Agriculture, Investment, Agribusiness, farming, business, food, food production.
By Francisca Adaobi Babatunde-Beke.
This article aims to provide readers with insights into the promising opportunities for agribusiness investment in Nigeria. It offers a comprehensive overview of the government's support, policy frameworks, tax incentives, financing options, land acquisition procedures, and business-friendly incentives available in the agri-food sector. The content of this article is relevant for all stakeholders involved in the agribusiness and food value chain, including current and prospective investors, industry players, and individuals interested in the agricultural sector. By exploring the valuable information presented here, readers can gain a deeper understanding of the potential and advantages offered by Nigeria's agribusiness and food sector.
Introduction
In the past, Nigeria held a prominent position in the global agricultural market, serving as the largest producer of groundnuts and palm oil in the 1960s and ranking as the second-largest exporter of cocoa. Prior to the emergence of oil in the 1960s, the country was self-sufficient in food production. Despite experiencing a decline in attention and focus on the sector over the past few decades, agriculture in Nigeria has managed to make appreciable progress. The country continues to cultivate significant commercial crops such as beans, cashew nuts, cassava, cocoa beans, groundnuts, kola nut, maize (corn), melon, rice, millet, palm kernels, palm oil, plantains, and rubber, among others.
Notably, between 2011 and 2014, Nigeria witnessed a remarkable growth in national food production, amounting to an increase of 21 million metric tonnes. This surge in domestic production led to a substantial reduction in food imports, with the country's food import bill decreasing from a high rate of N3.19 trillion in 2011 to N635 billion in 2013, marking a significant 403 percent reduction. Additionally, during the period from 2012 to 2014, direct farm jobs increased by 3.56 million. With the advent of breakthroughs in agricultural technology, such as advancements in seed development, improved access to agricultural education, and the adoption of precision farming techniques, the agribusiness sector has entered a new phase. It has evolved beyond mere farming to encompass the business aspects of agriculture.
Given that the current landscape offers a favourable environment for investment and engagement in the sector, now would be an opportune moment to actively participate in Nigeria's agribusiness industry.
1. Land Tenure Policy/Land Acquisition
Every citizen of Nigeria is entitled to acquire and own land anywhere in Nigeria and there are arable lands in both rural and urban areas, however, the requirement for their acquisitions may differ depending on the location of the land. For foreign investors who are otherwise precluded from land ownership under the Land Use Act, there is the alternative of incorporating Nigerian entities through which the land(s) can be acquired or leased.
The recognition of customary land tenure rights provides the necessary leverage for farmers to access land for agricultural purposes. Indeed, land for agricultural purposes is mostly found in rural areas and the absence of bureaucratic procedures and paperwork under the customary land tenure system is largely in tune with especially the illiterate profile of small-scale farmers in Nigeria. Such lands may be acquired by negotiating with family heads and other authorized representatives. Concerning land in rural areas, the Land Use Act in Section 6 confers power on Local Government Authorities to grant a customary right of occupancy to any person or organization over non-urban land within its jurisdiction for agricultural, residential, and other purposes. Where the land to be used is however located in an urban area, the investor must of necessity obtain the consent of the governor upon payment of applicable fees. The Governor’s consent must be sought as the absence thereof invalidates the transfer of title.
Please note that a customary right of occupancy cannot be granted to an individual over 500 hectares for agricultural purposes and not more than 5,000 hectares for grazing purposes, except with the consent of the Governor. One of the Challenges Agribusiness entrepreneurs face is using agricultural land as collateral for loans. This is a challenge as the transfer of title must be registered and the Governor’s consent obtained for it to be effective and acceptable to financial institutions. Luckily, under the Federal government’s Agricultural Promotion Policy however, the Ministry of Agriculture has undertaken to pursue an amendment of the current Land Use Act to facilitate the recognition and entitlement of land ownership by formal or customary means to assist in the use of agricultural land as collateral.
2. Financing
Securing funding poses a significant challenge for Agribusiness and Food entrepreneurs, as financial institutions often hesitate to lend due to the perceived risks associated with the sector. However, over the years, several funding options have emerged to support the sector.
One such option is the Cottage Agro Processing (CAP) Fund, which is managed by Nigeria's Bank of Industry (BoI). This fund aims to assist in establishing cottage agro-processing plants that produce food products and raw materials. Additionally, the Federal Government of Nigeria’s N750 billion Agriculture Intervention Fund, and the Nigerian Incentive-Based Risk Sharing in Agricultural Lending (NIRSAL) scheme, facilitated by the Central Bank of Nigeria (CBN) and the Federal Ministry of Agriculture and Rural Development, are also available options. The NIRSAL scheme specifically guarantees 75 percent of loans provided by Deposit Money Banks to farmers, as part of an effort to transform the country's agricultural sector.
Philanthropic organizations also provide social entrepreneurship grants, while commercial banks and the Bank of Agriculture, overseen by the Minister of Agriculture, offer loans for agribusiness ventures. However, it is important to note that effective financial planning, loan structuring, and accessing funding from the aforementioned sources require a certain level of competence. Potential investors can increase their chances of success by seeking guidance from industry and legal experts to ensure adherence to best practices, meet necessary requirements, and facilitate the growth of their businesses.
3. Seed Production and Development
The Livestock Breeds and Crop Variety Registration, Testing and Release Act 1987 and National Agricultural Seeds Act 1992 as amended in 2019 regulate various aspects of seed production, variety development and propagation, variety registration, release and certification of seeds, and quality control activities in Nigeria. Under the National Agricultural Seeds Act, the Nigerian Agricultural Seeds Council located in Abuja and headed by the Minister of Agriculture and Rural Development is the only body responsible for monitoring, co-ordination, and certification of the production and distribution of seeds in Nigeria. The Crop Variety Registration and Release Committee (CVRRC) of the Nigerian Agricultural Seeds Council is the final body that accepts or rejects a variety proposed for release and cultivation in Nigeria thus every person who sells, keeps for sale, offers to sell, barters, or otherwise supplies any seed of any notified kind or variety must apply to the CVRRC for the grant of certification. Investors and Stakeholders in the agribusiness sector intending to undertake activities in this regard must be concerned and compliant with the activities of the regulatory body. An industry expert legal practitioner will be of much assistance in this regard.
4. Water Permits
Investors need to apply for and secure necessary permits for the use of ground and surface water resources for irrigation purposes where applicable. A legal adviser can assist with this process.
5. Tax Regimes & Incentives
In 2012, a new policy was introduced to provide tax holidays to investors who build processing plants in staple crop processing zones and there is also a policy that revenue generated from an increased levy on agricultural commodity imports should be used to support domestic production. More so, the cultivation, production, and processing of food crops among other activities in the agriculture value chain enjoy the benefit of the Pioneer Status Incentive. The Pioneer Status Incentive (PSI) is in itself a fiscal incentive under the Industrial Development (Income Tax Relief) Act designed to help the benefiting corporate entities cut down on overhead costs through tax exemption for an initial period of three years which can be renewed for an additional maximum period of two years.
Other tax incentives include exemption from paying the 5 percent Value Added Tax (now 7.5%) when importing machinery for agricultural purposes, as allowed under Section 3 of the Value Added Tax Act; a 25 percent investment tax credit for companies engaged in the local fabrication of agricultural equipment, as allowed under Section 28 of the Companies Income Tax Act (CITA); 10 percent tax relief granted to a company in the first year of purchase of plant and machinery used for agricultural production; rural investment allowance the percentage of which varies according to the level of facilities in the rural area where the investment is; and tax incentives applicable to export processing zones. Prospective investors will also need the support of experienced advisers to take maximum advantage of these various tax incentives available to players in Nigeria’s growing agricultural sector.
6. Agricultural Insurance
In 2012, a major policy announcement was made that the monopoly on agricultural insurance by the National Agricultural Insurance Company is removed and liberalized to allow private sector participation in agricultural insurance.
7. Investment Promotion Policies
The Nigerian government has introduced several incentives to encourage investment in the agricultural sector. some notable ones are; Zero duty on agricultural machinery; an unrestricted capital allowance for agribusinesses; an up to 50% tariff reduction for agro-related plants and equipment; guarantees of up to 75% of all loans granted by commercial banks for agricultural production under the Agricultural Credit Guarantee Scheme Fund (ACGSF); 60 percent repayment of interest by the Interest Drawback Program Fund paid by those who borrow from banks under ACGSF for cassava production and processing, provided the borrower repays the loan on time.
8. Federal Government Support
As can be gleaned from the Agricultural Promotion Policy, the Federal Government of Nigeria intends to boost system productivity, reduce post-harvest losses and expand market access-related activities. The government has also outlined plans to facilitate access to finance and investment development for agribusiness in Nigeria. These efforts will help to address some of the challenges in the sector such as poor farming methodologies, lack of access to finance, post-harvest losses due to lack of storage facilities, unreliable power supply, poor transport infrastructure, and attractiveness of farming in terms of return.
Policy Intervention
To maximize the benefits of increased investment in agriculture, it is crucial to establish strong legal and policy frameworks. Various policies and measures have been designed to shape agribusiness investment and market governance in a positive direction, including output expansion, investment promotion, agricultural finance, land tenure, input subsidies, tax policies, and agricultural insurance and finance options. These initiatives aim to address the challenges of insufficient food production for domestic needs and the inability to export at competitive quality levels.
In June 2015, the Federal Government of Nigeria launched the Agriculture Promotion Policy (APP) as a strategic response to the country's dependence on food imports and lack of foreign exchange earnings from agriculture which was driven home by the popular phrase of the then president that Nigerians should “grow what they eat, and eat what they grow,”. The policy aimed to build an agribusiness ecosystem that addresses these issues by fostering private sector-led action, with government support. The goal was to produce sufficient fresh, high-quality food for the Nigerian market and successfully export agricultural products to earn foreign exchange. The Buhari-led administration also launched the Anchor Borrowers Program (ABP) initiative by the CBN which the government intended to use to create a linkage between anchors (companies) involved in the processing, and smallholder farmers (SHFs) of some specific agricultural commodities captured in the initiative (rice, maize, etc). Loans were disbursed to the beneficiary farmers through Deposit Money Banks (DMBs), Development Finance Institutions (DFIs), and Microfinance Banks (MFBs), which the program recognized as Participating Financial Institutions (PFIs). Upon harvest, the farmers repaid their loans by taking their harvest to ‘anchors’ who paid the cash equivalent to the farmers’ accounts. The impacts of the initiative and the subsequent closure of Nigeria’s border in 2019 were evident in the increased local production of some key staple grains like rice and maize. As of 2022, over 4.8 million smallholder farmers had been financed under the initiative with Nigeria becoming the highest rice-producing country in Africa. Despite the challenges, the initiative recorded significant successes. Other notable agricultural policies launched include: Nigeria–Africa Trade and Investment Promotion Programme (NATIPP), Presidential Economic Diversification Initiative (PEDI), Zero Reject Initiative, Economic and Export Promotion Incentives, National Agricultural Technology and Innovation Policy (NATIP) and the Food security council among others
Conclusion
Nigeria, with its large and growing population of over 180 million people, possesses vast untapped potential in agriculture. Approximately 60% of its arable land remains uncultivated, making it an attractive destination for investment across various sectors of the agribusiness value chain. With the inauguration of a new government that has equally expressed its commitment to further developing this vital sector, there is an optimistic outlook for the future, Nigeria's economic progress, and food security.
DISCLAIMER: The information provided in this article is intended only for educational purposes and is subject to review and update by the author in light of further and better information. It does not create any form of client-counsel relationship between the author and the reader. Kindly consult your legal expert for proper guidance on the peculiarity of your need.
Originally published by Francisca Adaobi Babatunde-Beke in February 2020 (Reviewed on 8th June 2023)
Reach Francisca Adaobi Babatunde-Beke on LinkedIn.
Email: franciscabeke@outlook.com
Mobile: +2348067505992
Oyemaja Executives
Oyemaja Law.