Wednesday, July 18, 2018 11:02 AM /FDC
The US and China have recently engaged in a trade dispute largely due to trade imbalances between both economies. The US sustained a trade deficit of $376bn in 2017, when its imports from China exceeded exports to that market. In a move to reduce this imbalance, the US imposed heavy tariffs on some goods it imports from China. The Chinese retaliated by replicating the same measure on some of its imports from the US. One of the US commodities hit by China’s counter tariff is sorghum. The Chinese government imposed a 179% import duty.
One repercussion of this action is that China will now start to look into other sorghum producing countries to meet its domestic demand. Meanwhile, Nigeria, the world’s second largest sorghum producer (after the US), should be a prime consideration for the Chinese. However, Nigeria currently has a sorghum demand gap estimated at 4mn tonnes. Nigeria needs to step up its production to fill its domestic demand gap and provide additional sorghum to the Chinese market.
Nigeria, US and China in the sorghum production
The US is the world’s largest producer of sorghum, with a production of approximately 12.2mn tonnes, representing over 18% of total global production. Nigeria follows the US with an annual production estimated at 6.94mn tonnes, while China occupies the eighth position with an output of 2.4mn tonnes.
In terms of consumption, China ranks as the world’s largest market with an annual sorghum consumption estimate of about 10mn tonnes. This huge appetite for the commodity, coupled with its low domestic production, translates to a demand gap of 7.6mn tonnes. This gap is mainly filled through imports from the US and Mexico.8 Amid ongoing trade tensions between China and the US, China has imposed a 179% tariff on its sorghum imports from the US. This suggests that there will be less demand for US sorghum in China as the duty causes the price to spike. Consequently, the Chinese will likely look towards meeting its import demand from other producers.
Nigeria will likely be a prime consideration, owing to its leading position among other producers, the relative proximity of Nigeria to China and the already existing positive trade ties between both economies. China is currently one of Nigeria’s top trading partners.
The country accounts for approximately 20% of Nigeria’s total imports and 4.5% of total exports. Meanwhile, Nigeria’s sorghum production is unable to meet its domestic demand which is estimated at 8.5mn tonnes. This makes it somewhat unrealistic for the country to meet the additional Chinese demand. The need to fill its demand gap and benefit from the anticipated demand from China intensifies the need to immediately step up the domestic production of sorghum.
Constraints and the way forward
Given its vast arable land, Nigeria’s potential sorghum output is estimated at 13.5mn tonnes, 94.5% above current production. The attainment of this potential means that Nigeria would have enough to meet its domestic demand and produce an excess of about 5mn tonnes available for exports. In order to achieve this, the country will have to address some of the constraints that have kept current production at sub-optimal levels.
One factor that has been a major contributor to sub-optimal sorghum production in Nigeria is small scale cultivation by Nigerian sorghum farmers.
Small scale farmers generally contribute about 80% of Nigeria’s total agricultural output. Farmers have, however, raised concerns over the absence of government subsidies on agricultural inputs.13 Given the absence of subsidized inputs, farmers resort to acquiring inputs their limited incomes can afford. Thus, small-scale farming is a consequence of limited ability to purchase inputs, and in the big picture, sub-optimal production of sorghum is a result. This highlights the need for the Nigerian government to intensify efforts at providing subsidies particularly to sorghum farmers.
There are also concerns about credit accessibility in Nigeria. Less than 3% of the country’s adults have access to credit facilities. The agricultural sector is no different and this has filtered into weak output of commodities like sorghum. The inaccessibility of credit facilities and the shortage of government subsidies constrain the ability of farmers to acquire in-puts and boost production. If Nigeria is to take advantage of this opportunity, the Central Bank of Nigeria and the Bank of Agriculture need to provide more accessible credit to farmers, with sorghum farmers given priority.
Furthermore, sorghum is predominantly grown in the northern states of Nigeria. Meanwhile, the region has been facing terror-ism and pastoral clashes that have slowed economic activities. This unrest partly explains the 1% decline in sorghum production in the country since 2015. If Nigeria attracts investment into this area, intervention of some type will be needed to stop the attacks. A possible solution may be to increase security personnel to face militants. An increase in defense spending on equipment and personnel may also be required.
Nigeria needs to implement these measures if it wants to boost the country’s sorghum production. If output remains weak, the country will continue to fill its demand gap through imports and more importantly, lose the opportunity to take full advantage of the trade war between China and the US. China’s second largest supplier of sorghum - Mexico - is also struggling with production.
There is, therefore, a window of opportunity for Nigeria to proactively increase production right now. The good news is sorghum has a short growing season. It takes just three-five months from planting to maturity.
The choice seems obvious. Now is the time for Nigeria to step forward and fill the gap. Sorghum needs to be a priority.