Grains of hope for a budding sector

Proshare

Friday, March 11, 2016 09:25 AM /FBNQuest Research

Today we turn our attention to Nigeria’s agriculture sector. It grew by 3.5% y/y in Q4 2015 and 3.7% y/y in 2015. Crop production, its largest contributor (89.5% of agricultural GDP), grew by 3.3% y/y while livestock and fisheries expanded by 5.6% y/y and 5.4% y/y in Q4 respectively.

The decline in oil receipts has created acute fx scarcity and highlighted the country’s heavy reliance on foreign sourced goods and services. This has added urgency to the FGN’s import substitution strategy, which is concentrated on agricultural products.

There are eight agric-related products on the CBN’s list of imports no longer eligible for fx from official sources. They include rice, fish, palm oil products, poultry and tomatoes/ tomato paste.

A survey carried out by a financial services institution shows that the prices of some imported goods have spiked in the last one month. The prices of sardines and a 50kg bag of rice increased by 10% to N165/tin and 12.5% to N13, 500/bag respectively over the period.

According to our estimates, less than 15% of domestic fx demand is met at the official window, leaving manufacturers with the choice of going without their inputs or trying to source their fx requirements at a hefty premium on the parallel market. We see a growing trend of companies in the food and beverage industry utilising domestic agricultural inputs where possible.

One manufacturing company under our coverage has agreements with local suppliers of palm oil as a precautionary measure due to the increased cost of inputs. At The Economist conference in Lagos earlier this week, we also learnt that Coca Cola has partnered with locals to minimize its dependence on imported inputs. About 80% of its materials are sourced locally.

The FGN plans to partner with the UN World Food Programme to implement its home-grown school feeding programme. This will stimulate the agric sector as local farmers will be responsible for supplying the products used in preparing these meals.

As for the fisheries segment, the FGN, in conjunction with the Farmers Development Union and a Dutch agricultural development company, Oxfam Novib, has announced plans to boost commercial fish production. This programme will focus on small-scale fish farmers and provide them with floating fish feed as well as other technologies.

The macro challenges have intensified the pressure on business to make greater use of domestic raw materials. Potentially, the sector stands to benefit from the restrictions imposed by the authorities. However, the FGN has to create the appropriate enabling environment. There are vast opportunities in the agribusiness value chain. On a macro level, it is a major job generator.

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