large-scale
rice mills do not control the market. Upgrading opportunities exists at ·arious segments oí the
rice ·alue chain. In particular, upgrading is required at the le·el oí input suppliers, production
organization and management, processing in terms oí equipments and packaging, ií domestic
rice is to ía·ourably compete with imported rice.
In order to increase the eííiciency oí the domestic rice production, íirm le·el upgrading is
essential. lirst the producers must íind themsel·es in an en·ironment that encourages adoption
oí new seed and modern input packages. larm records are an important part oí this transition.
1his will require a credit system and perhaps a crop insurance system to help the producers
manage the risk le·els oí the change.
Apart írom the more recent mills, se·eral oí the Nigerian rice mills are using outdated
technologies. In this respect, processing íirms must be upgraded and use modern and more
eííicient technologies and operations. 1his does not mean that íacilities must be large, just that
they must operate eííiciently. Producers, middlemen, wholesalers, traders and retailers must all
participate in these upgrading eííorts - and not to íorget the íoreign sector which should be
welcomed to participate in the necessary in·estments.
1he storage industry must change as well and gain the coníidence oí the market participants.
1his will require grading, guaranteed storage, warehouse receipts and acti·e trading so that all
members oí the industry can participate in this íunction oí a successíul ·alue chain. 1he
upgrading oí íirms must be in íinancial management as well as in equipment and other attributes.
Resource Productivity and Environmental Performance
Rice is a water lo·ing crop, thus good and eííicient irrigation, good seeds, íertilizer and related
management practices are required to increase yield and competiti·eness oí rice production. Rice
researchers estimate that with the addition oí pesticides and íertilizer and again management
methods, the potential yields could be increased to 8 tons,ha. Irrigation schemes are not
eííicient, while inputs particularly good seeds, íertilizers, pesticide are not readily a·ailable in the
required quantities and at aííordable prices. Contract laws are weak, making it diííicult to
promote contract íarming. Also, the íailure oí the credit system, which is usually segmented to
ser·e íarmers-market linkages, limits the proíitability oí rice production when compared to
imported rice.
74
Increasing domestic rice yields would make it possible íor the íarmers and the millers and
storage íirms to obtain better equipment. By increasing the utilization capacity oí existing rice
mills proíit margins could be increased in this part oí the ·alue chain. 1hus, íor instance
doubling the milling capacity utilization or storage would make these acti·ities ·ery proíitable
and encourage the purchase oí better and more eííicient machines. Making this part oí the
industry more eííecti·e and eííicient will be ·ery important in the íuture.
Macro Economic and Policy Context
1he rice ·alue chain is extremely sensiti·e to go·ernment policy. In light oí the growing imports,
the lederal Go·ernment recently increased the benchmark íor rice importation írom >590,ton
,about N88,500, to >640,ton ,N96,000, while duties payable on them, increased to 32 percent.
\hile this policy action is intended to promote de·elopment oí the domestic rice industry, it
leads to increase in smuggling acti·ities, though eííorts are taken to curtail smuggling by the
lederal Go·ernment.
1he recent price hikes in international rice prices has pro·ided an opportunity íor the domestic
rice market by closing the huge gap ,double, between domestic and international prices.
Iowe·er, producti·ity ,yields, oí domestic rice producers remains low.
lederal and state policies and institutions to increase rice producti·ity ha·e largely íailed. Until
recently, tariíí protection has been extremely high. 1hough the high tariíís ha·e encouraged
domestic production, a substantial smuggling operation has de·eloped to supply what is come to
be known as Cotonou Rice`. 1his smuggled rice sets the benchmark price íor domestic rice.
1he rice market is controlled by large-scale rice importers. 1hereíore, any major in·estments in
the rice ·alue chain need to assess the implications íor the importers. Also, there may be a need
to de·elop a strategy to encourage the increased production, milling and proper storage oí rice
produced locally.
Availability of Finance
linancial mechanisms can be de·eloped íor production, processing and storage oí rice that
permit all participants in the sector to participate. In the case oí production, íinancial products to
íacilitate input access to íarmers, processing technology, bonded storage and warehouse receipts
could also be a possibility íor rice ·alue chain. 1hese can be designed so that all in the ·alue
chain can participate and take the risks that they are comíortable with. linance íor working
capital and the purchase oí small utility equipment íor íarmer groups, cooperati·es and
indi·idual íarmers, groups or indi·iduals, is ·irtually nonexistent. Gi·en the high proíitability oí
rice production, processing and sales pro·ides an attracti·e íinancial business. 1here is huge
íinancing potential in production íor the supply oí inputs to íarmers. In the area oí production,
in·estment opportunities exist in land preparation equipments, while in the equipments íor post
har·est also pro·ides opportunity íor íinancing. Upgrading oí processing equipments to more
modern and eííicient ones also pro·ides business opportunities that require íinance.
Some larger processing plants also ha·e access to íinancing which they extend to producers. In
the case where the processor pro·ides loan to producers, payment is usually in the íorm oí
paddy deli·ered to the mill. In such cases, the processor pre-íinance production particularly íor
the supply oí inputs. OLAM pro·ides such support íor its network oí rice producers,suppliers.
Finance requirements
On the basis oí the abo·e analysis and inter·iews with key rice ·alue chain actors, the íinancial
requirements in the ·arious segments oí the ·alue chain are identiíied as íollows ,see 1able A.8,
75
1able A.8 Iunding requirements in the rice value chain
I
n
p
u
t
i
n
d
u
s
t
r
y
/
i
r
r
i
g
a
t
i
o
n
S
m
a
l
l
s
c
a
l
e
f
a
r
m
i
n
g
C
o
m
m
e
r
c
i
a
l
F
a
r
m
i
n
g
L
o
c
a
l
s
o
u
r
c
i
n
g
,
t
r
a
d
i
n
g
a
n
d
m
i
d
d
l
e
m
e
n
R
i
c
e
p
a
r
b
o
i
l
i
n
g
a
n
d
d
r
y
i
n
g
R
i
c
e
p
r
o
c
e
s
s
i
n
g
-
m
i
l
l
i
n
g
P
a
c
k
a
g
i
n
g
b
a
g
s
&
l
a
b
e
l
l
i
n
g
R
i
c
e
s
t
o
r
a
g
e
W
h
o
l
e
s
a
l
e
E
x
p
o
r
t
Need/
purpose
Workin
g capital
Working
capital
(inputs),
equip-
ment
(tech-
nology)
Working
capital
(inputs)
equip-
ment
Working
capital
Working
capital,
equipment
Working
capital
(supplier
credit),
equip-
ment
Working
capital,
equip-
ment
Working
capital,
fixed
assets
Working
capital,
fixed
assets
Pre-
and
post-
shipme
nt
Volume
needed
high low high low
(through
processors)
low high medium medium low low
Risks high high medium medium low low low medium low high
Interest low low low medium low medium high high high high
76
A.9 Soybean
Soybean is a relati·ely new crop in Nigeria, which is mostly culti·ated in the North \est, North
Last and North Central parts oí the country. Nigeria's domestic production oí soybeans is
continuing to increase, but still does not meet the rapidly growing demand írom the poultry
industry and ·egetable oil producers. 1he rapid growth in the poultry sector in the past íi·e years
has boosted demand íor soybean meal in Nigeria. Iowe·er, although domestic production has
been rising it has been unable to satisíy local demand. Nigeria's soybean output in 2009 is
estimated at 500,000 tons.
Mapping the chain
Soybean ·alue chain íollows a íairly linear path írom input companies ,seed, íertilizers, modern
land preparing equipments etc.,, through producers, traders up to processors and end product
consumers. \ithin this ílow, there is a sequential order oí partners that work together to take
soybeans írom one link in the chain to the next. Iowe·er, once soybeans reach the processing
stage, the possibility íor use extend in many diííerent directions, such as oil, meal or cake,
protein products and then in more speciíic uses oí each oí those soybean product components.
ligure A.9 below presents a simpliíied ílow oí soybean írom input market to end product
consumers.
Iigure A.9: Movement and transformation of Soya value across the chain
´ovrce: 1be avtbor.
1he Nigerian soybean chain is dominated by grain merchants who trade in any a·ailable product
depending on the season. 1he traders collect soybeans írom local market places in the major soy
production areas. 1hey are supported by commission agents and ·illage traders íor assembling
the commodity. 1he merchants then collect and sell to processing plants. 1he two main products
írom processing plants ,oil and meal, are sold through major markets ,wholesalers, who, in turn,
sell to distributors and supermarkets. 1he meal is bought by íeed millers direct írom the
processors and transported to the íeed mills and used as protein ingredient in the íeed mixture
and sold to li·estock producers - particularly the poultry sub-sector. 1hus, the demand íor
soybean íor commercial processing is deri·ed írom the demand íor li·estock íeed, which in turn
is deri·ed írom the demand íor li·estock products. Most signiíicant ·alue is added by the
processor and the íeed miller, who use soybean cake as input íor íeed íormulation.
77
Primary Production and Sourcing of Inputs
Most oí the soybean produced in Nigeria is by smallholder íarmers, with less than 5 ha land area.
1hey culti·ate soybean in association with cereals, mostly maize, sorghum or millet. More
íarmers are culti·ating soybean because oí the surging demand oí industry íor processing into
de-oiled cake and soybean edible oil in the domestic market. Iowe·er, the supply chain is not
organized and not well integrated with the emerging industrial processing. lactors aííecting the
períormance oí the commodity subsector include under-utilization oí installed capacity oí
·egetable oil mills that process soybeans, lack oí the state-oí-the art soybean reíineries. Most
proliíic regions íor production is Kaduna and Benue State while regions in the South- South-
\est as well as North Last are less adapted to soybean production ,see ligure A.10,.
Iigure A.J0: Soybean production in Nigeria in 2008
´ovrce: Preparea b, íí1. Ceo.patiaí íab, ^igeria 2010
Lack oí state-oí-the-art ·egetable oil reíineries that use eííicient means oí extracting oil írom the
crushed soybeans is another important constraint. 1he 1araku Mills in Makurdi is the only one
equipped with sol·ent extraction equipment, but not operating optimally, due to insuííicient
supply oí soybeans. Also, quality oí soybeans deli·ered to the processing plants is oí low quality,
which does not produce high quality edible oils. Assembling oí soybean o·er long distances íor
many smallholder íarmers, most oí the time with ·arying quality is an issue oí concern. 1his
could be sol·ed through contract íarming and with support írom processors.
Processing Capacity and Technology
Nigeria's installed annual soybean processing capacity is estimated at approximately 580,000 M1.
Due to limited production, only 40 percent oí installed processing capacity is utilized annually. It
78
is reported that there are eight large processors in Nigeria, accounting íor nearly 60 percent oí
Nigeria's soybean processing industry.
1he largest among them are Grand Cereals, Oil Mills and LC\A leeds, all located in Jos.
Others are located in Kano, Makurdi, and Katsina. Most oí the older mills use screw press
technology, which is ineííicient in extracting oil írom the crushed cake. 1hus, íinancing to
acquire new technology and machines could be a potential business íor banks, willing to íinance
the sector. As demand íor soybean is not the problem, eííorts should íocus on increasing supply
oí quality soybean, in·esting in more eííicient processing equipments both íor soybean
processing and íeed mills.
End-Markets and Trade
Li·estock íeed ,particularly poultry, market is the most important market íor soybean cake, while
the ·egetable oil obtained írom soybean is largely íor human consumption. Regarding the cake,
the li·estock íeed industry in Nigeria declined in the 1980s and 1990s, resulting in the exit oí
major multinationals operating in the industry lea·ing behind íirms that they had sold to
management or to third parties. 1hese íirms struggled to sur·i·e and were in decline until the
poultry import ban was imposed by the Go·ernment oí Nigeria, leading to signiíicant
commercial in·estment and consequent rapid growth oí commercial poultry production. O·erall,
the demand íor poultry products and meat is increasing rapidly, dri·en by rising incomes
amongst middle-income consumers and a high-income elasticity. Consequently, the market íor
poultry íeed is growing, dominated by direct sales to the large commercial íarms. Iowe·er, the
strong supply response has meant that prices oí írozen chickens ha·e not kept pace with
inílation.
Soybean is used as a major protein ingredient in breakíast and baby íoods. 1he meal is also used
to impro·e the protein content in carbohydrate íoods such as gari` ,a íood staple made írom
processed cassa·a,, which is widely consumed in the region. Soybean is also used in making soy
cheese in northern Nigeria, locally called wara` and consumed as a substitute íor meat and íish
in local dishes. Large-scale demand íor soybeans arises mainly íor the oil and protein-rich meal
deri·ed írom soybean crushing. Soybean meal deri·ed írom industrial processing goes to the
animal íeed industry as a high quality and eííicient protein source.
Chain Governance and Linkages
As supply oí suííicient and quality soybeans to the processing mills is the major problem, there is
no lead íirm in the soybean ·alue chain. Soybean producers are poorly organized and integrated
in the entire ·alue chain. Contract íarming between producers and millers does not seem to be
working, largely due to the inability to supply suííicient beans to the processing mills. \here
there has been some success integrating producers and processor, credits and ser·ices ha·e been
pro·ided by the to pre-íinance production acti·ities. Producers would then repay at the time oí
sale to the processor.
Coordination among chain actors is poor, characterized by many smallholder íarmers, íew
buyers and o·er capacity oí processing mills. Chain upgrading opportunities exist in organizing
the many smallholder producers into production units, making a·ailable quality seeds, and
building their capacity to produce and supply quality soybeans to the processing mills. Other
opportunities exist in technology upgrading oí existing processing mills. Iowe·er, any action to
eííect this upgrading would require a precise assessment oí the location and size oí existing
plants as well as determination oí the types oí technology in use and number oí producers that
could adequately and eííiciently supply soybeans to the processing plan.
79
Macro Economic and Policy Context
Despite the high potential íor extending soybean production and marketing to the íood and
íeedstuíí sector in \est Aírica there is currently a limited understanding about measures that are
able to help realize this potential. Go·ernments and agricultural and agro-industry de·elopment
agents are oíten in·ol·ed only in insigniíicant acti·ities which are geared to impro·ed ad·isory
ser·ices íor small scale íarmers and some credit-support íor agri-processors. \hat is needed is a
more holistic understanding oí the íunctioning oí the ·alue chain to be able to identiíy the
·arious, parallel existing bottlenecks in de·elopment and the design oí programmes that are able
to remo·e them and respond to the existing de·elopment opportunities.
Import oí ·egetable oils and poultry are on the list oí banned products to Nigeria. 1his situation
pro·ides an assured market íor locally produced ·egetable oil and soybean cake íor sale to
poultry íeed mills. 1he II1A, and IAR Zaria, Ibadan are leading research institutions de·eloping
impro·ed soybean ·arieties íor release and culti·ation in the country.
Availability of Finance and attractiveness
1here are no íormal íinancial arrangements in support oí market de·elopment íor soybeans.
1hus, the producers and the millers lack the needed capital to eííiciently link and manage the
chain. Iowe·er, soybean pro·ides an attracti·e business íor producers, processors and poultry
íeed millers. 1hus in·estments in certain segments oí the chain could pro·e proíitable. Major
demand íor soybean meal comes írom the poultry íeed millers, which is deri·ed largely írom the
demand íor poultry and other li·estock and li·estock products. Demand íor these products is
increasing largely due to increasing incomes and the high rate oí urbanization in Nigeria. It is
reported that some soybean or íeeds are exported to neighbouring countries.
Soybean processing requires a number oí equipments such as screw presses and sol·ent
extractors and íeed mills. 1he existing ones may need technology upgrading to meet quality and
saíety requirements as well as eííiciency. All oí these require access to íinance. Lquipment and
machinery íor larger processing plants are substantial and gi·en their stationary character are
more suitable íor securing loans. Iowe·er, banks would always require additional guarantees and
collaterals.
Finance requirements
1able A.9 Iunding requirements in the soybean value chain
I
n
p
u
t
i
n
d
u
s
t
r
y
S
m
a
l
l
s
c
a
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f
a
r
m
i
n
g
C
o
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i
a
l
F
a
r
m
i
n
g
L
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c
a
l
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o
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i
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,
t
r
a
d
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a
n
d
m
i
d
d
l
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m
e
n
F
o
o
d
P
r
o
c
e
s
s
i
n
g
W
h
o
l
e
s
a
l
e
E
x
p
o
r
t
Need/
purpose
Working
capital
(inputs,
labour)
Working
capital,
fixed assets
(land,
equipment)
Working
capital,
vehicles
Working
capital,
equipment
(medium-
long term)
Fixed
assets
(storage),
vehicles
Pre- and
post-
shipment
Volume
needed
none high high low
(through
processors)
high medium medium
Risks high medium medium medium low low
Interest low low medium high high high
80
A.10 Tomatoes
1omato has been in culti·ation in Nigeria íor a ·ery long time. It is an important component oí
the daily diet, consumed both íresh and in paste íorm.
Mapping the chain
Main actors in the chain include input pro·iders ,seeds, íertilizer, pesticides, irrigation systems,,
producers, small-scale processors, and retailers and, to a limited degree, industries that engage in
the production oí tomato paste and canned tomatoes. Production is dominated by small to
medium íarmers that ha·e reached a substantial le·el oí market orientation. Also a number oí
larger-scale commercial íarms operate in the sector, oíten with direct links to processors. ligure
A.11 pro·ides an o·er·iew oí the main segments oí the ·alue chain. In addition there are also
pri·ate ser·ice pro·iders including middlemen, traders and transporters, suppliers oí processing
equipment, suppliers oí packaging materials and to a limited degree, íinancial ser·ice pro·iders.
Public and de·elopment cooperation support is also pro·ided ·ia research and extension
agencies, most oí who íocus on primary production and small-scale processing.
Figure A???? Map of Tomato value cbain in Nigeria
´ovrce: .vvvi ava Mv.i, vo aate
Primary Production and Sourcing of Inputs
1he ·alue oí annual tomato production in Nigeria is estimated to be around 403 Mio USD
,lAOS1A1,. 1his means that tomatoes ranks 19
th
in the list oí most important agricultural
commodities in Nigeria. Production has almost doubled o·er the last 10 years reaching 1.¯ Mio
81
tons in 2008. Iowe·er, o·er the same period yields ha·e rather stagnated or e·en declined. In
2009 a·erage yields per hectare oí tomato production were around 64 tons. 1he production is
beset with many problems, such as diseases, nematodes, insect pests, high ílower drop, all these
resulting in low yield and poor quality íruits.
ligure A.12 pro·ides iníormation on tomato production in the country. 1omatoes are produced
around urban centres in the South where the costs oí transport and marketing are low. Iowe·er,
íor more commercial production Northern states such as Sokoto, Gombe, \obe, Kano and
Benue pro·ide good opportunities due to ía·ourable weather conditions.
Iigure A.J2: Iresh 1omato Production in Nigeria
´ovrce: .vivv ava Mv.a ;vo aate)
Processing Capacity and Technology
1here are estimations that about 30° oí total tomatoes produced in Nigeria annually are wasted
because oí the lack oí processing íacilities and preser·ation mechanisms. L·en large-scale
tomato íarmers lack appropriate processing or preser·ation íacilities to keep, transport and
transíorm larger ·olumes oí tomatoes. Processing machines are manually operated with an
operator at e·ery point thereby increasing personnel cost. Some processing machines are e·en
obsolete with spare parts una·ailable in the market. 1he access to stable power is another
challenge. 1he raw material supply is interrupted whene·er the price oí tomato rises and íarmers
sell to the íree market. linally cheap imports oí tomato-based products compete with the locally
processed products.
1o set up an eííecti·e and eííicient tomato paste and canning plant an in·estor needs the
expelling machine, blending machine, íilling machine, pasteurizer, washing machine, stainless top
working table, and canning machine. Most oí these machines can be sourced locally though
imported machinery may be oí higher quality. In any case there are substantial amounts oí
íinance required to obtain such equipment.
End-Markets and Trade
Demand íor processed tomato products in the country is high. Currently there are ·arious
brands oí tomato pastes and purees imported into the country. 1hey are used in the preparation
oí diííerent delicacies, particularly stew, and are used extensi·ely in restaurants, both small and
large. 1he demand íor these products is increasing.
82
1he main channel oí distribution in·ol·es the producers, the commission agents, the assemblers
or regional wholesalers, the urban wholesalers and retailers and íinally the consumers. 1he
producers sell to the assemblers in the rural assembly market through the commission agents
who recei·ed a commission per basket oí tomato sold. 1he assemblers or regional wholesalers
mo·e the product to the urban markets where they sell to the urban traders through the
commission agents in the urban markets and íinally the produce reaches the ultimate consumers.
At any le·el along the chain oí distribution, commission agents play the role oí intermediation
between the market middlemen íor a íee.
Other regional producers oí tomatoes include Ghana and Burkina laso. 1he latter has beneíited
írom íoreign in·estors, including 1aiwan to build up the industry, pro·iding training and seeds
and setting up irrigation schemes. Some oí the products oí these industries also pass Nigeria`s
borders where their good quality due to the ·arieties used competes directly with Nigerian
products.
Tomato product consumption and preferences
Consumption oí íresh and processed tomato as well as importation oí processed tomatoes in
Nigeria has increased dramatically since the late 1990s. Urban consumers buy tomatoes in three
diííerent íorms: íresh, dried and canned tomato products. 1he pattern oí consumption among
the consumers inter·iewed indicated the íollowing: 25° used íresh tomato only, 29° used íresh
and dried only, 24° used íresh, dried and canned tomato, 22° used íresh and canned tomato
only.
1his pattern shows that all the consumers used íresh tomato and thus is most preíerred among
urban consumers. Consumers used other íorms oí tomato ,dried or canned, only when the íresh
tomato is not easily a·ailable and thus its price is relati·ely high compared to the other íorms oí
tomato.
Chain Governance and Linkages
lresh tomato supply is seasonal. Controlled production under greenhouse conditions is not
common in Nigeria. Pro·iding íinance íor the pro·ision oí seeds, íertilizers and herbicides to
íarmers is oíten the only way oí getting íarmers to grow suííicient quantity and quality oí
primary products. Capital íor this type oí pre-íinancing oí agricultural production is usually ·ery
scarce as well. Sa·annah Integrated Lxport Processing larms in Borno state is one oí the lead
íirms in the sector that has introduced outgrower schemes ,see Box A.5,.
Box A.S 1omato Production in Borno State ÷ 1he SILPI scheme
Sa·annah Integrated Lxport Processing larms ,SILPl, in Borno State lends land to íarmers to produce
tomatoes íor its processing plant. 1he company works with 22 registered commodity groups and does
not deal with indi·idual íarmers directly. 1he company supports íarmers through pro·iding seeds and
extension ad·ice while also helping in mechanized land preparation. It pro·ides a guarantee to íarmers to
buy the product oí certain quality at a íixed price. 1he company pre·iously engaged in proper production
but íound that the use oí the outgrower scheme reduces stealing and increases output. A major challenge
remains with regard to the íinance oí important inputs such as íertilizer and herbicides: as íarmers ha·e
little or no collateral to pro·ide, íinance institutions do not pro·ide loans to pre-íinance production.
lurther pre-íinancing íacilities can be pro·ided by the company, howe·er lea·ing the pre-íinancing oí
íarmers` production entirely to the buyer,processors seems to o·erstretch the company`s capacity to
pro·ide íinance, as it also needs to in·est in expensi·e equipment to impro·e the portíolio oí products it
processes.
´ovrce: ívterrier ritb ´íííí ava íarver. ...ociatiov
83
Resource Productivity and Environmental Performance
Ln·ironmental concerns particularly relate to the use oí pesticides and herbicides in production
and the extensi·e use and contamination oí water in production and processing. Ln·ironmental
standards towards cleaner production controlling negati·e en·ironmental eííects are not in place.
Alternati·e technologies to a·oid contamination and reduce energy use are a·ailable but are
mostly considered too expensi·e. 1here is also a lack oí technicians in the industry who are
trained in en·ironmental management.
Macro Economic and Policy Context
\est Aírican trade laws impose no duties on agricultural products crossing borders, making it
cheap íor buyers to purchase abroad. \ith Luropean Union Lconomic Partnership Agreements
,LPAs, currently being negotiated, there is some risk that \est Aírican markets are about to be
ílooded with hea·ily subsidized LU products, unless LCO\AS introduces a common pricing
policy.
Finance requirements
1he abo·e analysis points to a number oí íinancial requirements in the ·arious segments oí the
·alue chain ,see 1able A.10,
1able A.J0: Iinancial Needs in the 1omato Value Chain
I
n
p
u
t
i
n
d
u
s
t
r
y
S
m
a
l
l
s
c
a
l
e
f
a
r
m
i
n
g
C
o
m
m
e
r
c
i
a
l
F
a
r
m
i
n
g
F
o
o
d
P
r
o
c
e
s
s
i
n
g
(
p
a
s
t
e
a
n
d
c
a
n
n
e
d
t
o
m
a
t
o
e
s
)
W
h
o
l
e
s
a
l
e
Need/ purpose Working capital,
fixed assets (plant)
Working capital
(inputs, labour)
Working capital
(inputs),
fixed assets
(short-medium
term)
Working
capital,
equipment
(machinery)
Working capital,
fixed assets (plant,
storage), vehicles
Volume
needed
none high high high medium
Risks high medium medium low
Interest low low high high
84
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UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION
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Printed in Austria
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2
nd
edition
doc_370956988.pdf
Unleashing Agricultural Development in Nigeria through Value Chain Financing
WORKING PAPER
November 2010
Unleashing Agricultural Development in Nigeria
through Value Chain Financing
CENTRAL BANK OF NIGERIA
BANK OF INDUSTRY
F. Hartwich
J. Devlin
P. Kormawa
I.D. Bisallah
B.O. Odufote
I.M. Polycarp
i
1his document has been prepared by l. Iartwich, J. De·lin and P. Kormawa oí the Agribusiness
De·elopment Unit, United Nations Industrial De·elopment Organization ,UNIDO, , I. D. Bisallah
oí the Bank oí Industry ,BOI,, Nigeria, B.O. Oduíote and I.M. Polycarp both oí the De·elopment
linance Department, Central Bank oí Nigeria ,CBN,. Valuable inputs were recei·ed írom UNIDO
colleagues A. Goodwin ,lisheries, and D. 1ezera ,lruits,. lor comments please contact:
í.hartwich¸unido.org
Disclaimer: 1he document represents work in progress and is intended to generate comment and
discussion. It is not a íully polished publication. 1he ·iews expressed herein are those oí the
author,s, and do not necessarily reílect the ·iews oí the United Nations Industrial De·elopment
Organization.
1he document may be íreely quoted or reprinted but acknowledgement is requested.
Reíerence:
UNIDO, CBN, BOI ,2010,. Unleashing Agricultural De·elopment in Nigeria
through Value Chain linancing. \orking Paper. No·ember 2010. United Nations Industrial
De·elopment Organization ,UNIDO,. Vienna, Austria.
ii
Unleashing Agricultural Development in Nigeria
through Value Chain Financing
Working Paper, November 2010
iii
ACRONYMS
ACGSl Agricultural Credit Guarantee Scheme lund
ACP Aírican, Caribbean and Paciíic Countries
AGOA Aírica Growth and Opportunities Act
AGRA Alliance íor a Green Re·olution in Aírica
ACSS Agricultural Credit Support Scheme
AU Aírican Union
BOI Bank oí Industry
CACS Commercial Agriculture Credit Scheme
CAADP Comprehensi·e Aírica Agriculture De·elopment Programme
CBN Central Bank oí Nigeria
CM1 Cut, Make and 1rim ,Operation in apparel industry,
COMlAR Computer Model íor leasibility Analysis and Reporting ,UNIDO Soítware,
COSOP Country Strategic Opportunities Programme
DlI De·elopment linance Institution
DOC Day Old Chicks
LCO\AS Lconomic Community oí \est Aírican States
LML Lmerging Market Lconomies
LPAs Lconomic Partnership Agreements
LU Luropean Union
lAO lood and Agricultural Organization
lC1 lederal Capital 1erritory
llA lree latty Acids
lIAS loreign In·estment Ad·isor Ser·ices ,oí the \orldbank,
GDP Gross Domestic Product
GON Go·ernment oí Nigeria
IPAI Iigh Patogenious Asian Iníluenza
IQCl Iigh Quality Cassa·a llour
IAR Institute oí Agricultural Research
ICA In·estment Climate Assessment
IlAD International lund íor Agricultural De·elopment
IlDC International lertilizer De·elopment Corporation
II1A International Institute oí 1ropical Agriculture
LLLDS Local Go·ernment Lconomic Lmpowerment and De·elopment Strategy
MAN Manuíacturers Association oí Nigeria
MARKL1S Maximizing Agricultural Resources in Key Lnterprises and 1arget Sites
MlB Micro linance Banks
NLLDS National Lconomic Lmpowerment and De·elopment Strategy
NACRDB Nigerian Agricultural Credit and Rural De·elopment Bank
NGOs Non-Go·ernmental Organizations
NIllR National lreshwater lisheries Research Institute
NIOMR Nigerian Institute íor Oceanography and Marine Research
NIRSAL Nigerian Incenti·e-based Risk Sharing System íor Agricultural Lending
NPPAN National Palm Produce Association oí Nigeria
NSM Nigeria Starch Mills
N1MA Nigeria 1extile Manuíacturing Association
NVRId National Veterinary Research Institute
P\C PricewaterhouseCoopers
ReSAKSS-\A Regional Strategic Analysis and Knowledge Support System \est Aírica
iv
RMRDC Raw Materials Research and De·elopment Council
SLLDS State Lconomic Lmpowerment and De·elopment Strategy
SILPl Sa·annah Integrated Lxport Processing larms
SML Small and Medium Scale Lnterprises
SMLCGS Small and Medium Sized Lnterprises Credit Guarantee Scheme
UNIDO United Nations Industrial De·elopment Organization
US United States
USAID United States Agency íor International De·elopment
\ARDA \est Aírican Rice De·elopment Association
\B \orld Bank
v
vi
Table of Contents
LXLCU1IVL SUMMARY
J. IN1RODUC1ION...........................................................................................................J
2. S1UDY APPROACH AND ML1HODOLOGY ........................................................... 3
2.1 LN1R\ POIN1S IN VALUL CIAIN DLVLLOPMLN1...................................................................... 3
2.2 SPA1IAL DIS1RIBU1ION Ol VALUL CIAINS ................................................................................... 4
2.3 IDLN1Il\ING VALUL CIAIN lINANCING NLLDS......................................................................... 6
2.4 SOURCLS Ol VALUL CIAIN lINANCL........................................................................................... 11
3. ML1HODOLOGY AND DA1A COLLLC1ION........................................................J2
3.1 ML1IODOLOG\............................................................................................................................. 12
3.2 S1UD\ LOGIC .................................................................................................................................. 14
3.3 DA1A COLLLC1ION........................................................................................................................ 15
4. A ROADMAP IOR VALUL CHAIN IINANCL.........................................................J6
4.1 DLCIDING \ILRL 1O INVLS1...................................................................................................... 16
1.1.1 Dereíopvevt Potevtiaí ............................................................................................................... 1ó
1.1.2 íivavciaí veea........................................................................................................................... 1·
1.1.² 1orara. a íivavcivg .trateg, .................................................................................................... 1·
4.2 CROSSCU11ING CIALLLNGLS AND OPPOR1UNI1ILS ............................................................... 21
1.2.1 Privar, Proavctiov ava ´ovrcivg of ívpvt. ................................................................................ 21
1.2.2 Proce..ivg Capacit, ava 1ecbvoíog, ........................................................................................... 2²
1.2.² íva Maríet. ava 1raae........................................................................................................... 2:
1.2.1 Cbaiv Corervavce ava íivíage................................................................................................ 2ó
1.2.: Re.ovrce proavctirit, ava ívrirovvevtaí Perforvavce................................................................ 2¨
1.2.ó Macro ícovovic ava Poíic, Covte·t ......................................................................................... 2¨
1.2.¨ .raiíabiíit, of íivavce.............................................................................................................. 2¨
S. CONCLUSION AND RLCOMMLNDA1IONS ........................................................ 32
5.1 CIOOSING \ILRL 1O INVLS1 ..................................................................................................... 32
5.2 AGRICUL1URAL VALUL CIAINS AND 1ILIR lINANCIAL NLLDS .............................................. 32
5.3 DLSIGNING VALUL CIAIN lINANCL SUPPOR1......................................................................... 33
ANNLX: DIAGNOS1ICS OI VALUL CHAINS............................................................ 3S
..1 Ca..ara ...................................................................................................................................... ²:
..2 Cottov......................................................................................................................................... 10
..² íi.berie....................................................................................................................................... 46
..1 Mai¸e ......................................................................................................................................... :2
..: írvit. ......................................................................................................................................... :¨
..ó Paív Oií .................................................................................................................................... ó1
..¨ Povítr,........................................................................................................................................ óó
..º Rice ............................................................................................................................................ ¨0
..· ´o,beav ...................................................................................................................................... ¨ó
..10 1ovatoe. .................................................................................................................................. º0
LI1LRA1URL RLILRLNCLS ...................................................................................... 84
vii
Executive Summary
1he Central Bank oí Nigeria is proposing the Nigerian Incenti·e-based Risk Sharing System íor
Agricultural Lending ,NIRSAL, in response to challenges with agricultural de·elopment and lack oí
íinance íor agribusiness in Nigeria.
1his report looks at the needs íor íinance in ·arious agricultural ·alue chains in the country and
opportunities íor how banks can react to these, laying out new and inno·ati·e methods to increase
lending to the agricultural sector.
1he íindings presented in this report are based on a study oí selected agricultural product ·alue
chains in Nigeria, ten in total: cassa·a, cotton, íisheries, maize, íruits, palm oil, poultry, rice,
soybean, and tomato. 1he study was carried out by a team oí experts írom the Bank oí Industry,
Nigeria and the Central Bank oí Nigeria, with technical support írom UNIDO`s Agribusiness
De·elopment Branch, Vienna, and íollowed UNIDO methodology íor ·alue chain de·elopment
diagnostics.
1he report pro·ides a detailed analysis oí each ·alue chain, qualiíied iníormation on íinancing
requirements íor each segment oí the ·alue chains, and identiíies opportunities to íinance
operations along the chains. It íurther pro·ides actionable recommendations íor impro·ing
producti·ity, income and growth in the key ·alue chains through íinancing and technical assistance.
Ultimately, the selection oí target ·alue chains could be made on the basis oí de·elopment
objecti·es and íinancing needs oí the ·alue chains. Any íinancial support a ·alue chain and its
indi·idual actors will íurther depend on the íinancial attracti·eness oí the ·alue chain business
opportunities to the íinancing institution, and the íinancial products and incenti·e schemes a·ailable
to the íinancing institutions.
1he main íindings oí the report in relation to ·alue chains and their íinancing needs are:
• 1he potential íor the de·elopment oí agricultural ·alue chains in Nigeria is substantial and
promising, both írom the supply ,suííicient natural resources, and demand ,large domestic
market, opportunities íor export, perspecti·e.
• 1he ·alue chains examined are characterised by a preponderance of smallholders, and
relatively few processors who encounter se·ere challenges in the acquisition oí suííicient
quality raw materials, technology, and marketing. 1here are few lead firms that promote
impro·ing the operations oí their buyers and suppliers. Other íorms oí ·alue chain
coordination and selí-organization oí actors are rare and limited to new initiati·es like the
Commercial Agriculture. 1here is ·irtually no go·ernment support to ·alue chain
coordination.
• 1here are many de·elopment programmes that support ·alue chain de·elopment. In parts
they also deal with the issue oí íinance. Iowe·er, the type oí íinance they pro·ide is not
suííicient to co·er the needs oí the entire ·alue chain.
• Iinancial needs are particularly acute for farmers, who can rarely access a suííicient
amount oí íinance to operate their businesses proíitably. 1here many small agribusinesses
in primary processing which can increase proíitability through technological upgrading and
organization, but also íind it diííicult to access íinance íor this.
• 1he íinancial needs oí medium to large agro-processing units relate mainly to long-term
credit íor equipment ,upgrading technology and impro·ing quality, and credit lines to pre-
íinance agricultural production oí their suppliers.
• 1he existing íinancial products are tailored to needs íor equipment and short-term working
capital. Iowe·er they are ill-íitted to pro·ide money to agricultural producers that need to
íinance the entire cycle oí agriculture production which can take up to one year íor annual
viii
crops or more íor perennials and li·estock. larmers - and this is not only news írom this
report - ha·e terrible diííiculties in obtaining credit as they cannot pro·ide collaterals that
satisíy íormal íinancial institutions.
• Iinancial needs in other parts of the value chain are less acute, and depend on
relationships and chain organizations. In general the input industry and exporters appear to
ha·e better access to íinance, including through international markets
1he key recommendations to be taken into account in the design oí any ·alue chain íinance support
scheme ,including NIRSAL, are:
1. A wide range of innovative financial products and services such as insurance, o·erdraíts,
íactoring and leasing, as well as in·estment loans, guarantees, etc. are required to meet the
di·ersity oí needs. 1his also implies working with a combination of financial service
providers, not just the íormal banking sector ,e.g. micro-íinance institutions,, including building
·ertical linkages in the íinancial sector.
2. Lending to actors in agricultural ·alue chains requires a thorough assessment and
understanding of the value chain and careíul identiíication oí needs and opportunities on the
diííerent le·els oí the chain. Pro·iding large-scale loans to a íew e·entually promising agro-
processing units will not render quick-wins ií the rest oí the ·alue chain is not recei·ing
necessary support as well. Particularly, positi·e eííects on incomes and po·erty cannot be
achie·ed by looking at processing operation alone.
3. 1here is a need to build vertical linkages in the íinancial sector and to leverage the existing
chain linkages to pro·ide suííiciently comprehensi·e íinancial ser·ices to ·alue chains.
4. Speciíic considerations should be made íor accessing ·alue chain segments in rural areas
which are not well-ser·ed by íormal íinancial institutions, particularly commercial banks. In case
commercial banks are not present, alternati·e institutions must be identiíied, e.g. community
banks, cooperati·e groups, rural micro-credit institutions and others.
5. In the design oí any ·alue chain íinance support scheme one needs to be aware oí the existing
forms of formal and informal finance provision in speciíic ·alue chains. Despite the íact that
íinance to ·alue chain actors is commonly scarce and insuííicient, the existing íormal and
iníormal íinancial mechanisms may complement any additional support scheme. At times they
also can conílict with them when it comes to guarantees and collaterals.
6. Iinance is only one condition íor businesses in the ·alue chain to be proíitable.
Complementary conditions are crucial and ha·e to be accurately reílected in any analysis oí
íinancial attracti·eness. Demand for non-financial services exists at all points along the
chain ,impro·ed technologies, business planning, market de·elopment, management technical
assistance,. Pro·iding adequate technical assistance and íinancial ser·ices together in a
commodity chain will lead to more proíitable competiti·e businesses.
¯. Any scheme should build on existing models with proven track record in ·alue chain
íinance in the country. Banks can collaborate with these programmes beneíiting írom their
knowledge and expertise regarding the situation in particular ·alue chains. 1his may constitute a
íield íor achie·ing ´quick wins¨.
8. Most oí the commercial banks are not engaged in agricultural lending, and existing schemes to
encourage them to do so ha·e been less eííecti·e. 1his raises two questions: whether or not
commercial banks have a comparative advantage o·er other íinancial institutions ,such as
DlIs - NACRDB, BOI,, and which incentives would be required ,and at what cost, to entice
commercial banks to participate in agricultural ·alue chain íinancing·
1
1. Introduction
In response to challenges within the current scheme oí agricultural lending in the country, the
Central Bank oí Nigeria ,CBN, is proposing a new approach to íinance oí agriculture and
agribusinesses - the Nigerian Incenti·e-based Risk Sharing System íor Agricultural Lending
,NIRSAL,.
1his system intends to pro·ide incenti·es to ,a, stimulate inno·ations in agricultural lending, ,b,
encourage banks that are lending to agricultural sector, ,c, eliminate state dependency by banks
íor deploying loanable íunds to agriculture, ,d, le·erage commercial bank balance sheets íor
lending into agriculture, and most importantly ,e, ensure risk sharing approaches that will build a
business approach where banks share in the risk to lending to the sector ,AGRA and P\C
2010,. Value chain íinancing is one inno·ation that could encourage banks and other íinancing
institutions to increase lending to the agricultural sector.
1he iníormation in this report has been put together to support the eííorts oí the CBN and
other íinancing institutions interested in agricultural lending to design appropriate ·alue chain
íinancing products in Nigeria. 1he main outputs oí the study are:
,i, An o·er·iew oí de·elopment in most important agricultural ·alue chains.
,ii, linancial needs in most important agricultural ·alue chains identiíied, at the le·el oí the
whole chain as well as in each oí its segments.
,iii, A set oí recommendations íor the de·elopment oí íinancial strategies and products to
support agricultural ·alue chain de·elopment in Nigeria.
Value chain de·elopment has almost become a magic íormula íor sustainable agricultural
in·estments. An agricultural ·alue chain consists oí a series oí acti·ities that add ·alue to a íinal
product, beginning with production, linking with processing, getting the íinal product, and
marketing, sale to the end user or consumer and disposal aíter use. It is because oí the
interdependence and linkages between the acti·ities that a clear understanding oí the chain,
market íor the íinal product, and the ·arious actors oí the chain is important not only íor
íinancing or in·estment decisions, but íor de·eloping the entire chain. In ·alue chain íinancing,
an assured and proíitable market is required íor the producers and processors íor their products.
An assured market reduces íinancial risk, thus making it easier to obtain íinancing at lower cost
írom banks and other íinanciers. 1hereíore, banks and other íinancing institutions need to
understand in·estment opportunities at ·arious segments oí ·alue chains, to better de·elop and
pro·ide diííerent íinancial products that suit the ·arious actors and segments oí the chain.
Value chain íinance as a concept reíers to íinancial products and ser·ices that ílow to or through
any point in a ·alue chain in order to increase returns on in·estment, growth and
competiti·eness oí that chain. 1he pro·ision oí íinancing among ·alue chain actors, íor instance
processors gi·ing credit to íarmers to enable them to acquire inputs, is already an established
practice in many chains, although it may not be concei·ed oí in such terms.
Nonetheless, a thorough understanding oí ·alue chain íinance is important to address the
constraints that limit producti·ity and de·elopment oí ·alue chains in Nigeria. linancial
constraints at one point in a chain can impact other points, and sol·ing a credit problem in one
segment can ha·e knock-on eííects íor the rest oí the chain. Lqually, logistical or other non-
íinancial problems in one part oí a chain can oíten maniíest themsel·es as íinancial problems,
such as unreliable input supply leading to higher need íor working capital. 1hus, íinancial needs
oí chain actors should be ·iewed in combination with other inter·entions along the ·alue chain.
lrom a ·alue chain íinance perspecti·e, the risks and returns oí the íinance pro·ider are
considered along with the risks and returns to ·alue chain actors. linance pro·iders to a chain
range írom banks o·er micro-íinance institutions to other non-bank íinancial institutions.
2
In general, these pro·ide íinance and ser·ices to ·alue chain actors directly in·ol·ed in
production, processing or marketing oí products. Lach oí these ha·e diííerent incenti·es íor
íinancing the ·alue chain, ha·e diííerent return expectations, and diííerent abilities to manage
risk. 1his report has been put together to pro·ide a clear understanding oí some major
agricultural ·alue chains in Nigeria as well as their íunding needs and to guide decisions in the
implementation oí the NIRSAL.
A major hypothesis in this report is that any integrated support scheme íor agricultural ·alue
chain íinancing requires a more proíound understanding oí the underlying conditions íor ·alue
chain de·elopment. Such understanding is required íor two reasons: ,a, to design the íinancial
products that íinancing institutions can lay out to respond to the íinancial needs oí ·alue chain
actors, and ,b, to e·aluate the íinancing needs oí indi·idual ·alue chain actors beyond the
traditional criteria.
1his report is based on a study conducted within the íramework oí supporting the Central Bank
oí Nigeria in craíting a blueprint íor stimulating bank and other íinancing institutions lending to
agriculture through ·alue chain íinancing.
1he study examines ·arious segments oí the 10 most promising agricultural product ·alue chains
in Nigeria ,including cassa·a, rice, maize, soybean, cotton, ·egetables,tomato, íisheries, palm oil
poultry and íruits, and pro·ides qualiíied iníormation on íunding requirements íor each segment
oí the ·alue chain, which together would enable accelerated ·alue chain de·elopment. It
identiíies opportunities to íinance agribusinesses along selected ·alue chains. It pro·ides
iníormation to support decisions oí íinancial institutions as well as de·elopment agencies
interested in ·alue chain de·elopment in Nigeria.
1he study has been carried out by a team oí experts írom the Bank oí Industry, Nigeria and the
Central Bank oí Nigeria, with technical support írom UNIDO`s Agribusiness De·elopment
Branch, Vienna. 1his report pro·ides an o·er·iew oí major agricultural ·alue chains in Nigeria
and suííicient iníormation to elicit actionable recommendations íor impro·ing producti·ity,
income and growth in the key ·alue chains through íinancing and technical assistance.
1he report is organized as íollows: lollowing the introduction, Chapter 2 introduces the
approach oí the study making reíerence also to the concept oí ·alue chain de·elopment, spatial
segmentation and ·alue chain íinance. Chapter 3 introduces the methodology used íor data
collection and analysis. Chapter 4 de·elops main inroads into ·alue chain de·elopment
opportunities ·ia íinance on the basis oí iníormation gathered on 10 ·alue chains ,detailed
discussion oí those ·alue chains is pro·ided in the Annex,. Chapter 5 pro·ides a set oí
recommendations to support the public and pri·ate sectors institutions and particularly the
banking and other íinancial sectors in their pursuit to stimulate and support agricultural ·alue
chain de·elopment in Nigeria.
3
2. Study approach and methodology
2.1 Entry Points in Value Chain Development
1his study is grounded in the concept oí ·alue chain de·elopment. Value chains are mechanisms
that allow producers, processors, buyers, and sellers - separated by time and space - to add
·alue to products and ser·ices as they pass írom one segment oí the chain to the next, until the
product gets to the íinal consumer ,see ligure 1,.
Iigure J: Generic Value Chain with Public and Private Support Services
´ovrce: |^íDO 2010
Actors in a ·alue chain operate under certain constraints with regard to the a·ailability and access
to resources, intra- and inter-íirm organization, a·ailability and use oí knowledge and technology,
markets and the a·ailability and quality oí public and pri·ate support ser·ices in transport,
storage and íinance.
All oí these determine costs and returns at each segment and ultimately deíines the actors` proíit
margins as the product mo·es along the chain. Ií their margins turn negati·e the actors sooner
or later may drop out oí the ·alue chain. Ií a whole segment oí the ·alue chain íaces negati·e
margins then the de·elopment oí the ·alue chain is seriously constrained.
In such situations, policy makers and agencies concerned with the de·elopment oí ·alue chains
must consider measures that help actors in ·alue chain segments to restructure their cost base
and impro·e proíitability. 1his can be achie·ed, íor example, through introducing technological
inno·ations or more eííicient organization oí supplier-buyer relationships.
Value chain de·elopment can be supported and accelerated through a ·ariety oí ser·ices that
help to increase períormance oí actors in the chain, such as producers and processors. 1his can
be achie·ed íor example through impro·ed business planning and access to knowledge and
technology or through pro·iding support ser·ices in the íields oí market intelligence,
administrati·e support, initiation oí business relationships, contracting, transport, energy supply,
telecommunications inírastructure, íinance, etc..
Value chain de·elopment cannot come írom outside the chain but rather requires the initiati·e
oí pri·ate entrepreneurs who take action in the business processes in the ·arious segments oí the
chain, and also in the coordination between those processes.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Available margin:
depending on
resources,
organization,
knowledge,
technology and
private/public
services.
Private Services (Transport, Warehousing, Certification, etc..)
Private Finance and Insurance Services
Public Services & Development Support (Policies, Regulations, Incentives, etc.. )
4
1here is a strong interdependence between the processes in the ·arious segments oí the chain.
lor instance, ií one segment is unproíitable or is generating inadequate or insuííicient output,
other segments are likely to be negati·ely aííected. lor example, ií the quality oí a product, such
as pineapples, is not appropriate, consumers will reíuse buying pineapple juice made írom them,
or ií the supply oí pineapples is not suííicient, pineapple juice producers cannot íulíil market
demands and may resort to import oí pineapple concentrates, as it is the case in Nigeria.
2.2 Spatial distribution of value chains
Value chains cut across regions. lor example, the palm oil and cocoa ·alue chains are rooted in
Nigeria`s Southern region where oil palms and cocoa are grown. Location speciíicity, howe·er,
must not extend o·er the entire chain. Rather the good - ií not optimal - location oí speciíic
transíormation and ·alue addition processes depends on the bulkiness oí the product, the
a·ailability oí labour and ·arious resources and costs oí transport and distribution to the market
and consumers. By no means, the location oí businesses oí one ·alue chain is bounded to one
geographical region or state. \hile production may occur in one region, processing, íurther
transíormation, whole sale and consumptions may occur in others ,see example oí the Leather
·alue chain in Box 1,. lor this reason, the ·alue chain approach is sometimes less compatible
with approaches that put geographic limits such as geographic cluster de·elopment, growth-pole
de·elopment or the bread basket approach.
Box J: Spatial location of businesses across Nigeria's leather value chain
Iides íor leather production are sourced in the Northern parts oí Nigeria and e·en across the Northern
border where cattle production is pre·alent. Meanwhile the treatment oí the hides and their
transíormation to leather can be períormed in Kano, which is also the centre oí trading íor hides. lurther
transíormation oí leather into products that are used íor íurniture, garments and shoes howe·er, may be
located in Lagos where there is ample access to semi-skilled labour and where the distribution to retailers
and shops can be organized in a more direct way. 1his last part oí the ·alue chain, howe·er, is only
rudimentarily de·eloped.
´ovrce: 1be avtbor.
Bounding ·alue chain support to businesses oí only one particular geographical region can
negati·ely aííect de·elopment opportunities in the chain. Indeed, ·alue chains can build part oí
their competiti·e strength írom the combination oí comparati·e ad·antages that ·arious
locations oííer to operate in its diííerent segments. 1he combination oí locations makes the
·alue chain competiti·e.
Part oí the need íor accelerated ·alue chain de·elopment in Nigeria may originate írom the íact
that most oí the country`s ·alue chains still do not make the best oí the opportunities íor spatial
segmentation oí businesses along the ·alue chain. Or worse, some ·alue chains ha·e not
succeeded to allocate processing and íurther transíormation industries at suitable locations.
ligure 2 pro·ides iníormation regarding the spatial distribution oí businesses in primary
agricultural production as well as processing. Production is measured through ·alue oí
agricultural production in 2006 allowing a comparison oí the most important crops ,Nwaíor,
Diao and Alpuerto 2010,. Only the most important products per state are depicted. No
distinction is made between the diííerent types oí processing. Simply the existence oí a
processing plant was enough to indicate that processing is taking place in a region. Despite the
limited iníormation base, the íigure pro·ides a clear indication that processing is not necessarily
located in the same regions as production. It íurther shows that processing industries are not
abundant and are oíten located around urban agglomerations such as Lagos and Kano.
Processing oí more bulky products is more dispersed and oriented towards the sites oí primary
production.
5
Iigure 2: Location of production and processing of main agricultural commodities
´ovrce: Preparea b, íí1. Ceo.patiaí íab, ^igeria
In conclusion, ·alue chain de·elopment can be initiated through the building oí competiti·e
businesses in any gi·en segment oí the chain. 1he existence oí such competiti·e and growing
businesses constitutes a kind oí segmental growth pole`. Iowe·er, de·elopment in one
segment may not be enough ií it does not spill o·er into the other segments oí the ·alue chain,
o·erall de·elopment oí the chain is limited to its weakest parts. lor policy makers and in·estors
it is thereíore important to identiíy growth poles in ·alue chains but also to íocus on the weaker
segments oí the ·alue chain and to deíine measures to strengthen those and remo·e bottlenecks.
6
2.3 Identifying value chain financing needs
Actors in the ·arious segments oí a ·alue chain require íinance to buy and transíorm products,
to expand operations or to upgrade and explore new markets. linancing needs ·ary across and
within ·alue chains. In this respect, the starting point íor analysis íor the design oí appropriate
íinancial products is to recognize the centrality oí cyclical trends, which aííect agricultural ·alue
chains.
1he appropriateness oí diííerent types oí íinance ,products, will ·ary depending on the segment
oí the chain, and on the purpose oí the credit ,need,. Lach segment oí the chain may require a
diííerent mix oí short, medium and long-term íinance. Ia·ing established the íinancial need, a
match can be made to the appropriate íinancial product on the basis oí corresponding tenor
,duration, and on the underlying risk oí the in·estment to be íinanced.
In practice, short-term credit needs, such as working capital, can be íinanced by an o·erdraít or
re·ol·ing credit line or on the basis oí assets a·ailable to business. Similarly, íixed assets can be
íinanced by term loans, mo·eable assets by ·ehicle & asset íinance, and agricultural inputs by
agricultural production loans ,short-term credit repaid in íull at end oí each season,. ligure 3
show the ·ariation in both the purpose oí íinance, and the type oí íinance, along segments oí the
chain.
Iigure 3: Lntry points for value chain financing
´ovrce: |^íDO 2010
1able 1 shows the ·ariation in both the purpose oí íinance, and the type oí íinance along
segments oí the chain. It illustrates that ·arious segments oí agricultural ·alue chains require
diííerent types oí íinance, and diííerent mixes oí short-, medium- and long-term credit as well as
other ser·ices.
In order to better understand the íinancial needs in diííerent segments oí a ·alue chain, it is
worth highlighting some general considerations íor assessing opportunities íor agricultural ·alue
chain íinance. lirstly, as with any borrower, íinance pro·iders to any ·alue chain actor need to
assess risks oí lending to the sector ,production,yield, price,market, and di·ersiíication,.
Secondly, íinance pro·iders need to assess the indi·idual creditworthiness oí the borrower,
which entails a process oí screening, and contract eníorcement. Creditworthiness depends on
borrowers` ability and willingness to repay. lrom a ·alue chain perspecti·e, these are both
correlated with a desire to preser·e a relationship with a íinance pro·ider, be it a íinancial
institution, a buyer, or a supplier. One option íor lenders is to e·aluate the stickiness` oí
relationships to assess whether direct íinancing oí producers or indirect íinancing oí their
suppliers or buyers is more appropriate.
7
1able Ja: Iinancing needs and corresponding types of finance
in value chain segments
Need/ purpose Type of finance
Working capital (including
credit to customers)
• Overdraft
• revolving credit line
• Asset-based finance – factoring (accounts receivable),
inventories etc
Input
Industry
Fixed assets (plant,
property)
• Term loan
• Commercial property finance
Inputs/land preparation • Short-term agricultural production loan
• Revolving credit line
• Supplier credit (from input industry)
• Advance payment (from processors)
Operating expenses • Short-term agricultural production loan
• Revolving credit line
• Supplier credit
• Advance payment
• Warehouse receipt system
Primary
Production
Equipment • Term loan
• Vehicle& asset finance (leasing, rental, instalment sales)
Working Capital
(including advance
payments to suppliers)
• Overdraft
• Revolving credit line
• Asset-based finance – factoring (accounts receivable),
inventories etc
Fixed Assets (plant,
property)
• Asset finance (leasing, rental, installment sales)
• Commercial property finance (warehouses, factories,
industrial premises)
1st/2nd Level
Processing
Equipment (machinery,
capital equipment)
• Term loan
• Vehicle & asset finance (leasing, rental, installment sales)
Working capital • Overdraft
• Revolving credit line
Wholesale,
Retail &
Marketing
Fixed Assets (incl.
wholesale warehouses,
transport vehicles etc.)
• Term loan
• Commercial property finance
• Vehicle & asset finance
Export Working capital (pre- and
post-shipment)
• Export credit line
• Letter of credit/forfaiting
• Bills of exchange
• Factoring
1able Jb: Crosscutting financing needs
and corresponding types of finance in value chains
Need/ purpose Type of finance
Storage Working capital • Overdraft
• Revolving credit line
• Asset-based finance – factoring (accounts receivable),
inventories etc
Fixed Assets • Commercial property finance
• Term loan
Trading Working capital • Overdraft
• Revolving credit line
Transport Working capital
Vehicles
• Vehicle & asset finance
• Overdraft
´ovrce: 1be avtbor.
8
1hirdly, the issue oí collateral is crucial íor the design oí appropriate íinancial products. Land is
usually a preíerred security as it is immo·able, howe·er the absence oí íunctioning rural land
markets is still a constraint and the costs oí eníorcement íor both mo·eable and immo·able
assets can be high.
A íourth íactor is the high costs oí pro·iding íinance to agricultural ·alue chain. 1he borrowers
generally lack credit history, may not ha·e records oí their business and are dispersed o·er large
areas. 1heir demand íor íinance is largely seasonal, necessitating a quick turnaround time oí
applications. Borrowers themsel·es are also sensiti·e to transactions costs, tra·elling to bank
oííices entails monetary costs, as well as opportunity costs íor their labour in times oí peak
acti·ity. Strategies to reduce costs can be adopted, such as streamlining oí procedures, standard
loan appraisal indicators, decentralization oí appro·als to branches, and appropriate route-
planning. linally, the degree oí íormality or iníormality in the ·alue chain is important in
determining access to íinance, as iníormal enterprises tend to be smaller, less transparent and
ha·e much greater diííiculties in accessing íinance.
1he íollowing paragraphs pro·ide íurther iníormation on the type oí íinancial ser·ices that
certain segments oí the ·alue chain require:
Input industry: Input pro·iders usually require íinance to in·est in íixed assets, such as
plant and property, equipment ,machineries etc., and íor working capital. As they also
extend credit to dealers, middlemen and íarmers who purchase their products, their working
capital requirements are substantial and highly cyclical. As íertilizers and pesticides are
usually imported, the íunding needs oí importers are limited and can easily be met by the
industry through íinance a·ailable on international íinancial markets.
Iowe·er other acti·ities require speciíic íinancing írom domestic pro·iders. Animal
breeding, ·arietal impro·ement, multiplication oí seeds and tree nurseries are crucial
acti·ities íor the producti·ity oí the sector, and are tied to local agro-ecological conditions,
thus cannot generally be leít to companies abroad. Usually, the number oí pro·iders oí
these acti·ities is relati·ely small in relation to the number oí agricultural producers,
howe·er, they play a pi·otal role in ensuring reliable, adequate and suííicient production.
1hus, their ability to obtain necessary íinance íor their operations impacts signiíicantly on
the ·alue chain actors íurther down the ·alue chain. linancing oí seed multipliers and other
input producers requires products that are adapted to the business cycle oí the operation
,i.e. seasonal demand,. Breeding and plant ·arietal impro·ement are usually pro·ided by the
public sector and international de·elopment agencies and there are a large number oí
signiíicant seeds and breeds on which no royalties íor intellectual property rights must be
paid, hence íinancing here is not as pressing. In the seed sector, there are strong globally
operating companies acti·e. 1hese usually pro·ide hybrid seeds which cannot be íurther
locally multiplied ,e.g. maize, oil palm, or planting materials íor which íarmers would need
to pay royalties ií they íurther multiply them.
Producers: In agricultural production, due to the cropping cycle, working capital
requirements are oí a diííerent nature than in con·entional production processes and
businesses. larming oí annual crops requires íinance at diííerent points oí the cropping
cycle íor acquisitions and acti·ities such as the culti·ation oí land, the seeding, íertilizing,
weeding, pruning, pest and disease control, and, depending on the crop, post har·est
handling and primary processing. Some oí these acti·ities simply require labour while others
imply the purchase oí inputs such as íarm implements, seeds, íertilizers, manure, pesticides
and har·esting equipment. Inputs are sometimes a·ailable in subsidized íorm írom
go·ernment and donor,NGO-sponsored programmes. Iowe·er such programmes usually
do not co·er the íull demand oí producers` íinancial needs. Short-term credit in the íorm oí
agricultural production loans are an option íor íinancing input acquisition, as well as
9
operating expenses throughout the cropping cycle. Other íacilities such as o·erdraíts or
re·ol·ing credit may also be appropriate depending on the risk proíile oí the producer.
In perennial crop production additional íinancial requirements occur írom clearing land,
planting trees and waiting until the íruits can be har·ested, which sometimes is only possible
se·eral years aíter planting. 1his is the case íor íruit trees and oil palm. Such long-term
in·estment carries signiíicant risk íor íinancial institutions as lenders, and high costs, e.g. íor
assessing creditworthiness. Long-term íinance in this case may be more eííiciently pro·ided
by processors or other ·alue chain actors who understand the nature oí the business and
may ha·e a contractual or long-standing relationship with a producer that reduces their
screening costs compared to banks. Similarly, íor mechanized production long-term
in·estment in íarm machinery such as tractors, machineries and others is required,. 1his can
come írom ·arious pro·iders, in the íorm oí term loans, or through asset íinance ,leasing,
rental etc.,. Li·estock production requires another set oí in·estments starting with the
acquisition oí animals, herd management, íeeding according to the íeeding cycles, and the
collection oí animal products such as meat and milk. Ience agricultural production,
depending on the product, requires a sequence oí íinancial commitments which - depending
on the producer`s disposition o·er resources - need to be met by a mix oí short, medium
and long term credits.
Large producers who ha·e acquired new portions oí land also need íinance íor clearing or
reclamation oí land. \hen producers are not able to access the ·arious elements oí that mix
oí íinance, they are not able to expand, access technologies, inno·ate, or e·en bring their
product to the market in time. In such cases, lack oí appropriate íinance and íinancial
products can render agricultural production ineííicient and coníine it to a small-scale. One
can e·en argue that lack oí íinance and appropriate íinancial products is one oí the main
reasons why agriculture in Nigeria as a whole has remained underde·eloped.
Iirst Level Processors: 1hese require long-term íinance íor in·esting in expensi·e
equipment, as well as business expansion. 1heir short-term íinance requirements are íor
working capital - this includes indirect supplier íinancing, whereby processors recei·e
íinance in order to pro·ide ad·ances to primary producers to ensure a reliable supply oí raw
materials. Asset-based íinancing ,on accounts recei·able, in·entories, is an option to meet
working capital needs. 1his requires an understanding on behalí oí the íinance pro·ider that
access to raw materials is crucial íor the processor, and producers cannot íinance
production otherwise. In this case processors are better able to manage the risk oí the
producers than a íinance pro·ider directly. Direct supplier íinancing may also be an option
where an understanding oí long-standing business relationships among producers and
processors reduces the risk íor íinance pro·iders to direct íinance suppliers. Iowe·er it is
highly dependent on the quality and reliability oí relationships in the chain. Long-term
in·estment into industrial premises can be met through commercial property íinance.
Second Level Processors: 1hese processors generally ha·e similar needs as íirst-le·el
processors in terms oí working capital and íixed in·estment. Iowe·er they tend to engage
less in íinancing oí suppliers, and they oíten require more sophisticated and more expensi·e
machinery. 1his generates need íor long-term íinancing, possibly through term loans or
asset íinance, such as íinancial leasing ,series oí payments with use oí machinery o·er
deíined period, ownership passes on íinal,lump-sum payment,, rental ,series oí payments
with use oí machinery o·er deíined period, with option to purchase at end oí period,, or
instalment sales ,series oí small payments in order to gain ownership,. 1he cost oí
maintenance oí machineries and equipment ·aries, and adds to íinancing requirements o·er
the liíe oí the assets, re·ol·ing credit linked to maintenance, and insurance, may be bundled
with long-term credit íor acquiring machineries.
10
Retail and Marketing: Lnterprises in this segment íace íewer constraints in accessing
íinance. 1heir working capital needs are generally lower as turno·er is less cyclical, and they
are closest to markets íor realizing cash írom in·entories. 1heir needs íor íixed assets in
terms oí property and other íixed assets also tend to be lower than processors, and can be
met through commercial property or term loans. \holesalers may ha·e more speciíic needs
in terms oí transport ·ehicles, íor which ·ehicle & asset íinance is appropriate ,including
íleet management íor large retailers,. lor small retailers, working capital still is a constrain.
Small shops oíten need to deíer repayment on short-term credit until they ha·e cleared their
in·entories and realized cash írom transactions, i.e. products ha·e been sold to end
consumers. Access to íinance is least problematic íor exporters, as these oíten interact with
lucrati·e export markets and are the closest to realizing hard currency írom their operations.
1rade íinance in the íorm oí letters oí credit, íoríeiting ,purchasing the recei·ables oí the
exporter,, and bills oí exchange can meet their needs. Managing exchange rate and
con·ertibility risk are oí speciíic concern to exporters, and íinancial ser·ices can be tailored
to meet this need, such as hedging products.
Storage: 1here are íew operators oí storage space and warehouses in the country. As they
usually operate under state programmes they do not require íinance. 1he warehouse
receipts system is a special scheme that allows íinance. \arehouse Receipts are documents
that pro·ide e·idence that speciíied commodities oí stated quantity and quality ha·e been
deposited at a particular location by a named depositor ,e.g. producers, íarmer groups,
traders, exporters, or processors,. 1he issuer oí the receipt holds the stored commodity by
way oí saíe custody. 1he issuer is legally liable ií goods are lost or damaged, e.g. through
theít, íire and incidences. 1he depositor can use the receipt to get a credit írom a íinancial
institution that accepts the receipt as collateral. In case the íinance institution does not
recei·e pay back, it gets access to the deposited goods ·ia means oí the receipt. In case oí
problems at the warehouse, creditors oí the issuer will not be able to access the stored
goods because the legal title remains with the depositor or bona íide holder oí the
warehouse receipt.
1ransport/1rade/Middlemen. 1hese roles are oíten períormed by other actors, e.g.
producers, traders or processors who organize own transport as well as purchase and sales.
1his is usually the case where processors do not need to employ the ser·ices oí traders and
middlemen to procure products. Iowe·er there are cases when specialized operators íulíill
transport and trading íunctions. In cases where transporters and traders are independent,
íinancial resources are required as working capital and íor the purchase oí means oí
transport ,·ehicle & asset íinance,.
1here are also complementary íinancial products and ser·ices, which play an important role in
raising long-term producti·ity and encourage in·estment. Insurance and sa·ings both reduce the
·ulnerability oí producers and small-scale businesses, enabling them to cope with shocks arising
írom illness or unía·ourable weather. Ia·ing sa·ings protects businesses, especially
smallholders, and pro·ides an alternati·e to selling oíí producti·e assets in times oí crisis.
Insurance products allow producers and agribusiness to better optimize in·estment decisions
and protect them írom losses in the íace oí potentially catastrophic e·ents, such as drought or
ílooding ,e.g. is indexed-based weather insurance,.
As is clear írom the abo·e discussion, actors in the ·arious segments oí the ·alue chain ha·e
diííerent capacities to access íinance. Access to íinance depends on the type oí contractual
relationships that actors maintain with buyers and sellers as well as contacts to íormal íinance
institutions and the capacity to pro·ide the required documentation and collaterals íor loans. 1he
incapacity oí certain chain actors to access íinance and credits jeopardizes the de·elopment oí
the entire chain. On the other side, proper access to íinance can help chain actors raise their
share in ·alue added and support marginalized actors to eííecti·ely participate in ·alue chains.
11
2.4 Sources of value chain finance
Sources oí íinance can be íormal íinancial institutions ranging írom commercial banks to
moneylenders and group-based sa·ings organizations. linance can also be obtained írom
iníormal agents in the ·alue chain, e.g. buyers pro·iding ad·anced payment or suppliers
accepting delayed payment. lor example, a ·egetable íarmer may negotiate a íorward contract
with a trader or retailer and ad·anced payment íor íarm inputs by the trader, who is then paid
back aíter the har·est has been sold. Oíten it is the actor with the easiest access to íinance that
pro·ides other parts oí the ·alue chain with íinance.
At times this can be oí beneíit to the ·alue chain, at times it also leads to the accumulation oí
rents in the hands oí the credit gatekeeper jeopardizing the generation oí proíits in other parts oí
the chain.
linancing one part oí the ·alue chain may oíten be ineííecti·e and risky ií it is not assured that
other parts oí the ·alue chain recei·e íinancing as well. 1here are ·arious ways to achie·e this:
1. In the case that a bank only maintain business relationships with one actor, e.g. a large
processor, it would need to assure that the processor, ·ia eííecti·e contractual
arrangements with suppliers and buyers, is able to íinance operations in other segments
oí the ·alue chain. 1his is oíten the case when processors procure primary agricultural
products írom small íarmers who do not ha·e access to íormal credit. 1his is the model
that íor example OLAM has experienced with rice íarmers ,See Box 2,.
2. A creditworthy processor can pro·ide guarantees íor loans that the bank hands out to
suppliers oí the same processor. 1he risk oí deíault is low as long as the processor has a
monopolistic position in the supply market. 1he same arrangements can work where
producers are well-organised into groups or cooperati·es, whereby the group pro·ides
the guarantee on behalí oí its members.
3. Cascade íinancing is an approach where one bank simultaneously íinances suppliers,
producers, and processors which maintain business relationships in the ·alue chain ,see
Box 2.1,. 1his entails a greater degree oí specialization by banks, and can lead to non-
íinancial ser·ices such as research and market analysis, due to the degree oí knowledge
generated írom pro·ision oí íinancial ser·ices to the chain.
Box 2: Rabobank's concept of cascade financing in the flower sector
All actors in a ílower ·alue chain, including bulb suppliers, green house manuíacturers, íertilizer
pro·iders, ílower producers, transporters, traders, wholesalers and retailers maintain a credit line with
Rabobank. 1he bank has accumulated intimate in-house knowledge oí production íactors, equipment
suppliers, and equipment buyers in order to e·aluate the creditworthiness oí businesses. All actors recei·e
their money and deposit it in a Rabobank account, so that the Bank can later debit their accounts íor loan
payments. lurther to the pro·ision oí credit the Bank in·ests in market analysis and technological
íoresight as a ser·ice to render businesses in the ·alue chain more proíitable in the íuture. In eííect,
Rabobank has locked up the íinancing íor the entire chain, and as such is in·ested in its success.
´ovrce: Coov, Cavpiov ava !evver 2010
12
3. Methodology and data collection
3.1 Methodology
1he study used the UNIDO methodology and approach holistic diagnostics oí agro-industrial
·alue chains` ,Iartwich and Kormawa 2009,. In this approach, the initial mapping oí the ·alue
chain is íollowed by a rigorous situation analysis oí ·arious segments oí the ·alue chain with
regard to ,1, primary production and sourcing oí inputs, ,2, processing capacity and technology,
,3, end markets and trade, ,4, go·ernance and linkages, ,5, íinance and ser·ice pro·ision, ,6,
resource producti·ity and en·ironmental períormance, and ,¯, and macro-economic and policy
context ,see 1able 2,. On the basis oí this situational analysis the study identiíied high-potential
opportunities íor in·estment and íinancing in the ·arious segments oí the ·alue chains.
1able 2: Holistic Value Chain Diagnostic Approach
Diagnostic Dimensions Parameters
Mapping 0.1 Product
0.2 Value chain actors and their functions
0.3 Flow of product and end-markets
0.4 Business interactions
0.5 Service provision
0.6 Distribution of value added
Dimension 1: Sourcing of
Inputs and Supplies
1.1 Primary product characteristics
1.2 Characteristics of primary producers and input providers
1.3 Contractual arrangements
1.4 Logistics
1.5 Infrastructure and transport facilities
1.6 Communication
Dimension 2: Production
Capacity and Technology
2.1 Production capacity
2.2 Technology
2.3 Knowledge use
2.4 Innovation
Dimension 3: End-Markets
and Trade
3.1 End-product characteristics
3.2 Consumer demand
3.3 End-buyer perspectives
3.4 Marketing and trade capacities
3.5 Competitors
3.6 Standards
Dimension 4: Value Chain
Governance
4.1 Actor domination
4.2 Participation in value added activities
4.3 Cluster concentration
4.4 Type of governance
Dimension 5: Sustainable
Production and Energy Use
5.1 Use of materials
5.2 Energy use
5.3 Use of water
5.4 Effects on bio-diversity
5.5 Emissions
5.6 Waste management
Dimension 6: Value Chain
Finance
6.1 Financial attractiveness
6.2 Financial risks
6.3 Norms and practices
6.4 Availability of finance
6.5 Financing gaps
Dimension 7: Business
environment and socio-
political conditions
7.1 Business environment
7.2 Product and trade regulations
7.3 Public and private service provision
7.4 Social and cultural context
´ovrce: |^íDO, fortbcovivg
13
In light oí the study objecti·es three key criteria were considered in the data analysis -
de·elopment potential, íinancial needs, and íinancial attracti·eness oí a ·alue chain. 1hese are
discussed in the íollowing paragraphs.
,a, 1he aereíopvevt potevtiaí oí a ·alue chain in general is deíined by the extent it is able to
contribute to ivcrea.ea ivcove, evpío,vevt and porert, reavctiov as well as the fooa .ecvrit, at
bov.eboía íereí. lollowing the abo·e mentioned UNIDO approach, the study collected
primary and secondary data on the speciíic ·alue chains, including the actors engaged,
the le·el oí de·elopment and critical issues ,see Chapter 4,. 1he study also ·eriíied these
results with iníormation on existing priorities oí the go·ernment.
,b, íivavciaí veea. are deíined by the short, medium and long-term íinancing requirements
that exist in the ·arious segments oí a ·alue chain and the sources oí íinance currently
a·ailable to respond to those needs. As with ,a, this iníormation was drawn írom the
situational analysis oí the speciíic ·alue chains drawing írom inter·iews and secondary
iníormation based on desk study. 1he iníormation is presented in íorm oí a table that
depicts íinancial needs in each oí the segments oí the ·alue chain. A rating oí high,
medium or low is applied, which expresses in relati·e terms whether certain segments in
the ·alue chain require more or less íunding ,no threshold ·alue is attached to high,
medium and low,. Likewise the estimation oí risk is relati·e to the other segments in the
chain, depending on the types oí collaterals that actors in the ·arious segments oí the
·alue chain can pro·ide and how risky their businesses may be.
,c, 1he fivavciaí attractireve.. oí a segment or a set oí segments oí a ·alue chain and íirms that
engage in it. linancial attracti·eness depends on the o·erall attracti·eness oí the chain
,market size etc.,, the business attracti·eness oí particular segments and actors. It is
essentially a calculation based on perceptions oí risk ,credit-worthiness oí the potential
recipients, and return ,proíitability oí the loans, interest rate and íees charged,. It is
important to emphasize that percei·ed, rather than actual, risk and return are what aííect
banks` lending and pricing decisions. 1hus, percei·ed íinancial attracti·eness depends on
the degree to which a bank is able to understand and e·aluate businesses in a ·alue chain.
1he tenor oí íinancing is also important, as pro·iding longer term loans requires banks
to ha·e access to long-term íunding, which can be problematic. Also, the reíinancing rate
banks íace íor íunding is aííected by macroeconomic íactors, and do iníluence their
decision to lend at certain rates. Preíerential and low interest loan schemes set up by the
go·ernment or central banks can alter the risk-return calculations íor lenders, and hence
the íinancial attracti·eness oí a chain or segment.
lormally, íinancial attracti·eness is oíten approached ·ia the discounted cash ílow
method measuring returns on in·estments or net-present ·alues. UNIDO`s methodology
and tool ,COMlAR, is able to deri·e such measures íor enterprises or íirms that engage
in diííerent parts oí the ·alue chain, as well as in the agro-industrial sectors. At the end,
the task oí e·aluating íinancial attracti·eness, including appraisal oí loans, is the daily
business oí commercial banks. Adapting or de·ising accurate appraisal methods íor
agricultural ·alue chains may pose challenges to those banks that are less íamiliar with
lending to agricultural businesses.
14
3.2 Study logic
1he logic oí iníormation pro·ided by this study is summarized in the ílow diagram ,ligure 4,.
1he report is generating three types oí outputs: ,1, an analysis oí the de·elopment potential oí
·alue chains, ,2, an analysis oí the íinancial needs in ·alue chains, with regard to particular
segments in the chain and ,3, a rather general set oí recommendations íor íinancial product
design. ,1, and ,2, will be able to contribute to the selection oí ·alue chains íor which íinancial
support should be made a·ailable. ,2, also contributes to knowledge on how ·alue chains
íunction and how they can be supported through íinancing mechanisms. 1his knowledge could
then be used in the design oí creati·e new íunding products to promote ·alue chain
de·elopment and the design oí a íinancing support scheme, such as the NIRSAL.
1hrough the iníormation made a·ailable in this study, policy makers may íind support in making
more balanced and e·idence-based decisions in which ·alue chains to in·est and how to in·est.
It is then up to the policy en·ironment and the banking system to de·elop measures that help to
impro·e the íinancial attracti·eness oí lending to actors in agricultural ·alue chains and to
support banks in the de·elopment oí íinancial products that address the particular needs oí
segments in speciíic chains.
Iigure 4: Study Logic - Contributions to Value Chain Iinance in Nigeria
15
3.3 Data collection
1he iníormation íor this report has been gathered by a team oí íi·e experts írom the Central
Bank oí Nigeria ,CBN,, the Bank oí Industry ,BOI, and the United Nations Industrial
De·elopment Organization ,UNIDO,. 1he team gathered iníormation írom a·ailable literature.
1he list oí consulted literature is gi·en in the Literature Reíerences at the end oí the report.
lurther the team conducted qualiíied personal and phone inter·iews with a range oí
representati·es oí key stake holders in agriculture and agro-industry de·elopment. In particular
the team organized the íollowing:
• A ·isit to the International Institute íor 1ropical Agriculture ,II1A, at Ibadan where it
spent íour days consulting researchers and a·ailable documentation on technological and
market opportunities and constraints in main agricultural ·alue chains. Special emphasis
was put on conditions oí primary agricultural production and micro-processing.
• A meeting with the Manuíacturers Association oí Nigeria ,MAN,. Special emphasis here
was put on discussing the location oí agro-industrial businesses, opportunities and
constraints íor the de·elopment oí agro-industry, access to íunding and requirements in
terms oí íinancial products.
• Inter·iews with selected agribusinesses in key industries such as cassa·a, íeedstuíí, oil
milling, íood processing and bioíuels.
• Inter·iews with selected commodity associations and íarmers groups that ha·e been
participating in schemes that pro·ide access to íinance.
• Inter·iews with de·elopment agencies that promote ·alue chain de·elopment in key
industries including agencies such as DlID, USAID, \orld Bank and the Commercial
Agriculture Project.
• Discussions with members oí the committee that o·ersees the conduct oí this study
,representati·es oí BOI, the Bankers Committee and the Central Bank oí Nigeria, about
the scope and orientation oí the study, preliminary íindings, and the recommendations
that it should be able to pro·ide.
16
4. A Roadmap for Value Chain Finance
1he next step in the analysis is to use the iníormation the study gathered on respecti·e ·alue
chains ,see Annex, to draw conclusions on how ·alue chains can be supported ·ia íinance. 1he
reílections on possible elements oí concerted actions towards ·alue chain de·elopment, ·ia
íinance, are labelled roadmap`.
4.1 Deciding where to invest
1his report does not pre-empt decisions on whether a ·alue chain should be subject to íinancial
and other de·elopment support or not, but it aims at iníorming the process oí making these
decisions. 1wo measures are introduced íor that purpose: the ·alue chains` de·elopment
potential and their íinancial needs.
4.1.1 Development Potential
De·elopment potential has to do with the opportunity to meet de·elopment goals and the
likeliness to achie·e them. Go·ernment de·elopment policies at the íederal le·el ha·e been set
by the National Lconomic Lmpowerment and De·elopment Strategy 2004-200¯ - NLLDS
,National Planning Commission 2004, which is complemented by an equi·alent policy on the
le·el oí the state ,SLLDS, and local go·ernments ,LLLDS,. 1he policy emphasizes, among
others, the creation oí more agricultural and rural employment opportunities, the increase oí
income oí íarmers and rural dwellers and impro·ed food security ,also re·ersing the trend oí
increased import oí íood which stood at 14.5° oí total imports in 2001,.
It aims to achie·e this ·ia a set oí measures including a, the strengthening oí research, extension,
training and capacity building, b, the reorientation oí the agricultural input supply and
distribution system, c, the pro·ision oí physical inírastructure such as íeeder roads, rural water
supply, rural communications etc., d, the setting up oí a multi-commodity marketing promotion
board, e, the pro·ision oí soít agricultural credit and rural íinance through the Nigerian
Agricultural, Cooperati·e and Rural De·elopment Bank ,NACRDB, and í, the íostering oí
eííecti·e linkage with industry to achie·e maximum ·alue addition,processing íor internal
marketing and export, among others.
As NLLDS goes in its second round the go·ernment has also de·eloped a Vision 20:2020 which
en·isages the country to be among the íirst 20 countries worldwide in terms oí industrialization,
democracy, human resources in the next 10 years. \ith regard to agriculture the ·ision
propagates a modern technologically-enabled agricultural sector that íully exploits the vast
agricultural resources oí the country ensures national food security and contributes
signiíicantly to foreign exchange earnings`. 1he three pillars oí the ·ision are: Guaranteeing
the productivity and well-being of the people, optimising the key sources oí economic
growth, and íostering sustainable social and economic development.
On the basis oí these policies the íollowing parameters ha·e been used to describe the
de·elopment potential oí a ·alue chain: Impact on income, employment, po·erty reduction, íood
security and export earnings,import substitution. Certainly there are other de·elopment
priorities such as en·ironmental saíety, sustainable use oí natural resources and attaining gender
balance. Iowe·er, these are not generally applicable to a ·alue chain. lor example, a ·alue chain
is not necessarily en·ironmentally saíer` than another ·alue chain. Rather it depends on how it
is de·eloped ií it becomes en·ironmentally saíe or not. 1he same argument applies to goals such
as sustainable resource use and gender equity.
1he likeliness oí achie·ing de·elopment goals is the second important parameter applied here to
decide on the de·elopment potential oí a ·alue chain. 1his can be approximated through the
potential íor increased product output that depends predominantly on the existing resource
17
endowment and the existing producti·e capacities, knowledge and skills. Again the indicators
reílect the ·ision 20:2020 arguments, in this case on resource exploitation and producti·ity.
\ith an intensi·e analysis oí the iníormation gathered íor each oí the ·alue chains regarding the
abo·e criteria a simple rating exercise was conducted ,see 1able 3,. Scores oí 3 ,high,, 2
,medium, and 1 ,low, were applied. 1hese scores reílect the qualitati·e interpretation oí the
a·ailable iníormation. Iigh` signiíies that the de·elopment potential oí the ·alue chain highly
positi·e aííected, low` means it is only marginally aííected. By combining the a·erages oí both
parameters - de·elopment impact potential as well as potential íor increased output - the íinal
score is calculated.
1able 3: Rating of development potential of agricultural value chains in Nigeria
De·elopment impact potential Potential íor increased
product output
1otal
score
Impact
on
incomes
Impact on
employment
Impact on
po·erty
reduction
Impact
on íood
security
Impact on
export
earnings,
import
substitution
A·erage Resource
endowment
Current
producti·e
capacities,
knowledge
and skills
A·erage
cassa·a 3 3 3 3 3 3 2 2.75
cocoa 2 1 2 0 3 2 1 1.55
cotton 2 3 2 0 3 2 2 2
dairy 1 1 2 3 3 1 1 1.5
íisheries 3 3 2 2 3 2 1 2.05
íruits 2 1 2 2 3 1 1 1.5
maize 2 2 2 2 2 2 2 2
meat,
leather
2 3 2 1 3 2 1 1.85
palm oil 2 2 2 1 3 2 1 1.75
poultry 2 2 3 2 2 2 1 1.85
rice 3 2 2 3 2 2 1 1.95
soybean 3 3 1 1 3 2 1 1.85
tomatoes 2 2 2 2 3 2 1 1.85
´ovrce: 1be avtbor.
It results that the ·alue chains with the highest de·elopment potential include cassa·a, rice,
meat,leather, soy-bean and íisheries.
Cotton, maize, palm oil, poultry and tomatoes also tend to be promising candidates íor ·alue
chain de·elopment.
1he abo·e results are consistent with some oí the studies conducted to support decision making
in agricultural and ·alue chain de·elopment in Nigeria o·er the last years.
• 1he go·ernment, in its aim to implement the NLLDS strategy, identiíied a number oí
priority sectors where it wanted to concentrate in·estments. Priority sectors where the
Go·ernment engaged in the ·igorous implementation oí so called Presidential Initiati·es
include ca..ara, rice, regetabíe oií, .vgar, íire.tocí, tree crop. ava cereaí..
• In 2008 the IlPRI-led Regional Strategic Analysis and Knowledge Support System \est
Aírica ,ReSAKSS-\A, in collaboration with the country`s CADDAP bureau calculated
the contribution oí agricultural subsectors including cereals, root crops, export crops,
li·estock, íishery and íorestry to agricultural GDP growth ,LCO\AS, lederal Republic
18
oí Nigeria and Aírican Union ,no date,,. It íound that cereaí. ava root crop. exhibit the
highest le·els oí contribution to agricultural incomes, each around 30° oí agricultural
growth under the current go·ernment`s strategy. 1he contribution oí the other
subsectors to growth are estimated to be around 12° íor export crops, 8° íor íisheries
and below 5° íor Li·estock and lorestry. lurther it was íound that a 1° increase in per
capita income arising írom cereals and root crops strategy would lead to a 1° and 9°
drop in po·erty respecti·ely.
• IlAD`s Country Strategic Opportunities Programme ,COSOP, íor Nigeria under its
Value Chain De·elopment Support Program has identiíied a number oí commodity
·alue chains that count with comparati·e ad·antages and which are important íor íood
security at both the rural household and national le·els. 1hese include ,a, cereals - maize,
rice, sorghum and millet, ,b, pulses: groundnuts, cowpeas, ,c, oil seeds, oil palm, cotton,
,d, roots and tubers: cassa·a, potatoes and yam, ,e, íruits and ·egetables: onions,
tomatoes, plantain and bananas, ,í, li·estock: poultry and small ruminants, and ,g,
íisheries.
A study initiated by DlID and the \orld Bank ,LML 2008, íocussed on ·alue chains in
an integrated manner including both agricultural and non-agricultural products. 1he
analysis centred on growth poles, meaning the location-speciíic subsectors that
experienced accelerated growth in the past, in íour states oí Nigeria: Lagos, Kano,
Kaduna and Cross Ri·er. 1he íollowing agricultural sectors were considered to count
with the highest potential íor upside ,deíined through potential íor growth, employment
and spillo·ers, as well as íeasibility ,deíined by actual competiti·eness, scope íor policy
reíorm and existing pri·ate sector capabilities,: In Kano: íood processing, meat and
poultry, and leather, in Kaduna: íood processing, meat and poultry and rice and in Cross
Ri·er: cocoa and oil palm. 1he dairy sector in Kano and Kaduna and the rice sector in
Kano were not considered because they do not count with suííicient upside potential and
íeasibility.
Caution may be applied in the blank application oí recommendations írom the abo·e policy
studies. \ith exception oí the DlID,\orld Bank exercise they only íocus on de·elopment
potentials at the le·el oí primary agricultural production not taking into account income and
employment in other segments oí the ·alue chain and the eííects that extended processing and
transíormation would ha·e on primary production.
Careíul interpretation oí the abo·e table is to be applied as other agricultural ·alue chains may
ha·e de·elopment potential as well. L·entually their geographic extension is limited, they do not
reach as many beneíiciaries or they íocus on niche markets.
In any case, de·elopment oí such ·alue chains may still make sense in a local de·elopment
context and in ·iew oí positi·e cost-beneíit ratios. 1he idea here was to íocus, in a íirst step, on
the most ob·ious ·alue chains while e·entually conducting íurther diagnostics íor other ·alue
chains applying the same methodology when additional time and resources are a·ailable.
Most importantly to note is that 1able 3 is only one oí the two pieces oí iníormation to decide
on a ·alue chain. 1he other parameter is íinancial needs.
19
4.1.2 Financial needs
linancial needs in agricultural ·alue chains in Nigeria tend to be high in general. 1his reílects
certain deíiciencies oí the current banking and lending scheme.
1he study makes an eííort, howe·er, to distinguish between íinancial needs in diííerent ·alue
chains. Some ·alue chains may require more short to medium-term íinance, e.g. to enable cereal
production, others may require, in particular, long-term íinance íor equipment.
In the study íinancial needs are deíined as the ratio between the amount oí a·ailable íunding and
the amount oí íunding required íor successíul operation oí the ·alue chain as a whole.
1able 4: Rating of financial needs of agricultural value chains in Nigeria
Input
industry
Primary
production
1
st
Le·el
Processing
2
nd
Le·el
Processing
Retail and
Marketing
1otal
score
cassa·a 2 3 3 2 1
2.2
cocoa 1 2 2 2 1
1.ê
cotton 1 2 2 1 1
1.1
dairy 1 3 3 2 2
2.2
íisheries 1 2 2 3 2
2
íruits 1 2 2 1 1
1.1
maize 1 3 2 2 1
1.8
meat, leather 2 3 2 3 2
2.1
palm oil 1 3 2 2 1
1.8
poultry 3 2 3 3 1
2.1
rice 1 2 2 3 1
1.8
soybean 2 2 2 3 2
2.2
tomatoes 1 3 2 2 1
1.8
´ovrce: 1be avtbor.
1he abo·e 1able 4 is an aggregation oí the existing íinancial needs gathered írom the detailed
discussions oí the ·alue chains in the Annex.
1he data is qualitati·e, 1 indicating low íinancial needs while 3 indicating high íinancial needs. In
some ·alue chains the processing segment requires more íunding, in others it is primary
production or the transportation and collection segment which needs íinance.
1he total scores indicate íinancial needs in each ·alue chain - a higher score reílects a higher
íinancial need.
4.1.3 Towards a Financing strategy
Bringing the two arguments, de·elopment potential and íinancial needs, together allows strategic
assessment on the ·alue chain in which to in·est. In·esting in those ·alue chains with the highest
de·elopment potential would make sense írom a de·elopment perspecti·e. Iowe·er, it is
possible that the ·alue chain does not ha·e high demands in íinance to íurther de·elop.
1hereíore the second dimension íinancial needs` looks into the issue where most íinance is
required. ligure 5 combines the two data sets on de·elopment potential` and íinancial needs`
,the last columns oí 1ables 3 and 4,.
20
Iigure S: Strategic decision matrix for financing of value chains in Nigeria
´ovrce: 1be avtbor.
Various interpretations can be made írom the abo·e íigure. Decision makers in ·alue chain
íinance may certainly be interested in the ·alue chains that ha·e higher de·elopment potential.
Iowe·er, there are ·alue chains which need less íinance ,e.g. tomatoes, maize, or cotton - the
latter has already recei·ed special íinance support,.
Pro·iding modest le·els oí íinance to those sectors may be an eííicient strategy to bring about
de·elopment. Other ·alue chains with high de·elopment potential may require more substantial
amounts oí íunding ,e.g. cassa·a, poultry, soybean, íisheries and rice,. lor those ·alue chains
íinance support should be pro·ided in íorm oí larger scale programmes that reach all actors in
the ·alue chain eííiciently.
ligure 5, howe·er, should not be interpreted in such way that ·alue chains with lower
de·elopment potential and less important íinancial needs should not recei·e any íinance. Rather,
there should be íunding schemes a·ailable that e·ery company and íarm in the agricultural sector
engaging in eííicient businesses can access easily.
21
4.2 Crosscutting Challenges and Opportunities
Comparing the iníormation írom the ·alue chains re·iewed, despite the speciíicities oí each
chain, a number oí common íeatures in and crosscutting challenges íor ·alue chain de·elopment
become apparent. 1hese are discussed below íollowing the structure oí ·alue chain diagnostics
applied in each oí the cases described in the Annex.
4.2.1 Primary Production and Sourcing of Inputs
Agriculture in Nigeria contributes about 33° oí GDP and o·er ¯0° oí employment. 1hese
íigures relate to primary production and do not include other segments oí agricultural ·alue
chains such as agro-processing, transport and trading. lrom 2004 to 200¯ agriculture grew at ¯°
annually and it is targeted to grow in the order oí 10° in the current period.
Iowe·er, the sector continues to íace mayor structural challenges, as it remains dominated by
semi-subsistence íarmers who put little emphasis on commercial íarming. lor example, a·erage
yields in maize, rice and cowpea only reach 3¯°, 19° and 35° oí their potential realized on
model íarms and research stations.
1he predominance oí the semi-subsistence íarming partly goes back to colonial times when the
British propagated the continuation oí traditional Aírican land tenure systems to a·oid problems
with social uphea·als such as caused by economic shocks to plantation agriculture in Last Aírica
,Ijere 19¯4,.
1oday, more than 80 percent oí the total íarm holdings are below 6 hectares. Risk minimization
strategies oí poor íarmers and the íact that many,a big amount oí the products are used íor
home consumption ha·e írustrated many eííorts to introduce more proíit-oriented models.
In consequence íarmers stay with the traditional production system, which pro·ides limited
potential íor income and expansion oí production. Main challenges in primary agricultural
production in Nigeria today include:
• 1he non-aííordability and non-a·ailability oí íarm inputs such as íertilizer, impro·ed
seeds and means oí pest management that render production more proíitable.
• Lack oí mechanization and use oí impro·ed knowledge and technology in production
and post har·est handling. 1he existing programmes to diííuse useíul knowledge and
technology are ineííicient.
• Considerable post-har·est losses oí íarm produce due to poor post-har·est handling and
inadequate agro-processing and rural inírastructure. 20 percent oí grains and o·er 40
percent oí all íruits and ·egetables may be lost this way.
• Inadequate transport and marketing systems with little ·ertical integration in the ·alue
chains and íew price incenti·es and sales opportunities that would trigger extended
production.
• Insuííicient use oí irrigation. Less than one percent oí arable land is irrigated. Scaling up
oí irrigation is particularly important in the critical íood belt areas.
• Lack oí public ser·ices such as road, energy and water supply.
• Policy related challenges. \hile the abolition oí the Nigerian go·ernment-instituted
commodity marketing boards may ha·e had some positi·e eííect with regard to
transparent use oí íunds and better reaction to price signals there is still much support
required till each oí the ·alue chains would reach competiti·eness beyond national
borders.
22
• Lack oí íinance. \ithout money to purchase inputs and labour íarm proíitability cannot
be impro·ed. In íact, the íinance intensity in the smallholder sector is substantially lower
than in the commercial íarming sector ,see also section 4.2.¯,.
All these íactors in combination with rapidly changing demographics ha·e lead to a situation in
which Nigeria is obliged to import substantial amounts oí íood. Nigeria currently imports large
quantities oí grains - 2 million tons oí rice in 200¯-2008 - as well as signiíicant amounts oí
li·estock and li·estock products mostly through unrecorded iníormal border trade. In the oííicial
statistics at lAO ,www.íaostat.org, the imports oí wheat and sugar in the order oí USD 800
Million and USD 400 Million respecti·ely, rank highest.
Commercial and export agriculture plays a limited role in Nigeria. Large íarm holders account íor
about 5 percent oí all íarm holdings. Some commercial agriculture dates back to colonial times
when, despite the British quest to lea·e peasant` agriculture intact, plantation crops such as oil
palm, groundnut and cocoa were propagated íor export. More recently commercial íarming has
sprung up in response to existing market opportunities such as in grain and starch, animal íeed,
poultry, íish, íruit and ·egetables and others and the mere necessity oí agricultural processing
companies to source primary production which otherwise they cannot acquire in suííicient
quantity and quality írom the traditional sector.
Iowe·er most oí the medium to large-scale agricultural enterprise initiati·es do not originate
írom entrepreneurs oí the traditional sectors but reílect the in·estment strategy oí already
established business owners írom other sectors and the urge oí certain processors to assure the
quality and quantity oí primary materials, through ·ertical integration.
Iigure 6: Nigeria's main agricultural exports
´ovrce: í.O´1.1, 2010
Supply and distribution oí seeds is largely propagated by public and de·elopment agencies.
Various NGOs, research institutes and extension ser·ice pro·iders are used to bringing seeds to
the íarmers while pri·ate multiplication and distribution maintains a somewhat less prominent
proíile gi·en the dominance oí the public and de·elopment sector as well as the limited capacity
oí íarmers to recei·e credits and purchase impro·ed seeds. 1he íew pri·ate seed producers
,among those Premier Agro, Alheri Seeds and Oba Super larms, use a chain oí wholesalers and
retailers to reach the íarmers.
23
Chemical íertilizers are mainly imported to Nigeria. 1he establishment oí íertilizer íactories in
Kaduna and Port Iarcourt by the lederal Go·ernment in the 1980s was meant to reduce the
country`s dependence on íertilizer imports but turned out to be a íailure. lurther, nine pri·ately
owned íertilizer-blending plants around the country ha·e either been closed or operate largely
below installed capacities. Main reasons íor the íailure oí the pri·ate íertilizer production and
distribution system include the lack oí íinance and insuííicient capacity to reach small-scale
íarmers. 1he go·ernment procures and distributes, ·ia pri·ate contractors, íertilizers to íarmers
at subsidized prices on an annual basis.
1he aim oí this go·ernment action is oíten political and its eííecti·eness is in many cases
questionable.
1
Notwithstanding the subsidy, íertilizer use has remained largely inadequate and
out oí reach íor small-scale íarmers ,Kormawa et al. 2002,. Some positi·e results ha·e been
achie·ed in the pro·ision oí subsidies through a ·oucher system. Iowe·er, such systems usually
require substantial additional support such as pro·ided in the past through USAID and IlDC. In
any case, small-scale íarmers in Nigeria ha·e continued to harness and apply local organic
manure on their íarms. In some regions, local organic manure, especially íarmland manure, is the
most common íorm oí soil íertilization. Other íorms oí organic íertility impro·ements such as
green manure and compost are uncommon.
Go·ernment programmes íor pest and disease control to support small scale íarmers ha·e
already been established in the 1950s but currently only reach marginal le·els oí operation. 1he
local production oí pesticides and other agrochemicals is carried out by a number oí local
companies using imported inputs. 1he rest is imported directly and distributed by local
distributors and,or international agrochemical companies. As a result, these agrochemicals are
too expensi·e to the small íarmer.
Currently the National Veterinary Research Institute in Jos is the only premier institute íor
animal ·accine production. 1here appears no ·eterinary drug manuíacturing outíit in the
country. 1hus, all drugs are imported. Use oí ·accines and ·eterinary drugs is sporadic among
small herders and animal rearers. Use oí drugs is somewhat more pronounced in the poultry
production industry where many small to large poultry íarms use drugs and additi·es. 1hese
products tend to be more eííecti·ely distributed by the importers than other ·eterinary drugs.
Producers and distributors oí agricultural inputs oíten engage in schemes where they pro·ide
technical assistance to their íarmer clients as well as allow them delayed payment, e.g. till aíter
selling the har·est. \hile branches oí international agrochemical companies may be able to
reíinance these acti·ities through their mother companies, local business and particularly small
input traders and retailers may require access to working capital and short to medium loans that
help to bridge the time until íarming has gone through its seasonal cycle.
4.2.2 Processing Capacity and Technology
\hile agriculture employs ¯0° oí the national workíorce, íormal acti·ities in an agro-industry
,mostly íood, tobacco and be·erages, employ 1° oí the total ,íormal and iníormal, workíorce
while iníormal agro-industry may employ another 3° oí the total workíorce ,PAK Programme
2004,. Industry purchases írom íarmers are likewise low, at less than 10° oí output. Indeed,
many agricultural products are sold in local or export markets with little or no ·alue added
through processing. 1he abo·e pro·ides some e·idence íor the statement that there is a large
untapped opportunity íor local, regional and international markets íor processed agricultural
products írom Nigeria.
1
A study of USAID (2000) revealed the negative impact of government subsidies on the development of
competitive agri-markets. It argues that the procurement and distribution of fertilizer through public sector
agencies was inefficient and ineffective and that the government’s role in the inputs markets essentially limited
private sector participation.
24
Iowe·er, the Nigerian agro-processing sector íaces substantial challenges. lor example, some
domestically processed crops, such as rice and palm oil, are produced at twice the world price.
Post- har·est technology ,storage, processing, and distribution, is in a poor state and the number
oí processed products is ·ery limited. lor example, cassa·a could be widely used in the agri-íood
industry ,bakery, coníectioneries, canned íruits and jams, etc., and industrial raw material ,starch,
chips, adhesi·es, animal íeeds, ethanol and pharmaceuticals,. Rice can be processed into ílour,
crisps, ílakes, puííed rice, rice pudding, laundry starch, cosmetics, rice wine, beer and spirits.
Plantain and banana are also potential sources oí ílour, chips, ílakes, íla·ouring and wine, but
most oí plantain and banana today is merely har·ested and eaten. 1he use oí by-products in
processing e.g. íor energy production or animal íeed ,a way to reduce production costs, íalls íar
short.
In general one needs to distinguish between the artisanal processing sector and the industrial
processing sector, both oí which bear large potentials íor impro·ement:
• 1he artisanal processing sector is characterized through rudimentary or intermediate le·el
household technological practices as well as pri·ately owned small-scale commercial
milling, baking, production and transíormation technologies. linished products írom
these are used in household recipes and oíten do not lea·e the ·illage. Only when
íarmers produce a surplus the product gets sold, though mostly in its raw, unprocessed
status lea·ing little scope íor local processors to grow. Generally, adoption and use oí
impro·ed posthar·est technologies are e·ident but inadequate. 1he interaction oí
research, local knowledge, and extension and de·elopment agencies has led to the
a·ailability oí a large number oí artisanal post-har·est technologies and practices. 1he
extent to which these actually reach íarm households and local processors and become
accepted, adopted and utilized is certainly limited. L·en the initial processing acti·ities
such as drying oí har·ested crops and processing íor indi·idual household consumption
can be time consuming and ineííicient. 1his puts a serious burden on rural households,
especially on women who do most oí the small scale processing. A signiíicant quantity oí
íarmers` har·est rot because oí lack oí storage and processing íacilities, but quite oíten,
íarmers are íorced to sell their crops when prices are lowest because oí a combination oí
problems oí preser·ation, processing and íinancial le·erage.
• Processing oí agricultural products on a larger scale is location speciíic. Depending on
the bulkiness or perishability oí the product certain industries will locate rather close to
the origin oí production ,e.g. oil palm, cassa·a, soybean or milk, or closer to the centre
oí trade, distribution, or export ,e.g. meat, cocoa,. Larger grain and oil mills are íor
example located in Port Iarcourt, Lnugu, Aba, Ibadan, Kano, Kaduna and Lagos, where
íinished end products such as ílour, coníectioneries, milk, be·erage, baby íoods, oils,
poultry and li·estock íeeds are produced. Iowe·er, the industry is largely
underde·eloped, particularly when considering the huge domestic and regional market
potentials. Some oí the main constraints oí agro-processors in Nigeria include:
o Competition írom cheaper products abroad and lack oí competiti·eness
o Unía·ourable cost structures due to inappropriate technology, lack oí know-how
and unskilled workíorce.
o Lack oí constant supply oí primary products oí suííicient quality. Particularly
producers oí staple crops may choose to not deli·er when they see other
opportunities íor local sales and consumption.
o Insuííicient application oí quality standards, in consequence, not meeting the
demands oí consumers and international buyers.
25
o Insuííicient de·elopment oí transport and storage íacilities that a·oid damage,
contamination or perishability oí products.
o Constraints because oí poor road, energy, water supply and telecommunication
inírastructure, go·ernment bureaucracy and lack oí business support ser·ices.
It is important to note that processors do not only require access to íinance íor equipment and
machinery as well as working capital. 1hey also require a certain amount oí íunding that enables
them ad·anced payment to suppliers, a category íor which banks and micro-credit schemes
usually do not ha·e any product on oííer. On the le·el oí small to medium as well as artisanal
processors íunding sources are extremely limited íor all sorts oí loans. Larger processors may
ha·e access to expensi·e working capital loans but long-term íinancing íor equipment is oíten
extremely diííicult to get. linally, any credit product oí Nigerian banks is meeting the
requirements íor ad·anced payment oí suppliers up to a year.
4.2.3 End Markets and Trade
1he current marketing system íor agricultural products in Nigeria is largely de·oid oí any
go·ernment inter·entions. 1he markets íor traditional íood products are characterized by
íluctuations in supply, supply and demand determine product prices. Indi·idual traders carry out
marketing and they operate íreely in both rural and urban markets.
Common marketing channels íor íood commodities include three alternati·es: a, the mo·ement
írom the producer through the rural collector to urban markets, retailer and end consumers, b,
the mo·ement írom the producer to a rural market where transporters carry them to urban
markets and wholesalers who pass the product to retailers and consumers, and c, the mo·ement
írom the producer to larger buyers who directly process or prepare íor export.
Lately a shiít oí local consumer beha·iour with regard to íood can be witnessed. L·en less-well
endowed rural and urban households ha·e become aware oí the high costs oí lengthy
preparation oí raw íoods at home and those who íind less time íor it, íor example due to
spending more time in commercial agriculture, look íor semi-processed íood products and e·en
íast-íood solutions they can just purchase. Instead oí making gari at home a íamily would just
buy gari. Ience the market íor semi-processed íoods products increases.
Maize and sorghum are used increasingly as partial substitutes íor wheat in bakery, biscuit and
pastry industries as well as raw materials in the be·erage and brewing industries. Iousehold
consumption oí these crops has resulted in their limited a·ailability íor industrial use. 1hus some
industries now engage in direct production oí maize and sorghum in order to meet their
requirements.
Product and market de·elopment is only to be de·eloped among Nigerian íood processors.
Packaging is kept low cost and new ideas íor new product design rather come írom outsiders oí
the de·elopment community than írom company itselí.
26
OLAM Farmers
First Bank
Credit
Input Advances
Product Delivery
4.2.4 Chain Governance
Presently there are íew or no íormalized íorward and backward linkages between small-scale
íarmer groups, cooperati·es, or associations with agro-industries. Outgrower schemes and
contract íarming are still largely unknown, with some exceptions where a íew lead íirms ha·e
tried to introduce them. lor example breweries such as Diageo Plc ,Guinness Nigeria, and
International Breweries ,JIB, source sorghum and barley írom íarmers under speciíic contract
arrangements. British American 1obacco runs an outgrowers scheme with tobacco íarmers in
Oyo State. Nestlé Nigeria Plc engages in a strategy oí buying írom Nigeria and selling in
Nigeria` which íoresees contracting with íarmers to source raw materials locally, e.g. cocoa,
sorghum and soybeans. Outgrower schemes are also known in the cotton sector.
Outgrower schemes promote ·ertical integration in ·alue chains. An agro-industry company
commits itselí to purchase the products and usually also supports production through supply oí
íarm inputs, credit, land preparation and the pro·ision oí technical ad·ice. Burdened with debts
and soaring seeds and íertilizer costs, contract íarming oíten appears to be a good solution íor
íarmers. Despite the many beneíits, outgrower schemes are also criticized íor the way they allow
buyers gain power o·er íarming communities while limiting their capacity to produce íood.
\ithout íurther extending this discussion this report takes the position that outgrower schemes
require clear social standards and a go·ernment that monitors and eníorces them.
Other sectors such as cereals, cassa·a, íruits and ·egetables, soybean and oil palm ha·e
experimented with schemes similar to that oí outgrowing. Iowe·er, due to the existence oí an
alternati·e market to which íarmers can sell and the associated high risk íor agro-processors to
pro·ide inputs and credits they ha·e not materialized into a íormal contract. Rather they remain
·erbal commitments that both parties oíten do not comply with. 1here are, howe·er, examples
oí good and best practices as in the case oí OLAM Nigeria Plc in the rice sector ,see Box 3,.
Box 3: Iinancing smallholder rice production ÷ 1he OLAM Nigeria P1C Scheme
In 2004 OLAM bought one oí the many unused rice mills in the country. 1ogether with the USAID-
íunded project MARKL1S` it started a scheme to multiply rice, pro·ide seeds, íertilizer and other íarm
inputs to íarmers to assure the procurement oí high quality rice which they could process in their mills in
order to compete with imported rice.
It got a loan írom list Bank to íinance the purchase oí inputs. 1he scheme started with 250 íarmers 5
years ago and reached around 22.000 íarmers today. OLAM managed the accounts oí íarmers who
recei·ed inputs, íarmers reimbursed when deli·ering the product to the íactory. 1he loan did usually not
exceed 10° oí the product ·alue. Aíter 4 years OLAM íound it too diííicult and risky to manage
accounts íor so many íarmers and switched to a system where íarmers had to pay íor inputs in cash.
\here applied successíully, outgrower schemes can attract íinance írom commercial banks and
open up opportunities íor more creati·e íunding schemes in which íarmers get access to íinance,
through the agro-industry company or directly upon prooí oí stable contractual relationships
with a buyer in the past.
27
\ith regard to the situation oí inputs and supplies to primary agricultural production there
seems to be a bias toward the de·elopment and dissemination oí impro·ed crop ·arieties and
íertilizer subsidies ·ia the state and de·elopment agencies. Knowledge, technology, market
inírastructure and credits that need to go in hand with impro·ed seeds and íertilizer are made
a·ailable less eííecti·ely throughout the country. O·erall primary agricultural production makes
limited purchases írom industry - íertilizer and seeds are estimated to be less than 15° oí
requirements due to lack oí credit to íarmers, and inadequate supply and distribution ,PAK
Programme 2004,.
4.2.5 Resource Productivity and Environmental Performance
Ln·ironmental degradation, perpetrated by oil companies but also by careless land use and
destruction oí natural resources such as íorests, pastures and ecosystems, has eroded Nigeria`s
resource base, notably land and water. 1his situation is íurther compounded by incessant socio-
economic conílicts and resti·eness among young people, which ha·e hampered de·elopment
eííorts and se·erely compromised the careíul use oí natural resources in Nigeria.
lew concrete in·estment opportunities seem to exist in the natural resources sector. Iowe·er,
banks may need to be careíul not to íund agricultural projects which jeopardize the sustainability
oí the interaction in terms oí social, economic and en·ironmental standards.
4.2.6 Macro Economic and Policy Context
Non-1ariíí Barriers that ha·e been introduced by Nigeria in 2002 to protect its agricultural
sector include bans íor the imports oí sorghum, millet and wheat ílour, pasta and biscuits as well
as írozen poultry till the year 2011 at least.
Generally, the lack oí basic inírastructure such as roads, transportations, potable water,
electricity, communication, inhibits eííiciency and agricultural production capacity, impairs the
quality oí rural products and is an enormous strain on the labour íorce. Many oí the rural
communities are ser·ed by dirt tracks, which are impassable during the wet season.
A related problem is the lack oí a reliable and inexpensi·e transport system. \here the transport
system is poor the relati·ely íew traders who can mo·e commodities írom remote ·illages
dominate the market.
Sporadic a·ailability oí electricity írom the grid íorces many businesses to run their own
expensi·e power plants. 1his is also the case íor water supply íor which many agro industries
resort to selí pro·isioning, because public water supply is not a·ailable or not reliable íor
industrial use.
4.2.7 Availability of Finance
A·ailability oí íinance íor agricultural ·alue chains in Nigeria reíers to ·olume - ha·ing an
adequate amount oí íinance a·ailable - as well as to design - ha·ing access to appropriate and
aííordable íinancial and complementary products and ser·ices.
Lííecti·ely increasing the ·olume oí a·ailable íinance requires careíul design oí the products to
meet the íinancial needs oí the ·arious chain actors. Presently, almost all segments oí the
examined ·alue chains ha·e diííiculties in accessing adequate and suííicient íinance íor
in·estment into íixed assets, equipment, technologies etc. and íor working capital.
1his constrains the choices they make in running their businesses, encouraging the adoption oí
risk management strategies, such as adopting lower yield crop ·arieties due to inability to access
inputs, which result in lower producti·ity and impede the de·elopment oí the chain.
Most oí the adult population in the country is unbanked`, with the proportion lowest in rural
areas ,86 percent in rural areas do not ha·e a bank account, ·ersus ¯4 percent o·erall,. 1he size
28
oí the population makes this a ·ery large market íor íinancial ser·ice pro·iders to mo·e into.
Precise estimates oí demand íor agricultural íinance are diííicult to íind, but indications on credit
needs írom NACRDB`s recapitalisation and applications to commercial banks are substantial.
\hilst micro and small enterprises require relati·ely little capital in·estment to start up, as
businesses expand o·er time they attain eííecti·e demand íor loans in range oí N50,000 to
N500,000 depending on the acti·ity, whereas loans sought to co·er working capital requirements
generally range írom N20,000 to N250,000 ,Chemonics, 2004,. Smaller loans are also in demand,
which is somewhat met by subsidized credit programmes, although these are mainly supply-
dri·en.
1he sources oí íinance a·ailable to the chains can be broadly di·ided into the íormal and the
iníormal sectors. lormal sources comprise licensed íinancial institutions such as commercial
banks, de·elopment banks including the Nigeria Agriculture, Co-operati·e, and Rural
De·elopment Bank ,NACRDB,, community banks, microíinance banks ,MlBs,, íinance houses,
cooperati·es and NGOs. Iníormal sources oí íinance, such as íamily and íriends, business
colleagues or partners, clubs,societies, sa·ings and loan associations, and moneylenders pro·ide
the bulk oí external íinancing. Access to íinance, and to a smaller degree cost oí íinance, were
íound to be the second most constraining íactor on businesses in Nigeria aíter electricity. In
eííect most businesses rely on internal íinancing, through retained earnings, to meet their needs,
with the situation most pronounced íor smaller enterprises. Only about 5 percent oí SMLs are
estimated to ha·e access to loans ,see ligure ¯,.
\hile se·eral studies ,lAO,lRN 2004, USAID 2005, LlinA 2010, ha·e íound that a signiíicant
proportion ,approximately one quarter, oí Nigerian businesses and indi·iduals use iníormal
ser·ices to access íinance, reliable iníormation on iníormal ser·ices outside the business
relationships oí ·alue chains is scarce. 1he most predominant íorm oí iníormal íinance are
esusu` associations ,also adashi orajo,, akin to iníormal group lending schemes, whereby
members contribute a íixed amount periodically, and part oí the accumulated íunds are granted
to members in rotation until each has beneíited. Iníormal money lenders, sa·ing and credit
associations, credit unions, cooperati·es, and producer and processors` associations, are other
sources oí iníormal íinance. Moneylenders tend to be ·iewed as highly exploitati·e, as they
charge high to exorbitant rates oí interest, and only oííer short repayment periods ,LíinA 2010,.
1he sa·ing and credit associations operate in more íormalized ways, and may or may not be
registered. 1hey mobilize capital through shares, membership íees, regular contributions and
sa·ings, and some borrow írom íormal íinancial institutions ,íor example the cooperati·e
íinancing agency in Bauchi,. Iowe·er, sa·ings and credit cooperati·es must be registered under
the Cooperati·e Association Act, and smaller credit societies oíten come together to íorm credit
unions.
1he source oí loans, whether írom íormal or iníormal sources, oíten depends on the purpose.
lormal sources are seen as being able to pro·ide large loan amounts and banks are the easiest to
access among the íormal institutions. Iowe·er, 63.5° oí the adult population oí Nigeria is
considered to ne·er ha·e had access to íormal loans írom Bank. ,LlinA 2010,. 1he írequently
cited barriers to getting loans írom banks are high collateral demands, high interest rates charged,
bad experiences oí relati·es,associates who ha·e been pursued íor íailure to repay, and
unía·ourable repayment terms.
1he most írequently cited beneíits oí iníormal íinance sources are their proximity to users, ease
oí access, less cumbersome, more trust in the institutions, and minimal interest charges ,LíinA
2010,. 1he iníormal credit institutions are patronized because oí their response to íarmer`s needs
but loans granted are low and unable to pro·ide íor higher cost in·estments such as processing
machines and storage íacilities.
29
1here are approximately 900 licensed microíinance banks ,MlBs, in the country, although they
are geographically concentrated in urban areas, especially around Lagos, and ha·e limited
rele·ance íor agricultural ·alue chain segments in the rural areas. 1his is especially the case in the
North oí the country, which has the lowest concentration oí MlBs. 1his is compounded by
negati·e perceptions oí MlBs due to unproíessional practices oí some operators. 1he Micro
Credit lund ,MCl, launched in 2008 and the introduction oí a Microíinance De·elopment
lund ,MDl, ha·e yet to make signiíicant impacts. Scarce data on cooperati·es prohibits analysis
oí that system`s outreach but it is generally understood that cooperati·es and credit unions
continue to be capacity and capital constrained, limiting their pro·ision oí íinancial ser·ices.
Iigure 7: Availability of credit to Nigerian business
´ovrce: !oría ßaví 200º
\hile iníormal sources oí íinance are ílexible and íill a gap íor agribusinesses, they also lea·e
them in a more precarious íinancial situation that is not conduci·e to long-term de·elopment oí
the chain. 1he argument íor íocusing on íormal íinance lies in its eííecti·eness to pro·ide a
wider range oí ser·ices at scale and to oííer a pooling oí risks which iníormal íinance cannot.
lormal íinancial institutions ha·e diííerent approaches and target markets íor lending. In
general, larger enterprises are signiíicantly better positioned to a·ail oí íinance írom commercial
banks. 1he constraints in accessing íinance are toughest íor domestic íirms, with exporters and
íoreign íirms ha·ing easier access to íinance ,the latter oíten írom o·erseas sources,.
Similarly small íirms complain more oíten than do medium or large íirms, and are the most
reliant on internal íinancing íor both short-term needs ,see 1able 5, and e·en more so íor long-
30
term needs. 1he ·ery low reliance on bank borrowing ,1 percent, is stark in international
comparisons ,30 percent Brazil, 32 percent India, 1¯ percent South Aírica,.
1able S: Sources of short-term finance in Nigeria, by firm size
´ovrce: íC. ´vrre,, !oría ßaví 200º
lurthermore most short-term credit is obtained íor íinancing imports and is usually secured on
the shipment, pro·iding an extra hurdle íor segments íurther remo·ed írom such markets.
loreign íirms ha·e the highest rate oí use oí o·erdraíts and lines oí credit, íi·e times more than
domestic íirms. It is not clear whether this is because íoreign íirms are more used to resorting to
íormal sector banking íacilities or ií they are appro·ed more oíten. In terms oí industries, a
precise breakdown is not a·ailable íor the ·alue chains examined here, howe·er the ICA sur·ey
oí 2008 íinds that íood manuíacturing has better access to credit írom íormal sources than the
cotton,garments sector ,11 percent ·ersus less than 1 percent íor o·erdraíts, and 5.5 percent
·ersus 1 percent íor lines oí credit,.
O·erdraíts usually also require security, and although they are considered short-term
instruments, they are oíten rolled o·er, resembling medium-term instruments. 1his can make
them popular íor eííecti·ely íinancing capital assets and the pre-íinancing oí agricultural
production oí supplying íarmers. Moreo·er the slow reaction oí the large banks to re·ise base
lending rates makes them attracti·e as source oí credit when rates are rising, but disad·antage
them when rates are íalling.
Supplier credit is a·ailable írom commercial banks, usually to co·er the period between the time
an order is placed and the time an in·oice becomes payable. 1hese also can pro·ide íinancing to
key distributors oí large manuíacturing companies. 1his usually in·ol·es that the bank pays the
manuíacturer as soon as goods are supplied to the distributor, and subsequently recei·es
payment írom the proceeds oí the goods supplied.
Leasing ser·ices are a·ailable írom specialized pro·iders ,e.g. C&I Leasing, and Leasing
Company oí Nigeria,, with operational leases being more common than íinancial. lactoring
ser·ices are pro·ided by a small number oí íinance companies, but the practice is not yet
common and the market lacks depth as oí now. 1his type oí íinance is a·ailable on a selecti·e
basis and in limited quantities, with rates reílecting the borrower`s creditworthiness.
linancial literacy is a problem íor impro·ing access to íinance íor agricultural ·alue chains.
Knowledge oí íinancial ser·ices in general is low in Nigeria, and lowest íor ser·ices that could
work well íor more rural and smaller entrepreneurs such as mobile,branchless banking ,mobile
telephone,, microíinance ser·ices, and risk-mitigation products such as insurance - personal
sa·ings is the most widely used tool to mitigate risk.
31
1he lack oí widespread contractual relationships in some oí the ·alue chains ,e.g. cassa·a, limits
the ability oí commercial banks to proíitably enter lending to such chains. lor these chains,
either stronger,special incenti·es would be required, or other actors drawn upon, such as MlBs
who may be better able to meet the íinancial needs oí small-scale producers and processors.
Commercial banks could then be enticed to target larger scale commercial producers and
processors, to meet in·estment in equipment and working capital needs. Problems in input
markets, íor sourcing oí raw materials, ha·e knock-on eííects on the chain through higher
working capital requirements and longer periods to break-e·en on íixed in·estment due to
operating below capacity.
lixed assets oí smaller, íirst le·el processors ,e.g. cotton, tend to consist oí mo·able property
,·ehicles, equipments, etc., which are less likely to be accepted as collateral by commercial banks.
Iowe·er the increasing emphasis on and reach oí credit bureaux is a íacilitating step in opening
up lending on basis oí ·eriíied credit histories. Second-le·el processing tends to ha·e more
immo·able property which is more acceptable to banks as collateral íor lending.
1here ha·e been ·arious schemes launched to accelerate lending to agricultural ·alue chains and
small and medium enterprises such as the Agricultural Credit Guarantee Scheme lund ,ACGSl,,
the Agricultural Credit Support Scheme ,ACSS,, the Commercial Agriculture Credit Scheme
,CACS,, Small and Medium Sized Lnterprises Credit Guarantee Scheme ,SMLCGS,. \hile a
detailed assessment oí their impacts is not a·ailable, it is clear that a streamlined approach to the
sector has become imperati·e, and with NIRSAL the opportunity exists to build on the lessons
learned írom earlier schemes. 1he main strength oí this approach is the íocus on incenti·ising
pro·iders oí íinance to agricultural ·alue chains, to make the ílows oí íunds and ser·ices to this
sector sustainable. Another key aspect is designing products that íit with the íinancial needs oí
the ·alue chains and their segments to ensure a demand, rather than supply dri·en approach.
32
5. Conclusion and Recommendations
Value chain íinance means linking íinancial institutions to the ·alue chain and oííering íinancial
ser·ices to a set oí actors, allowing them to upgrade their businesses and build sustainable
business relationships in the chain. Value chain íinance has two implications íor íinancial
institutions: ,1, it suggests a re·ision oí the practice oí lending to indi·idual business taking into
account the interrelatedness oí business operations in the chain and ,2, it guides towards new
ways oí securing loans to businesses beyond traditional collaterals making use oí the ílow oí
product. It pro·ides tremendous potential íor unleashing existing production and marketing
opportunities, scaling up oí businesses and impro·ing production and income oí the many
actors that are and potentially can be part oí the ·alue chains. Value chain íinance is rather a new
concept to the íormal banking sector in Nigeria. 1hereíore, any íinancial scheme íostering ·alue
chain de·elopment ·ia the íormal banking sector must take into consideration the need to
intimately understand businesses in the agricultural ·alue chain and the inter-linkages between
them.
5.1 Choosing where to invest
Gi·en the enormous need íor íinance across ·alue chains in Nigeria a decision on which value
chain íinancial support schemes should target is a diííicult task. 1his study suggests that the
decision is best made on the basis oí iníormation that takes into account ,a, the development
potential oí a ·alue chain and ,b, its financial needs. \e ha·e pro·ided the tool to make this
decision. In the end, the type oí íinancial support a ·alue chain and its indi·idual actors will
recei·e depends also on ,c, the financial attractiveness oí the ·alue chain business
opportunities to the íinancing institution, and ,d, the financial products and incenti·e schemes
a·ailable to the íinancing institutions.
5.2 Agricultural value chains and their financial needs
Conclusions oí the study with regard to the situation in the ·alue chains and their íinancial needs
are summarized as íollows:
• 1he potential íor the de·elopment oí agricultural ·alue chains in Nigeria is substantial
and promising. On one side there are suííicient natural resources ,land, water, di·erse
climate, and labour a·ailable íor boosting agribusinesses and incomes. On the other side
there is a large domestic market with promising opportunities íor regional,export market
íor some product categories, which are hea·ily undersupplied írom domestic production.
• 1he ·alue chains examined are characterised by a preponderance oí smallholders, and
relati·ely íew processors who encounter se·ere challenges in the acquisition oí suííicient
quality raw materials, the use oí appropriate and modern technology, and the marketing
oí products gi·en international competition. In many íoods staple sectors there are also
many small processing units that engage in milling, grinding, peeling and other operations
oí primary processing with little potential in ·alue addition.
• Diííerent actors in the chains examined are not well integrated or well coordinated.
1here are some experiences with outgrower schemes and contract íarming. 1hese ha·e
worked well only in ·alue chains with buyer monopolies. 1here are íew lead íirms that
promote impro·ing the operations oí their buyers and suppliers. Other íorms oí ·alue
chain coordination and selí-organization oí actors are rare and limited to the new
initiati·es like the Commercial Agriculture. Some parts oí the ·alue chains recei·e direct
support írom go·ernment, e.g. subsidized íertilizer. Iowe·er, there is ·irtually no
go·ernment support to ·alue chain coordination.
33
• 1here are many de·elopment programmes that support ·alue chain de·elopment and
partly also deal with the issue oí íinance. Iowe·er, the type oí íinance they pro·ide is
not suííicient to co·er needs oí the entire ·alue chain.
• linancial needs are particularly acute íor íarmers who need to buy seeds, íertilizer, other
inputs and bear the costs oí land preparation, cropping, har·esting, transport etc.
larmers can get access to íinance directly through relationships with money lenders and
íinancial institutions and indirectly through input suppliers ,granting delayed payment,
and through buyers ,granting ad·anced payment or in-kind distribution oí inputs,. At
best, íarmers ha·e access to a combination oí those íunding sources but the total amount
oí íinance a·ailable is rarely suííicient to allow íarmers operate their businesses
proíitably. linance is a major bottleneck íor impro·ed íarmer income.
• 1he existing íinancial products are tailored to needs íor equipment and short-term
working capital. Iowe·er they are ill-íitted to pro·ide money to agricultural producers
that need to íinance the entire cycle oí agriculture production which can take up to one
year íor annual crops or more íor perennials and li·estock. larmers - and this is not only
news írom this report - ha·e terrible diííiculties in obtaining credit as they cannot
pro·ide collaterals that satisíy íormal íinancial institutions.
• 1here are many small agribusinesses engaging in the primary processing oí íood staples
and operating on low proíit margins ,like cassa·a, cereals, etc.,. 1hese businesses can be
impro·ed through technological upgrading and organization. 1his requires limited
amounts oí íinance which they oíten íind diííicult to get.
• linancial needs also exist at the le·el oí medium to large agro-processing units who,
despite oíten ha·ing suííicient capacities, need equipment loans to upgrade the
technology and match quality oí competitors on the market. Long-term loans íor
equipment and machinery are diííicult to get írom banks. Agro-processors oíten also
need to pre-íinance agricultural production oí their suppliers, this credit line ,usually íor
one year, is oíten not a·ailable. Some processors ha·e thereíore opted to engage on
their own in primary production requiring substantial íinance íor land preparation, tree
planting, etc.
• Other parts oí the ·alue chain also need íinance but their needs are less acute. lor
example, transporters, traders, and storage pro·iders oíten operate their businesses in
aííiliation to larger buyers or input pro·iders and may recei·e íinance írom them. In
cases where they operate independently, they need íinancing íor working capital and
equipment. 1he same applies to wholesalers and retailers. 1he input industry and the
exporters appear to ha·e better access to íinance, including through international
markets.
5.3 Designing Value Chain Finance Support
1he study also pro·ides the basis íor some general recommendations which should be taken into
account in the design oí any ·alue chain íinance support scheme ,including NIRSAL,.
1. A wide range oí inno·ati·e íinancial products and ser·ices is required to reach chain
actors such as producers, traders, processors, and agri-companies. Some oí these
products include o·erdraíts, íixed asset loans, íactoring and leasing, as well as in·estment
loans, guarantees, insurance etc. 1here are also a number oí íinancial products and
methods that are particularly adapted to ·alue chain íinance such as third party
guarantees, securing loans upon cash ílow records and cascade íinancing. 1he suitability
oí these depends on the type oí ·alue chain and the particular segment in the ·alue chain
to be targeted.
34
2. Lending to actors in agricultural ·alue chains requires a thorough understanding oí the
·alue chain and careíul identiíication oí needs and opportunities on the diííerent le·els
oí the chain. Pro·iding large-scale loans to a íew e·entually promising agro-processing
units will not render quick-wins ií the rest oí the ·alue chain is not recei·ing necessary
support as well. Particularly, positi·e eííects on incomes and po·erty cannot be achie·ed
by looking at processing operations alone.
3. In general, rural areas in Nigeria are characterized by the lack oí íormal íinancial
institutions, particularly commercial banks. 1his negati·ely aííects those segments oí
agricultural ·alue chains that are located in rural areas. Any íinancial scheme íostering
agricultural ·alue chain de·elopment needs to take into consideration how it addresses
the needs oí actors located in rural areas. In case commercial banks are not present
alternati·e institutions must be identiíied, e.g. community banks, rural micro-credit
institutions and others.
4. 1here is a need to build ·ertical linkages in the íinancial sector to pro·ide suííiciently
comprehensi·e íinancial ser·ices to ·alue chains. lor example, pro·ision oí an
in·estment loan to a processing company proposes collaboration with microíinance
institutions to pro·ide input loans to producers. 1he microíinance institutions, agro-
insurance pro·iders and banks need to link up to align their ser·ices in a ·alue chain
context.
5. In the design oí any ·alue chain íinance support scheme one needs to be aware oí the
existing íorms oí íormal and iníormal íinance pro·ision in speciíic ·alue chains. Despite
the íact that íinance to ·alue chain actors is commonly scarce and insuííicient, the
existing íormal and iníormal íinancial mechanisms may complement any additional
support scheme. At times they also can conílict with them when it comes to guarantees
and collaterals.
6. linance is only one condition íor businesses in the ·alue chain to be proíitable.
Complementary conditions relate to existing and potential markets, supplies, technology,
as well as horizontal and ·ertical integration among chain actors, chain go·ernance and
the policy and ser·ice en·ironment. 1hose ha·e to be accurately reílected in any analysis
oí íinancial attracti·eness. lurther, pro·iding íinance alone without adequate technical
assistance and in a commodity chain will not enhance producti·ity and lead to more
proíitable competiti·e businesses. Businesses along the chain need access to business
planning, technological upgrading and market de·elopment and expansion strategies.
1hey also need assistance in the areas oí management, training, íinancial systems, etc.
¯. 1here are many de·elopment programmes that promote the de·elopment oí agricultural
·alue chains in the country. Many oí these programmes ha·e íocused, partly, on íinance
issues and de·eloped some successíul models oí íinance. Banks can collaborate with
these programmes beneíiting írom their knowledge and expertise regarding the situation
in particular ·alue chains. 1his may constitute a íield where quick wins` can be
achie·ed.
8. Most oí the commercial banks are not engaged in agricultural lending, and existing
schemes to encourage them to do so ha·e been less eííecti·e. 1his raises two questions:
whether or not commercial banks ha·e a comparati·e ad·antage o·er other íinancial
institutions ,such as DlIs - NACRDB, BOI,, and which incenti·es would be required
,and at what cost, to entice commercial banks to participate in agricultural ·alue chain
íinancing·
35
Annex: Diagnostics of Value Chains
1his annex pro·ides iníormation on the le·el oí de·elopment and the need íor íinance in 10
selected promising agricultural ·alue chains in Nigeria.
A.1 Cassava
Cassa·a is a major staple crop in Nigeria and consumption cuts across all regions and income
strata. In terms oí production, cassa·a is the second most important agricultural commodity in
Nigeria, aíter yam.
Mapping the chain
Main actors in the chain include pro·iders oí íertilizer, small to medium scale íarmers,
processors, retailers and to limited degree industries that engage in the production oí animal
íeeds, ílour íor baking, brewing and pharmaceutical use, starch production íor industrial use and
glucose production. Processing oí íresh cassa·a to gari and íuíu by small scale processors is the
most important processing acti·ity. 1his sector still absorbs more than 90° oí the total cassa·a
production oí the country.
ligure A.1 pro·ides an o·er·iew on main segments oí the cassa·a ·alue chain. In addition one
may also consider actors in the input industry and diííerent ser·ices such as transport and
trading. Pri·ate ser·ice pro·iders include middlemen, traders and transporters, suppliers oí
processing equipment, suppliers oí packaging materials and, to a limited degree, íinancial ser·ice
pro·iders. Public and de·elopment cooperation support is also pro·ided on behalí oí research
and extension agencies, most oí which íocus on primary production and small-scale processing.
Iigure A.J Map of Cassava Value Chain in Nigeria
Source: Markets ,2009,
Primary Production and Sourcing of Inputs
Cassa·a is a major starch-pro·iding íood staple in Nigeria grown by small-holder íarmers. In
addition to the root, the lea·es oí the cassa·a plant are edible and rich in protein. Cassa·a grows
in poor soils, is drought tolerant and can be intercropped with other crops. 1raditional cassa·a-
based íarming systems are characterized by ·irtually no use oí purchased input such as íertilizers,
herbicides, pesticides and impro·ed seed material.
36
Iowe·er, intensiíication through weeding, use oí íertilizers and agrochemicals as well as the use
oí impro·ed planting materials can increase the yield substantially, up to 25 tons per ha and
more. Cassa·a is ·egetati·ely propagated. Lach plant pro·ides multiple cuttings and schemes oí
rapid multiplication that ha·e been already introduced in ·arious regions oí Nigeria. Iowe·er,
propagation rates are still low in comparison with seed based propagation.
1he production oí cassa·a stagnates at a le·el where it is hardly able to meet the national
demand. Particularly the cassa·a processing industry is not able to procure suííicient primary
products. Limited production is partly due to the lack oí proíitability oí the traditional
production systems. Lack oí proíitability in cassa·a production has been attributed, in parts, to
,i, high labour cost in production ,ii, high cost oí cassa·a har·esting and transport, and ,iii,
unreliable supply and high cost oí utilities ,Olomola, 200¯,.
Suitable knowledge and technology to render cassa·a production among small scale íarmers
more proíitable occurs to be readily a·ailable írom ·arious sources oí research but diííusion and
implementation oí it seems to be hampered by an ineííicient extension system, lack oí íinance
and problems oí íarmer`s accessing buyers and markets ,Presidential Initiati·e on Cassa·a
Reports, 2003,. 1he Presidential Initiati·e on Cassa·a, set up in 1999, constituted a major eííort
to build up the domestic producti·e capacity. 1he initiati·e íocused on pro·iding planting
material and íertilizer to íarmers. Iowe·er, many small-scale íarmers ha·e struggled to beneíit
írom the scheme, e·entually temporal a·ailability oí inputs could not make up íor structural
deíiciencies regarding the access to markets and íinance.
Iowe·er, the sector has experienced the emergence oí large-scale íarming oí cassa·a by
commercial íarmers. Proíitability oí such íarm operations seems to be rather high although the
costs, consisting largely oí depreciation oí íixed assets, non-labour inputs such as seeds, íertilizer
and chemicals, and hired labour, are quite substantial and cannot be borne without additional
íinance. Also the technical and operational capacity required íor such type oí large estate
production is not inherently a·ailable among entrepreneurs traditionally engaged in processing
and sales.
Processing Capacity and Technology
1hough cassa·a can be leít on the íield un-har·ested íor a long time, once har·ested the roots
are susceptible to physiological deterioration. Roots aíter 48 hours ha·e little market ·alue
limiting the range o·er which íresh roots can be marketed. Deterioration can be delayed by
waxing or storage in plastic bags íollowing a íungicidal treatment.
Cassa·a contains up to ¯0° oí water. 1he bulkiness oí íresh cassa·a plus the costs íor loading
and unloading makes it diííicult to transport o·er a longer distance. Cassa·a`s bulk is
substantially reduced when processed. Processing also increases shelí liíe.
Most cassa·a in Nigeria is processed in the so called fre.b ca..ara raíve cbaiv` by iníormal ,oíten
artisanal, small-scale processing units which transíorm íresh cassa·a into products such as gari
and íuíu. 1his sector may account íor more than 90° oí the actual processing capacity. lor
íresh cassa·a processing` the roots must be peeled, chipped, soaked,íermented, dried, and
sometimes grated. lresh cassa·a processing is labour-intensi·e and time consuming ,Sanni et al.
200¯,. Peeling represents the most labour-intensi·e operation, non-mechanized and traditionally
done by women and sometimes children. Storage space íor íresh and processed cassa·a is oíten
scarce and,or not adequate. O·erall there is a strong need íor mechanization in order to reduce
labour costs. 1he absence oí equipment is a major constraint to íurther mechanization oí cassa·a
processing. Some oí the processing equipment needed íor cassa·a processing include peelers,
washers, graters and chippers, extractors, pressers, siíters, dryers, con·eyors, cookers and boilers
,Sanni et al, 2006,. linance íor the purchase oí such equipment is oíten not a·ailable. All these
íactors contribute to the íact that many ,ií not most, cassa·a processing units operate with no or
only marginal proíitability ,Sanni et al. 200¯,.
37
1he so called ar, ca..ara raíve cbaiv` processes cassa·a into ílour and starch and íurther into
industrial products such as íeedstuíí, ílour, starch and glucose. Additional transíormation allows
íor the production oí ethanol which lately is picking up, only limited by the low prices íor íuel in
the country. Usually the industry makes use oí more sophisticated and larger-scale processing
equipment such as distillers, adhesi·e reactors, íermenters, íryers, pelletizers, packaging
machines, as well as grinders and millers ,Sanni et al. 2006,. A number oí industrial cassa·a
processing plants ha·e already been set up, including LKIA which produces glucose syrup and
NSM and MA1NA which produce starch. All oí them operate below their capacities as they
ha·e not been able to achie·e continuous supply oí raw materials. 1he perishability and
bulkiness oí íresh cassa·a requires that these industries be located close to production centres or
in ·illages. Iowe·er, industry still needs to sol·e problems in procurement oí primary products
and relationships with suppliers while also increasing eííiciency through better equipment,
technology and know-how. Omolola ,200¯, íinds that business in starch processing operate with
barely enough re·enues to co·er the costs oí production, let alone costs oí capital remuneration.
Consequently, no proíit is realized. Major constraints to processing are equipment related
íinance, low proíit, road transportation diííiculties, insuííicient supply oí cassa·a roots, high
costs oí production and low demand íor cassa·a products. Due to these reasons, some industrial
processors in Nigeria ha·e already switched o·er to gari processing where demand is high.
End-Markets and Trade
Lnd-products: Cassa·a products in Nigeria are common and di·erse. 1hey include Abacha
,sliced pieces oí cooked cassa·a,, chips, ílour, íuíu ,íermented wet-paste,, Gari ,íermented
granular ílour,, pellets, starch and tapioca ,gelatinized dried cassa·a starch, ,Lzedinma et al.
200¯, Philip et al. 2005,. Products that go through íurther transíormation, usually on the basis oí
starch or pellets, include glues and adhesi·es, bread extenders, thickening and bodying agents in
íood processing, laundry starch, alcohol, paper sizing and bonding, as well as textile sizing and
strengthening. Root peel, pellets, tapioca and broken roots are also used as íeedstuíí íor
li·estock. lurther high quality cassa·a ílour ,IQCl, can be used up to10 percent and more as a
substitute íor wheat ílour in bread and other wheat based products.
Lnd-markets: Great imbalances continue to exist between the demand and supply oí cassa·a in
Nigeria. 1he demand íor products írom cassa·a processing largely exceeds the supply. 1he
absence oí appropriate market links and outlets íor cassa·a products is a particular constraint to
íurther de·elopment oí the ·alue chain. \hile industrial demand íor cassa·a-based products is
still low and does not pro·ide enough incenti·es íor increases in cassa·a production the bulk oí
the product is sold to small traders or directly to local households. Communities that thri·e in
cassa·a production and processing are usually located close to market places where they can
eííiciently sell cassa·a products. Certain roadside markets ha·e already strongly de·eloped as
they are close to consumer markets. Product marketing with the exception oí a íew larger scale
industries is poor and limited to traditional marketing channels. Ií íarmers and small scale
processors could be capacitated to eííiciently and eííecti·ely chip, grind, and dry cassa·a they
could increase the ·alue oí their products which in turn could be easier marketed to bulk
purchasers, traders and commercial buyers.
Competitors: 1he international demand íor starch products is substantial and world market
prices are currently high. Iowe·er, the lack oí primary products, comparati·ely high production
and processing costs and the poor marketing practices ha·e depri·ed Nigeria to engage in
international trade oí cassa·a products.
Quality and standards: lresh cassa·a contains cyanogenic glycosides. Ií cassa·a is inadequately
processed this creates a potential health hazard. Lííecti·e processing, essentially in·ol·ing root
disintegration and remo·al oí the cyanogenic compounds with water, ensures the saíety oí
products. Proper handling oí íresh cassa·a already during the storage and transport, peeling and
íurther processing is critical íor generating products that can be used in íurther transíormation
38
and more sophisticated end-markets. 1he cassa·a sector is characterized to a large extent by a
lack oí grades and standards. Small-scale processing units íind it diííicult to produce
homogenous products and temporal hazards in processing, at times, jeopardize the quality oí
products.
Chain Governance and Linkages
Lead íirms: 1here are no lead íirms which source major percentages oí the primary or semi-
processed products. Processors are unable to exceed product quality gi·en the limited supply oí
products and the lack oí accepted standards across the producer and processor community.
Coordination mechanisms: O·erall the coordination among actors in the ·alue chain is poor.
1here are no outgrower and contract production schemes and the lack oí primary products
makes it diííicult íor buyers to make suppliers comply with quality criteria. Also there are no
standards that are suííiciently accepted by producers and small processors. 1he setting up oí
larger commercial íarms which also handle processing opens up the possibility to de·elop
customized outgrower support programmes between commercial íarms and industrial buyers.
1ype oí go·ernance: 1he sector is mainly characterized by a polypolistic market structure where
a large number oí producers and processors pro·ide products to a large number oí consumers
making use oí many transporters and traders. 1here is no leadership that ensures a better
organization and integration oí the ·alue chain in a way that contractual arrangements between
buyers and suppliers are transparent enabling íair and transparent deli·ery and payment and
pro·iding incenti·es to more production oí higher quality products.
Resource Productivity and Environmental Performance
1raditional cassa·a processing is an acti·ity, which due to contamination, odour and noise, is
banned írom urban areas by law. 1he process uses a substantial amount oí water and energy
which also contributes to its high costs. Cassa·a peel is usually used as animal íeeds but water is
usually contaminated with cyanogenic substances. A number oí alternati·e energy and water
sa·ing technologies is a·ailable but due to the lack oí standards oí cleaner production and higher
costs usually do not get into use.
Macro Economic and Policy Context
Central and state go·ernments try to iníluence the cassa·a sector mostly through the pro·ision
oí subsidized íertilizer. 1here is no limit to the export oí cassa·a. Iowe·er the domestic market
absorbs almost all products. In relation to producers oí cassa·a-based íeedstuíí írom Asia, the
Nigerian cassa·a sector still lacks competiti·eness. Some eííorts ha·e been made to ·enture into
the export oí cassa·a products to the Luropean Community ,LU, with mixed success, the major
limitation being a íixed 145,000 tons per annum quota granted íor ACP countries by the LU.
Availability of Finance
linancial attracti·eness: Gi·en the limited proíitability oí processing businesses, their íinancial
attracti·eness is generally low. linancial attracti·eness is also limited due to the limited scale oí
the predominant small-scale processing and the inadequate liability status oí the communities,
íarmers groups and indi·iduals engaged in processing. Some agro-industrial processing plants are
the exception but also here there are constraints due to lack oí supplies and unsecured marketing
opportunities that many oí the plants íace. 1he íinancial attracti·eness oí production seems to
be somewhat better, ií adequate use oí knowledge and technology is gi·en. Iowe·er, also here
in·estors in commercial cassa·a íarming are the exception. linance íor working capital and the
purchase oí small processing equipment íor íarmer groups, cooperati·es and indi·idual íarmers,
be it by registered associations, cooperati·es, NGOs, in·estor groups or indi·iduals, is ·irtually
inexistent.
39
Capital intensity: Processing oí cassa·a requires a number oí equipment such as peelers, washers,
graters and chippers, extractors, pressers, siíters, dryers, con·eyors, cookers and boilers all oí
which require access to íinance. 1he mobility oí such equipment does not allow to use it as
collateral in which case other means oí securing loans must be íound. Lquipment and
machinery íor larger processing plants are substantial and gi·en their stationary character are
more suitable íor securing loans. Iowe·er, banks always require additional guarantees and
collaterals.
Lxisting íormal and iníormal íinance schemes: 1here are a number oí micro-credit schemes that
allow íarmers and small processors to co·er parts oí their íinancial needs. 1hese schemes,
howe·er, are only a·ailable in certain regions where such schemes operate, usually with support
oí the international de·elopment cooperation. 1hey are by no means suííicient to co·er the
needs oí the entire sector. Gi·en the absence oí íormal íinancing írom banks and other
institutions, íinance through buyers remains the only alternati·e source oí íunding. Iowe·er,
due to the iníormality oí business transactions in the chain the option is hardly explored. Most
buyers are suííering írom lack oí íinance themsel·es and lending to suppliers is considered
mostly too risky.
Some larger processing plants also ha·e access to íinancing schemes that are based on the
deli·ery oí íinal products to buyers. Such schemes pro·ide access to íinance upon the a·ailability
oí íinal products that are ready to be deli·ered to buyers. Accordingly, larger buyers can access
credits upon the receipt oí products which ser·e as a collateral till they get sold to end-buyers.
1here is no record oí an integrated íinance scheme in the cassa·a ·alue chain in which a
simultaneous pro·ision oí íinance to ·arious interrelated actors in the ·alue chain is realized.
Finance requirements
1he abo·e analysis has enabled a nuanced identiíication oí íinancial requirements in the ·arious
segments oí the ·alue chain ,see 1able 4.1,
1able A.J Iunding requirements in the cassava value chain
I
n
p
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t
i
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d
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s
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r
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S
m
a
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s
a
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/
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t
a
i
l
E
x
p
o
r
t
Need/
purpose
Working
capital
(planting
material
producers)
Working
capital
(inputs,
labour,
transport)
Working
capital,
fixed
assets
Working
capital,
vehicle
Working
capital,
equip-
ment
(short-
medium
term)
Working
capital
(processing
& supplier
credit),
equipment
Working
capital,
equip-
ment
Working
capital,
equip-
ment
Working
capital
Fixed
assets
(storage,
vehicle)
Working
capital
(pre- and
post-
shipment)
Volume
needed
low high high low
(through
process-
ors)
high medium high high low medium
Risks high medium medium high low low medium low low
Interest low low medium low medium high high high high
40
A.2 Cotton
In Nigeria, cotton is grown in the northern and central regions oí the country as a cash crop.
1he íibre most oíten is spun into yarn or thread and used to make a soít, breathable textile,
which is the most widely used natural-íibre cloth in clothing today. Nigeria is one oí the leading
cotton producing countries in \est Aírica.
Mapping the chain
1he ·alue chain in cotton includes cotton growing, cotton ginning, yarn spinning, íabric
wea·ing, íabric íinishing ,dyeing and printing, and garmenting ,A.2,. 1he actors in the chain are
mainly suppliers oí inputs ,seeds, agrochemicals and íertilizers,, small to large-scale íarmers,
buying agents, and small and large-scale processors. 1he cotton industry sector is dominated by
ginneries , textile mills which absorb 100° oí the cotton production in the country. Currently
there is no organized garment industry in Nigeria and raw textiles are exported.
Iigure A.2: Map of Generic Cotton Value Chain
´ovrce: Paríe., vo aate
Primary Production and Sourcing of Inputs
Cotton production declined írom an output oí 220,000 tons in the 19¯0s to 28,000 tons in the
1980s. Certain adjustments and price liberalization introduced in 1986 were able to re·i·e the
production to ¯0,000 tons by 1996. Misbahu ,2010, reports that Nigeria has abundant arable
land under cotton culti·ation with potential to employ two million people within related
acti·ities oí planting, weeding, har·esting and transportation. It is estimated that about 650,000
hectares oí suitable land is a·ailable íor cotton íarming in Nigeria. Iowe·er, currently only a
third oí the potential land is exploited to produce some 300,000 tons oí seed cotton by an
estimated 250,000 mostly smallholder íarmers.
In Nigeria, there are two major cotton zones, namely the North and the South with diííusion
into the Central part oí the country. 1he Northern cotton zone comprises Katsina, Kaduna,
Zamíara, Kano, Jigawa, Bauchi, Gombe, Plateau, \obe, Borno, 1araba and Adamawa states
while the Southern cotton zone comprises Kwara, Ogun, Ondo and Oyo States. 1he central
zone is represented by Niger and 1araba states.
41
About 80° oí cotton íarmers are small scale holders with an a·erage land holding oí 2 hectares.
lew large-scale íarmers exist with about 15.2 hectares holding capacity while crop har·esting is
seldom mechanized with large íarmers employing the traditional hand picking method three
times a year. 1he area under cotton production has remained stagnant at 400,000 hectares
between 2003 and 2008. Similarly, Nigeria has the lowest yield per hectare not only in the world,
also substantially lower than ·is-a-·is neighbouring lrancophone countries. 1he yield declined
írom 250 kg,ha in 2003 to 230 kg,ha in contrast to global impro·ement in yield írom 618 kg,ha
to ¯18 kg,ha ,UNIDO, 2009,.
Iand-picked cotton is oí high grade and achie·es a better price than the machine har·est
,RMRDC, 2004,. Cotton in Nigeria is largely handpicked with a minimum oí mechanical means.
It is highly labour intensi·e, engaging mostly women and sometimes children. 1he absence oí
equipment is a major constraint. 1he bulkiness oí cotton plus the costs íor loading and oíí-
loading makes it diííicult to transport o·er a long distance.
Limited production oí cotton is partly due to lack oí proíitability in the traditional production
systems arising írom high cost oí labour, har·esting and transportation. Generally, íarmers
accord higher priority to íood crops than cotton and thereíore reduce the area culti·ated in
reaction to high íood prices, low cotton prices and other market dynamics. Lack oí aííordable
íinance at critical times results in delay oí input supply and also aííects production. Other íactors
are unreliable supply and high costs oí seeds, íertilizer, chemicals, equipment hiring, crop le·ies,
etc. Small scale íarmers íind it diííicult to procure impro·ed seed ·arieties, appropriate packing
materials and storage due to lack oí íinance, thereby jeopardizing the quality oí products. 1he
sector also suííers írom constraints in weight and measurements, quality standards, appropriate
packaging materials ,polypropylene, and storage íacilities, contamination, equipment,
uncontrolled practices oí íarmers, absence oí institutional arrangement íor commodity grading,
etc. 1he International 1extile Manuíacturers lederation reports Nigerian lint to be some oí the
most contaminated in the world, along with national origins írom Nigeria, 1urkey, India,
1ajikistan, Pakistan and Uganda. Production is still largely unstandardised and this impacts
negati·ely on producti·ity and íibre quality.
Processing Capacity and Technology
Most oí the cotton produced is processed by ginneries located in the cotton production zones in
the country. Only an insigniíicant quantity is ginned iníormally by traditional methods. A decade
ago, there were around 50 ginneries in Nigeria. Iowe·er, due to reduction in cotton production
and obsolete equipment, the number oí acti·e ginneries in Nigeria during the 2008,2009 season
reduced to 15 oí which 13 are currently reported to be acti·e, 11 in the North \est and 2 in the
North Last. 1he national a·erage output has been maintained between 150,000 tons and 300,000
tons. Iowe·er, the cotton ginning capacity oí Nigeria is 650,000 tons ,Misbahu 2010,.
Cotton is processed into lint and by-products as cotton seed. 1he cotton lint is íurther
transíormed into yarn and íabric ,grey íabrics, bleached íabrics, dyed and knitted íabrics, íor
garment industry. In addition, the cotton seeds are transíormed into edible oil and animal íeeds.
Nigeria has o·er íorty textile íactories established since 1960s with large-scale ,mostly integrated,
processing equipment íor spinning, wea·ing, dyeing and íinishing across the country. Similarly,
there are small-scale and large edible oil and íeed mills established at locations close to the
ginneries. Iowe·er, most oí those industries ha·e been run down to an extent that they are not
operational or operate on a capacity utilisation oí less than 30°. Alternati·e íibres such as
polyester chips were initially imported and con·erted to íibre in Nigeria. Currently, howe·er, all
the companies that con·ert chips to íibre ha·e closed down. 1his means that the íibre and
cotton yarn as well as synthetic yarn ha·e to be imported.
1he Nigerian textile industry was once the largest employer oí labour aíter the lederal
Go·ernment. 1he growth and expansion oí the textile mills contributed numerous employment
42
opportunities in the sector, adding to successíul cotton production which opened up seasonal
jobs and cash ílow to the rural íarmers. It employed o·er 300,000 workers in the mid 1980s.
1his employment le·el has howe·er dropped steadily thereaíter such that with the closure oí 25
,out oí 50, textile mills since 2002. In 2003, 5¯,000 workers remained employed in the industry
and the local textile industry now shares just 2¯° oí the home clothing market ,UNIDO 2009,.
1he capacity utilization íell to a dismal 25° in 2010. L·en the existing capacities now operate at
a skeletal le·el and many more are on the brink oí closure. Critical challenges includes ,i, inílux
oí counteríeit and smuggled textiles mainly írom China, ,ii, scarcity and high cost oí LPlO
,black oil,, ,iii, escalating cost oí gas, ,i·, expensi·e alternati·e source oí energy, ,·, costly and
poorly distributed power supply, ,·i, limited market access íor the Nigerian íabrics, ,·ii, high
cost oí water, steam and labour, ,·iii, and lack oí aííordable credit line. In sum, at the processing
stage, o·erhead costs, licensing and energy are the major high íinancial costs components in
processing. In ·iew oí these constraints, the lederal Go·ernment has released the sum oí N100
billion at a single digit interest íor the re·i·al oí the textile sector which is currently being
managed by the Bank oí Industry.
Garment industry is yet to be established in Nigeria. Iowe·er, a íew companies, associated with
the Nigeria 1extile Manuíacturing Association ,N1MA,, are engaged in knitting, processing and
garmenting. 1his includes Cotsyn ,Sunílag group,, lemro group 3 Nig. Ltd, \est Aírican
1hread Co. Ltd, Adhama 1extile & Garment Ind. Ltd, Rosies 1extile Mills Ltd. 1here are also
other companies that are in·ol·ed in cut, make and trim ,CM1, operations such as Sam and
Sara, Ruíí n 1umble, Viratex. Other groups are in·ol·ed in íashion designing and tailoring oí
outíits which cater to the populace on made to measure basis.
1he constraints coníronting the garmenting segment include illegal importation oí garments as
well as second hand clothing, the strong culture oí the populace which makes them preíer
traditional dressing habits, degradation oí inírastructure which has contributed to a high cost oí
production, and existing delays in processing export incenti·es. Opportunities in garmenting are
growing urbanization which is iníluencing the dressing habits, increasing demand due to
expansion oí schools and íactory acti·ities which call íor more school wear and work wear
respecti·ely, expansion oí the hospitality industry which demands íor more made up articles
such as towels, bed sheets, pillow cases, mattresses ticking, etc, and the possibility oí exporting
through the AGOA íramework.
End-Markets and Trade
1he deregulation oí the cotton sector in 1986 ,through the abolition oí commodity marketing
board, sought to remo·e all íorms oí barriers to participation in the market and to
establish,create a state oí eííecti·e competition in the market with the Go·ernment still dictating
prices on a regional basis. As a result, the northern cotton market witnessed the rise oí a
signiíicant number oí indi·idual buyers and sellers gi·en the new íreedom oí entry and absence
oí persistent price discrimination. Price íixing was decentralized and ·aried írom one buying
point to another. Marketing margins were substanti·e and ·aried írom one channel to another
re·ealing imperíection in the pricing system. Similarly, ílaws were also noticed with regard to
uníair practices, íraud against sellers and buyers, pre-emption and undesirable bi- and multilateral
agreements. All this contributed to the íact that the cotton market still does not eííecti·ely and
transparently pro·ide price signals bringing together demand with supply ,Onu et al. 2008,.
About 33° oí the worldwide cotton production is traded internationally. 1he dominant
exporters are US, Uzbekistan, lrancophone Aírica and Australia which account íor two-thirds oí
world exports. In Aírica, production and export ha·e maintained an upward trend. Iowe·er,
due to low le·els oí de·elopment oí the textile industry especially in \est Aírica and Nigeria in
particular, the international demand has been ·ery low.
43
1he consumption pattern is usually determined by the size oí the textile industries oí the
dominant cotton consumers. China, a leading textile producer, absorbed more than ' oí the
global cotton output. Since 1989, Nigerian cotton is exported in the international market but
declined due to se·eral constraints in the industry. In spite oí this, there is still an increased
demand írom cotton consuming nations such as China, India and 1urkey. Prices oí cotton in the
international market ha·e been unstable but tend to be on the rise. Nigeria has also been
in·ol·ed in cotton seed import as production íaced more se·ere constraints while export has
been on the decline.
Chain Governance and Linkages
Great imbalances continue to exist between the demand and supply oí cotton in Nigeria.
Demand íor products írom cotton processors largely exceeds the supply. Ginneries ser·e as the
main market links and outlets íor cotton. 1his is supported by a chain oí indi·iduals and
ginneries as buyers and sellers,producers. 1he majority oí the buyers and sellers are below the
age oí 50 and ha·e little education.
\hile industrial demand íor cotton products is still ·ery high, this does not signiíicantly
contribute to higher cotton production as íarmers preíer to produce íood crops which are easy
to sell on local markets. Communities that are in cotton production are usually located close to
the market places where they can eííiciently sell to buyers because oí storage and transport
logistics constraints. A·ailability oí aííordable íinance to íarmers, commercial buyers and
ginneries is a serious constraint to enhanced demand and supply acti·ity in the ·alue chain.
1here is no lead íirm in the sector but a network oí ginneries and indi·idual buyers. 1here is no
leadership that promotes a better organization and integration oí the ·alue chain.
Processors, represented by ginneries compete with indi·idual buyers to source íor primary
products while secondary products are sourced within and amongst the processors. \ith the
abolition oí commodity market there no coordination amongst the producers.
Some buyers and processors ha·e de·eloped iníormal outgrower schemes pro·iding credit to
íarmers to purchase inputs in exchange íor their products aíter har·est. It is diííicult íor buyers
to make suppliers comply with quality criteria since there is no íormal contract. Also there are no
standards that are suííiciently accepted by producers and ginneries.
Resource Productivity and Environmental Performance
Cotton production has íew negati·e impacts on the en·ironment which relate to the use oí agro-
chemicals. Iowe·er, cotton processing is an acti·ity that in·ol·es dry and wet processes where
hazardous chemicals are sometimes used. In the wet processes substantial amounts oí water and
energy are used which contributes to costs. A number oí alternati·e energy, water sa·ing and
pollution-íree technologies are a·ailable but the lack oí standards oí cleaner production and
higher costs usually do not allow íor adoption.
Macro Economic and Policy Context
In 2004, the Nigerian go·ernment introduced an export subsidy to promote non-oil exports. 1he
subsidy also hat unintended eííects on other parts oí the ·alue chain. As cotton growers were
exporting cotton on an accelerated basis to take ad·antage oí the export incenti·e, the Nigerian
textile industry experienced a signiíicant shortage oí raw material which íorced them to import
higher-priced cotton, thereby signiíicantly increasing their production costs. Iowe·er, the
distortionary eííect oí the export subsidy on diííerent segments oí the textile chain was among
the key issues that aííected the sector`s sur·i·al ,lIAS 200¯,.
In Nigeria and \est Aírica in general many countries ha·e ·entured into the export oí cotton
products to the lar Last and the US under the American Growth and Opportunity Acct
44
,AGOA, with mixed success. 1he major limitation to this export market is the ability to meet
export requirements.
Availability of Finance
1he attracti·eness oí íinancial support in the ·alue chain is pronounced at the processing
segment compared to primary production le·el. Iowe·er, the apparent constraints are lack oí
supplies, land preparation, har·esting logistics and post har·est logistics. 1hus, with adequate
íinance, knowledge and logistics to the íarmer, the production le·el would be increased.
Iowe·er, in·estors ,·ery íew, in commercial cotton íarming do not necessarily íace this type oí
constraint due to their scale. lurther, there is a lack oí íinance íor working capital and the
purchase oí small utility equipment íor íarmer groups, cooperati·es and indi·idual íarmers.
1he small scale íarmer does not engage in the processing oí cotton due to the cost and
sophistication oí the machinery and the technology in·ol·ed. Most oí the equipment required is
tractors, sprayers, transport ·ehicles, har·esters, packaging materials, storage, etc. all oí which
require access to íinance. 1he mobility oí such equipment does not allow íor using it as collateral
in which case other means oí securing loans must be íound. Secondary products require larger
processing plants which are substantial and gi·en their stationary character are more suitable íor
securing loans. Iowe·er, banks would always require guarantees and collaterals.
In general, there are a number oí micro-credit schemes that allow íarmers to co·er part oí their
íinancial needs. 1hese schemes, howe·er, are only a·ailable in certain regions, usually with
support oí the international de·elopment cooperation. 1hey are by no means suííicient to co·er
the needs oí the entire sector. Gi·en the absence oí íormal íinancing írom banks and other
institutions, sourcing íinance through buyers remain the only alternati·e source oí íunding.
Iowe·er, due to the iníormality oí business transactions in the chain the option is hardly
explored. Buyers are also suííering írom lack oí íinance.
Some larger processing plants also ha·e access to íinancing schemes that are based on the
deli·ery oí íinal products to buyers. Such schemes pro·ide access to íinance upon the a·ailability
oí íinal products that are ready to be deli·ered to buyers. Accordingly, larger buyers can access
credits upon the receipt oí products that ser·e as collateral till they get sold to end-buyers.
Finance requirements
1he abo·e analysis was meant to enable a nuanced identiíication oí íinancial requirements in the
·arious segments oí the ·alue chain ,see 1able 4.2,
45
1able A.2 Iunding requirements in the cotton value chain
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p
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E
x
p
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t
Need/
purpose
Working
capital
(inputs,
labour,
transport)
Working
capital,
fixed
assets
Working
capital,
vehicles
Working
capital,
equipment
(short-
medium
term)
Working
capital,
equipment
(medium-
long term)
Working
capital,
equipment
(short-
medium
term)
Working
capital,
equipme
nt
(medium
-long
term)
Working
capital
(pre- and
post-
shipment)
Volume
needed
none high high low
(through
processor
s)
high high high high medium
Risks high medium medium high high high high low
Interest low low medium low medium low high high
46
A.3 Fisheries
Mapping the chain
In Nigeria most íish are har·ested by artisanal íishers in small amounts using basic technologies
such as dugout or plank canoes and ·arious nets. 1he íish mongers,processors represent the
íirst segment oí the íish market chain buying íresh íish directly írom íishers as the latter land the
íish at the shores in boats or canoes. 1he íish could be sold íresh thereaíter, or processed by
smoking or sun-drying. Reírigeration is ·ery rarely used due to lack oí electricity in the íishing
·illages.
Processed íish is usually sold in bulk to wholesalers. lishers rarely break allegiance to a íish
monger to whom there is oíten a close aííiliation - especially ií the monger had pro·ided soít
loan,credit - e·en ií the íisher would get higher prices elsewhere.
lish wholesalers íorm a particularly important link írom the northern regions where they are
in·ol·ed in weekly transportation oí processed and smoked íish to distant southern Nigerian
markets oí Lagos, Onitsha, Lnugu and Ibadan. 1hese markets recei·e o·er ¯0° oí the íish
products írom the northern region ,lAO 2002,.
Iigure A.3: Map of fisheries Value Chain
´ovrce: 1be avtbor.
1he íish retail marketers represent the íar end oí the íish marketing chain. 1his acti·ity is ·ery
important íor li·elihoods in southern Nigeria where demand íor smoked,dried íreshwater íish is
high. 1he retail íish market is almost exclusi·ely the acti·ity oí women, except íor the northern
region where men acti·ely participate. Retail sales are usually dominated by locals oí the area
where the íish markets are situated. Access to retail íish marketing is not restricted, but
entrepreneurs must belong to any oí the existing local iníormal associations ,unions, set up to
protect their interest and to íacilitate their dealing with the wholesalers.
47
Some íresh products are sold directly to hotels and restaurants. 1hey are supplied by íish
·endors, who in turn contract íish íarmers and reser·oir íishers to supply an agreed proportion
oí íish. 1he ·endors íinance the íishers, as they would otherwise not be creditworthy ,lAO,
200¯,.
Primary Production and Sourcing of Inputs
1he inland íishery is dominated by artisanal íishers who are characterized by low capital and
technology input. lishing is practiced year-round. Very basic har·esting methods such as gillnets,
cast nets, liít nets, beach seines, driít nets and ·arious basket traps are most oíten used.
Landing sites are scattered along ri·ers and lake shores. Access to such communities is generally
easier than to coastal íishing communities. 1he majority oí inland íish har·ests ,60°, occur in
three areas: Upper Ri·er Benue, Lake Chad and the Nguru-Gashua \etlands ,lAO 199¯,.
Inland íisheries pro·ide employment íor approximately 20,000 households. It is, howe·er, oíten
a secondary source oí income - behind agriculture - pro·iding roughly 24 to 28° oí total
incomes íor those households. Capital input is generally limited to a boat and gear. According to
a lAO ,200¯, study, a typical in·estment íor an a·erage íisher is N ¯,000 to N 15,000 íor a boat
and another N 5,000 íor gear.
Inputs, such as íish gear dealers, boat builders, outboard engine mechanics and net íabricators
are íew in each community and the demand íor their ser·ices depends on íishing intensity.
Iowe·er, the increasing cost oí inputs oíten results in reduced input replacement, leading to
continuous use oí input beyond its designed liíe span, írequent breakdown and ultimately
irregular íishing trips and low catches. lorest depletion and scarcity oí wood also aííects
processors and boat builders. Inírastructure and transport are basic.
Aquaculture was introduced in Nigeria in the 1950s, but íailed to meet expectations, pro·iding
only 5-6° oí domestic demand ,lAO, 200¯,. In recent years, the demand - supply gap has
widened, resulting in a renewed interest in aquaculture that is projected to continue. 1he new
strategy íocuses largely on the pri·ate sector. lrom the 2,642 íish íarms identiíied, íewer than
100 are state-owned ,lAO, 200¯,. 1he main species íarmed is the Cíaria. .pp, more commonly
known as Catíish. Subsistence íish íarms produce approximately 0.2 - 1.5 t,ha,yr, while
integrated íarms can produce 1.5- 3.5 t,ha,yr, and intensi·e re-circulation íarms can produce 0.2
- 1.0 t,m°,yr. ,lAO, 200¯,
1he most important input íor aquaculture is íish íeed. 1he supply oí quality íish íeed is not
without challenges. leed millers íocus mainly on the poultry industry, lea·ing íish íeed as a
secondary acti·ity oí oíten poor quality. 1his has resulted in many commercial íish íarmers
producing their own íish íeed on-site. 1otal output oí íish íeed is about 25,000t,yr to 30,000t,yr
íor medium and small-scale íarms while high-tech producers import 6,000t,yr oí íish íeed íor
intensi·e culture systems ,lAO, 200¯,. 1he second most important input íor aquaculture is
íingerlings. Some high-tech íarms are capable oí turning out 3 to 4 million íingerlings per year.
1he production oí íingerlings has increased írom 3 million in 2001 to about 30 million in 2004
,lAO, 200¯,. Quality íingerlings are widely a·ailable and supply adequately satisíies the demand.
Processing Capacity and Technology
lish processing is done almost exclusi·ely by women, except in northern regions where men
acti·ely participate. Similarly, íish marketing is controlled by women, except wholesale and
distant trade that is dominated by men in inland communities. Inland artisanal íishers process
íish mainly through íish drying and smoking. In 1995,96, the trade oí dried catíish was ·alued at
o·er US>10 million and employed thousands oí people in processing, transportation and
marketing.
48
In response to increased local aquaculture, íish íeed production is also increasing. In coastal
areas íish waste írom industrial processing plants are taken by íeed producers. Clupeids are sun-
dried, crushed and packaged as íish meal íor national distribution. In the Lake Chad íishery,
stunted 1ilapia, broken dried Clarias and insect-iníested íish are dried, pul·erized and packaged
íor íish meal. 1otal output íor the íish íeed industry is estimated at 45,000t,yr, worth N 5.4
billion ,lAO, 200¯,.
Processing technologies remain ·ery basic íor the artisanal íishery. As a result, post-har·est
losses can be as high as 40° ,lAO 200¯,. 1he traditional smoking kiln .goao is a clay type o·en
or drum o·en and is the most widely used íorm oí processing. 1he major energy source is wood,
which is increasingly in short supply. lish processing is time consuming and arduous. 1he
smoked product bavaa, is oíten charred, ·ery dry and brittle. It is oí ·ery low quality, but its long
shelí liíe ensures that demand íor bavaa remains high. 1he high shelí liíe also íacilitates wide
distribution throughout the country to meet demand írom lower-income strata.
lish is also dried in the open air using simple shel·es. A ·ery limited amount oí íish mongers use
reírigeration units to keep íresh íish cool while they are transported írom the landing sites to
markets inland.
End-Markets and Trade
1ransporting íish products is most commonly done through public transport. Iowe·er, this
increases risk due to irregular ser·ices and increased expense. As a result, íishers are sometimes
íorced to sell their catch to a·oid spoilage.
1he limited public transport system oíten leads to situations where the market can be dominated
by a small group oí traders with access to pri·ate transportation. 1heir iníluence is enhanced by
the remoteness oí the ·illages and the perishable nature oí the product. 1his oíten leads to
relationships where íishers are entirely dependent on traders to purchase their har·ests and in
many instances, pro·ide credit. 1his also allows traders a greater degree oí íreedom to set prices
and loan interest rates as they see íit. 1he traders are, howe·er, pro·iding ser·ices that are
essential to the economy oí íishing communities that many íormal institutions are reluctant to
pro·ide.
Nigerians consume about 1.2 million tons oí íish per year ,lAO, 200¯,. lresh and processed íish
is widely marketed throughout the country, though a signiíicant portion oí íish is imported.
lresh íish sellers market their products in the neighbourhood, communities and urban centers
while smoked íish dealers can distribute their products much íurther. 1he principal asset oí the
íresh íish dealer can be deep íreezers located at neighbouring markets, howe·er, these are oíten
lacking. Generally, íish preser·ation is done through smoking, drying and icing.
lreshly írozen íish is a·ailable in all major cities oí the country all year. 1he retail market price
íor marine íish is approximately N 200 - 250,kg ,lAO, 200¯,. lreshwater íish are a·ailable in all
major cities throughout Nigeria all year due to the presence oí íish íarms throughout the
country. 1he market price íor íreshwater íish is higher than marine íish at N350 - 400,kg.
larmed catíish are a·ailable at N450 -500,kg at the íarm gate and can oíten reach N¯00,kg in
northern cities ,lAO, 200¯,. Smoked íish are oíten sold along major highway routes between
cities. Storage íacilities íor unsold íish exist at these sales points.
In cities, municipal authorities designate speciíic areas íor íish markets that ha·e suííicient room
íor processing and storage capabilities. Chain stores and supermarkets exist íor high-end
consumers where íish are displayed on ice in reírigerated cabinets and species include Croakers,
Shinenose, Baraccuda, Shrimp and Lobster. Products are sold at a íixed price per kg. lish
producers in Nigeria are unable to meet demand íor íish products, lea·ing Nigeria to rely hea·ily
on imports to help meet demand. According to the lAO ,200¯,, imports contribute between
650,000 to ¯00,000t,yr ,56° oí consumption,.
49
Smoked íish oí ·arious species are popular in Nigeria. Clupeids ,marine and íreshwater,, íarmed
íish such as Cíaria. íeterobravcbv. and Carp, and ri·erine species such as íeteroti., Cbri.,cbtb,. and
C,vavarcbv. are all popular to consume smoked ,lAO, 200¯,. Both íresh íarmed catíish and
smoked catíish are traded within the region. Reliable numbers are diííicult to attain due to the
large amounts that are unreported. A signiíicant amount oí íresh products are sold directly to
hotels and restaurants. lish ·endors are contracted by hotels and restaurants while ·endors in
turn contract íish íarmers and reser·oir íishers. 1he emerging íast íood industry in Nigeria is
increasing the demand íor speciíic species, sizes and ·alue added ,lAO, 200¯,.
1here is currently no standard and accreditation system íor the inland artisanal íishery and small-
scale íish íarming. Iowe·er, the lisheries Society oí Nigeria is participating in training courses
to enable them to undertake setting standards and pro·iding accreditation.
Chain Governance and Linkages
Channels íor iníormation sharing with regard to prices along the ·alue chain are limited. In rural
areas in particular, organizations are less cohesi·e and little iníormation is exchanged.
Competition among artisanal íishers is oíten muted due to the role played by traders who
exercise a strong degree oí control o·er prices. Rural íishers ha·e ·ery íew alternati·es but to sell
their har·est to a trader. Collusion in price setting is ·ery likely. 1he situation is better near urban
centres where organized groups ensure better access to iníormation.
1here are se·eral upgrading and de·elopment opportunities along the ·alue chain that should
recei·e íurther study:
• Use oí high eííiciency smoking o·ens which decrease losses and reduce en·ironmental
impact.
• Increased use oí by-products íor íish meal production, among other potentially income
generating acti·ities.
• Better access to transport íacilities pro·iding íishers with more options íor transporting
íish to markets and would help create competition.
• Use oí hygienic solar drying racks that impro·e the quality oí dried íish.
• Increased use oí ice - including possible ice plant introduction - helping to preser·e the
quality oí íresh íish.
• Upgrading oí market sites to ensure hygiene standards, application oí better íish
preser·ation technologies to increase the quality oí íish.
• Impro·ed íish íeed production centres in rural areas to supply small-scale aquaculture
íarms.
Resource Productivity and Environmental Performance
\ith regard to small-scale aquaculture íarms, there is limited knowledge oí proper use oí water
resources. Poor quality íish íeed sinks and can create silt in the water. Moreo·er, knowledge oí
íish health and disease management, water quality management ,sustainable remo·al oí nitrogen
írom water system, water pollution reduction, and water recirculation and ílow through
technology, remains limited.
O·eríishing in inland areas suggests that there is insuííicient training with regard to
en·ironmental management issues. Nonetheless, some traditional íorms oí management ha·e
succeeded in sustainable managing stock le·els.
50
Macro Economic and Policy Context
lisheries is one oí the eight proíessional Departments in the lederal Ministry oí Agriculture and
Rural De·elopment and is headed by a Director oí lisheries. State Directors oí lisheries also
head similar Departments in their respecti·e Ministries oí Agriculture. 1he lederal Department
oí lisheries ,lDl, is responsible íor policy íormulation, programme de·elopment, regulations
and quality control. Nigeria has two lederal lisheries Research Institutes: Nigerian Institute íor
Oceanography and Marine Research ,NIOMR,, Lagos, and National lreshwater lisheries
Research Institute ,NIllR,, New Bussa. Nigeria also has uni·ersities with íull-íledged
departments oí íisheries and aquaculture: Marine lisheries at the Uni·ersities oí Lagos and oí
Calabar, and lreshwater lisheries at the Uni·ersities oí Ibadan, Abeokuta, Makurdi, Umudike,
Akure, Minna and \ola. Nigeria also has three lederal Colleges oí lisheries at Lagos, New Bussa
and Baga-Maiduguri. Pri·ate institutions such as the íi.berie. ´ociet, of ^igeria and the Catfi.b
íarver. ...ociatiov of ^igeria are playing a greater role in íishery de·elopment. 1here are iníormal
institutions as well, such as community based organizations íor the management oí íisheries.
Availability of Finance
Artisanal íishers ha·e ·ery restricted íinancing options. lishers are ·ery oíten poor and spend
most oí their income on immediate needs such as íood, lea·ing them unable to pay íor capital
items, the education oí their children, medical ser·ices, clothing, transportation and other items
,lAO,DlID, 2002,.
\ith little capital or net worth to put up as collateral, íinancial institutions deem íishers too high
a risk, e·en at increased interest rates. 1his lea·es artisanal íishers to depend on small personal
sa·ings, loans írom íriends, relations, money lenders and traders ,Box A1,.
Box AJ: Capital investment and output
in fisheries value chains in Nigeria (N billion in 200S)
´vb·.ector Capitaí ívre.tvevt Output
Industrial 55 12.30
Artisanal 16.50 86.90
Aquaculture ¯.00 16.50
Ornamental 0.03 0.03
1otal ¯8.53 115.¯3
´ovrce: í.O 200¨
Finance requirements
1here is ·ery little recourse to íormal íinancial institutions, although there are currently NGOs
and se·eral projects aimed at íacilitating access to credit. 1he lack oí capital in·estment is a
major íactor iníluencing the adoption oí impro·ed technology in the íishing communities. As
stated abo·e, íishers rely on personal sa·ings and on traditional sources oí credit ,relati·es,
íriends, money lenders, etc, íor in·estment capital. 1he íunds a·ailable at this le·el are limited
and cannot meet the capital requirement oí impro·ed technology. As a result, artisanal íishermen
are unable to in·est in equipment that would raise producti·ity, allow micro-enterprises to
expand and ultimately increase incomes.
51
1able A.3 Iunding requirements in inland aquaculture and artisanal fisheries value chain
I
n
p
u
t
i
n
d
u
s
t
r
y
A
r
t
i
s
a
n
a
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f
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e
r
s
A
q
u
a
c
u
l
t
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p
r
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r
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T
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a
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/
W
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/
D
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s
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s
/
S
h
o
p
k
e
e
p
e
r
s
E
x
p
o
r
t
Need/
purpose
Working
capital
(operating
expenses),
fixed assets
(equipment)
Fixed assets
(equipment
Working capital
(operating
expenses), fixed
assets
(equipment)
Fixed assets
(processing
equipment)
Working capital
(operating
expenses)
Working capital
(operating
expenses), fixed
assets (quality
assurance
systems)
Volume
needed
high high medium high medium medium
Risks
high medium medium medium low medium
Interest
high medium medium medium low medium
´ovrce: 1be avtbor.
52
A.4 Maize
Maize is an important grain crop in Nigeria, being both the major íeed grain and an important
staple íood. 1he crop is produced in all the agro-ecological zones in the country. Iowe·er, the
North Central Zone is the leading producer accounting íor one third oí total maize produced in
the country. Aggregate a·erage yields are low, ranging írom 1.14 tons,ha in NL to 1.9 tons,ha
in SL. larmers culti·ate maize both as sole and mixed crop largely depending on the production
location and objecti·e. Medium to large-scale maize íarmers culti·ate maize as sole crop and
íollow some deíined crop rotation patterns. Smallholders generally practice mixed cropping
,maize, with other íood crops as a means oí security, should maize crop íail due to weather or
una·ailability oí inputs.
Mapping the chain
1wo types oí maize are culti·ated in Nigeria - white and yellow. lor each oí these, high yielding
·arieties ha·e been de·eloped by the International Institute íor 1ropical Agriculture ,II1A, and
the Institute íor Agricultural Research ,IAR,. Maize is either har·ested green or dry, though
much oí the maize marketed is the one har·ested dry. 1he market structures and ·alue chains oí
yellow and white maize are not ·ery diííerent, but depend on the end uses. \hite maize is mostly
íor human consumption, though some is used as poultry íeed. \ellow maize is ·irtually all used
íor poultry íeed and consumption. ligure A.4 below illustrates a simpliíied chain oí the most
predominant stages oí ·alue addition oí maize.
Iigure A.4 Predominant Maize value chains in Nigerian
´ovrce: 1be avtbor.
A number oí ·alue and market chains exist íor maize in Nigeria. 1here are many similarities
between the yellow and white maize market chains aíter purchase by the medium ,assemblers, or
large processing companies. Bulking oí quantities íor white maize is done by assemblers who
initially buy maize írom íarmers and transport it to a central location. A large proportion oí the
maize íor human consumption is milled in large-scale mills and sold in bulk and then to retail
markets.
Maize
farmers
Ilour
mills
Food
Processing
Ieed
Mills
Assemblers
Poultry
Input
suppliers
White
Maize
Yellow
maize
Household
Processing
Assemblers
Consumers
53
Primary Production and Sourcing of Inputs
Increasing maize production in Nigeria has recei·ed the attention oí the Nigerian Go·ernment,
de·elopment partners and pri·ate sector in·estors o·er the past two decades. In this respect,
se·eral agricultural de·elopment programmes ha·e or are being implemented at the State and
lederal le·els to promote producti·ity and production oí maize. Such projects ha·e íocused on
addressing the generally obser·ed ineííicient and uncompetiti·e maize commodity systems,
mainly illustrated by low yields and high transaction costs post har·est. Maize production
requires in·estments íor impro·ed seed, íertilizer use and machinery. Iowe·er, due to high price
·ariability and costly inputs smallholder íarmers are incapacitated or íind it uneconomical to
in·est in these yield impro·ing technologies.
1he íew medium to large-scale maize íarmers use impro·ed maize production technologies,
particularly impro·ed maize seed ·arieties, sound agronomic practices, íertilizer and herbicide
application and post-har·est handling techniques. Although the íertilizer industry is de-regulated
in Nigeria, the supplies oí adequate íertilizer in time and at aííordable prices ha·e remained a
major problem responsible íor low maize yields. Increasing the pri·ate sector supply oí íertilizer,
seeds, pesticides and mechanization is required to increase producti·ity and supply oí maize to
local markets.
Currently poor producers suííer substantial losses írom íailure to e·acuate products írom
producing areas and get them to the most proíitable markets at the right time due to poor roads
and unreliable transport. 1hese losses reduce proíits íor producers, reduce proíits íor traders and
manuíacturers and raise prices íor consumers. Rent-seeking beha·iour by state oííicials is
widespread in the maize industry ,and not only within the transport component,, and must be
reduced ií the beneíits oí increased maize demand are to be translated into increased income íor
poor producers.
Processing Capacity and Technology
1here is already suííicient capacity installed in the country íor íirst-stage processing oí all maize
produced. medium to large-scale mills are usually better established and ha·e better access to
íormal íinancing.
Village-le·el mills are less well established and may require technological upgrading and training
oí operators, otherwise the business opportunities they pro·ide are just too insigniíicant. Among
those are many unlicensed or iníormal` traders and millers who pro·ide milling ser·ices directly
to households. \hile the small-scale processors at ·illage le·el are mostly grinders, some
medium and large-scale companies ha·e made signiíicant in·estments in processing machinery
and inírastructure ,storage, milling, packaging, etc.,.
1he secondary-stage industry consists oí dry and wet milling industry and the animal íeed
industry. Most oí the large-scale mills are concentrated in Lagos, Kaduna and Kano. Scientists at
the II1A report that pre- and posthar·est contamination oí aílatoxin in maize is a major health
deterrent íor people and li·estock in Nigeria. It is reported that more than 60 percent oí
har·ested maize in Nigeria ha·e high le·el oí a íungi poison called Aílatoxin.
Pre- and posthar·est practices that reduce aílatoxin contamination include: the use oí resistant
culti·ars, har·esting at maturity, and rapid drying on platíorms to a·oid contact with soil,
appropriate shelling methods to reduce grain damage, sorting, use oí clean and aerated storage
structures, controlling insect damage, and a·oiding long storage periods.
End-Markets and Trade
Maize demand in the country is estimated to increase at an a·erage oí 3.2 percent per year,
largely due to population increase and urbanization. Apart írom being eaten as it is on the cob,
maize is used as íood in íorm oí porridges, cornílakes and popped grains. Iowe·er, more than
54
60° oí Nigeria's production oí maize is consumed by the industrial sector íor production oí
ílour, beer, malt drink, cornílakes, starch, syrup, dextrose and animal íeeds.
Domestic demand íor maize continues to be largely dri·en by the e·olution oí traditional
markets ,e.g. íeed and íood markets, as well as by industrial use and the de·elopment oí
alternati·e uses íor maize. 1raditionally considered a subsistence crop, maize is now transíormed
into a commercial crop due to the demands oí the íeed and poultry industries. Maize producers
ha·e become more market oriented and open to the adoption oí impro·ed technologies. In the
next two decades, the composition oí demand íor maize will likely change, with íeed use oí
maize increasing more rapidly than íood use. As a result oí projected íaster growth in íeed use,
the market íor yellow maize will expand relati·e to that íor white maize. A lot oí the maize
produced in the guinea sa·annah zone oí the country is transported to diííerent parts oí the
country,.
1he íeed industry uses primarily yellow maize íor the purposes oí animal íeed manuíacturing.
Although yellow maize is used, it comprises a small portion oí the total íeedlot requirement as
yellow maize is much more expensi·e than white maize. \ellow maize is mainly used in broiler
and layer íeed rations.
Ahmed et al ,2005, identiíied the íollowing constraints in the maize market: ,i, inadequate
access to íormal credit íacilities, ,ii, inadequate security íor goods in transit, ,iii, poor market
inírastructure, ,i·, unoííicial charges by a di·erse range oí actors and ,·, lack oí íormal
insurance. 1he same study suggests the inter·entions to enhance the períormance oí the maize
commodity chain. 1ransport sector impro·ements are essential across the maize distribution
chain. 1his requires a concerted eííort írom central, state and local go·ernments, together with
donor support.
Chain Governance and Linkages
In general, the large-scale ílour and poultry íeed mills through the maize and grain merchants
play an important role in directing the maize market. Quality oí maize deli·ered to processors
remains a major problem in the supply chain. Coordination among the many and spatially
dispersed smallholder maize íarmers is diííicult to achie·e.
1here are also se·eral itinerant buyers, but large number oí consumers. Outgrower schemes and
contract íarming models ha·e been tried in the main maize producing states, but this has not
been successíul. Due to the inadequate access to producti·ity enhancing inputs, it has been
diííicult to introduce standards. Poor quality, due to poor drying and storage leads to high le·els
oí contamination and iníestation oí aílatoxins - which poses health hazards to both humans and
li·estock.
Gi·en the uncoordinated nature oí the market, there is no clear leader in the entire chain, though
the speciíic ílour or li·estock íeed millers could push íor a better organization and integration oí
the ·alue chain oí the many smallholders in a way to ensure quality oí maize deli·ered to the
mills. 1he International Institute oí 1ropical Agriculture ,II1A,, Institute oí Agricultural
Research ,IAR,, Zaria and the Maize larmers Association are the main partners in maize
production.
Resource Productivity and Environmental Performance
Producti·ity oí maize in Nigeria is low, with yields on íarmers` íarm a·eraging 1.5 t,ha. Research
results írom II1A indicates that by using impro·ed seeds and agronomic practices maize íarmers
in Nigeria can double yields to 3 t,ha.
In areas where íarmers culti·ate high yielding maize ·arieties they tend to use high le·els oí
íertilizer and pesticides. Uncontrolled use oí high doses oí íertilizers and pesticides leads to
55
en·ironmental degradation and imbalances in pest populations. Improper application oí
pesticides may ha·e hazardous eííects on humans.
Macro Economic and Policy Context
As a major íood security and income earning crop íor se·eral households, maize production
recei·es special attention írom the go·ernment. Pre·ious and present eííorts to impro·e maize
production include: impro·ing access oí small íarmers to modern producti·e technologies, credit
and extension ad·ice, while at the same time opening up rural communities to impro·ed
transport and marketing oí agricultural produce. In line with these set goals, se·eral agricultural
de·elopment programmes with support oí state and íederal go·ernments are or ha·e been
implemented.
lertilizer policy aííects maize production more than any other crop. O·er the years, the íederal
go·ernment has undertaken ·arious policy reíorms and campaign by to encourage the use oí
íertilizer. Iowe·er, there ha·e been inconsistencies in íertilizer policy in Nigeria o·er the years,
which aííects the íertilizer usage rate, the quantity oí íertilizer distributed, the price oí íertilizer,
íactors which ha·e signiíicant eííects on maize production. It is recommended that íor íertilizer
policy to aííect crop production positi·ely in Nigeria, the distribution oí íertilizer to íarmers has
to be impro·ed. Go·ernment should also ensure íarmers are educated on íertilizer usage rate.
Availability of Finance
Maize íarming is proíitable ií íertilizer is a·ailable at aííordable prices. Market is not a problem
as the demand íor maize, both íor human consumption and as li·estock íeeds, exceeds domestic
production. Se·eral ·alue added products with assured local market render the processing
businesses also íinancial attracti·eness. linancial attracti·eness in processing increases with scale
oí processing.
Inter·iews with maize íarmers re·ealed that ·ery íew small-scale íarmers are able to meet bank`s
criteria to access credit and as a result ·ery little utilization oí íormal credit occurs by small-scale
íarmers íor maize production. 1he pro·ision oí collateral and being part oí a registered
commodity group with an acceptable accounting system is oíten beyond the reach oí most small-
scale íarmers. Iowe·er, a number oí iníormal loaning acti·ities occur íor oíten short and ·ery
speciíic acti·ities, íor example by maize shelling ser·ice pro·iders to íarmers, who are paid once
the crop is sold. 1he greatest need oí íarmers íor credit is to purchase íarm inputs.
1here are a number oí micro-credit schemes that allow íarmers and small processors to co·er
parts oí their íinancial needs. 1hese schemes, howe·er, are only a·ailable to target groups oí
certain agricultural de·elopment programmes.
56
Finance requirements
1he abo·e analysis was meant to enable a nuanced identiíication oí íinancial requirements in the
·arious segments oí the ·alue chain
1able A.4 Iunding requirements in the maize value chain
I
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Need/
purpose
Working
capital
Working
capital
Working
capital,
fixed
assets
Working
capital,
vehicles
Working
capital,
equip-
ment
Working
capital,
equip-
ment
(long-
term)
Working
capital,
equip-
ment
Working
capital,
equip-
ment
Fixed
assets
(warehous
e
transport)
Working
capital
(pre- and
post-
shipment)
Volume
needed
high high high medium low medium high low medium medium
Risks high high medium medium high low low low low low
Interest low low low medium low medium low low high high
57
A.5 Fruits
Nigeria produces a wide ·ariety oí íamiliar tropical íruits including citrus, mango, papaya, gua·a,
pineapple, banana, watermelon and a ·ariety oí little-known indigenous Aírican íruits such as the
Aírican star apple, hog plum, nati·e pear and Aírican or wild mango.
According to lAO ,lAO Stat,, the country produces about 9.5 millions oí tons oí íruits, and is
the eighth largest producer oí mango globally. Other notable íruits produced are pineapples, and
gua·as, in which the country ranks as the third largest producer in the world. In spite oí these
strong positions in terms oí global production, Nigeria is rarely mentioned when it comes to
íruit export because most oí the íruits produced in the country do not reach the global market
due to the ·ery poor inírastructure ,roads and cold stores,.
1he country`s di·erse agro-ecological zones range írom humid in the south to sub-humid in the
middle belt and semi-arid,arid in the north. lresh íruits are inherently more liable to
deterioration under tropical conditions characterized by high ambient temperatures and
humidity, and a high incidence oí pests and diseases. Consequently, post-har·est losses oí íruits
and ·egetables are extremely high in Nigeria ,Olawale 200¯,, exacerbated by poor marketing,
distribution and storage íacilities.
Mapping the chain
1he typical marketing system íor íruits and ·egetables in Nigeria consists oí three stages ,see
ligure A.5,. In the íirst stage, small holder íarmers oííer small surpluses to traders in the ·illage
markets or íirst assembly points. lrom here the district le·el traders mo·e the accumulated
produce along the market channel to secondary collection centers. 1he third stage in·ol·es the
mo·ement oí the produce to central wholesale markets in urban centers through wholesalers.
1he produce is transported írom the íarm gate to the primary and secondary collection centers
primarily as head loads or by means oí íarm animals, carts, bicycles, motorbikes and motor
·ehicles oí all sorts and írom there to urban central wholesale markets mainly in open, non-
reírigerated trucks with capacities ranging írom less than 10 tons to up to 30 tons. lew
wholesalers undertake grading oí the íruits and supply íresh precuts to supermarkets.
Iigure A.S: Mapping of the generic fruit value chain in Nigeria
´ovrce: 1be avtbor.
58
1here are ·ery íew íactories processing íresh íruits into juice concentrates in Nigeria and those
existing are operating at less than 30° oí their capacity due to high aggregation cost oí raw
materials írom small holder íarmers in diííerent states. Most processing oí juice concentrate into
juice is done by a íew large-scale industries which source their concentrates írom abroad.
Primary Production and Sourcing of Inputs
1he íruit production pattern in Nigeria is characterized by a large number oí small holder
íarmers with land holdings oí less than 2 hectares. 1he íruit orchard owners in the country lack
the necessary support including education to íarmers, good roads, and reírigerated ·ehicles íor
transporting the perishable goods to main markets. 1he use oí íertilizers and pesticides are ·ery
rare in íruit orchards oí small holders.
Supply oí íresh íruits to the íresh íruit processing companies is done on an iníormal basis. 1hus
most oí the íew processors produce below their installed capacity. lruits are procured locally by
these companies írom independent traders with iníormal links to the company. 1he companies
determine the price and usually oííer the a·erage between the seasonal and oíí-seasonal price.
1he companies preíer to buy in the glut season when prices are low since íresh íruit market
demand is little. 1he processor may pro·ide transport and in some cases pro·ides some pre-
íinance to traders.
Processing Capacity and Technology
Beíore 2002, 95 percent oí the íruit juice consumed in Nigeria was imported as ready-to-drink
íruit juice. Aíter the import ban oí 2002 on ready-to-drink juices, some large Nigerian íood-
processing companies ha·e started to in·est in íacilities íor íruit juice packaging.
lor example, in 2002, Coca-Cola Nigeria Plc in·ested o·er >200 million in íruit juice processing
and a packaging plant, and mo·ed into íarming to obtain concentrate íor its li·e Ali·e Brand. In
2006, Dangote Group established production oí the "Dansa" brand oí íruit juice. SCOA Nigeria
Plc íollowed suit through the setting up oí its >8.5 million tropical íruit juice processing plant in
Lagos.
Presently, the demand íor already packaged íruit juice products is estimated at slightly more than
200 million liters and companies that engage in íruit juice packaging ha·e continued to depend
on imported concentrates. 1hough Nigeria has ·ast areas oí íruit íarms, it has ne·er been able to
supply the raw material to its íruit processing industries mainly due to absence oí the necessary
inírastructure.
End-Markets and Trade
1he market íor íruit juice concentrate is huge. Nigeria's íruit juice market has grown 60 percent
o·er the last íi·e years and this growth is due to increasing incomes oí Nigerian consumers, an
expanding middle class and greater health-consciousness oí consumers. 1he market íor íruit
concentrate, pre-mix and syrup ,concentrates, has thus risen írom 1.5 million kg in 2002 to
about 30 million kg in 200¯. Nigeria`s demand íor consumer-pack íruit juice was estimated at
more than 400 million liters. Most oí this juice is made írom imported concentrate. Nigeria
imports concentrates írom the LU, South America, Asia, and South Aírica.
In Nigeria, the expanding middle class, increasing urbanization and a growing number oí
supermarkets which can source íruits has made the practice oí multiple handling oí the íresh
íruit írom íragmented small holder íarms less oí an option. In the absence oí larger well-
managed commercial íarms there is a need to promote smaller out-grower íarmers under the
close super·ision oí the retailer ,distributor,.
In this case, small holder íarmers are pro·ided with quality seeds, agricultural inputs and
technical and extension ser·ices by the manuíacturers and retailers. In return the íarmers need to
59
pro·ide the íruits íor íurther processing and packaging at a predetermined price. 1his is a win-
win situation where the manuíacturers or distributors get raw material oí desired quality and
quantity while the íarmers are assured oí market outlet íor their íruits and reduction oí post
har·est losses.
1he major íeature oí the world market oí íresh íruit and íruit juices is the geographical
concentration oí production. 1he two main players in the production oí íruit juices are Latin
America and the USA. 1he export oí íruit juices írom these two regions amount to 35 percent oí
the world market. 1he major player in juice export is Brazil, which has a share oí 20 percent oí
world export.
International trade in íruit juice takes place in the íorm oí írozen concentrated íruit juice ,lClJ,,
in order to reduce the ·olume used, so that storage and transportation costs are lower. 1he
Luropean Union is by íar the largest importer oí íruit juices, accounting íor o·er 63 percent oí
world íruit juice imports. Southern Iemisphere countries - de·eloping countries and Australia -
are increasing their presence in international trade by pro·iding oíí-season íruits to the North.
1his has been ía·oured by the impro·ements in storage and transportation technologies. Nigeria
has to impro·e its inírastructure, quality assurance system and traceability to increase its share in
the global market oí citrus íruits and mango.
Chain Governance and Linkages
1he íresh íruit sector is mainly characterized by a long chain oí middlemen írom the íarm
through the ·illage, district to state and national wholesale markets. A small proportion oí the
íresh products is sorted, graded and packed íor the supermarkets. 1he íollowing are the leaders
in íruit juice production in Nigeria:
• Chi Limited, lruit Drinks
Choppee lruit Drink and Industries Limited, Chopee Pineapple Drink,Vanilla, Peach,
Apple & Orange
• Classic Be·erages Nigeria Limited, Manuíacturers oí Virgin soít drinks, La Casera etc
• lormosa Bottling Company, Sparkling íruit Juice drink, Iealth \ater, 1able \ater, Pet
Preíorms, Bottles, Caps and Plastic Products.
• lumman Agricultural Products Industries Ltd, íruit juices.
None oí these industries source suííicient íruits írom local suppliers. 1hey import almost all the
íruit juice concentrate they require írom abroad mainly írom companies in Lurope, South
America, Asia and South Aírica.
Macro Economic and Policy Context
In 2002, the GON placed an import ban on íruit juice in consumer packs and lowered the tariíí
on concentrate to 5 percent. \ith local íruit production remaining low, processors ha·e
continued to depend on imported concentrates.
Finance requirements
1he abo·e analysis is meant to enable a nuanced identiíication oí íinancial requirements in the
·arious segments oí the ·alue chain ,see 1able A.5,
60
1able A.S Iunding requirements in the fruits value chain
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b
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o
n
Need/
purpose
Working
capital
Working
capital
(inputs)
Working
capital
(inputs),
fixed assets
(equipment/
machinery,
storage)
Working
Capital,
Vehicles
Working
capital,
fixed assets
(storage),
equipment
(machinery)
Equipment
(machinery)
Working
capital,
equipment
(machinery)
Working
capital,
vehicles
(incl.
storage)
Volume
needed
high high high low
(through
processors)
high high high high
Risks high high medium medium high low low low
Interest high low low medium low high high low
61
A.6 Palm Oil
Mapping the chain
\hile palm oil production and processing is coníined to states in Nigeria`s South its
consumption cuts across all regions and income strata. Major actors in the ·alue chain include
pro·iders oí íertilizer, seeds, and other inputs, small to medium scale íarmers and large-scale
,estate, plantations as well as medium and large-scale oil mills íor crude and reíined edible oil
production. Secondary processors oí prominence in the chain include small and large-scale
animal íeed millers and producers oí soap.
In addition, there are small and large-scale buyers íor bulk storage and repackaging in retail
plastic containers that are ·ery acti·e and dominant in the chain. Middlemen, transporters,
suppliers oí processing equipment, suppliers oí packaging materials and, to a limited degree,
íinancial ser·ice pro·iders are íound at ·arious segments oí the ·alue chain. Public and
de·elopment cooperation support is also pro·ided by research and extension agencies, mainly to
public or pri·ate palm oil plantations, most oí which íocus on primary production and
traditional small-scale processors.
Primary Production and Sourcing of Inputs
Until the 1960s, Nigeria was the world`s largest producer oí palm oil accounting íor 43° oí
global palm oil production. Iowe·er due to the o·er-reliance on traditional production methods,
excessi·e tapping oí palm trees íor palm wine, and the ci·il war between 196¯-¯0 that was
íought in areas where palm acti·ities were predominant primary production has experienced
signiíicant drawbacks. Iowe·er, due to ·arious reasons Nigeria`s ability to keep up with the
global rise in demand was curtailed. Production increased írom 640,000 tons in 19¯5 to 898,000
tons in 1995. Nigeria is now the third largest producer oí palm oil aíter Indonesia and Malaysia
with an annual production ·olume oí 1.28 million tons. Its output has now declined to a meagre
1.¯° oí the total world production which is inadequate íor local consumption, put at about 2.¯°
,MAN, 2010,.
Similarly, the deregulation oí the commodity marketing board aíter independence, as with other
agricultural sectors, impacted negati·ely on the sector depri·ing it oí the needed promotional
ser·ices and outright control oí output and sales. 1he policy eííecti·ely undermined many
íarmers` abilities to obtain appropriate prices íor their produce. As a result, small scale íarmers
remain depri·ed oí access to íinance, íertilizers, agrochemicals and other logistics and inputs
beíore and during har·est. 1hough go·ernments do inter·ene, organized channels and networks
oí iníormation are not a·ailable. Similarly, adequate capital base or soít credit to íarmers,
associations and cooperati·es íor input procurement, represent constraints, and transportation
and other ser·ices are ·ery limited and sometimes nonexistent, with the exception oí public íarm
estates or processors` estates. 1he ecological distribution oí palm tree in Nigeria is
predominantly in the southern part, especially in the wet rain íorest and sa·annah belt. It also
exists in the wet part oí North central, in areas like southern Kaduna, Kwara, Benue, Niger,
Plateau, 1araba and Nassarawa as well as the lederal Capital 1erritory ,lC1,, Abuja.
1he smallholder íarmers account íor o·er 80° oí palm oil production in Nigeria with an a·erage
oí 1-5 hectares held by an indi·idual, sometimes characterized by mixed cropping to maximize
land usage. Iowe·er, a large chunk oí oil palm exists in the wild or semi-wild state. In addition,
go·ernment and pri·ate companies also own íairly large plantations. 1hus, there is an estimated
2.5 million hectares oí culti·ated land in Nigeria, represented by 2.3 million hectares ,wild gro·e,,
11¯,625 hectares ,small holders, and 96,465 hectares ,public and pri·ate estates,.
62
Processing Capacity and Technology
Palm oil is the íirst primary product that is processed in the ·alue chain. In Nigeria, the
processing oí the palm oil has been dominated by the traditional, cottage semi-mechanized
processing equipment. Sur·eys and discussions with the National Palm Produce Association oí
Nigeria ,NPPAN, re·ealed that there is a limited number oí automated processors in the
country, mostly in the South Last and South, namely in Ri·ers, Imo, Cross Ri·ers and Ldo
States. Production is still dominated at the ·illage le·el by indi·iduals and cooperati·es as most
public processing plants and plantations ha·e remained closed with obsolete equipment which is
abandoned.
Similarly, there are currently no existing capacities íor the production oí secondary palm oil
products in the country. UNIDO, in collaboration with some pri·ate initiati·es, is pioneering the
introduction oí new technologies in the sector, one oí which is by cutting the aged old trees and
transíorming them into dry logs íor the íurniture industry. New seedlings would be planted to
replace the old palm trees cut down. Consequently, the poor íarmers would ha·e opportunities
íor additional income generation acti·ities and employment.
1he ·egetable oil industry is capable to process 900,000 tons oí palm oil annually. Iowe·er, due
to the inadequate supply oí the product se·eral oí the palm oil reíineries are operating at less
than 25° oí installed capacity. Consequently, the major end users oí palm oil and its deri·ati·es
which include industries producing soaps, biscuits, noodles, sa·oury and milk íind it diííicult to
get regular supplies oí palm oil deri·ati·es locally.
Other challenges oí the industry are that most oí the palm oil reíinery plants are old using
ineííicient semi-automatic equipments and technologies. Iowe·er, there are eííorts underway to
reju·enate oil palm processing plants ,see Box A.2, At the ·illage le·el, small-scale processing oí
dominates, usually producing low quality palm oil with high le·el oí lree latty Acids. Most oí
the large-scale oil palm estates were established by state go·ernments. Pri·atization oí these
estate íarms sometimes íaces local discontent. 1he land tenure system and land laws also impede
large-scale in·estments íor the establishment oí estate íarms similar to those in Malaysia.
Box A.2: Investing in Palm Oil Industry Upgrading in Imo state
Some states in Nigeria, particularly Imo, Ri·ers, Cross Ri·er and Akwa Ibom States, are currently taking
action to reju·enate the aging state-owned palm estates and to upgrade the reíineries. UNIDO in
collaboration with some pri·ate interest groups including Bank oí Industry ,BOI, promote the adoption
oí new production and processing technology in Imo State wherein, among others, the old trees will be
cut and con·erted into high resistant logs íor the íurniture industry. In their place, new palm seedlings
will be planted. Application oí this scheme is expected to pro·ide income íor the small scale íarmers and
reju·enate the oil palm sector. 1he scheme expects to attract pri·ate in·estors and support in·estments
through preíerential loan agreements. Possible areas requiring íinance include establishment oí nurseries,
land preparation and access roads, purchase oí impro·ed seedlings, íertilizers, agrochemicals, har·esting
equipments, tractors, and establishment oí appropriate storage íacilities and upgrading existing reíineries.
End-Markets and Trade
Palm oil is an edible plant oil which is deri·ed írom the íruits oí palm trees. 1he oil is extracted
írom the pulp oí the íruit. lrom its seed is also deri·ed a secondary oil known as palm kernel oil.
Palm oil is naturally reddish in colour because it contains a high amount oí beta-carotene. Both
oils ha·e some draw backs as they are two oí the íew highly saturated ·egetable íats. Palm oil is a
common cooking ingredient in Nigeria and has increasing use in the commercial íood industry in
Nigeria and other parts oí the world. Similarly, there is no part oí the palm tree that is
considered waste. In Nigeria, the deri·ati·es oí palm tree include broom, building materials,
basket and mats, palm wine, local gin ,or ogogoro`, and logs.
63
Since the emergence oí palm oil in Nigeria, there has been limited transíormation and uses oí its
primary or secondary products íor either íood or non-íood applications. In ad·anced economies,
howe·er, palm oil is used in the manuíacturing oí many íoodstuíís including many industrial
applications as can be seen in the Box A.3 below.
Box A.3: Iood and non-food uses of palm oil
Iood Uses Non-food Uses
Cooking Oil
Deep írying oils
Margarines and spreads
Bakery íats ,shortening,
Cocoa butter alternati·e íats
Coníectionery íats
Ice cream íats
Iníants nutrition íats
Other íood applications
Cosmetics and personal care
Soaps
Candles
Pharmaceuticals
Lubricants and Grease
Suríactants
Industrial Chemicals
Agrochemicals
Coatings
Paints and lacquers
Llectronics
Leather
Biodiesel
It is only in Aírica that palm oil is retailed as a product in its own right. Iowe·er, market
potential íor oils and íats looks good in the íuture, considering the rapid increases in
consumption. Iowe·er, palm oil is one among se·eral other major oils and íats produced and
traded in the world with substitutes as soybean, canola and sunílower oils. Palm oil represents
59° oí the world export oí ·egetable oils and 33° oí production. Nigeria`s contribution to
exports is rather insigniíicant, due to increased local demand.
According to NPPAN, production has remained low íor a number oí reasons, among which are:
absence oí good quality seedlings, nonexistent or poor processing íacilities, storage, and
transport logistics commonly íaced by smallholders. Indi·idual smallholders thereíore preíer to
sell to on-the-íarm cottage or cooperati·es mills or middlemen who buy on behalí oí medium or
large-scale processors who ha·e the ad·antage oí e·acuation logistics, storage and transport
logistics. 1o íurther ease some oí these constraints oí e·acuation írom producers, collection
depots ha·e been established at designated locations in some major cities in the palm oil
producing states, managed by pri·ate owners to pool and sell oíí to buyers írom íar distances in
the North and other parts oí the country. \ith regards to íinance, there is currently no a·ailable
and aííordable íinance to íarmers, commercial buyers and millers which is a serious challenge to
ensuring smooth demand and supply acti·ity in the ·alue chain. NPPAN is ad·ocating íor soít
credit with longer tenure which is not a·ailable in commercial banks.
NPPAN obser·ed that most oí the major consumers oí palm oil in the country i.e.
manuíacturers oí noodles ha·e rejected palm oil supplied or processed at ·illage mills as a result
oí poor quality due to high le·el oí lree latty Acids ,llA,. Uníortunately, there is no
institutional íramework to ensure eníorcement oí quality benchmarks that would íacilitate better
relationships in the ·alue chain. 1here is also the problem oí obsolete production technology in
64
the sector. NPPAN is constrained to rely hea·ily on go·ernment inter·ention to address these
challenges in the sector as pri·ate initiati·es are nonexistent.
Chain Governance and Linkages
1here are no lead íirms but the acti·ity in the ·alue chain is dri·en by small scale buyers and
sellers as major consumers such as the local multinational companies in the íood industry preíer
to import, rather than rely on local production. 1he role oí middlemen and designated pri·ate
storage depots largely iníluences demand and supply in the ·alue chain. 1he NPPAN has not
been able to organize or establish a coordinated acti·ity in the ·alue chain. Iowe·er, NPPAN is
currently exploring partnering with state and local go·ernments íor support íor the reju·enation
oí the sector to establish modern automated processing units that could process high quality
palm oil with low llA in the three senatorial districts oí Akwa Ibom as a model íor other palm
oil producing states. Like other sectors, the palm oil sector has great potential íor growth
because oí its increasing use as a substitute íor other oils and íats hence the need to support and
upgrade the ·arious capacities in the production, processing, marketing and other support
ser·ices which are beneíicial to all stakeholders.
Resource Productivity and Environmental Performance
• Practices in resource use ,water, energy, waste, materials,
• Standards oí cleaner production applied
• Alternati·e technology used
• People trained in en·ironmental management
• Consumer awareness about situation in the chain
Macro Economic and Policy Context
All stakeholders including the Nigerian go·ernment ha·e appreciated the declining state oí the
palm oil sector in Nigeria. 1he National Palm Produce Association oí Nigeria ,NPPAN, has
called on the go·ernment to make deliberate eííorts to regenerate the sector to meet local and
industrial demand.
Availability of Finance
1he problem oí lack oí a·ailable and aííordable íinance has remained a great challenge íor the
palm oil sector. 1he acti·ities oí the Nigerian Agricultural, Cooperati·e and Rural De·elopment
Bank ,NACRDB, ha·e not impacted production: small scale íarmers ha·e remained disillusioned
about obtaining the required íinance to enable them to produce competiti·ely. According to
NPPAN, in Akwa Ibom, small scale íarmers are supported with íree seedlings, money ,around
>130, íor land clearing and subsidized íertilizer. Notwithstanding this, they íace other challenges
such as lack oí access roads to íarmlands and har·esting including e·acuation oí palm íruits
during har·est. Pri·ate plantation owners do not necessarily experience such challenges as their
scale oí operations is higher.
Finance requirements
1he abo·e analysis was aimed at re·ealing a nuanced identiíication oí íinancial requirements in
the ·arious segments oí the ·alue chain ,see 1able A.6,
65
1able A.6: Iunding requirements in the palm oil value chain
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Need/
Purpose
Working
capital,
equipment
(machinery)
Working
capital, fixed
assets
(property/
land),
equipment
Working
capital,
vehicles
Working
capital,
equipment
Working
capital,
equipment
Working
capital (pre-
and post-
shipment)
Volume
needed
none high high low
(through
processors)
high high medium
Risks high medium medium high high low
Interest low low medium low medium high
66
A.7 Poultry
Mapping the chain
1wo distinct sub-·alue chains can be identiíied in the Nigerian poultry sector: 1raditional sector
and commercial sector. 1he commercial sector is comprised oí commercial íarms and the
industrial sector ,see ligure A.6,. 1he industrial and commercial sectors are interwo·en while the
traditional sector can rely on its own multiplication oí chicken also oíten using exotic breeds.
1he starting point íor the commercial sector is the production oí day-old chicken ,DOC, that
are sold to commercial íarms and backyard producers. Commercial íarms engage in egg
production while also marketing the spent layers. Backyard producers rather engage in broiler
production. Both products are channelled through weekly and daily markets to consumers. 1he
simpliíied map in ligure A.6 does not include the poultry íeed industry and the animal health
and ·accinations ser·ices. Both are important inputs and constitute a substantial amount oí
production costs exceeding those oí day-old chicken. lurther actors to mention are transporters,
middlemen and retailers who are also instrumental in the distribution to the íinal producers.
Iigure A.6: Mapping of poultry value chain in Nigeria
´ovrce: 1be avtbor.
Primary Production and Sourcing of Inputs
Beíore the outbreak oí Iigh Patogenious Asian Iníluencia ,IPAI, in 2006, poultry population in
Nigeria was estimated at around 150 million, with a large majority ,85°, oí local backyard breeds
and a minority oí exotic breeds ,15°,. Lxotic birds count with higher producti·ity and pro·ide
the opportunity íor a higher annual oíí-take, especially when reared under intensi·e commercial
67
production systems. 1oday commercial poultry population is estimated to be about 24 million
layers and 40 million broilers.
Up to 80 percent oí the day-old chicken are produced and used in the southwest oí the country,
the southeast and northwest regions source all day-old chicken írom other regions. A íew
hatcheries in Plateau State ,northeast, supply day old chicken íor that zone and send a substantial
quantity to Kano State in the north central,northwest area. ligure A.¯ shows a map with the
substantial dispersion oí poultry production with a concentration around urban centres.
Iigure A.7: Poultry raising hubs in Nigeria
´ovrce: Preparea b, íí1. Ceo.patiaí íab for |´.íD
Both major ,branded, íeed millers and smaller toll milling companies are important actors,
handling about 40 percent oí about 1.2 million tons per year oí compound íeed produced in
Nigeria. 1here are three types oí íeed millers, namely custom, toll and integrated íarms. 1he
custom millers mill and market their íeeds under registered trade names. 1he dominant trade
names in the market include Amo Sanders, Guinea leed, 1op leed and Li·estock leed amongst
others. Some oí these custom millers ha·e adopted íranchising as an operational method íor
achie·ing a wider reach across the country.
1he toll millers are spread across major locations with signiíicant concentrations around small-
to medium-scale poultry íarms. 1hey operate by milling íeed to the speciíication oí customers
,poultry and catíish íarmers, and charge a íee per quantity milled. 1he customers either bring
their own íeed ingredients or purchase them írom the millers ií the millers ha·e them in stock.
1he third category oí íeed millers is the integrated poultry íarms, which own íeed mills and
produce íeed íor their own use. 1he íeed millers acquire their grains írom grains
merchants,buying agents who source their grains mostly írom the northern parts oí the country.
1hese merchants ha·e established networks íor aggregating grains írom smallholder íarmers and
ha·e mastered the logistics oí grain transportation across the country. 1he íeed mills mostly
68
depend on importers íor the supply oí imported íeed ingredients such as íish meal, lysine
methionine and soy meal etc. 1hese importers also use intermediaries to reach the íeed millers,
these are spread across the country but ha·e a higher concentration in the south.
Poultry shops generally market ·arious inputs oí the poultry sub-sector, one oí which is branded
íeeds obtained írom custom íeed millers. Poultry íarms that do not ha·e their own íeed mills
thereíore ha·e the options oí patronizing the toll millers, custom millers or poultry shops.
1he Nigerian poultry sector, despite many problems such as a rise in the price oí íeed, a·ian
iníluenza, the global íinancial crisis and inadequate credit, is still in expansion. 1his will lead to
an increase in backyard and small-scale producers, particularly in urban and peri-urban zones,
increasing the concentration oí poultry and raising concern about human and poultry health.
Breeders and hatcheries play critical roles in the commercial poultry industry because they supply
day-old chicks to all commercial íarms.
Processing Capacity and Technology
1here are designated abattoirs in major towns and cities across Nigeria. In most cases, it is the
large-scale poultry íarms that process their table birds into írozen chicken, and chicken and
turkey parts. Industry experts indicate that about 90° oí broiler production is slaughtered,
processed and sold as írozen chicken, while the rest are sold li·e on the open market and
slaughtered in households. About 50° oí broilers produced are processed in automated
slaughtering plants and stored in cold rooms beíore distribution and sale.
1he transportation oí poultry products is mainly by road, although occasionally, the air íreighting
oí day-old chicks is carried out o·er long distances. Usually the big hatcheries transport day-old
chicks in appropriately designed ·ans. Otherwise, other types oí ·ehicles ,cars, buses, truck,
motorcycles etc, are used. lrozen chicken are usually transported by processors to their sales
outlets, supermarkets and major customers in cool ·ans and reírigerated trucks. Retailers use all
types oí ·ehicles including motorcycles.
End-Markets and Trade
Li·e table birds are put in plastic and cane basket cages and then transported in all types oí
·ehicles. 1able eggs are packed in crates. 1he crates are stacked in cartons that are then
transported in all types oí ·ehicles. Li·e birds írom the rural sector are sold mainly by women
and children on ·illage market days, which oíten attract buyers írom other ·illages and urban
market agents. Some oí these agents assemble large numbers oí chickens bought írom a number
oí markets and con·ey them in large baskets in trucks to southern cities and towns íor sale.
1here is a concentration oí commercial poultry íarms based on exotic poultry in the South oí the
country ,especially the South-\est,, while most oí the rural poultry sector based on
indigenous` chicken and guinea íowl is íound in Northern Nigeria. 1hese regional
specialisations íorm the basis oí the inter-regional trade. 1he products oí commercial poultry,
especially írozen chicken, are mo·ed írom the Southwest to the North, in most cases, through
the lederal Capital 1erritory. On the other hand, the products oí rural poultry - li·e chicken and
guinea íowls - are mo·ed írom the North to the South, especially the Southwest.
1his inter-regional trade in poultry products has implications íor the transmission oí poultry
disease. 1he mo·ement oí signiíicant numbers oí li·e poultry írom the North to the South
pro·ides a potential route íor the transmission oí a·ian iníluenza and other poultry diseases.
Poultry products írom the South to the North are mostly processed, írozen and containerized,
thus minimizing the potential oí disease spread írom the South to the North.
69
Chain Governance and Linkages
In the ·arious poultry ·alue chains, go·ernance relationships typically in·ol·e relationship-based
interactions among actors. 1hey tend to be codiíied through the actions oí traders and collectors,
which mediate the exchange between producers and retailers. Iníormant inter·iews re·ealed
limited competition among li·e bird traders and collectors, with a small, poweríul group oí
collectors and distributors cornering large portions oí the business. 1raders also play an
important role in pro·iding credit to retailers, locking them into a relationship and limiting
retailers` bargaining power
lormalized standards in the poultry sector are oíten ad-hoc, with limited coordination among
chain actors to pro·ide consistency in the quality, íood saíety, or disease status oí poultry and
poultry products. Lnd consumers ha·e little input on the quality- and saíety-based attributes oí
li·e birds and poultry meat, and their willingness to pay íor higher quality probably is quite low.
1he go·ernment and industry associations play an important role in the poultry sector uniíying
interests oí commercial íarms. 1hey ha·e been able, to a certain extent, to closely monitor the
industry to ensure that rules are íollowed. 1he go·ernment controls the importation oí
grandparent and parent stock, sets rules íor hatchery operators, bans the importation oí ·arious
poultry products, insists on hygiene and bio security, and sanctions producers ,especially the not-
so-poweríul ones, that are not in compliance ,Akinwumi et al 2009,.
Availability of Finance
1he poultry sector has been able to attract íinancing írom the íormal sector. Gi·en the
proíitability oí the sector, medium to large egg producers, day-old chicken producers as well as
íeedstuíí producers ha·e been able to acquire íinance írom ·arious íinancial institutions.
Iowe·er, prospects íor growth suggest that the need íor íinance is substantial.
Finance requirements
On the basis oí the abo·e analysis the íinancial requirements in the ·arious segments oí the
poultry ·alue chain are identiíied as íollows ,see 1able A.¯,
1able A.7 Iunding requirements in the poultry value chain
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t
a
i
l
Need/
Purpose
Working
capital
Working
capital,
equipment
Working
capital,
equipment,
vehicles
Working
capital, fixed
assets (plant),
equipment,
vehicles
Fixed assets
(wholesale
warehouses/ storage)
Volume needed high high high low low
Risks low high medium low low
Interest low low Low low high
70
A.8 Rice
Rice is one oí the major íood commodities and is oí growing importance in Nigeria, in terms oí
consumption and policy. Rice production in Nigeria has not been able to match the growing
demand stimulated by increasing population growth, rapid urbanization, increasing incomes and
consumers` changing preíerence in terms oí cost, ease and short time oí preparation. Although
rice plays a relati·ely minor role in the diet oí many Nigerians compared to other carbohydrate
sources ,cassa·a, maize and yam, supplying less than 10 percent oí daily calories, Nigeria is the
largest rice importing country in \est Aírica. Lstimates írom \ARDA indicate that per capita
rice consumption has increased steadily since the 1980s, increasing írom 15.4kg,year in the
1980s to 25.4kg,year in recent years ,\ARDA 2006,.
Mapping the chain
Value chain actors are íarmers, threshers, millers, polishers, wholesalers, retailers and importers
,see ligure A.8,. Rice íarmers tend to períorm most oí these íunctions, except milling, which is
usually done by a cottage industry or large-scale rice mill. 1hreshing is usually done on the íield
either by machine or by hand, while drying is usually done on drying íloors or tapelines oíí íarm.
Many íarmers and íarm groups are now acquiring mechanical threshers. Rice consumers are
increasingly demanding quality polished rice without impurities. 1hus, there is growing demand
íor modern cost eííecti·e threshers.
Iigure A.8: Map of Nigerian Rice Value Chain
´ovrce: |´.íD 200·
Milling and transport are the acti·ities oí the next actors in the ·alue chain. Rice íarmers are
generally reluctant to ha·e their rice stored at any place but on the íarm or at their home. 1his
has implications íor warehousing. In the case where rice is stored by the íarmer, milling takes
place at a local mill on a íee basis. Other larger producers take the rice to be processed in
commercial mills that are oí ·arious sizes and ha·e quite diííerent eííiciency le·els, though larger
scale mills are generally more eííicient. Most íarmers sell the milled rice to wholesalers in the
market. Like with paddy, íarmers generally do not store milled rice, but sell it at the open
71
markets to local wholesalers, who later sell to retailers in the community and nearby places or
transport it to larger communities íor sale to retailers.
Primary Production and Sourcing of Inputs
Rice is culti·ated both on upland and in irrigated schemes in Nigeria. Box A.4 pro·ides an
o·er·iew on major locations oí rice production in the country. Upland rice production requires
lower labour input and generally produces lower yields. O·er the last 20 years, yields rose in rain-
íed and irrigated lowland en·ironments but remained ·ery low in upland en·ironments,
a·eraging about 1 M1 per hectare. Small-scale íarmers in the uplands ,the majority oí whom are
women, do not usually ha·e access to irrigation, and íarm in highly ·ariable conditions. Upland
rice culti·ation is characterized by slash-and-burn practices, primarily in the humid íorest zone.
1his production system is unsustainable due to increasing population pressure on land íorcing
upland rice íarmers to drastically reduce íallow periods or expand culti·ation toward marginal
soils leading to increasing erosion and degrading soils, and consequently leading to signiíicantly
reduced yields.
Rice production under irrigation schemes has pro·en to be the most ideal in Asia, this has not
been the case in Nigeria, largely due to poor planning, weak inírastructure management and
inadequate íunding íor operations and maintenance. 1he problems with maintaining and
operating irrigation schemes are numerous and ·ary by location. Agronomic constraints
identiíied in the large-scale irrigation schemes in Nigeria include alkalinity, salinity, nitrogen use
eííiciency, iron micronutrient toxicity, disease and pest management. 1here are also problems
associated with the low le·els oí mechanization, lack oí in·ol·ement oí íarmers, extreme
temperatures, access to inputs and credit and population íactors. Also, the irrigated schemes are
mostly made up oí small-scale íarmers with limited ability to íinance needed in·estments.
Box A.4: Major rice production ecologies and states
Production
Lcology
Major States Covered Share of
total
Rice
Area
Share of
1otal
Production
Average
Yield/Ha
Potential
Yield/Ha
(author
est.)
Rain-íed
Upland
Ogun, Ondo, Abua, Osun, Lkiti, Oyo, Ldo,
Delta, Niger, Kwara, Kogi, Sokoto, Kebbi,
Kaduna, lC1, and Benue
30° 1¯° 1.¯ M1 3.5 M1
Rain-íed
Lowland
ladama`,
Adamawa, Lbonyi, Ondo, Lkiti, Ldo, Delta,
Ri·ers, Bayelsa, Cross Ri·er, Akwa Ibom,
Lagos, and all major ri·er ·alleys
4¯° 53° 2.2 M1 5 M1
Irrigated Adamawa, Niger, Sokoto, Kebbi, Borno,
Benue, Kogi, Anambra, Lnugu, Lbonyi, Cross
Ri·er, Kano, Lagos, Kwara, Akwa Ibom, Ogun
1¯° 2¯° 3.5 M1 6 - ¯ M1
Deep \ater
lloating
llooded areas: Rima Valley in Kebbi State and
deep ílooded areas oí Delta State
5° 3° 1.3 M1 2.5 M1
Mangro·e
Swamp
Ondo, Delta, Ldo, Ri·ers, Bayelsa, Cross Ri·er,
Akwa Ibom
1° 1° 2.0 M1 4 M1
´ovrce: í¸eaivva 200º
Among the rice producing states, Kaduna is the largest producer oí rice in the country
generating suííicient surpluses oí paddy to supply other states. Demand íor rice is strong as a
result oí high income elasticity and its con·enience to prepare. As the íourth largest crop, growth
oí the rice ·alue chain should ha·e an impact on agricultural growth in the country. Rice trading,
processing ,parboiling, drying, milling, packaging, and íarming pro·ides a major source oí
employment and income íor large numbers oí people, thus ha·ing a strong de·elopment impact.
A major issue that requires attention is increasing rice producti·ity and enhancing quality oí
domestic rice. Planting oí high yielding ·arieties by íarmers, application oí yield enhancing
72
technologies, better management practices and the introduction impro·ed drying and milling
technologies are required íor upgrading the rice ·alue chain. Lqually important, a business model
that integrates the many smallholder rice íarmers in a commercially oriented production and
processing system is required.
Rice culti·ation also takes place in rain-íed lowlands ,ladama,, which includes inland basins,
ri·er ílood plains and inland ·alleys. 1hese production ecosystems are ·ulnerable to íloods and
droughts, thus water control technologies, which can signiíicantly increase yields, are required.
1here is a signiíicantly higher potential to increase rice production in this area, due to
go·ernment eííorts through the ladama project.
Nigerian rice consumers preíer parboiled rice. Imported rice largely írom Asia dominates the
market. 1he locally commercial rice - Oíada Rice is aromatic rice, gaining increase preíerence by
local consumers particularly in the Lagos area.
Processing Capacity and Technology
Domestic processing in Nigeria is constrained by lack oí adequate technologies and equipment
íor threshing, parboiling, milling, destoning and polishing, resulting in reduced quality. 1here is
great opportunity to increase quality standards through in·estments in impro·ed post-har·est
handling and processing practices in the rice ·alue chain. 1here is little mechanization in post-
har·est handling. Manual threshing by smallholders is ineííicient and leads to poor grain quality.
In response to the growing local demand íor rice, se·eral pri·ate rice companies ha·e planned
íuture in·estments in rice processing. 1hese companies intend to increase milling capacity
signiíicantly. Iowe·er, the problem oí organizing supplies and ensuring quality oí paddy
obtained írom the smallholder íarmers remain a problem. In some states, eííorts are being taken
by the state go·ernment to re·italize some old milling íacilities to stimulate producti·ity.
1he majority oí small scale millers process paddy on a íee basis rather than purchasing paddy
and selling rice. Parboiling - an expensi·e procedure íor processors located in peri-urban areas
as a result oí the high costs oí íirewood - is generally conducted by the producers or a
specialized, rural-based agent. 1he distribution oí the ·arious processing tasks among diííerent
operators reduces risk to each, increasing the resilience oí the ·alue chain. Iowe·er,
impro·ements in rice quality consequently require simultaneous upgrading by actors at se·eral
stages in the chain.
End-Markets and Trade
1here are two distinct markets íor rice in Nigeria. larmers are essentially subsistence producers
and consume most oí the rice that they produce. 1he marketed surplus` is sold to millers, at
local market places or in urban areas where consumption oí domestically produced rice is oí
growing importance. Nigeria imports substantial ·olumes and ·alue oí rice annually. 1hese
imports ha·e in íact set the domestic rice price in recent years. In order to meet the soaring
demand íor rice o·er the years, the country has resorted to imports to bridge the deíicit. Apart
írom oííicial imports to Nigeria, it is reported that substantial rice imported to Benin Republic is
re-exported to Nigeria. It is also reported that in recent years, paddy rice is being imported to be
milled in the country. Most oí the milled rice is transported to urban areas where demand íor
rice is on the increase.
Supporting markets are many íor rice and including seed, pesticide, íertilizer, warehouse receipts,
crop insurance, etc. 1hough important in support oí a ·iable rice economy, these markets need
to be de·eloped to better ser·e the ·alue chain actor eííecti·ely.
Competition íor domestic rice comes írom imported rice coming mostly írom Asia. Imported
rice is in most cases oí higher quality and better presented than local rice, thus urban consumers
73
preíer to purchase imported rice. Smuggled rice írom across the Benin border is a major concern
íor in·estors in domestic rice production and milling.
Chain Governance and Linkages
Vertical cross relationships in·ol·e acti·ities írom the íarm to the domestic market. Apart írom
the large-scale rice processing mills, which tend to integrate producers in the processing
acti·ities, the small rice production systems are less integrated. As these become integrated,
warehouse íacilities would need to be made a·ailable. At the milling and wholesale le·els
impro·ed technologies will ha·e to be de·eloped and implemented to insure that the rice íor
domestic market is oí high grade. Among other things this implies the consideration oí a grading
system which has integrity and that is consistent with international standards. In order to make
this eííecti·e, these grades will ha·e to permeate the rice production and distribution system.
1his would ha·e to be linked and also applied at the producer le·el. At this le·el, cooperation
between rice producers and processors is required to ensure that producers get better seeds and
other inputs so that they produce paddy that meet the standards and requirements oí the
processors. Public sector actions to encourage and íacilitate acti·e participation oí pri·ate sector
pro·iders oí ser·ices ,like tractor ser·ices, are required.
1he rice market is largely iníluenced by imported rice írom Asia. In this case, e·en the large-scale
rice mills do not control the market. Upgrading opportunities exists at ·arious segments oí the
rice ·alue chain. In particular, upgrading is required at the le·el oí input suppliers, production
organization and management, processing in terms oí equipments and packaging, ií domestic
rice is to ía·ourably compete with imported rice.
In order to increase the eííiciency oí the domestic rice production, íirm le·el upgrading is
essential. lirst the producers must íind themsel·es in an en·ironment that encourages adoption
oí new seed and modern input packages. larm records are an important part oí this transition.
1his will require a credit system and perhaps a crop insurance system to help the producers
manage the risk le·els oí the change.
Apart írom the more recent mills, se·eral oí the Nigerian rice mills are using outdated
technologies. In this respect, processing íirms must be upgraded and use modern and more
eííicient technologies and operations. 1his does not mean that íacilities must be large, just that
they must operate eííiciently. Producers, middlemen, wholesalers, traders and retailers must all
participate in these upgrading eííorts - and not to íorget the íoreign sector which should be
welcomed to participate in the necessary in·estments.
1he storage industry must change as well and gain the coníidence oí the market participants.
1his will require grading, guaranteed storage, warehouse receipts and acti·e trading so that all
members oí the industry can participate in this íunction oí a successíul ·alue chain. 1he
upgrading oí íirms must be in íinancial management as well as in equipment and other attributes.
Resource Productivity and Environmental Performance
Rice is a water lo·ing crop, thus good and eííicient irrigation, good seeds, íertilizer and related
management practices are required to increase yield and competiti·eness oí rice production. Rice
researchers estimate that with the addition oí pesticides and íertilizer and again management
methods, the potential yields could be increased to 8 tons,ha. Irrigation schemes are not
eííicient, while inputs particularly good seeds, íertilizers, pesticide are not readily a·ailable in the
required quantities and at aííordable prices. Contract laws are weak, making it diííicult to
promote contract íarming. Also, the íailure oí the credit system, which is usually segmented to
ser·e íarmers-market linkages, limits the proíitability oí rice production when compared to
imported rice.
74
Increasing domestic rice yields would make it possible íor the íarmers and the millers and
storage íirms to obtain better equipment. By increasing the utilization capacity oí existing rice
mills proíit margins could be increased in this part oí the ·alue chain. 1hus, íor instance
doubling the milling capacity utilization or storage would make these acti·ities ·ery proíitable
and encourage the purchase oí better and more eííicient machines. Making this part oí the
industry more eííecti·e and eííicient will be ·ery important in the íuture.
Macro Economic and Policy Context
1he rice ·alue chain is extremely sensiti·e to go·ernment policy. In light oí the growing imports,
the lederal Go·ernment recently increased the benchmark íor rice importation írom >590,ton
,about N88,500, to >640,ton ,N96,000, while duties payable on them, increased to 32 percent.
\hile this policy action is intended to promote de·elopment oí the domestic rice industry, it
leads to increase in smuggling acti·ities, though eííorts are taken to curtail smuggling by the
lederal Go·ernment.
1he recent price hikes in international rice prices has pro·ided an opportunity íor the domestic
rice market by closing the huge gap ,double, between domestic and international prices.
Iowe·er, producti·ity ,yields, oí domestic rice producers remains low.
lederal and state policies and institutions to increase rice producti·ity ha·e largely íailed. Until
recently, tariíí protection has been extremely high. 1hough the high tariíís ha·e encouraged
domestic production, a substantial smuggling operation has de·eloped to supply what is come to
be known as Cotonou Rice`. 1his smuggled rice sets the benchmark price íor domestic rice.
1he rice market is controlled by large-scale rice importers. 1hereíore, any major in·estments in
the rice ·alue chain need to assess the implications íor the importers. Also, there may be a need
to de·elop a strategy to encourage the increased production, milling and proper storage oí rice
produced locally.
Availability of Finance
linancial mechanisms can be de·eloped íor production, processing and storage oí rice that
permit all participants in the sector to participate. In the case oí production, íinancial products to
íacilitate input access to íarmers, processing technology, bonded storage and warehouse receipts
could also be a possibility íor rice ·alue chain. 1hese can be designed so that all in the ·alue
chain can participate and take the risks that they are comíortable with. linance íor working
capital and the purchase oí small utility equipment íor íarmer groups, cooperati·es and
indi·idual íarmers, groups or indi·iduals, is ·irtually nonexistent. Gi·en the high proíitability oí
rice production, processing and sales pro·ides an attracti·e íinancial business. 1here is huge
íinancing potential in production íor the supply oí inputs to íarmers. In the area oí production,
in·estment opportunities exist in land preparation equipments, while in the equipments íor post
har·est also pro·ides opportunity íor íinancing. Upgrading oí processing equipments to more
modern and eííicient ones also pro·ides business opportunities that require íinance.
Some larger processing plants also ha·e access to íinancing which they extend to producers. In
the case where the processor pro·ides loan to producers, payment is usually in the íorm oí
paddy deli·ered to the mill. In such cases, the processor pre-íinance production particularly íor
the supply oí inputs. OLAM pro·ides such support íor its network oí rice producers,suppliers.
Finance requirements
On the basis oí the abo·e analysis and inter·iews with key rice ·alue chain actors, the íinancial
requirements in the ·arious segments oí the ·alue chain are identiíied as íollows ,see 1able A.8,
75
1able A.8 Iunding requirements in the rice value chain
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capital
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Working
capital
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ment
Working
capital
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capital,
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Working
capital
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credit),
equip-
ment
Working
capital,
equip-
ment
Working
capital,
fixed
assets
Working
capital,
fixed
assets
Pre-
and
post-
shipme
nt
Volume
needed
high low high low
(through
processors)
low high medium medium low low
Risks high high medium medium low low low medium low high
Interest low low low medium low medium high high high high
76
A.9 Soybean
Soybean is a relati·ely new crop in Nigeria, which is mostly culti·ated in the North \est, North
Last and North Central parts oí the country. Nigeria's domestic production oí soybeans is
continuing to increase, but still does not meet the rapidly growing demand írom the poultry
industry and ·egetable oil producers. 1he rapid growth in the poultry sector in the past íi·e years
has boosted demand íor soybean meal in Nigeria. Iowe·er, although domestic production has
been rising it has been unable to satisíy local demand. Nigeria's soybean output in 2009 is
estimated at 500,000 tons.
Mapping the chain
Soybean ·alue chain íollows a íairly linear path írom input companies ,seed, íertilizers, modern
land preparing equipments etc.,, through producers, traders up to processors and end product
consumers. \ithin this ílow, there is a sequential order oí partners that work together to take
soybeans írom one link in the chain to the next. Iowe·er, once soybeans reach the processing
stage, the possibility íor use extend in many diííerent directions, such as oil, meal or cake,
protein products and then in more speciíic uses oí each oí those soybean product components.
ligure A.9 below presents a simpliíied ílow oí soybean írom input market to end product
consumers.
Iigure A.9: Movement and transformation of Soya value across the chain
´ovrce: 1be avtbor.
1he Nigerian soybean chain is dominated by grain merchants who trade in any a·ailable product
depending on the season. 1he traders collect soybeans írom local market places in the major soy
production areas. 1hey are supported by commission agents and ·illage traders íor assembling
the commodity. 1he merchants then collect and sell to processing plants. 1he two main products
írom processing plants ,oil and meal, are sold through major markets ,wholesalers, who, in turn,
sell to distributors and supermarkets. 1he meal is bought by íeed millers direct írom the
processors and transported to the íeed mills and used as protein ingredient in the íeed mixture
and sold to li·estock producers - particularly the poultry sub-sector. 1hus, the demand íor
soybean íor commercial processing is deri·ed írom the demand íor li·estock íeed, which in turn
is deri·ed írom the demand íor li·estock products. Most signiíicant ·alue is added by the
processor and the íeed miller, who use soybean cake as input íor íeed íormulation.
77
Primary Production and Sourcing of Inputs
Most oí the soybean produced in Nigeria is by smallholder íarmers, with less than 5 ha land area.
1hey culti·ate soybean in association with cereals, mostly maize, sorghum or millet. More
íarmers are culti·ating soybean because oí the surging demand oí industry íor processing into
de-oiled cake and soybean edible oil in the domestic market. Iowe·er, the supply chain is not
organized and not well integrated with the emerging industrial processing. lactors aííecting the
períormance oí the commodity subsector include under-utilization oí installed capacity oí
·egetable oil mills that process soybeans, lack oí the state-oí-the art soybean reíineries. Most
proliíic regions íor production is Kaduna and Benue State while regions in the South- South-
\est as well as North Last are less adapted to soybean production ,see ligure A.10,.
Iigure A.J0: Soybean production in Nigeria in 2008
´ovrce: Preparea b, íí1. Ceo.patiaí íab, ^igeria 2010
Lack oí state-oí-the-art ·egetable oil reíineries that use eííicient means oí extracting oil írom the
crushed soybeans is another important constraint. 1he 1araku Mills in Makurdi is the only one
equipped with sol·ent extraction equipment, but not operating optimally, due to insuííicient
supply oí soybeans. Also, quality oí soybeans deli·ered to the processing plants is oí low quality,
which does not produce high quality edible oils. Assembling oí soybean o·er long distances íor
many smallholder íarmers, most oí the time with ·arying quality is an issue oí concern. 1his
could be sol·ed through contract íarming and with support írom processors.
Processing Capacity and Technology
Nigeria's installed annual soybean processing capacity is estimated at approximately 580,000 M1.
Due to limited production, only 40 percent oí installed processing capacity is utilized annually. It
78
is reported that there are eight large processors in Nigeria, accounting íor nearly 60 percent oí
Nigeria's soybean processing industry.
1he largest among them are Grand Cereals, Oil Mills and LC\A leeds, all located in Jos.
Others are located in Kano, Makurdi, and Katsina. Most oí the older mills use screw press
technology, which is ineííicient in extracting oil írom the crushed cake. 1hus, íinancing to
acquire new technology and machines could be a potential business íor banks, willing to íinance
the sector. As demand íor soybean is not the problem, eííorts should íocus on increasing supply
oí quality soybean, in·esting in more eííicient processing equipments both íor soybean
processing and íeed mills.
End-Markets and Trade
Li·estock íeed ,particularly poultry, market is the most important market íor soybean cake, while
the ·egetable oil obtained írom soybean is largely íor human consumption. Regarding the cake,
the li·estock íeed industry in Nigeria declined in the 1980s and 1990s, resulting in the exit oí
major multinationals operating in the industry lea·ing behind íirms that they had sold to
management or to third parties. 1hese íirms struggled to sur·i·e and were in decline until the
poultry import ban was imposed by the Go·ernment oí Nigeria, leading to signiíicant
commercial in·estment and consequent rapid growth oí commercial poultry production. O·erall,
the demand íor poultry products and meat is increasing rapidly, dri·en by rising incomes
amongst middle-income consumers and a high-income elasticity. Consequently, the market íor
poultry íeed is growing, dominated by direct sales to the large commercial íarms. Iowe·er, the
strong supply response has meant that prices oí írozen chickens ha·e not kept pace with
inílation.
Soybean is used as a major protein ingredient in breakíast and baby íoods. 1he meal is also used
to impro·e the protein content in carbohydrate íoods such as gari` ,a íood staple made írom
processed cassa·a,, which is widely consumed in the region. Soybean is also used in making soy
cheese in northern Nigeria, locally called wara` and consumed as a substitute íor meat and íish
in local dishes. Large-scale demand íor soybeans arises mainly íor the oil and protein-rich meal
deri·ed írom soybean crushing. Soybean meal deri·ed írom industrial processing goes to the
animal íeed industry as a high quality and eííicient protein source.
Chain Governance and Linkages
As supply oí suííicient and quality soybeans to the processing mills is the major problem, there is
no lead íirm in the soybean ·alue chain. Soybean producers are poorly organized and integrated
in the entire ·alue chain. Contract íarming between producers and millers does not seem to be
working, largely due to the inability to supply suííicient beans to the processing mills. \here
there has been some success integrating producers and processor, credits and ser·ices ha·e been
pro·ided by the to pre-íinance production acti·ities. Producers would then repay at the time oí
sale to the processor.
Coordination among chain actors is poor, characterized by many smallholder íarmers, íew
buyers and o·er capacity oí processing mills. Chain upgrading opportunities exist in organizing
the many smallholder producers into production units, making a·ailable quality seeds, and
building their capacity to produce and supply quality soybeans to the processing mills. Other
opportunities exist in technology upgrading oí existing processing mills. Iowe·er, any action to
eííect this upgrading would require a precise assessment oí the location and size oí existing
plants as well as determination oí the types oí technology in use and number oí producers that
could adequately and eííiciently supply soybeans to the processing plan.
79
Macro Economic and Policy Context
Despite the high potential íor extending soybean production and marketing to the íood and
íeedstuíí sector in \est Aírica there is currently a limited understanding about measures that are
able to help realize this potential. Go·ernments and agricultural and agro-industry de·elopment
agents are oíten in·ol·ed only in insigniíicant acti·ities which are geared to impro·ed ad·isory
ser·ices íor small scale íarmers and some credit-support íor agri-processors. \hat is needed is a
more holistic understanding oí the íunctioning oí the ·alue chain to be able to identiíy the
·arious, parallel existing bottlenecks in de·elopment and the design oí programmes that are able
to remo·e them and respond to the existing de·elopment opportunities.
Import oí ·egetable oils and poultry are on the list oí banned products to Nigeria. 1his situation
pro·ides an assured market íor locally produced ·egetable oil and soybean cake íor sale to
poultry íeed mills. 1he II1A, and IAR Zaria, Ibadan are leading research institutions de·eloping
impro·ed soybean ·arieties íor release and culti·ation in the country.
Availability of Finance and attractiveness
1here are no íormal íinancial arrangements in support oí market de·elopment íor soybeans.
1hus, the producers and the millers lack the needed capital to eííiciently link and manage the
chain. Iowe·er, soybean pro·ides an attracti·e business íor producers, processors and poultry
íeed millers. 1hus in·estments in certain segments oí the chain could pro·e proíitable. Major
demand íor soybean meal comes írom the poultry íeed millers, which is deri·ed largely írom the
demand íor poultry and other li·estock and li·estock products. Demand íor these products is
increasing largely due to increasing incomes and the high rate oí urbanization in Nigeria. It is
reported that some soybean or íeeds are exported to neighbouring countries.
Soybean processing requires a number oí equipments such as screw presses and sol·ent
extractors and íeed mills. 1he existing ones may need technology upgrading to meet quality and
saíety requirements as well as eííiciency. All oí these require access to íinance. Lquipment and
machinery íor larger processing plants are substantial and gi·en their stationary character are
more suitable íor securing loans. Iowe·er, banks would always require additional guarantees and
collaterals.
Finance requirements
1able A.9 Iunding requirements in the soybean value chain
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capital,
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vehicles
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capital,
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long term)
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assets
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Pre- and
post-
shipment
Volume
needed
none high high low
(through
processors)
high medium medium
Risks high medium medium medium low low
Interest low low medium high high high
80
A.10 Tomatoes
1omato has been in culti·ation in Nigeria íor a ·ery long time. It is an important component oí
the daily diet, consumed both íresh and in paste íorm.
Mapping the chain
Main actors in the chain include input pro·iders ,seeds, íertilizer, pesticides, irrigation systems,,
producers, small-scale processors, and retailers and, to a limited degree, industries that engage in
the production oí tomato paste and canned tomatoes. Production is dominated by small to
medium íarmers that ha·e reached a substantial le·el oí market orientation. Also a number oí
larger-scale commercial íarms operate in the sector, oíten with direct links to processors. ligure
A.11 pro·ides an o·er·iew oí the main segments oí the ·alue chain. In addition there are also
pri·ate ser·ice pro·iders including middlemen, traders and transporters, suppliers oí processing
equipment, suppliers oí packaging materials and to a limited degree, íinancial ser·ice pro·iders.
Public and de·elopment cooperation support is also pro·ided ·ia research and extension
agencies, most oí who íocus on primary production and small-scale processing.
Figure A???? Map of Tomato value cbain in Nigeria
´ovrce: .vvvi ava Mv.i, vo aate
Primary Production and Sourcing of Inputs
1he ·alue oí annual tomato production in Nigeria is estimated to be around 403 Mio USD
,lAOS1A1,. 1his means that tomatoes ranks 19
th
in the list oí most important agricultural
commodities in Nigeria. Production has almost doubled o·er the last 10 years reaching 1.¯ Mio
81
tons in 2008. Iowe·er, o·er the same period yields ha·e rather stagnated or e·en declined. In
2009 a·erage yields per hectare oí tomato production were around 64 tons. 1he production is
beset with many problems, such as diseases, nematodes, insect pests, high ílower drop, all these
resulting in low yield and poor quality íruits.
ligure A.12 pro·ides iníormation on tomato production in the country. 1omatoes are produced
around urban centres in the South where the costs oí transport and marketing are low. Iowe·er,
íor more commercial production Northern states such as Sokoto, Gombe, \obe, Kano and
Benue pro·ide good opportunities due to ía·ourable weather conditions.
Iigure A.J2: Iresh 1omato Production in Nigeria
´ovrce: .vivv ava Mv.a ;vo aate)
Processing Capacity and Technology
1here are estimations that about 30° oí total tomatoes produced in Nigeria annually are wasted
because oí the lack oí processing íacilities and preser·ation mechanisms. L·en large-scale
tomato íarmers lack appropriate processing or preser·ation íacilities to keep, transport and
transíorm larger ·olumes oí tomatoes. Processing machines are manually operated with an
operator at e·ery point thereby increasing personnel cost. Some processing machines are e·en
obsolete with spare parts una·ailable in the market. 1he access to stable power is another
challenge. 1he raw material supply is interrupted whene·er the price oí tomato rises and íarmers
sell to the íree market. linally cheap imports oí tomato-based products compete with the locally
processed products.
1o set up an eííecti·e and eííicient tomato paste and canning plant an in·estor needs the
expelling machine, blending machine, íilling machine, pasteurizer, washing machine, stainless top
working table, and canning machine. Most oí these machines can be sourced locally though
imported machinery may be oí higher quality. In any case there are substantial amounts oí
íinance required to obtain such equipment.
End-Markets and Trade
Demand íor processed tomato products in the country is high. Currently there are ·arious
brands oí tomato pastes and purees imported into the country. 1hey are used in the preparation
oí diííerent delicacies, particularly stew, and are used extensi·ely in restaurants, both small and
large. 1he demand íor these products is increasing.
82
1he main channel oí distribution in·ol·es the producers, the commission agents, the assemblers
or regional wholesalers, the urban wholesalers and retailers and íinally the consumers. 1he
producers sell to the assemblers in the rural assembly market through the commission agents
who recei·ed a commission per basket oí tomato sold. 1he assemblers or regional wholesalers
mo·e the product to the urban markets where they sell to the urban traders through the
commission agents in the urban markets and íinally the produce reaches the ultimate consumers.
At any le·el along the chain oí distribution, commission agents play the role oí intermediation
between the market middlemen íor a íee.
Other regional producers oí tomatoes include Ghana and Burkina laso. 1he latter has beneíited
írom íoreign in·estors, including 1aiwan to build up the industry, pro·iding training and seeds
and setting up irrigation schemes. Some oí the products oí these industries also pass Nigeria`s
borders where their good quality due to the ·arieties used competes directly with Nigerian
products.
Tomato product consumption and preferences
Consumption oí íresh and processed tomato as well as importation oí processed tomatoes in
Nigeria has increased dramatically since the late 1990s. Urban consumers buy tomatoes in three
diííerent íorms: íresh, dried and canned tomato products. 1he pattern oí consumption among
the consumers inter·iewed indicated the íollowing: 25° used íresh tomato only, 29° used íresh
and dried only, 24° used íresh, dried and canned tomato, 22° used íresh and canned tomato
only.
1his pattern shows that all the consumers used íresh tomato and thus is most preíerred among
urban consumers. Consumers used other íorms oí tomato ,dried or canned, only when the íresh
tomato is not easily a·ailable and thus its price is relati·ely high compared to the other íorms oí
tomato.
Chain Governance and Linkages
lresh tomato supply is seasonal. Controlled production under greenhouse conditions is not
common in Nigeria. Pro·iding íinance íor the pro·ision oí seeds, íertilizers and herbicides to
íarmers is oíten the only way oí getting íarmers to grow suííicient quantity and quality oí
primary products. Capital íor this type oí pre-íinancing oí agricultural production is usually ·ery
scarce as well. Sa·annah Integrated Lxport Processing larms in Borno state is one oí the lead
íirms in the sector that has introduced outgrower schemes ,see Box A.5,.
Box A.S 1omato Production in Borno State ÷ 1he SILPI scheme
Sa·annah Integrated Lxport Processing larms ,SILPl, in Borno State lends land to íarmers to produce
tomatoes íor its processing plant. 1he company works with 22 registered commodity groups and does
not deal with indi·idual íarmers directly. 1he company supports íarmers through pro·iding seeds and
extension ad·ice while also helping in mechanized land preparation. It pro·ides a guarantee to íarmers to
buy the product oí certain quality at a íixed price. 1he company pre·iously engaged in proper production
but íound that the use oí the outgrower scheme reduces stealing and increases output. A major challenge
remains with regard to the íinance oí important inputs such as íertilizer and herbicides: as íarmers ha·e
little or no collateral to pro·ide, íinance institutions do not pro·ide loans to pre-íinance production.
lurther pre-íinancing íacilities can be pro·ided by the company, howe·er lea·ing the pre-íinancing oí
íarmers` production entirely to the buyer,processors seems to o·erstretch the company`s capacity to
pro·ide íinance, as it also needs to in·est in expensi·e equipment to impro·e the portíolio oí products it
processes.
´ovrce: ívterrier ritb ´íííí ava íarver. ...ociatiov
83
Resource Productivity and Environmental Performance
Ln·ironmental concerns particularly relate to the use oí pesticides and herbicides in production
and the extensi·e use and contamination oí water in production and processing. Ln·ironmental
standards towards cleaner production controlling negati·e en·ironmental eííects are not in place.
Alternati·e technologies to a·oid contamination and reduce energy use are a·ailable but are
mostly considered too expensi·e. 1here is also a lack oí technicians in the industry who are
trained in en·ironmental management.
Macro Economic and Policy Context
\est Aírican trade laws impose no duties on agricultural products crossing borders, making it
cheap íor buyers to purchase abroad. \ith Luropean Union Lconomic Partnership Agreements
,LPAs, currently being negotiated, there is some risk that \est Aírican markets are about to be
ílooded with hea·ily subsidized LU products, unless LCO\AS introduces a common pricing
policy.
Finance requirements
1he abo·e analysis points to a number oí íinancial requirements in the ·arious segments oí the
·alue chain ,see 1able A.10,
1able A.J0: Iinancial Needs in the 1omato Value Chain
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(short-medium
term)
Working
capital,
equipment
(machinery)
Working capital,
fixed assets (plant,
storage), vehicles
Volume
needed
none high high high medium
Risks high medium medium low
Interest low low high high
84
Literature References
Adene D.l. and A.L. Oguntade ,2006,. Poultry sector country re·iew. lAO Animal Production
and Iealth Di·ision, Rome.
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Roadmap íor making agricultural lending a strategic and sustainable acti·ity íor Nigerian Banks:
1he creation oí a Nigerian Incenti·e-based Risk sharing System íor Agricultural Lending
,NIRSAL,. Report deli·ered to Central Bank oí Nigeria by Price\aterhouseCoopers, 2010
Akinwumi, J, I. Okike, B. Bett, 1.-l. Randolph, and K. M. Rich ,2009,. Analyses oí the Poultry
Value Chain and Its Linkages and Interactions with IPAI Risk lactors in Nigeria IPAI
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Irrigation Project, Nigeria. Study commissioned by the Agricultural De·elopment in Nigeria
,ADLNI, Project, lrench Lmbassy,NALRLS.
Central Bank oí Nigeria ,2005,. Microíinance Policy, Regulatory and Super·isory lramework íor
Nigeria. CBN, Abuja, Nigeria.
Chemonics International Inc. ,2004,. Assessment oí 1he Micro, Small and Medium Lnterprise
,MSML, Sector in Nigeria, Volume 1: MSML Assessment.
Coon C., A. Campion and M. \enner ,2010,. linancing Agriculture Value Chains in Central
America. Inter-American De·elopment Bank, 1echnical Notes 4 IDB-1N-146.
Lconomist Intelligence Unit ,2010,. Country report: Nigeria, June 2010.
LCO\AS, lederal Republic oí Nigeria and CAADP ,no date,. Nigeria: Strategic Options and
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