Agriculture Financing: Nigeria vs Thailand – The Failure And Success Stories

Posted on February 20, 2018

DON EBUBEOGU

James Rogers, who co-founded and administered with George Soros an investment fund named Quantum, which returned more than 4000% in 10 years, has this to say in an interview, that “People working with agriculture will be the world’s next billionaires! Wealth will come from farms. Farmers will be the owners of Lamborghinis in the future, not the smart guys working in finance.”

Akinwumi Adesina, the President of African Development Bank and former Minister for Agriculture – in remarks leading up to the 2015 Action Plan for African Agricultural Transformation conference in Dakar, pointed out that “the agricultural sector [in Africa] has four times the power to create jobs and reduce poverty than any other sector.”

He further opined that “agro-industrialization has greatest potential for Africa to achieve more rapid and inclusive growth – and create jobs… If you want industrialization of Africa, and massive job creation, focus on industrializing the agriculture sector.”  He famously predicted that “I believe that the future millionaires of Africa will come from agriculture, not from the oil and gas industry. Agriculture will become Africa’s new oil.”

From the foregoing, strengthened by the recent economic recession in Nigeria which recovery was hinged on Agro-economics by World Bank and economists, it is therefore commendable when government’s new blueprint for economic recovery identified agriculture as one of the country’s sectoral comparative advantage, with the Economic Recovery and Growth Plan (ERGP) adopting the Agriculture Promotion Policy 2016 (APP) goals, which now focuses on three key policy objectives.

These include increase agriculture GDP from N16 trillion in 2015 to N21 trillion in 2020 at an average annual growth rate of 6.92 per cent; significantly reduce food imports and become a net exporter of key agriculture products- rice, tomatoes, vegetable oil, cashew nuts, groundnuts, cassava, poultry, fish, livestock; and become self-sufficient in tomato paste (by 2017), rice (2018) and wheat by (2019/2020).

Why then is the Nigerian vegetation not bustling with agro-tivities as expected? Why is the exit part wider than the entry point with tales of loss of investment and abandoned dreams in agriculture? More worrisome is the private sector lack of understanding  of government policies with special emphasis on finance, research and cluster development; prerequisite for agric revolution.

On a recent trip to Thailand on the invitation of Commercial Affairs under the Department of International Trade Promotion, Ministry of Commerce, Royal Thai Government, along with Mr. Suleiman Dikwa, the CEO of Green Sahara Farms Limited (an industrial aggregator) we came face to face with what’s wrong with Agric business in Nigeria. After 3 days of exhibitions, B2B meetings with various agro-allied investors in Thailand and visits to selected institutions, I got more interested to find out how Thailand got it right. How did they take advantage of its 16 million ha of fertile arable land and a total agricultural labour force of 29 million to firm up their position as a world-leading agricultural producer and exporter – in line with its national strategy and policy to serve as the ‘kitchen of the world’?

The answers lie on what we didn’t get right in Nigeria.

It is not contestable that the Nigeria government has provided huge funds to agri-preneurs through Bank of Industry, Bank of Agriculture and direct CBN Funds without significant progressive development in the sector. In most cases the finances are hardly recovered once disbursed, causing the government huge losses every year. Every new policies on Agric financing end up worse than the version it replaced with Anchor Borrowers’ Programme another new experiment that went wrong. In Kano state alone, out of 4,500 beneficiaries, less than 10% had paid back. And the story is the same across the country.

The Thailand Agric machinery exhibition we attended was hosted by the Engneering Depertment of Kasetsart University, Kamphaeng Saen Campus, Nakhon Pathom, Thailand. An excursion to the department revealed the value it has added to agro growth in Thailand with special regards to Industrial Crop Development and Farm Mechanisation. This was possible due to targeted government funding.

Just like Nigeria, Thailand’s climate and soil conditions permit the cultivation of a wide range of crops, and besides the traditionally dominant rice plantations, the country embarked on an ambitious long- term strategy for industrial crops development – such as rubber, coconut, oil palm and coffee. With the government successfully adjusting policies and investment programmes towards the promotion of food and industrial crop production and associated support measures to farmers, Thai farmers responded by expanding substantially the output of many agricultural products. The result was 2.83 million tonnes of natural rubber export in 2010 – an increase of 6.3 percent over the decade till 2008, positioning the country as the number one world exporter (followed by Malaysia with 2.3 million tonnes). The production of palm oil increased by 8.9 percent from 0.5 million tonnes in the year 1998 to 1.3 million tonnes in 2008, placing Thailand as the world’s third largest exporter of palm oil, following Indonesia and Malaysia.

How was the achievements possible without the usual bottlenecks we experienced in Nigeria? Let us take a look at the typical setting of community based Cooperative and or cluster development in Thailand.

In Thailand, the cluster development policy was aimed at increasing industrial competitiveness in areas with high potentials for targeted manufacture. The Clusters, as veritable source of steady raw materials became crucial in linking manufacturers, supporting industries, research institutions and exporters within the cluster areas. Strategic development is supported by government agencies in wide-ranging aspects, including human resources, technological developments, logistics system, tax incentives and financial support. These measures support the cluster development and also give strategic advantage to investments in the cluster areas. More important is that competence is developed within a cluster to achieve end-to-end value addition on targeted product(s).

The objectives of clusters developed within this framework are:

** To strengthen industrial value chain leading to creation of industry base. For instance, Dangote’s new Tomato Concentrate Plant was cited in Kano where there is a cluster with good knowledge of tomato cultivation. Although we may argue differently why the cluster didn’t live up to expectations when the plant started operations. But the company’s primary interest was the tomato clusters in Kano and environs.

** To build investment  competencies to attract value added investment.

** To decentralize  developments to  regional and local areas, and create  business opportunities for SMEs.

How then did Thailand use public financing to develop and sustain the different clusters without losing the funds?  They simply adopted a model very similar to what was proposed by the International Institute for Sustainable Development, thus;

“Agriculture encompasses a broad range of activities from small-scale farming  to infrastructure projects to research and development.  As a result, when referring  to agriculture finance,  the market clusters it in four groups. The groupings correspond  to different approaches  to addressing  the needs of  the sectors:  (1) the needs of farmers and entrepreneurs, (2) the transactions  between the  actors  along the  value chain,  (3) infrastructure needs and (4) generating knowledge to support the sector.

1.  Farmers and small agricultural entrepreneurs:  This approach is focused on the actors in  the agriculture sector  that need financing.  Farmers and small entrepreneurs, like small supply companies,  need finance to allow  them  to expand production and/ or diversify products. This can include,  for example,  finance for inputs (such as seeds and fertilizers),  production (such as machinery and equipment) and marketing (such as processing, packaging and  transport).

2.  Actors along  the  value chain:  The focus is on  the links between different actors along a value chain.  Agriculture entails a sequence of interlinked activities—transactions—in a chain that  starts  from  the  supply  of  seeds  and  fertilizers and finishes in  the mouth of  the consumers. There are financial instruments specifically designed  to strengthen  these links between  the actors along  the  value chain.

3.  Rural infrastructure:  Financing can be also concentrated on  the infrastructure needed to carry out agricultural activities. The sector depends heavily on infrastructure such as rural transport systems,  irrigation systems,  water supply,  sanitation,  electricity,  storage and telecommunication facilities. These projects are costly and require large amounts of financing.

4.  Research and Development (R&D): This last approach focuses on financially supporting knowledge generation for  the sector. This includes  the generation of agricultural technology and new  technical knowledge about products,  processes and services for  the sector. R&D also provides valuable knowledge  to help producers prepare business plans for banks or other financial institutions,  to support financial planning and credit assessment by financial institutions,  and government planning in general”.

Therefore, in Thailand, Agric funding focused on all the segmented sections of the value chain: Reserach/Development, Nursery, Planting, Post Harvest Handling, Logistics and Market. This involved creating a cluster of farmers encompassing all the players, starting with research institutes who develop seedlings and equipments for commercial production up to the off-taker. In simply analogy, the funding is skewed in such a way that each segment checkmates each other with the exit time of one signaling the entry time of another. This funding package takes care of the entire value chain. No farmer is funded for end-to-end production. Rather the cluster comprising all section of the Agro business is funded in order to secure the funds and ensure positive delivery.

The 2 different funding scenarios adopted by the different countries are the roots of the success and or failure of the funding. While in Nigeria funds are provided to farmers to expand their operations from land preparations to post harvest handling, Thailand funds research institutes and seeds companies to supply small holder farmers with the right seeds.  While the farmer/Anchor Borrower in Nigeria is at liberty to determine how to use his funds, the farmer in Thailand has no access to cash except the margin that will accrue to him on delivery of his harvest to the aggregator/off-taker. Funding in Thailand is so segmented that even land preparations are done by established firms within the cluster. So why Thai government is funding land preparations agents through machines acquisitions, they are also funding the farmer with seedlings for nursery. The risk of diversion is reduced because the funding is time-lagged. And because your exit time signals the entry point of the other, the entire cluster become dependent on each other and ensure funds are used judiciously.

Unlike our Anchor Borrower’s Scheme, Thai Government avoided funding an individual/firm to manage the entire value chain cycle, starting from identifying the right seedlings, managing the nursery and transplanting, farm preparations, weeding, harvesting, post harvest handling and market. Once you provide funds for such farmer, the risk of misuse is so high especially when the farmers tries to increase his capacity without core competence on the entire value chain. The reason is not rocket science; there is no individual or company with the competencies to manage the entire value chain. Therefore funding MUST be segmented along the  value chain through various players who must have developed competence on their particular interest.

Let me briefly highlights a narrative from Food and Agriculture Organization of the United Nations to drive home a point.

“Oil palm development aimed at increasing Thailand income and improve the economic conditions of farmers, especially small holders, the project improved and expanded production and marketing oil palm. Government activities concentrated on promoting research for enhancing oil palm productivity and production, processing and utilization.”

“The project assisted in the establishment of an oil palm research programme at the Horticulture Research Station in Chumporn. The project also provided training and established a training centre for farmers, extension workers and low-level to medium-level trainers. The project produced a plan to establish a national oil palm agency to coordinate and lead oil palm development activities in Thailand.”

The foregoing demonstrated detailed action plan with funding covering research & development, training of the small holder farmer, training of extension workers providing logistics and infrastructure to ensure comprehensive funding of the project.

In a paper delivered at Awka, Anambra State during his visit to the Hon. commissioner for Agric, Mr. Afam Mbanefo, the Chief Executive Officer of Green Sahara Farms Limited, Mr. Suleiman Dikwa wrote the following, which also clearly underscore the predicament agric revolution faced in Nigeria:

“The several barriers to the development of agricultural businesses (in Nigeria) have been there: small production scale; lack of capital; limited access to markets, distribution channels and business support; inadequate legislation and regulation; poor management skills on the part of farmers; isolation from learning centers; poor post-harvest handling which leads to loses and the non-acceptance of produce in the international markets; and a lack of entrepreneurial spirit”.

The above statement again reiterated the gap which even funding cannot address. The gap is the entry and exit point of each value chain player. Identifying the gap and funding along the gap lines will ensure adequate and safe use of state funds to propagate meaningful agric revolution.

While developing a template for Public Private Partnership for Anambra State (the cluster development enabler), Green Sahara Farms Limited (extension service provider and aggregator) and Tiger Foods Limited (Off-taker), using a model that will enhance operational competence, Mr. Dikwa made the following enterprise rationale, which I herein borrow to end this piece:

“The low productivity of Nigerian agriculture has been mainly attributed to: the erroneous logic in agricultural production; technologies and inputs that do not function in the agriculture-ecosystems, provoking environmental imbalances; the lack of investment, credit, subsidies; the deterioration of competitive conditions due to the commercial opening of the country; and organizational deficiencies on the part of farmers. The government’s efforts to motivate the creation of cooperatives and other types of productive rural organizations have not yielded the expected results. Agriculture is not a homogeneous sector. Farmers operate in a complex, multi-faceted environment and therefore, sustainable development of agriculture requires the development of entrepreneurial and organizational competency.”

Don Ebubeogu
President, Onitsha Chamber of Commerce

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