Nigeria's agriculture processing gap is hurting its economy

African countries export low-value primary products and then import higher-value finished products. For example, Nigeria exports crude oil and imports petroleum products, and exports impressionable teenagers and imports educated graduates.

The African Development Bank (AfDB) estimates that 62% of Africa’s exports are primary products. As a result, Africa earns just 5.5% of the $100 billion cocoa trade, despite accounting for 75% of the world’s cocoa supplies. A similar story applies to tobacco, coffee, cotton, and others, leading to a clear consensus: for Africa to earn more and develop through trade, it must process its raw materials to higher-value semi-finished or finished products.

But the continent’s inability to move to processing is more complicated than it first appears. In Nigeria, for instance, policy-makers have focused on boosting crop production to the neglect of the rest of the value chain.

Nigeria does not produce enough crops to process

Nigeria’s processing gap is a function of its productivity gap. Nigerian farms are unproductive due to factors ranging from low fertiliser usage to poor farm management. According to the Food & Agriculture Organisation (FAO), a United Nations (UN) body dedicated to ending global hunger, the yield on a staple like cereal is 1,444 kg per hectare in Nigeria, compared to 3,810 kg in South Africa and 7,114 kg in Egypt.

The productivity gap is not limited to cereal and expands as we move beyond the continent. Another reason for low productivity is that subsistence farming dominates agriculture in Nigeria. A considerable number of smallholder farmers farm small plots and practice mixed cropping. Farmers do not produce enough of one crop because prices are unpredictable, which means they could end up with nothing after a farming season.

This behaviour creates supply problems for the processing industry. These smallholder farmers don’t produce enough of any specific crop and sell only 26% of their output on average. Besides, their production is seasonal, leading to irregular supply in the market. All in all, processors cannot guarantee a stable stream of processing inputs from the local market.

But even when Nigeria produces enough of any crop, there are other barriers. The lack of efficient storage and transportation infrastructure imposes costs through significant post-harvest losses. Also, it is hard to aggregate output to satisfy industrial users, given that smallholder farmers are spread across Nigeria’s vast, hard-to-reach geography. Finally, output is often of poor quality, sometimes due to seed variety, which makes them unsuitable for processing. Considering that Nigerian crop products destined for regulated exports market are sometimes of poor quality, the state of the ones available locally is easy to imagine. 

Processors have to work backward

Due to the problems mentioned earlier, processing firms with plans to source locally usually set up their own farms or work with selected farmers to grow desired crops. Nestle, Unilever, and Dangote are examples of companies that had to establish such partnerships. For instance, Nestle enrolled over 8,000 farmers to ensure the supply of high-quality inputs such as millet and sorghum. The company trained the farmers on good agricultural practices and raised farmers’ yield per hectare from 0.9 tons to 2.5 tons in four years.

Not all of these partnerships with farmers are successful. Dangote’s tomato plant remains shut due to unavailability of input, despite signing a deal with 5,000 farmers for supplies. The farmers were unable to meet up with the required quality and quantity of tomatoes. It is because of the costs and the risks of doing it themselves that many processing companies prefer to import raw materials. Even better, imported inputs are usually relatively cheaper and of better quality.

The Processing Gap: The Case of Tomato and Rice

Let’s consider tomato and rice, two crops that have enjoyed the government’s attention, without processing ever really taking off. The government has shown its support through cheap credit and other subsidies to farmers, boosting crop production.

But not enough has been done to drive processing. For tomato, once it leaves the farm, inadequate storage and treacherous journeys mean that a lot of the produce is lost in transit. Meanwhile, poor seed variety and low yields result in quantity and quality problems, hence the need for imported concentrates

For rice, small scale processing is already being done, but this is sometimes irregular. There is yet to be a local household brand for Nigeria’s most consumed staple, and this is partly due to the lack of access to raw materials. To keep their factory running, big processors like Olam have had to start their own farms and partner with farmers to plant rice. But Olam’s 70,000 tonnes rice milling capacity doesn’t move the needle in a country importing 2.4 million tonnes each year. The unavailability of farmers and farms that can guarantee a consistent supply of rice at the required quantity is a big challenge for large scale rice processing. 

Taking the Bull by the Horn

For Nigeria to earn more through agriculture exports, raw materials must be processed into finished and semi-finished products which are of higher value. However, the government’s excessive focus on crop production to the neglect of other areas in the value chain will not cut it. Strategies to boost the productivity of farmers from the farm level until it gets to processing firms must be prioritised.

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