Outlook 2021: How Sectors of the Economy Fared in 2020 - Agriculture Sector

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Wednesday, February 17, 2021   /04:30 AM / By Proshare Research/ Header Image Credit: EcoGraphics


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The COVID-19 pandemic transformed almost every aspect of life into a mixture of confusion, chaos, uncertainty. The pandemic had a quantum effect on the agricultural sector because of supply chain shortfalls which created major problems for farm holders - both small and large farm holders across the country. Lockdowns, travel restrictions, border closure etc., all led to a hike in commodity prices which threatened and still threatens food security in fragile regions of the nation.

 

The Federal Government of Nigeria in collaboration with the CBN had to roll out various intervention funds in a bid to curb the impact of the pandemic on various sectors including the agricultural sector. Also, the intervention funds were rolled out to encourage diversification of the oil-based economy (see Illustration 43).


Illustration 43: CBN Interventions in 2020

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The temporary lockdown in some states in Nigeria also harmed farming and agriculture generally. The restrictions in the movement of goods and people affected farmer's productivity as labor shortage was a major issue in limited productive capacity and sales.  Transport restrictions, quarantine measures, and insecurity issues also impeded farmers' access to markets.

 

The growth rate of the agricultural sector released by NBS shows a steady decline in growth of the sector. The latest statistics released reveals that the agricultural sector growth rate declined marginally by +1.39% in Q3 2020 from +1.58% in Q2 2020 and +2.20% in Q1 2020. The major driver of the sector was forestry which grew by +2.55% in Q3 2020. Other sub-sector activities in the agricultural sector are crop production, livestock, and fishing grew by +1.38%, +2.29%, and -2.07% respectively (see Chart 30)


Chart 30: Nigeria's Agricultural Sector Growth Rate 2015 - 2020 (%)

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Source: NBS, Proshare Research

 

With over 4 million people facing hunger and one million children malnourished according to Nigeria Security Tracker, the pandemic worsened the attainment of food security in Nigeria. The impact is already felt as food prices increased steadily throughout the year. Flooding, herdsmen attacks, border closure, and poor storage facilities were all factors that attributed to the rise in food inflation according to the latest data (October 2020) from NBS.

 

The food insecurity has worsened over the past few years, the impact of the COVID-19 pandemic disrupted food distributions to regions where populations are already in the emergency phase and one step away from famine, increased food insecurity will lead to higher levels of malnutrition and hunger (see Illustration 44).

 

Illustration 44: Food Insecurity June - September 2020

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Case Study

 

Okomu Oil Palm Company 

Officials from the Federal Ministry of Agriculture and Rural Development stated recently that the local requirement of oil in Nigeria is about three million metric tonnes, however, we produce about 1.02 million metric tonnes, which means the economy imports to make up the gap and spends about $500m annually importing oil palm.

 

The technical analysis of the performance of Okomu Oil Palm Company indicates the company is one of the gainers of the COVID-19 pandemic. However, fundamental analysis of the financial position of the company especially Q3 results tells a different story. The company 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.

 

The company recorded a YTD improvement in its share price movement which grew by +45.45%. Between March and May 2020, the share price recorded a neutral channel during the peak of the COVID-19 lockdowns and restrictions. However, between July and November 2020, the share price movement had a bullish flag showing a continuous rise in its share price as economic activities began to pick up gradually (see Chart 31).

 

Chart 31: Okomu Oil Palm's YTD Share Price Movement as of 30 Nov. 2020

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Source: NSE, Proshare Research

 

Okomu Oil Palm Revenue

 

The revenue for the company saw a steady quarterly rise both before the pandemic and during the pandemic. However, in Q3 2020 its revenue declined by -22.14% from N6.54bn in Q2 2020 to N5.09bn, this was majorly driven by a -30.35% Q-o-Q decline in local sales of the product and services rendered to third parties. This was despite the +83.16% Q-o-Q increase in export sales (see Chart 32).


Chart 32: Okomu Oil Palm Revenue 2019 - 2020 (N'bn)

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Source: Okomu Oil Palm Financial Statement, Proshare Research


Profit Before Tax
 

The latest results released by the company reveals that its PBT declined significantly by -46.91% Q-o-Q and -59.75% Y-o-Y. This was majorly driven by a +18.46% Q-o-Q increase in finance cost this was despite a +80.98% increase in finance income.

 

The results released by the company shows that the impact of the pandemic was felt in Q2 and Q3 2020 (see Chart 33).

 

Chart 33: Okomu Oil Palm Profit Before Tax 2019 - 2020 (N'bn)

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Source: Okomu Oil Palm Financial Statement, Proshare Research

 

Current Ratio

A current ratio between 1.5 and 3.0 for a company in agriculture shows a strong liquidity position of a company. However, when the current ratio exceeds 3.0 it can indicate the company has too much of its assets in liquid or non-earning assets which may hurt the profitability of the business. Okomu Oil Palm in the last few quarters has recorded a current ratio above two (2). Despite the macroeconomic challenges caused by the health pandemic, Okomu Oil Palm recorded an increase in its current ratio from 3.22 in Q2 to 3.55 in Q3 2020, showing a consistent three-quarter rise in the current ratio (see Chart 34).

 

Chart 34: Okomu Oil Palm Current Ratio 2019 - 2020

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Source: Okomu Oil Palm Financial Statement, Proshare Research

 

Quick Ratio 

The quick ratio of the company for the year 2020 (three quarters) has seen a steady decline from what was recorded in Q1 2020. The latest result of the company reveals that the quick ratio was 1.81 which shows the company can meet its short-term obligations using its most liquid assets excluding inventory. On a Y-o-Y basis, the quick ratio declined significantly from 3.46 in Q3 2019 to 1.81 in Q3 2020 (see Chart 35).


Chart 35: Okomu Oil Palm Quick Ratio 2019 - 2020

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Source: Okomu Oil Palm Financial Statement, Proshare Research

 

Leverage Ratio

A higher leverage ratio indicates that a company is using debt to finance its assets and operations. Quarterly result released by Okomu Oil Palm for three quarters in 2020 shows that its highest leverage ratio between 2019 and 2020 was recorded in Q2 and Q3 2020. In Q3 2020, the leverage ratio was 0.34 which was unchanged from Q2 2020. Y-o-Y, its leverage ratio increased from 0.31 in Q3 2019 to 0.34 (see Chart 36).

 

Chart 36: Okomu Oil Palm Leverage Ratio 2019 - 2020

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Source: Okomu Oil Palm Financial Statement, Proshare Research


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Downloadable Version of Goodbye 2020, Hello 2021, Understanding the Mega Trends of a Crucial Year for an Economy Report (PDF)

1.     Complete Report: Outlook 2021: Understanding the Mega Trends of a Crucial Year for an Economy- Jan 28, 2021

2.     Executive Summary: Outlook 2021: Understanding the Mega Trends of a Crucial Year for an Economy- Jan 28, 2021


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