How can trade policy promote sustainable agricultural development in Nigeria?

19 July 2016

How could Nigeria adopt a strategy that takes advantage of its enormous agricultural resources by developing and implementing efficient trade policy instruments?
 

Nigeria’s abundant agricultural resources remain grossly under-utilised. Over the years, various policies including trade policy have been deployed to promote full employment of these resources without much success. This article examines the role and place of Nigeria’s trade relations and trade policy in the sustainable development of the sector. It also looks at the evolution of agricultural trade policy over the years and the effectiveness of different policy instruments. Lastly, it suggests strategies that the government could adopt in order to make agricultural trade policy more efficient and effective.


Nigeria’s agricultural resources and policy

Nigeria’s agricultural resources – estimated to include 98 million hectares of land among which 84 million hectares are cultivable – are not only sufficient to feed the teeming population of the country and provide necessary support to agro-allied industries, but also to significantly increase exports of raw and processed agricultural products. The realisation of this huge potential, however, is constrained by several factors, including inefficient production technologies, significant post-harvest losses mainly attributable to poor rural infrastructure, limited investment, and policy inconsistencies, to mention a few. The resulting downside effects include the under-utilisation of abundant resources – only 34 million hectares, or 40 percent of the cultivable area, these policy goals are cultivated – and significant dependence on international markets for basic food supplies.

The main challenge facing policy-makers consists therefore in promoting sustainable agricultural development. To this end, both agricultural (sector-specific) and macroeconomic (price, foreign exchange, monetary, fiscal, trade) policies have been implemented to address these constraints.

A simple observation reveals that the objectives of Nigeria’s agricultural policy have remained virtually unchanged since the introduction of national development plans in the 1960s. These straddle social (food security, employment, rural development) and economic (rural income, forward and backward linkages with other sectors) concerns.

Strategies have changed over time, however, occasioned by changes in internal and external environments. Internal factors include vagaries in oil revenue and the related effects on the performance of the economy as well as changes in priorities according to the objectives of different government regimes. Externally-induced factors comprise commitments at the regional and continental levels, such as the adoption of the ECOWAS Common Agricultural Policy and Common External Tariff (CET), the Comprehensive Africa Agriculture Development Programme (CAADP), and the on-going negotiation of the Continental Free Trade Area (CFTA), as well as WTO commitments at the multilateral level, including the Agreement on Agriculture (AoA) and the “Nairobi Package” of December 2015.

Policy-wise, the lack of coherence among various policies, poor implementation strategies, inadequate choice of policy instruments and the lack of capacity to institute and implement efficient policy tools are possible explanations for the weak performance of the sector.


Nigeria’s agricultural trade policy

The evolution of Nigeria’s agricultural policy can be characterised by twists and turns as it attempts to strike an appropriate balance between social and economic objectives related to the sector. This is exemplified by agricultural trade policy, which has oscillated between liberalisation and restriction of trade in agricultural products over time.

The restriction of imports of agricultural products that Nigeria can conveniently produce was the trend between the 1960s and early 1980s. High import duties, import licenses and export bans were the main instruments used. State trading enterprises (STEs) were established for the country’s major agricultural commodities. They implemented pricing policy and administered regulatory functions including quality control. STEs were abolished in the late 1980s, when a structural adjustment programme was introduced, along with liberalisation of the economy and the agricultural sector. This also involved tariff reductions, a cut in the number of agricultural products on the import prohibition list, and the abolition of import and export licensing schemes.

While Nigeria has a 150 percent ceiling rate binding on all agricultural products at the WTO, the country has recorded a gradual decline in the average applied tariff, from 37 percent in 1988 to 33 percent in 2000 and 15.6 percent in 2013. The maximum applied rate is now bound at 35 percent, in accordance with the country’s commitment under the ECOWAS CET adopted in 2015. Even though incorporated in the ECOWAS CET, Nigeria is yet to institute mechanisms to implement agricultural tariff quotas and agricultural safeguard mechanisms to deal with problems associated with trade liberalisation.

Trade and trade policy measures were assigned a significant role in the Agricultural Transformation Agenda (ATA) – the current policy framework for the development of the sector. The modest improvement recorded in the performance of the sector since 2000 up to 2014 can be attributed to various domestic and external factors. A major external factor is the increase in global prices of agricultural products, which has boosted the performance of the sector, although this impact has remained limited because of poor supply response. For example, post-harvest loss is estimated at around 45 percent of the total production, especially because of poor infrastructure. The performance of the sector in 2015 has been constrained by many factors, including a decline in the share of agriculture in commercial banks’ credit.

The main policy instruments used are tariffs, import bans and domestic support (mainly fertiliser subsidies). These instruments, however, have not really proven effective in the promotion of sustainable agricultural development in the country. While different policy instruments face different challenges, the lack of effective administration remains the greatest constraint.

The management of the fertilisers subsidy programme is a case in point. Harmful activities in the distribution of subsidised fertilisers – including inflated official prices, kickbacks, and delays in getting the fertilisers to the end users – were initially difficult to address simply because of vested political interest. However, the government was able to minimise leakages (diversion of subsidised fertilisers away from official channels) in the programme. As a result, since 2012, farmers have direct access to this important input through an electronic voucher and the “e-wallet”. The coverage of the intervention increased significantly, from about 1.2 million farmers in 2012 to about 5.2 million in 2013.

The country’s domestic support to the sector is not currently constrained in practice by its commitments at the WTO. Indeed, Article 6.2 and Annex 2 of the AoA list areas and forms of supports that are allowable, and Nigeria has not fully exploited them. Thus, the main issues regarding domestic support to Nigerian farmers lie in financial constraints and inefficient management of available funds.

Import prohibition has also been widely used in Nigeria, notwithstanding objections by the country’s trade partners. However, it has been ineffective, as products on the prohibition list are freely available in the Nigerian market, mainly because of smuggling – which also implies a substantial loss of revenue for the national government. The administration of import prohibition also came with waivers and concessions that further compounded its ineffectiveness.

If the government aims at promoting import-substitution, in order to restrict the importation of agricultural products that can be produced locally, import quotas might be a better option. A quota system ensures that farmers and agro-processors are efficient, and that consumers are not bearing the full brunt of import bans, thereby allowing for adjustment at a pace dictated by firms. Similarly, an effective safeguard mechanism is more efficient than the ceiling-binding rate of 150 percent.


Nigeria’s agricultural sector and WTO negotiations

The challenges confronting the realisation of Nigeria’s agriculture potential require actions at the national and international levels. The WTO negotiations provide a platform for the country to present and defend its offensive and defensive interests. On the offensive side, Nigeria supports significant reform in developed countries’ agricultural sector. On the defensive side, the country seeks for generous flexibilities in order to develop a sustainable agricultural sector.

Some important decisions made at the WTO’s 10th Ministerial conference (MC10), which took place last December in Nairobi, led to progress on elements of the Doha Development Agenda (DDA). The decision on export competition stands out clearly among these decisions, as it concerns one of the three pillars of the AoA – along with market access and domestic support, which received limited attention at MC10. It constitutes an important step forward in the process of removing distortions and promoting a level playing ground on agricultural markets.

The decision on export competition is comprehensive, as most elements of the pillar were covered, and it incorporates elements of special and differential treatment. Export subsidies are to be eliminated, while export finance (export credits, export credit guarantees on insurance programme), agricultural exporting state trading enterprises, and international food aid are to be disciplined.

While Nigeria strongly supports the decision to put an end to all developed countries’ export subsidies, the government also has some reservations about the implementation of this decision. This scepticism derives from the experience with the implementation of the Uruguay Round (UR) AoA, which was tainted with shifting of measures around boxes rather than reduction of the overall support to the sector. As some WTO members delayed decision on the other two pillars (especially the domestic support pillar) and refused to address the overall cap on the support to the sector, it is doubtful they will implement this decision according to its spirit rather than its letter.

For a developing country like Nigeria, the 2018 deadline for the end of export subsidies may not be realised. Nigeria barely supports the export of agricultural products, simply because of a lack of financial muscle to do so. The little reprieve offered to the sector, which as noted above consists of input support (fertilisers and seedlings), is meant to mitigate the impact of infrastructural decay. Thus, in the absence of sufficient funds for developing a strong, effective and efficient infrastructure system, the country would be worse off without the ability to provide financial support to address these constraints related to logistics and transport infrastructure. There is no doubt that the high costs of logistics and transport infrastructure are an important element in the high cost of doing business in Nigeria.

A thorough analysis of the impact of the removal of export subsidies on net-food importing countries (NFICs) like Nigeria would be expected to take into account the short- and long-run impacts. The international prices of affected agricultural products are expected to increase in the short run. The most important issue, however, is the reaction of stakeholders to the shock. While NFICs’ food import bills would increase in the initial stage, incentives would also be created for local production of these commodities. The extent to which the increase in prices translates into an increase in local production critically depends on an effective supply response. The priority for Nigeria should thus be to address effectively the various challenges inhibiting full response of the sector to these new market incentives.


Conclusion

Nigeria’s agricultural policy has undergone a paradigm shift, from treating the sector as a social service to one that considers it a business venture, with appropriate support to address market failures and social concerns. This shift is commendable and should be sustained.

However, Nigeria needs to develop capacity to institutionalise and administer effective trade policy instruments, including efficient management of the support provided to the sector, effective special safeguard measures and a tariff quota regime. Apart from being WTO-compliant, such a policy direction would create a transparent and predictable business environment, which is a precondition to attracting the much-needed investment required to promote sustainable agricultural development.

 

Author: Olawale Ogunkola, Professor of Economics and Director of the Trade Policy Research and Training Programme, University of Ibadan, Nigeria.

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