Rice Import Quotas – Beyond the Rhetorics

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Sunday, 17 May 2015 1.55 PM / Press Release

Being a Statement from Nigeria’s largest Exporter, Olam Nigeria Ltd on Rice Import Quotas

Our attention has been drawn to certain negative reports in the press regarding rice import quotas, waivers and duties owed to the Government. In this context, we wish to highlight a number of facts with regard to the rice import quotas in our position as both Nigeria’s largest investor in domestic rice production and an importer. We also outline the timeline of development for the rice import quotas.

Olam in Nigeria

Olam’s operations in Nigeria employ more than 3,500 permanent staff and over 10,000 seasonal workers. Since we began in 1989 Olam’s total investment including fixed and working capital in Nigeria is about 177 billion naira across various agricultural and processing supply chains (including cocoa, cashew, rice, cotton, sesame, packaged foods and wheat), contributing to the development of the non-oil economy.Our sourcing network is around 500,000 farmers and we are one of Nigeria’s largest interest-free micro financiers.

Olam’s rice domestic rice production in Nigeria

With specific reference to rice, since 2005, in addition to our import business, we have been investing in domestic production by supporting smallholder rice farmers with training and finance, as well as investing in local milling and selling into the Nigerian market. 

In 2013 we invested over 19 billion Naira in a 10,000 hectare farm with integrated mill which directly employs 950 people from the surrounding communities, producing 36,000 metric tonnes of rice for the Nigerian markets (Mama’s Pride and Mama’s Choice brands). The farm also supports an ‘outgrowerprogramme’ whereby surrounding rice-growing communities are supported by the Olam farm with training, pre-finance, fertiliser and seeds in order to improve their paddy yields. Currently 3,000 farmers are engaged in the programme, with a target of 16,000 by 2018.  This investment is specifically in line with the Government’s Agricultural Transformation Agenda to produce rice for the domestic market thereby boosting self-sufficiency. In 2013, it was internationally recognised by
The Rockefeller Foundation as a catalytic innovation’ in African Agriculture’.1

Timeline of developments for the rice import quotas

Given the extensive media coverage, we outline here our chronology and understanding of the issues as they developed:

With regard to the setting of imports, the levy and duties payable have seen significant variation over the years, rising from around 30% in 2010 to 110% in 2013.

In July 2014, the Government stated that the combined levy and duties would be reduced to 70% from the 110% level but that they were still assessing the individual quota allocations for each importing company. In the interim it was therefore agreed that for those importers who were also investing in domestic rice production, the duty would be reduced to 30%.

Based on policies adopted by the Government for the sugar and cement industries, we were given to understand that access to the import market through the quota would be in proportion to a company’s investments in the domestic rice value chain. With these precedents, and more specifically the significant investments made by us in enhancing the domestic cultivation and milling of paddy, Olam therefore continued to import at a level consistent with the previous 5 years while awaiting confirmation of the new quotas. 

At the beginning of December 2014 we (Olam) received notification of the new quota only to find out that it was retrospective and significantly lower than we had been expecting given the investments we had made in our farm and integrated milling project. As the local Nigerian media reported earlier this year, with retrospective charging this meant that we and many other rice import companies had several billions of Naira to pay by way of duty differential.

Whilst we have never disputed payment of the differential (and indeed we have paid all levies) we made an appeal to the Government to reconsider the quota currently allocated and revise it upwards in line with the significant investments made by us in the domestic cultivation of paddy and milling.  Being mindful of our responsibility as a corporate citizen, and in view of the fact that we had already fulfilled the quota granted to us,we immediately cancelled all existing contracts for shipments between December 2014andApril 2015. 

In April 2015, the Ministry of Agriculture considered our submission and in a letter dated 13th April 2015, it was stated that:
1.    Given Olam Nigeria’s rice production and milling investment in Nigeriabeing the largest single existing investor in the sub sector in the last two years, with existing investments of over $120,000,000, the Ministry is willing to reduce the amount owed by 50% to 54,000 metric tonnes to be applied to 2015 allocations.”

2.    “Olam’s existing rice production and processing operations and future investment plans have been assessed against the aforementioned criteria and an import quota of 246,000 metric tonnes has been allocated to Olam as a major rice investor for the period April 2015 – March 2016.  This volume takes into account the adjustment for the 54,000 metric tonnes (i.e. the import excess from 2014 is subtracted from the 2015 allocation).  Rice imported under this allocation qualifies for a 10% duty and 20% levy.”

Unfortunately, it seems as though there was some confusion or delay in the communication of the above by the Ministry of Agriculture with the Nigerian Customs Service (NCS) because on the 14th April 2015, NCS issued a public notification that Olam Nigeria has not paid the excess importation
On the 15th April, Olam made a submission to the NCS that Olam has been allotted with a fresh quota and that the excess quantity that we have to pay for 2014 period (May2014 to April 2015) has been revised downwards to 54,000 metric tonnes flowing from the 50% reduction agreed by the Ministry following our appeals.  As to the remaining 50% we offered for this also to be deducted from our 2015 quota (so instead of a total 2015 quota of 300,000 metric tonnes, it would be reduced to 192,000 metric tonnes).

While awaiting the response to our submission, we became aware of the announcement made on Tuesday 12th May 2015 by the Federal Ministry of Agriculture and Rural Development stating that the 2015 rice quota originally allocated to the industry in April 2015 has now been suspended and not cancelled.

Summary/ Close
Whilst Olam fully appreciates the need to support and protect domestic rice producers and local rice investors (amongst which we would count the 3,000 rice farmers in our outgrower programme in Nasarawa State), we understand that Nigeria still needs to import rice until local production reaches levels of self-sufficiency.  We therefore caution the potential smuggling of cheaper rice from neighbouring countries that could occur should import duties and levies become excessive. 

We are a firm believer in the Agricultural Transformation Agendaof the government and its ability to help Nigeria not only advance its journey to self-sufficiency but to reduce its reliance on fossil fuel exports to boost its economy.  In particular, we see through the progress of our smallholder outgrowerprogramme (set to embrace 16,000 rice farmers by 2018) that large scale commercial farms can work hand in hand with small-scale farmers.  We hope that others interested in our model are not deterred from making similar investments.  We look forward to hearing the outcome of the Inter-Ministerial Committee on Rice Policy that has been scheduled for Wednesday 20th May.

Footnote and Related News
1Recognition

          In 2013, The Rockefeller Foundation highlighted Olam’s Rice Farming Initiative as a ‘catalytic innovation’ in African Agriculture.

          In 2010 World Business Peace prize in Oslo for Olam’s Nigerian Rice farming project

          In 2008, UNDP’s International Business Leaders Forum (IBLF) and the International Chamber of Commerce conferred on Olam, the “2008 World Business and Development Award” in recognition of Olam’s contribution to achieving the “Millennium Development Goals”.

1.    Domestic rice production, a bare necessity – Feb 20, 2015

2.    Nigeria's rice evolution – Apr 14, 2015

3.    Investors & abuse of rice import quotas - Guardian

4.    Import Quota Debate: Crisis Looms In Nigeria's Rice Value  Chain...

5.    Rice value chain development in Nigeria and Africa

6.    Rice Value Chain Analysis – Sokoto State Nigeria (NIG 244)

7.    Analysis of incentives and disincentives for rice in Nigeria

8.    Historic Oppotunities for Rice Growers in Nigeria - Inter ...

9.    Nigeria: Value Chain Development Programme - IFAD

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