Managing Director, Multi-Trex Integrated Foods Plc, Mr. Yusuf Isiaka, operates in the interface of policy formulation and implementation in the nation’s agricultural sector. Headlining a major turnaround for a publicly quoted company, Isiaka, in this interview with Deputy Group Business Editor, Taofik Salako, speaks on the challenges and solutions to optimise the country’s vast agricultural potential.
What’s your immediate assessment of the policy directions of the new government?
We can itemise the major cross-cutting actions already taken by the President Bola Tinubu administration, which serve as pointers for the administration’s policy direction, to include removal of subsidy on premium motor spirit (PMS) or petrol to abort drain on government resources and end related corruption; priority attention given to the revival of the state-owned refineries to facilitate supply of petroleum products at reduced cost; stoppage of multiple exchange rate to make the process more transparent and distribution of palliatives to cushion the effect of fuel subsidy removal on the most vulnerable citizens.
Equally remarkable are some of the president’s pronouncements such as the resolve of the administration to diversify the economy from oil dependence to enhance foreign earnings, repay the nation’s debts more conveniently and build net foreign reserve; the determination to reduce the high unemployment rate, drive for foreign investments and the alignment of national economic interest with foreign diplomacy, among others.
Just as well, the new Attorney-General of the Federation and Minister of Justice has signalled the government’s readiness to confront the inefficient justice system, tackle massive corruption, put a stop to executive recklessness and disobedience to court orders. The Minister of Power, on his own part, assured that the government would provide stable and accessible power through private-public partnerships, ensure universal metering of households, tackle challenges around the national power grid, explore renewable and alternative energy sources, and leverage the power of technology and energies of youths.
The Finance Minister and Coordinating Minister of the Economy has generically pledged to drive set goals on macro, fiscal and monetary policies, for the country to advance. Like other new ministers, the ministers of Agriculture and Food Security, Industry, Trade and Investment, Defence and Works have equally made policy pronouncements such as those stated above.
For our company’s sub-sector, cocoa value chain, the Ministries of Agriculture and Industry, Trade and Investment are the supervising ministries. Other ministries whose policy directions next most closely impact on the health of the sub-sector are Defence, Finance, Justice, Power and Works.
Going by the actions taken and pronouncements made so far, the administration has shown that it has a good team that has good knowledge of the real issues requiring urgent attention, the courage and the willingness to take difficult decisions in trying times and that it is open to alternative views as it is determined to improve the lot of a greater number of the citizens.
However, one action that the government has taken that I believe needs a rethink is the distribution of palliatives-whether food items or cash to the selected citizens. Well intended as the scheme seems to be, conceptually, the implementation, handled by or through anyone or group, will be deemed to be open to monumental abuse. Besides, the basis for selecting qualified citizens will perpetually be controversial. As such, the laudable goal may, after all, not be achieved, unappreciated or even misunderstood. The palliatives should not be individualised. For it to serve the intended purpose, it could be provided in the form of an investment in a bespoke project that offers domestic appeal and benefits to the vulnerable citizens in targeted communities. Such projects need not be the same across board. Beneficiaries could be grouped into clusters. Each cluster group could be given the privilege to choose the project that best serve their interest.
Why is access to agricultural funding so challenging given your experience in access to finance, across the public and private sectors?
Basically, commerce entails the production of raw materials and other input as well as the manufacturing and distribution of finished goods and services to satisfy the needs and wants of consumers.
In the agricultural business sector – cocoa sub-sector inclusive, farmers produce primary food and cash crops, and processors convert farm produce to semi-finished products, to be used as manufacturing inputs. On their part, manufacturers undertake further processing of the primary crops and intermediate products to produce finished goods that satisfy the needs of consumers while merchants and exporters undertake the distribution of farm produce, semi-finished products and finished goods to applicable consumers, wherever they may be.
Broadly, the agricultural value chain exemplifies commerce which can hardly be conducted without finance. Hence, operators throughout the agricultural business value chain require finance. Unfortunately, most players operating in the sector in our country face financing challenges, which hinder growth. There are root causes to the obstacle.
The first of them is that most borrowers in the sector, who fall into the category of micro, small and medium enterprises (MSMEs), are inadequately capitalised, relative to the funding demand of their businesses. For a good number of them, discharging credit obligations is a matter of convenience. This explains the high rate of loan default in the sector.The most recent sad experience about the Anchor Borrowers’ Scheme is a case in point.
Secondly, poor record-keeping and weak corporate governance structure of most borrowers in the sector represent another source of discouragement for lenders. These twin weaknesses, in the eyes of lenders, elevate the level of risks associated with lending depositors’ funds to the sector. The consequential low trust earned from lenders accounts for the limited funding options available to the players and the low volume of loanable funds attributable to the sector, not to mention the hindrance they cause to sectoral growth. Also, these weaknesses increase the vulnerability of agric businesses and cause lenders to impose stringent collateral requirements that most businesses in the sector can hardly afford.
Thirdly, whereas agricultural operations often require medium-to-long-term capital, most lenders are only able to offer short-term funding options because they have limited long-term funding themselves.
Moreover, owing mainly to their high operating costs due to infrastructural limitations in the country and, the necessity for continuing investment in technology, among others, lenders are compelled to pass on these growing costs to borrowers in the form of high interest rates and fees, which are mostly unbearable for agricultural businesses.
Another obstacle is the scarcity of lending professionals with specialised knowledge and skills in agricultural financing and agric. credit administration. I dare say that there are not enough lenders who extensively understand the agricultural sector’s unique aspects, including seasonality, crop cycles, and revenue streams. Lenders tend to cover up by adopting conservative lending approaches in risk assessment of the specialised sector.
Corruption among officials within lending institutions also partly accounts for the failure of several creative lending models and development initiatives that have been introduced to the agriculture sector, especially in the last decade. The destructive force of corruption, which takes the form of unethical practices such as bribery has not only been hindering growth in the sector but also discouraging legitimate agricultural businesses from gaining access to appropriate funding.
Another critical factor that is adversely affecting access of agricultural businesses to suitable finance is the rising interest rate which together with poor infrastructure, and unstable government policies of the past years negatively affect the profitability of the businesses, threaten the ability to meet loan obligations and cause low sectoral credit ratings.
Furthermore, the risks associated with farming, including exposure to uncertain weather conditions, destructive effects of pests, fire, farmer-herder clashes and farmer kidnapping, have created their challenges and put fears in the minds of lenders.
At the international market end, the lenders’ concerns are usually about volatile and fluctuating prices, especially for the internationally quoted goods, and intense competition from international players who have access to more affordable borrowing costs and efficient infrastructure. While intense competition exposes local borrowers to market risks, rising international market prices warrant a continuing need for an increment in working capital in local currency, thereby worsening borrowers’ capital gearing.
Given the cyclical nature of these interconnected factors, it is not surprising that players in the agricultural sector continue to encounter challenges in securing appropriate funding for their operations and realising real benefits from several agricultural development initiatives put in place.
How do we ensure intervention funds and other agric-development initiatives reach intended beneficiaries?
I have watched the lenders and the government introduce several lending and agricultural development initiatives at close range, for the last four decades. Unfortunately, the laudable initiatives have all been more successful in design than in action. No thanks to the aforementioned challenges.
To ensure that players in the agriculture sector have easier access to finance and benefit more from the various agricultural development initiatives, I do not really believe that the answer lies in the design of new lending products by commercial and development banks or new development initiatives by government agencies such as Central Bank of Nigeria (CBN) because there is no gain to be realised from trying to reinvent the wheel.
Rather, I am of the opinion that we can gain a lot more from the schemes that are in place, provided that the major hindrances identified above can be addressed by the implementation of targeted actions to mitigate these challenges.
Enhanced financial literacy programmes need to be continually organised to educate agricultural players on financial management, record-keeping, and corporate governance. This will enhance their understanding of financial requirements and promote better access to finance. Collaboration with agricultural associations and organisations can facilitate the delivery of these programmes.
To address stringent collateral requirements, alternative collateral options such as crop insurance, warehouse receipts, and agricultural land certificates can be introduced or deliberately promoted. These alternatives can provide lenders with greater confidence in the sector and reduce the need for traditional collateral.
Efforts should be made to provide long-term funding options to agricultural players. This can be achieved by attracting long-term investments from foreign development finance institutions, creating specialised agricultural finance facilities, and establishing public-private partnerships to pool resources for long-term agricultural development. In particular, the local specialised banks such as Bank of Agriculture, Bank of Industry and Nigeria Export-Import Bank should be de-politicised, recapitalised and supported with the right staffing levels – in number and skills.
To reduce the high operating costs for lenders due to infrastructural limitations, governments need to priortise investments in rural infrastructure, including roads, power, irrigation systems and storage facilities among others. Such improvements will increase productivity, lower transaction costs, and make the sector more attractive to lenders.
Also, lending professionals should be exposed to quality training programs to enhance their knowledge and specialised skills in agricultural finance.This will help them understand the unique risks and opportunities within the sector, leading to better decision-making and improved financing options for farmers and other players in the sector.
To combat corruption among lenders and officials responsible for distributing benefits of agricultural initiatives, anti-corruption measures should be more strictly enforced. Transparent processes, monitoring systems, and severe penalties for malpractice can help build trust and ensure that the benefits reach the intended beneficiaries. A major reform of the justice system, including full autonomy for the judiciary is imperative.
Efforts should be made to address the inconsistency and instability of government policies. Promoting dialogue between policymakers, agricultural players, and financial institutions can help foster stable and supportive policies that encourage investment and long-term planning in the agriculture sector.
In the area of risk mitigation, collaboration with insurance providers can help mitigate risks associated with farming, such as unpredictable weather conditions, pest outbreaks, and other calamities. Encouraging the use of insurance products can provide sectoral players with financial security and increase their creditworthiness.
Efforts should also be made to enhance market linkages for agricultural products and encourage diversification.This can be achieved through contract farming agreements and the promotion of value addition to raw farm produce. By creating stable market opportunities, lenders will find the sector more attractive.
It is also important to promote collaboration with international players, which can be beneficial for knowledge sharing, technology transfer, and attracting investment. Engaging in joint ventures and partnerships with international investors or organizations can improve access to finance and increase the sector’s competitiveness in the global market.
To sum up, I believe that improving access to appropriate finance and agricultural development initiatives in the agriculture sector requires a multi-faceted approach and collaborative efforts that address the sector’s unique challenges. By implementing strategies such as the aforementioned, the agriculture sector can overcome these challenges, attract investment, and successfully contribute to the sustainability of the agricultural sector, the nation’s food security and economic growth.
Specifically, how can the country regain its preeminence and build its cocoa value-chain?
The country’s cocoa value chain has both sector and country-specific challenges. The coming on board of a new Minister of Agriculture provides an opportunity to shift emphasis from crafting macro policies for agriculture to making policies for the sub-sectors. Although, not much has, for the time being, been heard about the new administration’s policy directions for the cocoa sub-sector. But, I think there are several policy suggestions that could help the growth of a sustainable cocoa value chain.
There is an ongoing debate over which institutional governance or arrangement system is suitable for managing cocoa value chain – strong national or sub-national government involvement under a public-private sector interaction or a system where the sub-sector’s operations are largely market driven. Learning from the experiences of several cocoa-producer nations, determining a suitable governance always pose a delicate balance because the decision needs to reflect the circumstances and economic structure of the particular cocoa-producer nation.
For our country, the existing institutional governance system which involves the players and the national and sub-national governments, under a public-private sector arrangement, where that transactions are largely market-based should, in the main, be maintained. On the other hand, the governments, in its facilitating roles, only need to step up the process of instituting policy measures to control post-harvest quality, in order to stabilise prices in the domestic market and earn premium prices from high-end buyers of output at the international market. The governments should also provide land for cocoa farming, research and extension services to improve yield, while non-governmental organisations (NGOs) should continue to offer input supply and supply chain services and other similar services to producers. Private players are to continue to control transactions – contracts, prices, margin and proceeds of sale.
Furthermore, the sector-specific policy measure must, as well, address sectoral funding challenges -difficulties in accessing loans, high cost of fund and prolong delay in settlement of export Incentive claims. The policies should also aim at promoting increase in production, price volatility in the international marketing, value addition to mitigate the unfair distribution of margins along the cocoa value chain and foster local consumption of cocoa products.
Other medium term policy recommendations include the development of local know-how on fabrication of machinery, spare parts and building plant control retrofit for cocoa processing, to save foreign exchange and reduce reliance on foreigners for repair works. Measures to ease the shipping of export goods and clearing of imported machinery and spares from the air or sea ports should also be included.
What do you see in the medium to long term if we keep on this trajectory?
As it is always the case, the success of any strategy or policy measure depends, to a large extent, on its implementation. Therefore, on the assumption that the above recommendations are adopted and same are diligently implemented, I see sustainable development in Nigeria’s cocoa sub-sector for the benefit of our nation and other stakeholders alike. On a final note, it is important to state that success of the recommended policies does not depend on the Federal Ministry of Agriculture, the private operators and the NGOs, it equally demand active participation of the Ministry of Agriculture in the cocoa- producing states.
