Coronanomics (19) - Sectorial Analysis of Nigeria's Agricultural Sector


Thursday, June 25, 2020 / 05:30 AM / by Proshare Content/ Header Image Credit:  EcoGraphics


Agricultural Sector

COVID-19 has had a quantum impact of Nigeria's Agricultural sector as lockdowns whether partial of full have led to disruptions in the agricultural supply chain and created problems for small and large farm holders across the various states.


Inter-state transportation disruptions and upward price adjustments have led to commodity price hikes and lower consumer demand after a point of inelasticity creating what economists prefer to call a "kinked-demand" curve. Travel restrictions, the closure of land borders and the requirement of social distancing have combined to place both demand and supply chokeholds on farmgate products (see illustration 20).  


Illustration 20: Effect of COVID-19 on Agricultural Sector

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The temporary lockdown in some states in Nigeria has harmed the farming and agriculture generally. The restrictions in the movement of goods and people have affected farmer's productivity as labour shortage has been a major issue in limited productive capacity and sales.  Transport restrictions and quarantine measures have impeded farmers' access to markets. Access to inputs such as fertilizers has also faced problems. For example, the lockdown in China severely affected international fertilizer trade.


The latest statistics released by NBS reveals that the agricultural sector grew by 2.20% in Q1 2020 from 2.31% in Q4 2019 and 3.17% in Q1 2019. The major driver of the sector was crop production which grew by 2.38% in Q1 2020. Other sub-sector activities in the agricultural sector which are livestock, forestry and fishing grew by 0.63%, 1.71% and 1.49% respectively. 


Going forward, if the coronavirus persists, it is expected that the agricultural sector will experience slow growth in the remaining quarters of the year on the backdrop of slow growth in sub-activities which includes the crop production, livestock, forestry and fishery while we expect a recovery to set off in Q4 2020 (see Chart 103).


Chart 103: Agricultural Sector Quarterly Growth Rate (%)

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Source: NBS, Proshare Research

Note Asterisks (*) - Forecasted figures 


Case Study: Okomu Oil Palm Company

Okomu oil palm company plc is involved in the cultivation of oil palm, processing of fresh fruit bunches into crude palm oil for resales, rubber plantation and processing of rubber lumps to rubber cake for export. It operates through two segments: Palm oil products and Rubber products.


Okomu Oil Palm PBT

Okomu oil palm plc profit before tax rose consistently from 2015 to 2018 and declined slightly in 2019. It recorded its highest profit before tax of N20.3bn in 2018 and its lowest profit of N3.3bn in 2015 (see Chart 104).


Chart 104: Okomu Oil Palm PBT (N'bn) 2015-2019

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Source: Okomu Oil Palm Financials, Proshare Research


Unlike in 2016, when Okomu oil palm recorded a rise in its profit before tax by 109.09%, it is forecasted that the coronavirus will affect its profitability negatively in 2020. Due to the pandemic virus, there has been a rise in the cost of operations, shortage of labour as a result of the lockdown and decline in consumer demand. It is forecasted that its profit before tax will most likely decline in 2020 due to the coronavirus.


Okomu Oil Palm Revenue

Okomu oil palm recorded a decline of  -28.16% in its revenue. Its revenue declined from N10.3bn in 2018 to N7.4bn in 2019. Despite the recession in Nigeria in 2016 and2017, Okomu oil palm's revenue increase in 2016 and 2017 to N14.4bn and N20.3bn  respectively.


In 2019, the narrative is projected to be different as Okomu oil palm's revenue is forecasted to decline due to the pandemic coronavirus which has led to slow economic growth and fall in consumption demand (see Chart 105).


Chart 105: Okomu Oil Palm Revenue (N'bn) 2015-2019

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Source: Okomu Oil Palm Financials, Proshare Research


Okomu Oil Palm Acid Test Ratio

The higher the acid ratio, the better the position of the company.  Despite the contraction in 2016, Okomu Oil Palm's acid-test ratio was above one which indicates that they were able to meet their short-term obligations using its most liquid assets.


Its acid-test ratio is expected to drop in 2020 due to the coronavirus affecting the growth of the economy and consumer demand.


Chart 106: Okomu Oil Palm Acid Test Ratio 2015-2019

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Source: Okomu Oil Palm Financials, Proshare Research 


Okomu Oil Palm Leverage Ratio

Okomu Oil Palm's recorded its highest leverage ratio of 30.75% in 2019. Its leverage ratio increased remarkably from 9.58% in 2018 to 30.75% in 2019.  A higher financial leverage ratio indicates that a company is using debt to finance its assets and operations (see Chart 107).


It is expected that Okomu Oil Palm will record a rise in its leverage ratio for 2020, as a result of an increase in its cost of operations as well as a fall in demand.


Chart 107: Okomu Oil Leverage Ratio (%) 2015-2019

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Source: Okomu Oil Palm Financials, Proshare Research


Okomu Oil Palm Current Ratio

Okomu Oil Palm recorded its highest current ratio of 3.25 in 2019. Its current ratio increased from 1.83 in 2018 to 3.25 in 2019. The high current ratio signifies financial strength, but it also raises concerns that a company is inefficient at investing what cash it has (see Chart 108).


Due to the pandemic, it is most likely that its current ratio will decline due to the need of the Oil Palm company to sustain productive activities and stay afloat despite the slow economic growth.


Chart 108: Okomu Oil Palm Current Ratio 2015-2019

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Source: Okomu Oil Palm Financials, Proshare Research

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Related Reports (PDF)

1.     Download the Full PDF Report - Coronanomics and the Nigerian Economy, June 06, 2020

2.     Executive Summary PDF - Proshare, June 06, 2020


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