August 11, (THEWILL) – In a dramatic turn of events, Nigeria’s agricultural sector received an investment inflow totaling $15.80 million (year-on-year) in the first quarter of the year (Q1 2024), according to data from the National Bureau of Statistics (NBS).
This represents a 226.5 percent rise compared with $4,84 percent in Q1 2023 and a 3,490.4 percent surge against $0,42 recorded in the preceding quarter (Q4 2023).
Although it is indicative of moderate growth, the figure is a remarkable development compared with the previous periods Agric it did not achieve such performance. The sector recorded $10.01 and $4.64 investment inflows in Q2 2023 and Q3 2023 respectively while drag-footing in an economy where oil and gas and services play a greater role,
The Nigerian government has maintained emphasis on agriculture as a means of diversifying the economy being the largest employer of labour, yet the sector has lagged in growth over the years.
This is shown in the GDP performance in recent times.
Nigeria’s agricultural sector has been on a continued decline in the past seven years – since 2017. This is not good news for the consumer goods firms who depend on the sector for local sourcing of their raw materials under the backward integration scheme.
According to data by the National Bureau of Statistics (NBS), aside from the second quarter (Q2) of 2016 when agriculture achieved a real gross domestic product (GDP) growth rate of 4.5 percent year-on-year, the sector has maintained an uninterrupted slide in the past seven years. The facts speak:
In Q2 2017, agriculture declined to a growth rate of 3.01 percent (from 4.5 percent in the corresponding period of the previous year), before it hit 1.19 percent in Q2 2018. The fortune of this strategic sector, which is the largest employer of labour, rose marginally to 1.79 percent in Q2 2019, then plunged to 1.58 percent in Q2 2020.
Although the overall GDP growth rate rose to 3.40 percent in Q2 2021 from -1.92 percent in the previous year’s equivalent period, the positive trend did not impact on agriculture: The sector, instead, nosedived to a 1.3 percent growth rate in Q2 of that year. It then sank deeper to 1.2 percent in Q2 2022, before recording a stunted growth of 1.50 percent in Q2 2023.
In all, while the overall contribution of agriculture to GDP hovered on the average of 23 percent during the seven-year period, the receding fortune of this sector was a major concern to the consumer goods firms. This is because the consumer goods firms rely significantly on agriculture to source their local raw materials under the backward integration policy.
Backward integration
Backward integration is a practice where companies are encouraged to cultivate their own raw materials by purchasing from their suppliers or establishing farms to grow produce for their factories. Though conceived in the 80’s, the policy gained momentum in the country following the crash in crude oil prices which started in the fourth quarter of 2014.
The government put the scheme in place to save foreign exchange, create jobs, boost domestic productivity and grow the GDP. On a positive note, the initiative was well received in the real sector.
The consumer goods firms keyed into the scheme and have since taken giant strides in its implementation. This is to the benefit of the small and medium enterprises (SME), especially those engaged in the agriculture value chain and transport.
For instance, Nestlé Nigeria instituted a project to engage 5,000 smallholder farmers, initially, for the supply of raw materials for its agro-business operations. The initiative, ‘Developing Inclusive Grain Value Chains Project’, was in partnership with IDH — a Sustainable Trade Initiative and TechoServe outfit.
Nigerian Breweries stepped up local production of sorghum and cassava to boost local raw material supply for its plants. The 77-year-old consumer goods firm has made significant strides towards large-scale cultivation of sorghum and industrial application since the 80’s.
Similarly, FrieslandCampina WAMCO Nigeria developed its local raw milk sourcing in a bid to support backward integration, an initiative that has proved a source of sustained income to almost 2,000 farmers (including 900 women).
In the same vein, manufacturers in the flour milling sector have been taking steps to increase their tempo of backward integration in recent times. Flour Mills of Nigeria Plc has invested in several farms and other agricultural projects to cultivate raw materials for most of its processes.
Industry giant, Cadbury Nigeria, established a cocoa processing plant in Ondo which has lifted many farmers and transporters engaged in the agribusiness value chain over time.
Also, Guinness Nigeria Plc. launched its agriculture scheme tagged ‘Grow with Nigeria’ in 2018 for the growth of the agricultural value chain and that of small holder farmers who form an integral part of its business. The company has consistently sourced all its core ingredients such as sorghum and malt extract locally through the various local raw material chains up to 75 percent.
These partnerships enabled the consumer goods firms to develop an ecosystem of private sector players creating values that impact smallholder farmers directly and boosting employment.
With the strategic interventions, they are able to leverage on the collaboration as provided by the respective partners in the ecosystem. It has helped to improve the livelihoods of the farmers by moving them from subsistence level to full economic inclusion.
Downturn, dilemma
Incidentally, these projects have been negatively impacted by the receding fortune of agriculture occasioned by lingering structural supply-side challenges. These include rising insecurity, infrastructure deficits, inadequate storage facilities, logistical challenges, multiple taxes, extortion, amongst others. The projects are now severely challenged by the myriad of environmental obstacles across the states where the farms are established and the value chain is.
