TEXT OF PAPER ON VALUE CHAIN FINANCE IN AGRICULTURE PRESENTED BY DR. MOHAMMED K. SANTURAKI MANAGING DIRECTOR/CEO BANK OF AGRICULTURE (BOA) LIMITED AT A WORKSHOP AND EXHIBITION ON POST HARVEST MANAGEMENT AND VALUE CHAIN FINANCING ORGANISED BY KADCCIMA AND BOA HELD BETWEEN 13 TH -16 TH NOVEMBER, 2012 AT KADUNA INTERNATIONAL TRADE FAIRE GROUND.

OUTLINE INTRODUCTION WHAT IS AGRICULTURAL VALUE CHAIN WHY AGRICULTURAL VALUE CHAIN IS IMPORTANT FOR NIGERIA WHAT PERCENTAGE IS ESTIMATED TO BE LOST TO POST HARVEST LOSSES CHALLENGES OF AGRICULTURAL VALUE CHAIN SOLUTION TO THE CHALLENGES OF THE AGRICULTURAL VALUE CHAIN: ROLES OF: - GOVERNMENT – COMMERCIAL BANKS – DFIs – NEW INITIATIVES TO FINANCE AGRICULTURAL VALUE CHAIN CONCLUSION

INTRODUCTION It is an established fact that in Nigeria emphasis has been more on the production component of the agricultural value chain at the expense of other components of the chain. The reason for this is attributed to the orientation given to the country by the colonial masters (British). The emphasis by them was on production which led to the famous days of groundnut pyramid in the northern part of the country, cocoa in the western part and rubber in the eastern part of the country. The produce produced in Nigeria were exported by the colonial masters to Britain for value addition and brought back to Nigeria and sold at exorbitant prices. The new trend now is to approach the agricultural value chain holistically production storage, processing and marketing. Arising from this therefore, if Nigeria is to develop and achieve the much talked vision 20:20:20 attention must be paid to financing and support to all the 4 components of the agricultural value chain.

INTRODUCTION (CONT’D) Nigeria needs an annual growth rate of 5% to prevent poverty from rising above the current 70%. It also requires an annual growth rate of 7% to reduce poverty by half by 2015 according to MDG. WHAT IS AGRICULTURAL VALUE CHAIN? A value chain consists of all value generating activities, sequential or otherwise, required to produce, deliver and dispose of commodity. (Schmitz, 2005) Relating this to the agricultural value chain, we have: production, storage, processing and marketing.

WHY AGRICULTURAL VALUE CHAIN IS IMPORTANT FOR NIGERIA The importance of agricultural value chain in Nigeria include but not limited to the following: Create employment along the value chain. Increase harvests since post harvest losses would have been reduced. It will ensure that there are produce all the year and maintains the cyclic trend. Value addition and resultant increase in income. Ensures food security. Will reduce poverty Ensures sustainable production. Reduction of post harvest losses and decreasing prices of food for consumers. Accelerated access to improved technologies (seeds, fertilizer)

WHAT PERCENTAGE IS ESTIMATED TO BE LOST TO POST HARVEST LOSSES IN NIGERIA Available records have revealed that post harvest losses arising from production component of the agricultural value chain are as shown below: Grains 15% - 25% Perishable food items viz: Tomatoes, oranges, fruits and vegetables – 40% - 50% Livestock - 10% - 20% Fisheries - 40% CHALLENGES OF AGRICULTURAL VALUE CHAIN The major challenge in the implementation of agricultural value chain is lack of value chain infrastructure in the following areas: Roads Storage Utilities – Water, Power, Communication

SOLUTION TO THE CHALLENGES OF THE AGRICULTURAL VALUE CHAIN The solution to the challenges of the agricultural value chain can be addressed in two forms viz: 1.Provision of funds in form of credits by commercial banks and DFIs at concessionary interest rates. 2.Support from Government. 1.Provision of funds in form of credits: Commercial Agriculture Credit Scheme to take care of large scale or commercial farmers. – On-lending component of the Commercial Agriculture Credit Scheme to States to take care of micro, small and medium scale farmers. – DFIs viz: BOA, BOI, NEXIM should be the main players in the provision of credit to the agricultural value chain.

SOLUTION TO THE CHALLENGES OF THE AGRICULTURAL VALUE CHAIN – BANK OF AGRICULTURE IN PERSPECTIVE It is imperative to state that financing the agricultural value chain is not new to the Bank of Agriculture. The Bank from its inception in July 2001 – September, 2012 has disbursed over N47 billion of loans to various components of the value chain and recovered over N39 billion as summarized below: S/NOVALUE CHAIN COMPONENTAMOUNT DISB. (N)AMOUNT REPAID (N) Production Agro Service (Tractor Hiring) 1,030,045, ,507, Arable24,923,582, ,492,378, Tree Crop800,300, ,621, Livestock & Poultry Production11,360,976, ,486,434, Fishery1,949,027, ,643,053, On-Lending4,246,483, ,681,236, Storage13,045,00014,088,600 3.Agro-Processing2,408,519, ,022,826, Marketing340,809, ,848, TOTAL47,072,789, ,230,993,693.80

S/NVALUE CHAIN COMPONENT AMOUNT DISB. (N)PROPORTIO N IN % 1.Production44,310,416, Storage13,045, Agro Processing2,408,519, Marketing340,809,

SOLUTION TO THE CHALLENGES OF THE AGRICULTURAL VALUE CHAIN (Cont’d) 2. Support from Governments: The following need to be 100% funded by the government:  Development of roads.  Construction of silos  Provision of energy The government should execute these and concession them out to private companies for management. Public Private Partnership (PPP) arrangement could be put in place for provision of the following infrastructure:  Cold-rooms  Warehouses  One Stop Shop

The following private infrastructure could be put in place to solve the challenges of the agricultural value chain infrastructure: On-farm silos Processing equipment Small storage Inputs centres

NEW INITIATIVES TO FINANCE AGRICULTURAL VALUE CHAIN In an effort to reposition Nigeria’s agriculture to stem the declining food production, the Federal Government of Nigeria (FGN) and Central Bank of Nigeria (CBN)have introduced two initiatives viz: The Agricultural Transformation Action Plan (ATA) Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) The ATA which is a Federal Government’s initiative is aimed at providing the necessary support to make agriculture sector business oriented and private sector driven. The NIRSAL which is a CBN initiative is a holistic financing frame work designed to provide farmers with affordable financial products while reducing the risk of loans offered by financial institutions to agriculture. It is thus a demand driven, risk sharing system which will adopt a value chain approach to lending and give Banks the freedom to choose the preferred part of the agricultural value chain they want to lend to.

The NIRSAL has five integrated pillars that will drive the implementation of NIRSAL namely: Risk Sharing facility, Insurance facility, Technical Assistance facility and Bank incentive mechanism. Effort is being channelled by BOA and governments at all levels to support new breed of young farmers with the exposure, knowledge and skills which can effectively drive all the elements of the value-chain. Towards this end, BOA has introduced youth programme tagged Youth Agriculture Revolution in Nigeria. It is gratifying to announce to this August gathering that the first set of SMEs loans under CBN’s NIRSAL was disbursed by BOA.

CONCLUSION Agricultural value chain is very critical to the development of Nigerian economy. For Nigeria to attain its vision 20:20:20 agriculture value chain financing should be given utmost attention it deserves. BOA over the years has been financing the agricultural value chain, thus, the Bank needs to be properly funded to play a major role in this sub-sector. BOA should be given prominence in the implementation of NIRSAL programme. Thank you for your attention.