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Friday, 28 December 2012 00:00
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Agriculture not a big player in equity markets, but has potential to be –– Minister

Minister of Agriculture and Rural Development Dr. Akinwumi Adesina while overhauling the 2013 agriculture said Agriculture has not been a big player in the Nigerian equity markets, but has the potential to be.

Adesina made this known at the recently concluded Capital Markets’ Workshop, jointly hosted by the Securities and Exchange Commission (SEC) and Federal Ministry of Agriculture and Rural Development on December 14, 2012 at the Harbour Point Victoria Island,  Lagos.

He said “The time has come for Nigeria to consider raising long term bonds to finance the agricultural sector. The rising domestic debt is certainly of concern. However, this should not be used to argue against agriculture bonds. Many countries in the world are using the so called green bonds to power their agriculture, including China and India.  Development Finance institutions can also finance long term bonds for agriculture. He noted.

According to him, Equity markets can also enable agricultural companies to source the much needed capital, adding that there are also a number of strong agricultural companies that could seek to raise equity financing but are unable to due to the minimum requirements of the exchange such as specific thresholds on level of capitalization.

The minister speaking further said public equity capital markets should play stronger roles in financing the agricultural sector, adding  despite the strong performance of agriculture stocks, the sector still represents less than one percent of the over 40 billion dollar market capitalization on the Nigerian Stock Exchange (NSE).

He said only five of the 199 listed stocks were from the agricultural sector. “
Consumer food and beverage stocks like Nestle and Nigerian Breweries represent the lion’s share of the exchange at 33 per cent. They are poised to keep growing, given that both stocks experienced all-time highs of NGN 710 and NGN 153 respectively.

“The opportunities for these companies to boost agriculture are immense, if they move into greater use of locally produced crops. Imagine likes Nestle used cassava starch instead of corn starch and Nigerian Breweries used mostly sorghum instead of barley. The spillover effect on the agriculture industry will be immense. The minister noted.

He further explained why agricultural sector was a worthwhile investment opportunity, while stating that population in the country was approximately 167 million, and the agricultural sector contributes over 40 per cent of GDP.

“This large market represents a high and fast growing demand for agricultural goods and services. Although not fully harnessed, Nigeria also has the capacity to meet, and potentially exceed, this domestic demand. He said.

According to him, the country is abundant with the labor and natural resources necessary to improve productivity such as arable land, perhaps the most critical natural resource, a total of 84million hectares of arable land of which only 40 per cent was under cultivation.
To put this in perspective, the Minister said South Africa was currently cultivating only 12 per cent of its arable land (14.5 million ha) and yet they are one of the leading food producers in Africa.

The minister while explaining the New Policy Reforms to drive Agricultural Investment Opportunities said the finance industry needs to be motivated by high expected returns relative to the risk and uncertainty to effectively deploy capital to the sector.

“The Federal Ministry of Agriculture understands that to expand financing in agriculture, we must first get the sector to work.

Government policies that drive profitability and growth of the sector, and private sector investments, are the prime drivers for agricultural transformation. If government policies unlock the value of agriculture, and we fix the agricultural value chains, banks should be able to find a money trail and lend more to agriculture. He explained.

With this in mind, Adesina said they have developed an Agricultural Transformation Agenda, a government-supported private sector led agricultural to be more productive, efficient and competitive.

He said “We are already tackling some of the critical road blocks that create both real and perceived risks to greater lending to agriculture. Let me give you a few examples of how we are doing this.”

He noted that the backbone of any agricultural revolution was access of farmers to modern agricultural inputs, especially fertilizers and seeds, adding that Government for decades procured and distributed fertilizers.

While condemning the act, the Minister said the government system was corrupt and undermined the private sector and did not deliver fertilizers to genuine farmers.

“Only 11 per cent of farmers got the government-distributed fertilizers. Nigeria was not subsidizing farmers. It was simply subsidizing corruption. He noted.

He however said that its government has totally dismantled the corrupt system.
“We took the government out of procuring and selling fertilizers. The private sector now sells seeds and fertilizers to farmers directly. We have eliminated the middlemen and rent seekers from the system, while targeting genuine farmers. We launched a Growth Enhancement Scheme, where farmers receive 50 per cent  subsidy on fertilizers, for a maximum of two bags, through the use of their mobile phones or what we call E-wallet system.” He said.

He added that the policy has spurred private sector activity to build supply chains that reach farmers – what they have never done before.

The Minister explaining the case of rice noted they were also encouraging agro-processing to add greater value to all of our agricultural commodities to make Nigeria self-sufficient in rice production by 2015.

This was against the background that Nigeria was the largest importer of rice in the world. He noted that the demand for rice was projected to rise from the current level of 5 million Metric Tons to 36 million Metric Tons by 2050 unless Nigeria begins an aggressive import substitution programme for rice.

Considering the case of cassava value chains, Adesina stated Nigeria was the largest producer of cassava in the world with 34 million Metric Tons produced per annum but contributes zero per cent in terms of value added in global trade.

He noted farmers grow cassava in abundance and the price of cassava has collapsed around them.

The Minister however said they were rapidly expanding the production of high quality cassava flour for use in composite flours to substitute for some of the imported wheat flour being used in the baking industry.

“Corporate bakers have started commercializing the the inclusion of 20 per cent high quality cassava flour in bread, including UTC, Food Concepts and more recently Park and Shop.

UTC will be exporting from this month cassava bread to ECOWAS region, starting with Ghana and Togo. Think about it: that means that we are turning what used to be a non-tradable commodity into a tradable commodity to earn us foreign exchange.”

He said the processing plants will be run and owned by the private sector and meet all of Nigeria’s cassava flour need for up to 40 per cent substitution for wheat flour.
He disclosed its significant achievement impacts on maize to provide food and reduce cost of feed for the livestock industry.

This year according to him, 67,000 metric tons of improved certified seed of maize, expected to plant 3.5 million hectares of land, was deployed to farmers nationwide with average yield of two tons/hectare, the addition to the national food supply this year will be 7 million Metric Tons of maize grain.

On the cocoa the Minister said its  goal is to double the production of cocoa from approximately 250,000 Metric Tons per annum to over 500,000 MT per annum by 2015, adding that  Cocoa was currently undergoing massive transformation.

He lamented the lost glory in palm oil production while stating that they have provided 1.34 million sprouted seedlings to 18 oil palm estates and expects to distribute a total of 9 million sprouted seedlings, which will cover smallholder farmers.