Alternative and Innovative Financing in the Agricultural Sector in Nigeria A case study of the OLAM Nigeria Ltd (PPP)

Transcription

1 Alternative and Innovative Financing in the Agricultural Sector in Nigeria A case study of the OLAM Nigeria Ltd (PPP) Agriculture Sector Dialogue Phase III Kigali, Rwanda, 4-5 December 2014

2 Overview Introduction Olam Limited The rice value chain in Nigeria The PPP Model Indicative Results of the PPP Group exercise A case study of Nigeria 2

3 Introduction Country - Nigeria Population million 90 percent of rural population engaged in subsistence farming. Once a net exporter of agricultural products; today, a net importer of food: spending $11 billion yearly on importation of wheat, rice, sugar and fish alone. Challenge in meeting food security needs provides a strong rationale for innovative financing in the agriculture sector Innovative financing recognizes existing budgetary constraints and allows for new wide ranging partnerships to leverage resources for economic prosperity This is a case-study of a public-private partnership in Nigeria driven by Olam Nigeria Limited. A case study of Nigeria 3

4 OLAM Limited Olam Nigeria Limited is a subsidiary of Olam International headquartered in Singapore. Olam started in 1989 in Nigeria as an agriculture trading company. Today it is into a global supply chain manager integrating agricultural production, processing, financing and commodity trading platforms. It has grown from one product in one country to 16 product platforms across 65 countries in different continents. It is a major player in many stock exchanges, commodity stock exchanges and diverse agriculture value chains. In Nigeria, it is involved in rice, cocoa, cashew, sesame, etc value chains. It is active in many other countries of Africa such as Tanzania, Mozambique, Ghana, Cameroon, South Africa, etc. It is a multinational company diversified in its geography and product ranges that help it to mitigate a number of risks. A case study of Nigeria 4

5 Nigeria Rice Value Chain A demand driven value chain Domestic rice value chain Few rice producers, few rice processors Importation of rice 170 million people: huge rice market About $4 billion yearly rice import 2 nd largest importer in the world Effective demand backed by the wealth to pay Rice is a staple food No. 1 importer in Africa A case study of Nigeria 5

6 PPP Model A revenue model atop a structural model: Revenue model premised on domestic demand driven agriculture value chain. Structural model of a nucleus estate initiative comprising a nucleus surrounded by clusters. Smallholder rice farms Smallholder rice farms Large scale rice Farm Large scale rice Mill Linkages to markets Admin & coordinating hub Smallholder rice farms Smallholder rice farms A case study of Nigeria 6

7 PPP Partnerships Partner Type Partner Name Roles and Responsibilities International partners USAID Bill & Melinda Gates Foundation International Financial Corporation (IFC) Regional Partners Africa Enterprise Challenge Fund Provide grants (AECF) West Africa Rice Development Provide quality rice seeds Agency Public Partners The Nigeria National Government Provide policy initiatives Benue, Kwara, Niger and Nassarawa State Governments. Provide technical assistance, training, and extension services support Facilitate enabling environment, partnership management and implementation, availability of agricultural inputs. Commodity Development Center Provide much needed infrastructure and other necessary support. Private Partners Olam Nigeria Limited Establish the commercial rice farm and rice processing factories at the nucleus of the model Small holder farmers First Bank of Nigeria Nigerian Agricultural Insurance Corporation (NAIC) Establish small scale rice farms in their thousands in clusters around the nucleus Provides loans Provide crop insurance A case study of Nigeria 7

8 Indicative Results Olam has established a number of rice processing facilities in the different states. The Benue State project was the first and its establishment started in 2005, the Kwara State Project started in 2007 and the Nassarawa State project started in Each succeeding PPP was on a bigger scale than the previous one, with Olam Limited applying lessons learnt and fine tuning its strategy more and more. The Integrated Nassarawa Rice production and processing facility is said to be the biggest such project in Africa both in terms of production and processing capacities. Its integrated rice milling facility with an 85,000 metric tons (MT) of milled rice per annum capacity was commissioned in July 2014 by the President of Nigeria In the Benue and Kwara State projects over 10,000 small holder farmers are involved. In the Nassarawa project, 3000 farmers are already engaged in the out grower scheme, with a target of engaging 16,000 farmers by 2018 and ultimately 20,000 smallholders farms would supply 30 to 40% of the mill s capacity. The other 60 to 70% supply of paddy rice will come from Olam s nucleus 10,000-hectare Greenfield irrigated and mechanized paddy rice farm. The farm is expected to harvest two crops per annum with four varieties of high-yield rice developed in partnership with the West African Rice Development Association. A case study of Nigeria 8

9 INDICATIVE RESULTS (CONT) Olam's total investment in the Nassarawa integrated commercial rice farm and milling facility is put at $111 million. In the Nassarawa project alone: wet Season crop of 1000 Ha was planted and harvested in March 2013, 3000 Ha harvested in November December 2013, Dry Season crop of 4000 Ha planted in November/December 2013 was harvested in March April 2014, wet season crop of 6000 Ha planting commenced in July/Aug 2014.The rice seeds in the Nassarawa project are expected to produce far more yield per hectare. In the Benue and Kwara projects average yield was 3.25 tonnes per ha as against the national average yield of 1.25 tonnes per ha. This increased farm earnings from USD235 to USD1 000/ha for the benefitting farmers. A case study of Nigeria 9

10 Interviews Interviews of some stakeholders in the PPP (Culled from Africa platform) Mr. Mallam Joshua Zambari, Rice Farmer, Makurdi, Benue State: Olam pays higher prices than the local small scale traders who compete with them in this area. In addition, they pay promptly. You do not have to wait for long before you get your money. In addition, there are other benefits we do not get elsewhere such as the training, loan and seedlings. This is why we stick with Olam. Olam does not force the relationship, rather, it cultivates it. Regi George, Olam s farm manager: It s close to 1.5 million metric tons of rice that is being brought into the country. In five years time, if this project is replicated in 10 locations with a similar kind of operation, that would be able to really achieve self-sufficiency for rice in Nigeria. A case study of Nigeria 10

11 Interviews Mr Adesina, the Nigerian Minister for Agriculture: "We have been able to attract over $1 billion private sector investments into commercial rice farming and processing. I thought that was great enough, until one of our investors expanded their investment in commercial rice farms and milling from $300 million to $1 billion - and that is just one investor. Over three million Nigerian farmers use improved seedlings, following the introduction of new rice varieties of Faro 42 and Faro 52. The government is rapidly expanding Nigeria's integrated rice mill as small rice mills are expanding rapidly, with an average growth rate of 25 to 40 per cent, saying government has been closing Nigeria's rice quality gap. A case study of Nigeria 11

12 Conclusion Inspite of challenges such as inadequate infrastructure, government bureaucracy and politics, little hiccups in relationship management of partners in such huge partnerships, finding the right partners, etc, Public Private partnership (PPP) synergies provide farmers with access to financing, improved seeds, training, inputs and ready markets in private sector driven added value chains; providing holistic solutions to challenges facing farmers and Africa Agriculture sector. A case study of Nigeria 12

13 Group Exercise Part 1 Outline the Strengths, Weaknesses, Opportunities and Threats (SWOT) of the PPP; Part 2 List the policy reforms and initiatives that you would need to undertake in your country to make PPPs work effectively. Discuss PPPs in agriculture that is currently ongoing your countries. Each country should share(or estimate if possible) in dollar terms the total estimated finance the selected PPP will bring into investments in agriculture in the country; Give a breakdown of actual or desired contribution from each partner, the role of the partners, linkages, how the framework and structure would function, and what each partner should ideally bring and benefit from the partnership. A case study of Nigeria 13