Proceedings of a National Workshop

Agricultural Inputs Policiesand Nigerian DevelopmentAn

InternationalCenter for

Soil Fertilityand

AgriculturalDevelopment

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AGRICULTURAL INPUTS POLICIES ANDNIGERIAN DEVELOPMENT

Proceedings of a National Workshop

held during

August 26-27, 2003

Abuja, Nigeria

Organized by

Federal Ministry of Agriculture and Rural Development (FMARD)

Government of Nigeria

In Collaboration With

Developing Agri-Input Markets in Nigeria (DAIMINA) ProjectIFDC—An International Center for Soil Fertility and Agricultural Development

With Funding From

United States Agency for International Development (USAID)

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IFDC—An International Center for Soil Fertility and Agricultural DevelopmentP.O. Box 2040Muscle Shoals, AL 35662 (U.S.A.)

Telephone: +1 (256) 381-6600Telefax: +1 (256) 381-7408E-Mail: general@ifdc.orgWeb Site: www.ifdc.org

IFDC publications are listed in IFDC Publications, General Publication IFDC–G-1; the publications catalogis free of charge.

Cover Photo by Ian Gregory: Peppers being harvested from Fadama fields in Dass Bauchi State, Nigeria.

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ACKNOWLEDGMENTS

The Federal Ministry of Agriculture and Rural Development (FMARD) and IFDC’s DAIMINAproject organized a national workshop on agri-inputs policies and Nigerian development in August2003. The workshop was attended by 156 delegates from throughout Nigeria. After active delibera-tions, the participants made valuable recommendations for consideration by the Federal Governmentof Nigeria.

The Honorable Minister Mallam Adamu Bello had earlier asked IFDC/DAIMINA to assist theMinistry in upgrading the Fertilizer and Seed Laws to be in conformity with the current policy focus ofthe government and to create a conducive policy environment for private sector participation andinvestment in agriculture. We express our gratitude to the Honorable Minister of Agriculture for hissustained confidence in IFDC and support to the DAIMINA project.

IFDC/DAIMINA is obliged to the delegates from the public and private sectors that participated inthe national workshop to make it a great success. In particular, we thank the State Commissioners ofAgriculture and other senior government officials for making useful contributions and providing valu-able information for discussion.

We thank members of the fertilizer community particularly the producers, importers, distributors,transporters and farmers who have demonstrated the need and shown interest in the improvement ofthe agribusiness policy environment.

The role of the donor community is much appreciated, particularly, the United States Agency forInternational Development (USAID) as the funding agency of DAIMINA and several other agricul-tural projects in Nigeria.

We also express our appreciation to the political leaders, professionals, and administrators whopresented workshop papers and offered support to the policy reform process. The contributions of Hon.Audu Ogbeh, National Chairman, PDP; Ms. Dawn Liberi, Mission Director of USAID Nigeria; andMr. O. A. Edache, Permanent Secretary of Agriculture for FMARD, are especially recognized.

Our sincere thanks are expressed to Professor Ango Abdullahi, Vice Admiral Nyako, and the lateDr. A. Joshua, who presented very thought-provoking papers and served as chairpersons in their re-spective subcommittees. We also are grateful for the excellent work done by the reporters, whose hardwork resulted in the preparation of this valuable document.

It is our fervent hope that the Federal Government of Nigeria and the general public at large willfind the recommendations emanating from this workshop useful and practical to move the Nigerianfertilizer sector forward.

Amit H. RoyPresident and Chief Executive Officer

IFDC

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TABLE OF CONTENTS

I. Inaugural Session: Speeches and AddressesWelcome Address ................................................................................................................... 3O. A. Edache

Introduction to the IFDC-DAIMINA Project and Workshop Objectives ........................ 4H. B. Singh

Keynote Address .................................................................................................................... 7Audu Ogbeh

Farmers’ Viewpoint on Availability and Prices of Agricultural Inputs .......................... 10V/ADM. M. A. H. Nyako

An Overview of Fertilizer Importation and Distribution in Nigeria .............................. 13Sani Dangote

IFDC Programs With Special Reference to Policy Advocacy .......................................... 18Amit Roy

Remarks on the Agri-Input Workshop .............................................................................. 24Dawn Liberi

Opening Address .................................................................................................................. 26Adamu Bello

II. Technical Session: Agri-Input Policies and Their Impact on theDevelopment of a Free and Competitive Market

Some Thoughts on Policy Reforms in Agri-Input Marketing in Nigeria ....................... 33Ango Abdullahi

III. Working Group SessionReport of Group 1 – Need Assessment of Commercialization of Agriculture ................ 47Chairman: Vice Admiral M. Nyako

Report of Group 2 – Review of the Agri-Input Marketing System in Nigeria ............... 51Chairman: Dr. A. Joshua

Report of Group 3 – Policy Reforms.................................................................................. 53Chairman: Professor Ango Abdullahi

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IV. Communique SessionReport of Group 1 – Communiqué of the National Workshop onAgri-Input Policy ................................................................................................................. 57

AnnexesAnnex 1. Assessment of Nigerian Government Fertilizer Policy and SuggestedAlternative Market-Friendly Policies ................................................................................ 65Joseph Nagy and Wole Edun

Annex 2. Workshop Program ............................................................................................. 69

Annex 3. List of Participants .............................................................................................. 70

TABLE OF CONTENTS (CONTINUED)

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ACRONYMS AND ABBREVIATIONS

AAN Agrochemical Association of NigeriaADB African Development BankADPs Agricultural Development ProjectsAFADA Albanian Fertilizer and Agricultural Inputs Dealers’ AssociationAFAMIN African Agricultural Market Information NetworkALFAAN All Farmers Apex Association of NigeriaCBOs community-based organizationsCPPs crop protection productsDAIMINA Developing Agri-Input Markets in NigeriaDFID Department for International DevelopmentFAO Food and Agriculture Organization of the United NationsFEAP Family Economic Advancement ProgramFFD Federal Fertilizer Department (Nigeria)FGN Federal Government of NigeriaFMARD Federal Ministry of Agriculture and Rural DevelopmentFPDD Fertilizer Procurement and Distribution DivisionFSFC Superphosphate Fertilizer CompanyGCON Grand Commander of the Order of the NigerGDP gross domestic productIBRD International Bank for Reconstruction and Development (World Bank)IFAD International Fund for Agricultural DevelopmentIFDC An International Center for Soil Fertility and Agricultural DevelopmentIITA International Institute for Tropical AgricultureKADP Kosovo Agribusiness Development ProjectMIS market information systemNACB Nigerian Agricultural and Cooperative BankNACRDB Nigerian Agricultural Cooperative and Rural Development BankNADF National Agricultural Development FundNAFCON National Fertilizer Company of NigeriaNARTO National Association of Road Transport OwnersNGOs non-governmental organizationsNRC Nigerian Railway CorporationPDP Peoples’ Democratic PartyRUSEP Rural Sector Enhancement ProgramSEEDAN Seed Association of NigeriaSG 2000 Sasakawa-Global 2000SMEs small- and medium-scale enterprisesSPFS Special Program for Food Security (Nigeria)UDP urea deep placementURAA Uruguay Round Agreement on AgricultureUSAID United States Agency for International DevelopmentUSG urea supergranulesVAT value-added tax

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ORGANIZING COMMITTEE

Dr. H. B. Singh, Chief of Party (IFDC/DAIMINA)Dr. Umaru Alkaleri, Project Manager (IFDC/DAIMINA)Alh A. R. Kwa, Workshop CoordinatorDr. G. B. Ayoola, Workshop Design Manager and Proceedings EditorMrs. Gloria Nwokedi, Workshop Logistics and FinancesMr. Henry Ekpiken, Workshop Contacts and RegistrationsBlessing Ihediwa, Workshop Technical Services and Audiovisuals

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I. INAUGURAL SESSIONSpeeches and Addresses

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WELCOME ADDRESS

O. A. EdachePermanent Secretary

Federal Ministry of Agriculture and Rural Development

I am delighted to welcome you all to this im-portant national workshop on agricultural inputpolicy, organized by the Federal Ministry of Agri-culture and Rural Development (FMARD) in col-laboration with the IFDC-DAIMINA project. Thepresence of all of you here this morning confirmsthe importance of the topic to be discussed—agricultural inputs.

As we all know, agriculture is a very vital sec-tor in Nigeria’s economic development because itcontributes 40% of the national gross domesticproduct (GDP), provides the staple foods of Nige-rians, and employs about 70% of the populace. Inthe “golden period” of agriculture in the 1960s,the sector achieved much more. However, the storyis a different one today. The government is tryingto bring agriculture back to its old position of glory.The task of turning agriculture around requires thecollaborative effort of all stakeholders, and this iswhy this workshop is very important and critical.Of particular relevance in this task is the depend-able and timely supply of purchased inputs. I amconvinced, based on my long experience, that thepotential of Nigerian agriculture will not be real-ized without solving the nation’s input supply prob-lem. This is because improved agricultural inputsupplies such as fertilizers, seeds, and crop pro-tection products (CPPs) are very important for in-creased production. You will agree with me thatthe private sector must be encouraged and sup-ported if our goal of sustainable input supply is to

be met. The role and responsibility of the govern-ment in the sector is primarily policy formulation/implementation and provision of an environmentconducive for private investment. This is why thediscussion at this workshop must be objective andresourceful.

The Objectives of the National AgriculturalInput Policy Workshop

This workshop was developed to achieve thefollowing objectives:• Review the effectiveness of the existing agricul-

tural policies in attracting the private sector par-ticipation and investment in the production, im-portation, and marketing of fertilizers and otherinputs.

• Review the merits and demerits of direct gov-ernment intervention in the procurement and saleof fertilizers and its impact on the developmentof competitive agricultural markets and promo-tion of agri-input use in Nigeria.

• Review the operational system of fertilizer sub-sidy in Nigeria and identify some market-friendlyalternatives.

• Make recommendations, if necessary, for amend-ments in agri-input policies and administrationof fertilizer subsidies for the consideration of theFederal Government of Nigeria (FGN).

So once again, I want to welcome you all andwish you a very fruitful deliberation.

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INTRODUCTION TO THE IFDC-DAIMINA PROJECT AND WORKSHOP OBJECTIVES

H. B. SinghChief of Party

DAIMINA Project

What Is DAIMINA?

IFDC joined the Federal Government of Ni-geria (FGN) and the United States Agency for In-ternational Development (USAID) in an initiativeto improve farmers’ access to quality inputsthrough active participation of the private sectorin rural agricultural markets in Nigeria.

Primary project activities include:

• Policy dialogue.• Private sector capacity building.• Market information system.

Project Objectives• Facilitate the creation of a policy environment

conducive for private sector participation and in-vestment in agricultural inputs marketing inNigeria.

• Enhance the knowledge and skills of businessentrepreneurs on the safe use of agri-inputs, busi-ness management, and networking with key play-ers of the input supply chain.

• Strengthen the market information services, par-ticularly on availability, demand, and prices ofagri-inputs and crop produce in the domestic,regional, and international markets.

Project AreaThe geographical scope of activities at present

is as follows:

• National level—Policy dialogue; market infor-mation systems (MIS).

• State level—Private sector development (se-lected states of Kano, Oyo, and Bauchi).

DAIMINA Activities(November 1, 2001-July 3, 2003)

The main activities are elaborated as follows:

Policy Dialogues• Four stakeholder workshops organized to review

the agri-input policies.• A fertilizer quality control infrastructure inven-

torial study conducted jointly with the FederalFertilizer Department (FFD).

• The Fertilizer Board Act (1977) reviewed jointlywith FFD and revised documents submitted toFMARD.

• Five manuals for the implementation of fertil-izer quality control system prepared and submit-ted to FMARD.

• Sixteen agro-dealer associations formed as policyadvocacy groups.

• A study on the impact of direct government in-tervention in fertilizer distribution and of sub-sidy on the development of free competitivemarketing systems in Nigeria conducted and sub-mitted to FMARD.

Private Sector Capacity Building inAgricultural Marketing• Three hundred agro-dealers trained in

agribusiness.• Twenty-six agro-dealer associations formed and

trained in business development and customercare.

• Ninety agro-dealers assisted in the preparationof business plans and securing micro financefrom the Nigerian Agricultural Cooperative andRural Development Bank (NACRDB) and otherbanks.

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• Two hundred and twenty-five agro-dealers linkedwith input producers, importers, commercialbanks, agricultural development projects(ADPs), extension workers, and others for busi-ness developments.

• Technical evaluation of nine blending plantsconducted.

• Employees of 16 blending plants trained on theproduction and marketing of quality fertilizers.

• Technical evaluation of Zamfara and Sokoto rockphosphate conducted to assess the scope ofcommercialization.

Strengthening of the Market InformationSystems• Publication of the agribusiness newsletter to pro-

vide information on agri-input availability andprices in domestic, regional, and internationalmarkets.

• The African Agricultural Market InformationNetwork (AFAMIN) established jointly withIFDC’s regional office in Lomé, Togo.

• Agro-dealers and farmers provided with infor-mation on the right agri-inputs and the right timeand methods of use.

• The findings of market studies and surveys, etc.,communicated to stakeholders.

• Marketing manuals, product brochures, posters,handbills, etc., provided to agro-dealers andfarmers.

Partnership With Related Agencies (on CostSharing)• Partnership with National Special Food Secu-

rity (FAO: FGN) to establish agro-dealers.• Joint publication of an agribusiness newsletter

by DAIMINA and the Special Program for FoodSecurity (SPFS).

• Collaboration with the Seed Resource Project(IITA: USAID) to assist in marketing of im-proved seeds.

• Collaboration with the Seed Association of Ni-geria (SEEDAN) and Premier Seeds to promoteuse of improved seeds.

• Collaboration with Agrochemical Association ofNigeria (AAN) to promote safe use of pesticides.

• Collaboration with NACRDB in the provisionand repayment of micro finance.

• Collaboration with All Farmers Apex Associa-tion of Nigeria (ALFAAN) to improve farmers’knowledge on economic/safe use of inputs.

Some Key Observations• The use level of agri-inputs has declined drasti-

cally, and supply rather than demand is the mainconstraint.

• The government and all other stakeholders arefully convinced of the need for active privatesector participation and investment inagriculture.

• The business practices of rural entrepreneurs arestill primitive and need training and networking.

• Development of competitive agricultural marketsneeds a well-planned effort, political will, andsupport of donor agencies.

• Finance is a key requirement of business andneeds to be facilitated.

• The shortage of critical inputs is leading to a shiftto a low-input, low-return cropping system.

Impact of DAIMINA Activities• Private enterprise has shown an overwhelming

response to training and networking; 225 agro-dealers graduated in Kano and Oyo States and75 others will graduate in mid-2004.

• Twenty-six agro-dealer associations have initi-ated collective business activities, effecting a15%–20% reduction in marketing costs.

• Ninety agro-dealers have started receiving mi-cro credit from banks.

• Thirty wholesale agro-dealers offered inputs oncredit to farmers.

• Wholesale dealers in Kano and Oyo States madeadvance stocking a priority, improving the inputavailability in Kano State even in difficult sup-ply positions.

• Trained agro-dealers have opened 50 new salesoutlets in weekly markets, improving small-holder farmers’ access to inputs near the farmgate.

• Trained agro-dealers sold 4,000 kg of improvedcowpea seeds and increasd the sales turnover to200%.

• Fertilizer sales.

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Objectives of the National Agri-InputsPolicy Workshop• Analyze the suitability of the prevailing policy

environment to attract private investment inagribusiness.

• Review the merits and demerits of direct gov-ernment intervention in the distribution of fer-tilizers and its impact on the development ofcompetitive markets.

• Review the operational system of fertilizer sub-sidy, its benefits to the target beneficiaries, andsome market-friendly alternatives as suggestedby market studies conducted by DAIMINA andother agencies.

• Make recommendations to policymakers on re-quired policy amendments and theirimplementation.

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KEYNOTE ADDRESS

Audu OgbehNational Chairman

Peoples’ Democratic Party

It gives me great pleasure today to attend andpresent a keynote address at this important nationalworkshop aimed at addressing a very importantsubject that touches on the livelihood of most Ni-gerians and the national economy. In order to meetthe mandate of the ruling party, the Peoples’ Demo-cratic Party (PDP), and the federal and state gov-ernments (in terms of national food security)—supplying raw materials to our growingagro-dealers and providing surplus for exports—we must promote science-based commercial agri-culture among our millions of small-, medium-,and large-scale farmers.

To achieve this target, we must ensure the sup-ply of modern inputs—seeds, fertilizers, CPPs, vet-erinary drugs, farm mechanization equipment, andother associated inputs. Farmers must have easyaccess to quality inputs at competitive prices andat the right time near their farm gates. Nigeria hasembarked on participatory democracy and market-based economic growth. If properly implemented,these instruments of social change can empowerformal organizations, the private sector, and indi-viduals to transform the agricultural and sociallandscape of Nigeria. The successful pursuit ofthese goals requires well-focused attention to foodsecurity, poverty alleviation, and economic pro-tection. Peace, stability, unity, and prosperity can-not be built on empty stomachs. Over 70% of Ni-gerians are estimated to be living below the povertyline, earning less than US $1 per day, and a sig-nificant proportion of the population is food inse-cure. The current 4.5% level of agricultural growthhas to be increased to about 7% to address the pov-erty problem adequately.

Nigeria, therefore, has to redirect, re-engineer,and accelerate its agricultural growth and devel-

opment strategies to reduce the huge deficit in itsfood balance sheet. Accelerated agricultural growthand development remain the essential prerequisitefor economic growth and stability. Without sub-stantial increases in agricultural productivity, Ni-geria cannot increase food security and reducepoverty in a sustainable manner. Increased agri-cultural productivity is possible only through thejudicious application of science and technology inagri-inputs (seeds, fertilizers, and CPPs).

The history of economic development in otherparts of the world indicates that agricultural pro-ductivity has been the main source of sustainedgrowth in rural welfare and national economic re-covery efforts. Nigeria cannot be an exception. Itis for this reason that the PDP Government underPresident Olusegun Obasanjo is giving special at-tention to agriculture. You may have heard in thenews recently that the National Economic Coun-cil has identified agriculture and solid minerals aspriority sectors for development. Increased fund-ing will be provided to these sectors. The macro-economic base has to be diversified.

Since the inception of democratic governancein 1999, the PDP Government under PresidentObasanjo has accorded the following areas spe-cial attention:

1. Increase in Agricultural Productivity• Revitalization of agricultural research,

extension, and education.• The National Special Food Security Program.• The National Fadama Development Program.• Special programs on increased production of

cassava, rice, vegetable oils, cereals, cotton,tree crops, and livestock.

• The Root and Tuber Development Program.

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• The community-based agricultural and ruraldevelopment program.

2. Provision of Inputs and Credit• Establishment of the DAIMINA project with

the funding support of USAID.• Harmonization of the micro credit

institutions; i.e., former Nigerian Agriculturaland Cooperative Bank (NACB), FamilyEconomic Advancement Program (FEAP),and the Peoples’ Bank of Nigeria into thenewly formed Nigerian AgriculturalCooperatives and Rural Development Bank(NACRDB).

• Revitalization of the Agricultural CreditGuarantee Scheme to make moreopportunities available for farmers to accessagricultural credit.

• Establishment of the National AgriculturalDevelopment Fund (NADF).

• Waiver or substantial reduction in duties andvalue-added tax (VAT) for import offertilizers.

• Privatization of government-owned, fertilizermanufacturing companies (the NationalFertilizer Company of Nigeria [NAFCON]has been privatized and the SuperphosphateFertilizer Company [FSFC] is in the process).

• Liberalization of fertilizer supply anddistribution system.

3. Processing (Value Addition), Storage, andMarketing• Establishment of three multi-commodity

development and marketing companies.• Implementation of Rural Sector Enhancement

Program (RUSEP) with the support ofUSAID.

• Revitalizing the small- and medium-scaleenterprises (SMEs) scheme to assistprocessing and marketing activities.

4. Improving the Policy Environment• The agricultural policy was reviewed and a

new policy thrust was issued in March 2002.

The strategy for implementation is beingreoriented.

• Fertilizer and other inputs supply anddistribution have been liberalized. Thegovernment will focus on providing theenabling environment for the activeparticipation and investment by the privatesector.

• A rural development policy andimplementation strategy has beenimplemented.

• A National Cooperative Policy has beenadopted.

At this juncture I would like to express the ap-preciation and gratitude of the government to ourdevelopment partners whose understanding, coop-eration, and support have proved very valuable inour quest for agricultural and rural development. Iwish to particularly acknowledge the support ofUSAID, which has assisted in the identificationand funding of a number of the programs. Ourthanks also go to the World Bank (IBRD), AfricanDevelopment Bank (ADB), International Fund forAgricultural Development (IFAD), the Departmentfor International Development (DFID), the Inter-national Center for Soil Fertility and AgriculturalDevelopment (IFDC), the Food and AgricultureOrganization (FAO) of the United Nations, andnumerous other bilateral and multilateral organi-zations, NGOs, CBOs, etc., who have gladly an-swered our call for partnership.

The Role of the Private SectorLet me now turn to the second important part

of my address—the role of the private sector innational development, particularly agriculture andspecifically, the agricultural marketing businesswhere the private sector has a great role to play.This sector is expected to take the leadership inturning around our ailing agricultural economy.The current agricultural policy of Nigeria clearlyspells out the role of the private sector. The thrustsof the new agricultural policy direction providesfor “crafting the conducive macro environment tostimulate greater private investment in agriculture

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so that the private sector can assume its appropri-ate role as the leader and main actor in agriculture.”

The private sector is expected to play a lead-ing role in the following areas:

• Investment in all aspects of agriculture.• Agricultural products processing, storage, and

marketing.• Agricultural input supply and distribution.• Production of commercial seeds, seedlings,

brood stock, and fingerlings.• Agricultural mechanization services.• Provision of enterprise-specific rural infrastructure.• Support for research and development in all as-

pects of agriculture.

I would like to implore the private sector tomeet our expectations in turning agriculture aroundtoward sustainable development. We need to payparticular attention to areas that have hitherto notreceived the needed attention. These are the areasof input supply and marketing. We expect the pri-vate sector to invest heavily in the production/importation and marketing of agricultural inputs,particularly fertilizers, improved seeds, CPPs, andfarm mechanization. Supply of inputs at the righttime and at reasonable prices has been the weak-est link in the agricultural production chain inNigeria.

We are aware of some of the critical/sensitiveissues of fertilizer subsidy and government inter-vention in the supply of fertilizers. Since these is-sues are on the agenda of this national workshop,I prefer to wait for your deliberations and recom-mendations. The federal government and PDP areopen to practical solutions, and I can assure youthat we will welcome all proposals that can im-prove our agriculture.

This workshop has been very timely since it isoccurring at the start of the second term of Presi-dent Obasanjo’s administration and addressing avery critical aspect of our agricultural development.I implore all participants in this workshop to ex-amine critically the input supply policies and strat-egies and to develop sound recommendations thatwill ensure availability and access to agriculturalinputs and any associated subsidies to the farm-ers. I want to thank the FMARD, USAID, andIFDC for extending this invitation to me to presentthis keynote address. I wish you successfuldeliberations.

Thank you and God bless!

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FARMERS’ VIEWPOINT ON AVAILABILITY AND PRICESOF AGRICULTURAL INPUTS

V/ADM. M. A. H. Nyako (retired) GCON,President – All Farmers Apex Association of Nigeria

I would like, on behalf of our country’s teem-ing farming populace, to express gratitude to allthose who are involved in bringing about this event,this national workshop on agricultural inputs poli-cies. I am particularly thankful to the HonorableMinister of Agriculture and Rural Developmentand the staff of his Ministry, to USAID for its sup-port to IFDC, and to the coordinators of theDAIMINA project. I have no doubt that withoutthis type of workshop, where all issues pertainingto agricultural inputs are discussed and a viableapproach to ensure adequate and timely inputs forfarming is mapped out, farmers’ productivitywould always remain a yo-yo affair in our belovedcountry.

Those of us who are seriously and profession-ally engaged in the production of agricultural prod-ucts know that without timely availability of agri-cultural inputs of the right quality, quantity, andnutrient value, it is impossible to make our agri-cultural undertakings profitable. Therefore, thisworkshop offers a great opportunity to all of us.

Let me state that, as far as I know, this is thefirst time all relevant agricultural stakeholders havegathered to seriously and professionally tackle allaspects of Nigerian agricultural inputs policies. Itis my hope that the positive effects from this work-shop shall be felt from our next cropping seasonand will last forever in the implementation prac-tices of Nigeria’s agricultural policies. HonorableMinister, I am optimistic that the outcome of thisworkshop will lead to having your name and thoseof other co-organizers written in gold in the an-nals of Nigeria’s agricultural productivity, foodsecurity, and the economic empowerment of ourcountry.

It is a fact that in a military/dictatorial regimewhere rights including human rights are denied,one could do little to assert one’s rights; but in thedemocratic era, it is expected that all rights be rec-ognized. Farmers should demand the right to avail-ability of agricultural inputs at reasonable prices,on time, and at the right time for effective use.

Agricultural inputs required by each farmervary in accordance with the commodity the farmerproduces. One may require continually improvedseeds, seedlings, or stock in addition to fertilizerof single or multiple nutrients with or without traceelements such as zinc and magnesium. Farmersmight also require permissible chemicals (herbi-cides, insecticides, etc.) at the right time for pest/bacteria/germ free and better quality products. Allthese should be available when required. There-fore, the farmer should be able to buy his/her re-quirements in good time, and the supplier must dolikewise from the manufacturers. It is a pity, butthe reality of our situation shows that almost allour agricultural inputs have to be imported sinceour local industrial capacity is not operational, isinadequate, and diminishing by the year.

Let me, therefore, look at the challenges fac-ing all of us in the agricultural inputs sector in twobroad areas, namely:• Timely availability of inputs to farmers.• Affordable prices of inputs at doorstep.

One of the targets to be identified by the projectis the quality and quantity of fertilizers and otherinputs required by Nigeria and, more importantly,developing a marketing system in rural markets tomake the inputs available. We should be in a hurryto do this. The situation in Nigeria this year in

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regard to this issue is unacceptable and danger-ous. Today, a bag of fertilizer would cost threetimes what it cost last year, but very little is evenavailable to buy. The total fertilizer available forthis ongoing season is estimated as 300,000 tons.Compare this with Bangladesh (with a total arableland only 25% that of Nigeria), which has 3 mil-lion tons and at a price much lower than the gov-ernment-subsidized price in this country. Simplyput, this is scandalous and unacceptable to thefarming community of Nigeria.

Let me, therefore, appeal to the Nigerian Gov-ernment at the three tiers to understand that farm-ers have the right to adequate availability of agri-cultural inputs and the government has the sacredresponsibility to ensure this availability. It shouldliaise with the suppliers and, if necessary, with themanufacturers of these inputs to ensure that allpolicy obstacles are removed and encouragementis given to the producers, importers, and distribu-tors to make inputs available to Nigerian farmers.I should caution that without these inputs, it isimpossible for Nigerian farmers to produce enoughproducts to achieve national food security, let alonesupply commodity surpluses for export.

So, we must work out the agricultural inputrequirements, the policies and strategy for makingthem available to the farmers, and ensuring thatthey are available on time. We must also work hardto ensure that these agricultural inputs are reason-ably priced and affordable to the farmer, and thatthe nation and the individual farmer gain from his/her farming activities. I would like to make thefollowing suggestions:

1. The government and the nation must make surethat the inputs are not over-invoiced whetherthey are produced within our shores or offshore.

2. The government should work to ease the sup-ply line from the manufacturer(s) to thesupplier(s). We should make sure in this con-text that there are no unnecessary tariffs and il-legal tollgate charges freighting and at the pointof disembarkation. Parts of our sea and airportsshould be designated and geared up for speedy

processing and handling of agricultural inputsand exports.

3. The nation must also urgently begin to buildthe infrastructure necessary for substantial re-duction of goods’ transportation charges in thecountry. It is a fact that the cheapest means oftransportation is by sea/river. Nigeria mustspeed up the reactivation of her inland watertransportation network. We must, as a matterof urgency, begin the revitalization of our rail-way network. It should be fully understood thatthe present means of transportation of agricul-tural inputs and the foods produced by the farm-ers to the consumer are too costly and unac-ceptable. We have a ludicrous situation todaybecause the cost of transportation of agricul-tural inputs from the port of disembarkation tothe hinterland is more than the actual landingcosts of the inputs in the country. Nigeria musttherefore modernize its inland water and rail-way systems immediately.

4. The government should appreciate that agricul-tural production is a profit-making business andit could only survive if it, at least, breaks evenand all stakeholders derive some benefits fromit. It should therefore understand the implica-tions and be honest about price subsidy on ag-ricultural inputs. Surely subsidy is meant toameliorate the poverty of the farmer or to im-prove national food security or both. It is cer-tainly not meant for public officials at variouslevels of government bureaucracy to illegallyenrich themselves from public coffers. Thus, wemust clearly identify the beneficiaries of gov-ernment subsidies on agricultural inputs rang-ing from the poor to the poorest in the farmingpopulace. Farmers should of course be sup-ported with adequate extension delivery andresearch findings. The Sasakawa-Global 2000(SG 2000) support to farmers has clearly shownwhat could be achieved through extension de-livery and without subsidy on agriculturalinputs.

5. Nigeria must expand its network of agriculturalinput agencies (producers, importers, distribu-tors) at all levels. The DAIMINA project has

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already started doing this in three states, andthe results are very encouraging. This must beextended to all other states and Abuja.

6. The transformation of our weak farmers’ asso-ciations and commodity associations/ groupingsinto viable and strong organizations and theirnetworking with agricultural marketing is alsoin the best interest of Nigerian agricultural de-velopment and the government because it willimprove rural economy and political stability.

It is a platitude to state that farmers’ organiza-tions, commodity groups/enterprises/associations

and associations of input suppliers must be fullyinvolved in programming and implementation ofthe foregoing in order to maximize returns frompolicies and our efforts. ALFAAN has alreadystarted discussions with the fertilizer importers anddistributors on how to ensure timely and adequateavailability of fertilizers at reasonable prices to allNigerian farmers. It intends to ensure that this crop-ping season is the last of the terrible seasons ofNigeria’s agricultural input unavailability.

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AN OVERVIEW OF FERTILIZER IMPORTATIONAND DISTRIBUTION IN NIGERIA

Sani Dangote, ChairmanDan Hydro Company Limited

Introduction

With the largest population in Africa, Nigeriahas an estimated 120 million people and a popula-tion growth rate of 3% per annum. Over 75% ofthe population is engaged in full-time agriculturalproduction and approximately 56,261 km2

(5,626,100 ha) of the land is cultivated. Becauseof these facts, Nigeria has the potential for tremen-dous fertilizer use and consumption. The countryhas an estimated annual consumption of 7 milliontons of fertilizers per annum. There is abundantraw material input in the form of natural gas forthe local production of nitrogenous fertilizers suchas urea and ammonium sulfate. The National Fer-tilizer Company of Nigeria (NAFCON) at PortHarcourt is the only plant that could produce andsupply enough urea for local consumption andexport to countries within the West African sub-region and it has been closed since 1996. The clo-sure of NAFCON, the supplier of urea raw mate-rial input, has affected the production output ofthe local blending plants that rely on the companyfor their urea input for blending of compound fer-tilizers. Additionally, the available rock phosphatedeposits that exist around the Sokoto-Zamfara axisare not mined and processed for the production ofsingle superphosphate (SSP), diammonium phos-phate (DAP), and other vital fertilizer-blendinginput materials. These factors have brought aboutan increase importation of raw fertilizer materialsand finished fertilizer products. Compounding thesituation is the lack of potash deposit within theNigerian geological formation. Land is no longeran abundant resource because of the rapid popula-tion growth. Intensive and expensive crop produc-

tion practices justify the increased need for min-eral and/or inorganic fertilizer use to meet plant/crop nutrient needs. In the meantime and pendingthe resuscitation of the NAFCON plant, the im-portation and distribution of fertilizer products re-main the only option in meeting a very significantdemand of the Nigerian farmers for fertilizer.

Private Sector Fertilizer Importation andDistribution Trends

During the last 10 years, January 1994–August2003, a total of 3,047,953 tons of fertilizers wasimported into the country. The figure representsboth finished fertilizer products and raw materialsfor local blending plants. With a cultivated area of5,626,100 ha and fertilizer use potential of 7 mil-lion tons per annum, the 3 million tons of fertil-izer import and consumption in 10 years is quitebelow the annual potential fertilizer use. This lowfertilizer use index constitutes serious impedimentto the growth of agricultural development, foodproduction, and attainment of food security espe-cially in view of our population growth rate.

The following factors constitute the rationalebehind fertilizer importation in Nigeria:

• The close of NAFCON, the main source of ureaand raw materials.

• Rock phosphate is not mined in the country forproduction of SSP, TSP, DAP, and MAP.

• Unavailability of potash for processing MOP.• Inadequate production by local blending plants.• Increased demand for fertilizer as a result of

greater awareness and increased land area.

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1The summary of fertilizer import operations in 2003 is asfollows: Total number of vessels as of August 18, 2003 is25; Number of companies involved is 7; Total cargo is268,801 tons, comprising —urea (152,751 tons); DAP(10,619 tons); MAP (28,660 tons); NPK (66,256 tons). Thedelivery period is as follows: January/February/March(68,287 tons, 21.59%); April/May/June (282,593 tons,44.17%); July/August (92,028 tons, 32.24%).

Annual Fertilizer Imports To Nigeria (1994–August 2003)1

Importation figures for the last decade indicatedrops and rises in the annual importation, bothduring government-controlled import and distri-bution, and a deregulated market era. Annual im-portation was highest in 1994 with 690,436 tons.The figure represents both finished fertilizers andraw materials for local blending plants. The plantshad a total production of over 100,000 tons of com-pound fertilizers in the same year. The importa-tion and distribution of fertilizer-finished productswere the exclusive responsibilities of the federalgovernment then. The total import figure, however,dropped to a meager 102,851 tons in 1995. Thisdrastic drop in the total importation was due totwo significant reasons. First, the Federal Minis-try of Agriculture wanted to change the procure-ment method from selective tender to open com-petitive bidding. This was not successful. Second,there were the growing feelings that the entire na-tional fertilizer needs could be met from within

through NAFCON and the local blending plants.Unfortunately, this period coincided with the lowproduction output from NAFCON. There wereserious abuses in the fertilizer distribution system.

In the following year (1996), there was no im-port of finished products. The 43,314 tons importedwere mainly fertilizer raw materials for blendingplants.

The year 1997 was a transition period in thefertilizer subsector. It was the era of fertilizer mar-ket deregulation. The drop in annual imports con-tinued, though at a decreasing rate. The total im-port of 56,708 tons was mainly fertilizer rawmaterials for local blending plants. There was nosignificant increase in the total imports due to:

• A big vacuum for imports and distribution cre-ated by the government in a sudden policychange.

• Deregulation carried out in the last quarter of1997 and little or insufficient time for privatesector participants to process fertilizerimportation.

However, in 1998 the total annual importjumped to 239,916 tons; this represented a four-fold increase. This could be attributed to the largenumber of private sector participants engaged in

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the importation and marketing of fertilizers in thecountry. Over 20 companies were registered in theimportation and distribution of fertilizers through-out the country. Within this period, over 40 fertil-izer depots were established by these companiesnationwide.

There was no significant increase in annualimports in 1999. Total imports were 252,861 tons.This could be attributed to the stock carryover fromthe preceding year. Unsold stock in fertilizer com-panies’ depots and dealers’ shops was due to thedemand. In addition, the new deregulated priceshad an impact on consumption. This notwithstand-ing, more entrants into the fertilizer market wererecorded.

The years 2000 and 2001 were marked withthe rapid increase in annual imports with 437,320tons and 615, 000 tons, respectively. The suddensurge in the annual imports within this period wasdue to an increase in the number of companies in-volved in the importation and distribution of fer-tilizers; this led to an increase in demand and con-sumption. However, due to lack of quality controland monitoring mechanisms, the abolished 10%duty was abused. Other trade malpractices wereperpetuated by some of the fertilizer companies.

Imports declined to 340,746 tons in 2002, per-haps due to the identification and consequent pen-alty meted out to companies involved in malprac-tices. In addition, the government interventionpolicy, which came into effect in 1999, was begin-ning to take a toll on the companies involved inimportation and distribution of fertilizers. Thepolicy, which allows for the simultaneous sale ofsubsidized fertilizers with unsubsidized ones, hasaffected sales of most fertilizer companies.

In 2003 these effects continue to manifest andtotal fertilizers imported and distributed declinedto 268,801 tons as of August 18, 2003. In addi-tion, only seven fertilizer companies were involvedin the importation and distribution of fertilizers.About 200,000 tons or 70% of the total importsarrived at the ports during the critical fertilizer

application periods of June-July-August. Haulagedifficulties and high charges aggravated the sup-ply timing to the farming areas. In fact, there wasserious scarcity and the retail price of fertilizer wasone of the highest this year.

Fertilizer Importation andDistribution Constraints

This country has abundant potential for im-proved fertilizer production and consumption. Thebasic fertilizer raw materials are obtained fromnatural sources. There is abundant natural gas forurea production. Potash deposits, available fromancient lakes or water bodies, are a significantsource of potassium; otherwise, there is no knownsource in Nigeria. Rock phosphate, a significantsource of phosphorous, is available in commer-cial quantities around the Sokoto and Zamfara geo-logical formation. However, these rock phosphatedeposits have not been explored or mined undercommercial ventures.

For now, about 98% of fertilizer raw materi-als, namely urea, DAP, MAP, and MOP, requiredby local blending plants are imported. In addition,finished imported fertilizers constitute a substan-tial proportion of fertilizer used in this country.The situation will remain so, pending the resump-tion of production at NAFCON. In the meantime,importation of fertilizers will continue to play akey role in providing farmers with fertilizers. Nev-ertheless, there are several factors that constituteserious constraints in the efficient importation anddistribution of fertilizers.

These constraints are as follows:

• Capital-intensive nature of fertilizer importationand distribution business. Fertilizer importationand distribution requires a high level of finan-cial involvement covering the product, freight,port handling, insurance, clearance, haulage, andwarehousing.

• High inland transportation costs. Hinterland ar-eas are the main consumers of fertilizers; trans-portation costs to retail areas account for 10%–

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30% of the product cost. Total distribution costsrepresent 15%–35% of product cost price.

• High finance cost. This country has one of thehighest finance cost with commercial bank lend-ing rates of 30%–35% per annum.

• Policy inconsistencies and government interven-tions at federal and state levels. This results in ascenario where subsidized fertilizers from fed-eral and state governments at subsidized ratesand open market fertilizers at private investors’rates are sold at the same time in the market,thus leading to the eventual crippling of privatesector investors.

• High landing costs such as ship and cargo dues,5% duty, 1% maritime levy, clearing charges,local transportation, etc. These account for about30% of the total product cost; e.g., Lagos ports.

• High and prohibitive port charges. Our portshave one of the most expensive service charges.

• Foreign exchange fluctuations, which can re-sult in substantial financial losses.

• Lack of quality control and monitoring mecha-nism measures, the absence of which has re-sulted in trade and marketing malpractices.

• Port logistics constraints such as lack of ware-housing facilities that assist in timely cargo dis-charge and interim storage pending dispatchesto the hinterland.

• Late payment for fertilizers supplied to federaland state governments by the suppliers.

• Discouraging price offers for fertilizer suppliesby the federal and state governments. This al-lows for manipulation by some unscrupuloussuppliers.

Suggested Solutions inFertilizer Importation and Distribution

Pending the privatization and reactivation ofNAFCON, there are very limited options to fer-tilizer importation in meeting local needs. Theconstraints of the fertilizer importer and that ofthe farmers are inseparable. Solutions aimed atimproving the importation and distribution of fer-tilizers must address the constraints of the im-

porter as well as the problems of the farmers. Theimporter should be able to bring in good qualityfertilizers at affordable costs to the farmers. Like-wise, the local blender should be able to procurefertilizer blending raw materials at competitiverates to turn out affordable finished products tothe farmers, which are of good quality. On theother hand, the farmer should have the financialcapability to purchase the right types and quanti-ties of fertilizers needed at the appropriate timeand at affordable rates. The following suggestionswill, under the given fertilizer market situation,bring about rapid and positive changes towardmaking fertilizers available to the farmers in theinterest of the overall agricultural and economicdevelopment of the country.

• Establishment of a favorable policy frameworkthat is investor friendly, which will include with-drawal of government intervention in the pro-duction, importation and distribution of fertil-izers at federal and state levels.

• Provision of indirect subsidy aimed at reducingthe current fertilizer retail prices; for example,the Federal Government can abolish and takeresponsibility for port charges, and duty andmaritime levies for fertilizer conveying vessels.Port charges, duty and maritime levies form thebulk of the landing costs, which constitute 25%-30% of imported fertilizer raw material or fin-ished product cost; e.g., Lagos ports.

• Application of low interest regimes for funds,under special arrangements by the Central Bank,specifically allocated for fertilizer importationand distribution. This will apply to both finishedproducts and raw materials for local production.Beneficiaries should be made to submit counterguarantees.

• Establishment of quality control and monitor-ing mechanisms with legislative backing thatwill effectively regulate the fertilizer subsector,protect the interests of the importers, local pro-ducers of fertilizers, and the consumers.

• Ready and available market outlets for farmproduce that will ensure high profitability foragricultural production business.

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• Establishment by the Federal Government of agrain price stabilization program for grain pur-chase, from the farmers at guaranteed minimumprices.

• Arrangement for micro-economic finance pro-gram allowing farmers easy access to credit fa-cilities without collateral requirement.

Since agriculture has the highest labor em-ployment opportunities, the current poverty alle-

viation program of the federal government shouldbe targeted toward the agricultural sector of theeconomy. The result of doing so will have posi-tive multiplier effects on the economy for the at-tainment of the much desired food security of ourgreat country.

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IFDC PROGRAMS WITH SPECIAL REFERENCE TO POLICY ADVOCACY

Amit RoyPresident and Chief Executive Officer, IFDC

It is with considerable pleasure that I am heretoday to give you an overview of IFDC’s policyreform projects in the context of this workshop.However, before elaborating on these projects,please permit me to say a few words about IFDCand its expanding role in the global agriculturalscene.

The International Fertilizer Development Cen-ter (IFDC) was created in October 1974 as a cen-ter of excellence with expertise in fertilizers to meetthe needs of the developing countries. The Centercan be considered as an outgrowth of the NationalFertilizer Development Center (NFDC) of the Ten-nessee Valley Authority (TVA). In the early 1960s,it became evident that TVA-NFDC’s fertilizerknowledge and facilities were resources that shouldbe contributing to foreign assistance efforts in thedeveloping countries. TVA-NFDC became increas-ingly involved in agricultural development in thedeveloping countries. Initially, this involvementwas in the form of furnishing information on fer-tilizers to the U.S. Agency for International De-velopment (USAID) and its missions, but soonbecame more direct by sending technical assistancemissions to the developing countries.

In spite of these developments, it became in-creasingly clear that TVA, with its objective of de-veloping technologies for the U.S. fertilizer indus-try, in particular, and the agriculture sector, ingeneral, was very restricted in what it could orwould do for developing countries. Thus, a defi-nite need arose for an international center thatwould freely address the fertilizer technology needsof the developing countries in the tropics andsubtropics.

IFDC was created during a period of crisis—food shortages of the early 1970s were occurringon a worldwide basis. Energy shortages were be-

coming commonplace, and prices of agriculturalinputs were rapidly increasing. Inadequate suppliesof fertilizers were available to produce food; pricesof fertilizer and food skyrocketed. All of these fac-tors caused the developing countries to be at a dis-tinct disadvantage.

In an address to the United Nations GeneralAssembly in April 1974, Dr. Henry Kissinger (thenU.S. Secretary of State) pledged the contributionof U.S. fertilizer technology and strong materialsupport toward “the establishment of an interna-tional action on two specific areas of research:improving the effectiveness of chemical fertilizers,especially in tropical agriculture, and new meth-ods to produce fertilizers from non-petroleum re-sources.” To address the crisis situation, the Foodand Agriculture Organization (FAO) of the UnitedNations (UN) organized a World Food Conferencein November 1974.

At that Conference, the United States drew theinternational community’s attention to the impor-tance of fertilizer research and development insolving the food security challenges of the devel-oping world by announcing sponsorship of the es-tablishment of IFDC.

USAID and the International DevelopmentResearch Centre (IDRC) of Canada were chiefsponsors of the establishment of IFDC. Since thattime, IFDC’s revenue sources have expanded toinclude a variety of multilateral and bilateral do-nor agencies, host countries, private sector com-panies, associations, and national organizations.

The initial purpose of IFDC was to assist thedeveloping countries in solving their food-deficitproblems by focusing on the development of fer-tilizers and fertilizer practices to meet the specialneeds of their tropical and subtropical climates and

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soils. IFDC has always emphasized the need forefficiency in the production, marketing, and useof fertilizer to protect the environment, reduceenergy consumption, and ensure its cost-effective-ness. Since its programs were first organized in1975, IFDC has contributed to increasing foodproduction in many developing countries throughimproved management of plant nutrients and theenhancement of soil fertility. Since 1975, IFDC’sscientists have been striving to create a more sus-tainable agriculture in the developing countries byhelping them to use their own raw materials toproduce the necessary fertilizers needed to buildsoil fertility and produce more food.

More recently, IFDC has evolved into a multi-faceted center with a broadened focus. IFDC’s mis-sion today focuses on increasing and sustainingfood and agricultural productivity in the develop-ing countries through the development and trans-fer of effective and environmentally sound plantnutrient technology and agribusiness expertise.During the past quarter century, the Center hasconducted technology transfer initiatives in morethan 150 countries. More than 9,000 participantsfrom 150 countries have enhanced their skillsthrough more than 600 global training programs.In addition, an estimated 100,000 people have at-tended IFDC’s training courses where there aresignificant development projects.

To more closely reflect the new thrust, theIFDC Board of Directors in 2001 approved achange in the operational name of the institute toIFDC—An International Center for Soil Fertilityand Agricultural Development. In this expandedrole IFDC uses innovative approaches to:

• Introduce and promote integrated soil fertilitymanagement strategies so that agricultural sys-tems become productive and sustainable.

• Assist countries in their efforts to develop mar-ket economies by providing them sound eco-nomic policy analyses that will unleash the en-trepreneurial creativity necessary for economicdevelopment.

• Develop and introduce decision-support systemsthat integrate socioeconomic and biophysicalmodels.

• Promote development of technologies and insti-tutions and facilitate dialogue among stakehold-ers for sustainable agriculture.

• Improve smallholder farmers’ access to agricul-tural inputs through harmonization of regionaltrade, particularly in sub-Saharan Africa.

Mr. Chairman, IFDC continues to forge aheadinto new areas of opportunity for the developmentof competitive agricultural sectors in such placesas Kosovo, Malawi, Nigeria, Kyrgyzstan,Azerbaijan, Afghanistan, and others. The Centerhas chalked up a number of notable successes in along list of countries, including Albania,Bangladesh, Colombia, Kenya, and Venezuela, toname a few. In tackling some of the most impor-tant challenges facing humanity, IFDC is havingan impact around the globe—in the developingcountries and the transitional economies. Thesechallenges relate to meeting the food and fiberneeds of the burgeoning world population throughbetter management of nutrients to improve soilfertility, policy reform to establish open and com-petitive markets and efficient economic systems,and technology transfer to improve smallholderfarmer access to (and judicious use of) fertilizers.

By applying innovative agricultural technolo-gies in an agribusiness setting, IFDC is laying thegroundwork for improved global food security andthe alleviation of poverty. In Albania, Bangladesh,and Kosovo, IFDC has effectively linked agricul-tural production with economic developmentthrough the design and implementation of eco-nomic policies that promote the free market sys-tem and lead to economic efficiency, increasedemployment, and overall economic growth.IFDC’s work in Asia, Africa, Latin America, andEastern Europe promotes efficient management ofnutrients and the implementation of market prin-ciples that result in increases in both agriculturalproduction and economic development.

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Mr. Chairman, one of IFDC’s most outstand-ing success stories occurred in Bangladesh, wherea 15-year project completely restructured the fer-tilizer sector and instituted a freely competitivemarketing system, which created a network of170,000 private entrepreneurs. By eliminating fer-tilizer subsidies and other support costs and allow-ing the private sector to assume responsibility forall fertilizer-marketing activities from importationto retail sales, the Government of Bangladeshsaved more than US $100 million during 1988-94. As a result of improved effectiveness in themarket and intense competition, the retail price offertilizers was reduced and fertilizer sales increasedon an average by 8% per year during 1987-94. Aprime result of this project was Bangladesh’sachievement of self-sufficiency in rice in the early1990s. IFDC worked with local non-governmen-tal organizations such as the Grameen Bank to in-troduce high-yielding varieties of maize on a largescale in Bangladesh. The impact on Bangladesh’shuman resources is also outstanding; more than11,000 participants were trained in 238 domesticcourses and workshops. In addition, 193 dealers,government officials, and bankers were trained in33 programs in the United States and Europe. Inan evaluation of the Bangladesh project, USAIDstated that the “program succeeded beyondexpectations……Privatization of fertilizer market-ing and distribution significantly improved bothemployment and agricultural production. The im-proved fertilizer distribution system was an eco-nomic boon because it was part of a full, economi-cally viable technical package that also includedhigh-yielding rice varieties and improved irriga-tion…. As a result of the program, income in-creased US $600 million per year for paddy pro-duction and US $750 million per year for allcrops.”

Mr. Chairman, as a result of the successachieved in the fertilizer subsector and in improv-ing agricultural productivity, during the mid-1990sIFDC launched the Agro-Based Industry and Tech-nology Development Project (ATDP). The ATDPgoal was to increase productive employment in ag-

riculture and related enterprises in Bangladesh. TheIFDC project created competitive markets for ag-riculture and agribusiness inputs, outputs, andtechnologies. Moreover, it stimulated a massiveinvestment in value-added business activities. Theproject promoted reforms in trade policy, indus-trial and agricultural policy, fiscal and commer-cial policy, foreign investment policy, and legal andregulatory practices in Bangladesh. Agribusinessventures were initiated and existing ones expandedwith financing from a US $26 million plusagribusiness credit fund. The amount of invest-ments/loans made in agribusiness totaled 12,700;70,000 new agribusiness employees were addedin the private sector. During the project 700,000farmers increased their incomes by using moreproductive, environmentally sound technologiessuch as urea deep placement (UDP) for rice pro-duction. Technological advancement in agri-indus-try was spurred through technical assistance, hu-man resource development, and business contracts.Advice on policy formulation and implementationcreated a friendlier environment for the country’sagribusiness.

More recently, IFDC has concentrated on in-creasing paddy yields through improved efficiencyof nitrogen fertilizers. The beneficiaries are re-source-poor farmers in selected areas ofBangladesh, Nepal, and Vietnam. For paddy culti-vation, losses of nitrogen are great. Typically, about30% plant recovery is obtained from the broad-cast applications of urea, but research has proventhat placement into submerged soils eliminatesmuch of the nitrogen losses. UDP, using urea bri-quettes or urea supergranules (USG), although la-bor intensive, provides high yields from more ef-ficient fertilizer, is environmentally friendly, andappears to be feasible for use by small-scale, re-source-poor farmers. Bangladesh’s Department ofAgricultural Extension reported that UDP wasperformed on 379,000 ha of paddy during 2000/01. In general, during dry seasons farmers obtain1,000 kg/ha more paddy (an average 20% increase)from UDP than from their broadcast urea applica-tions and use 20%-30% less urea.

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Mr. Chairman, another IFDC success story isour project in Albania. In the early 1990s, IFDCbegan assisting the Government of Albania in es-tablishing a working and vibrant market economyin that country’s agricultural sector. The IFDCproject created a fully privatized market for agri-cultural inputs, assisted Albania in developing anefficient national agricultural statistical system,developed a supporting institutional capability, andnurtured the development of the highly successfulAlbanian Fertilizer and Agricultural Inputs Deal-ers’ Association (AFADA). Private enterprises arenow supplying 100% of Albania’s fertilizer require-ments, 95% of crop protection products, and 80%of certified imported and domestic seed. Four-fifthsof all farmers are using fertilizers, and nearly one-half are using improved seed. Yields of wheat andmaize have increased 22%, and many farmers haveshifted to more high-value horticultural crops.Better fertilizer and seed laws, reductions in tar-iffs, and the establishment of viable seed and soilinstitutes capable of serving farmers andagribusinesses enhanced these improvements.During the past 3 years, IFDC has assisted Alba-nia in nurturing private sector-led growth in agri-culture and business by successfully establishingeight democratic and functioning agricultural tradeassociations, a federation of 18 trade associationsas an effective voice for advocating policy reform,and the partnership of eight of them in an Asso-ciation Business and Management Center that aimsto be effective and self-sufficient. Since 1998, farmincome in Albania has increased by 64%; exportsof fresh vegetables have increased by 247%. Theproject clients have invested millions of dollars oftheir own money in agribusiness and increasedtheir production and revenues by more than 60%and employment by 25%.

Mr. Chairman, because of resounding successin Albania, IFDC was asked to help with the revi-talization of the agricultural sector following thecessation of hostilities in Kosovo. IFDC has es-tablished a trade association support network foragricultural input and agribusiness developmentsimilar to the model in Albania. The KosovoAgribusiness Development Project (KADP) is:

• Promoting market-oriented reforms.• Assisting the development of financially sustain-

able trade associations.• Establishing linkages in the agribusiness sector,

such as the private sector extension system pio-neered in Albania.

• Helping nascent agricultural enterprises throughtargeted business and marketing support.

• Facilitating access to credit.

Since 1999 KADP’s clients have realized a37% increase in agricultural production, and sala-ries in private enterprises rose by 27% in 2001.The project has:

• Implemented policy reforms on import tariffs.• Organized several successful trade missions and

staff training programs.• Introduced and tested new high-yielding crop

varieties.• Conducted numerous field days in conjunction

with the private sector.

Of all Kosovar enterprises recently surveyed,77% have made investments in private enterprises;the employment generated by these investmentsincreased by 32% compared with 1999 figures. Thetechnical assistance to Kosovo’s entrepreneurs hasresulted in increased agricultural input availabil-ity as follows:

• Fertilizer—from 40,000 tons of imports in 1999to 72,000 tons in 2001.

• Improved seeds—from 16,000 tons imports in1999 to 30,000 tons in 2001.

• Crop protection products (CPPs)—from2,500 tons imports in 1999 to 7,800 tons in 2001.

As a result of better quality agricultural inputavailability, better access by farmers, better prices,and a sound private extension program, the yieldsof the main crops have increased significantly inthe past 3 years. In 2001 the yield of wheat was3.6 tons/ha, compared with 1.8 tons/ha in 1999.The yield of maize in 2001 was 4.2 tons/ha, com-pared with 2 tons/ha in 1999. The yield of pota-toes was 11 tons/ha in 2001, compared with

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7.4 tons/ha in 1999. As for the poultry industry,the total number of domestically produced eggsincreased by about 17% in 2001, compared with7% in the year 2000.

Mr. Chairman, in 2002, after the establishmentof the Afghanistan Interim Administration, IFDCwas asked to help with the distribution of emer-gency supplies of fertilizers to needy farmers andalso to develop the inputs sector. This was ex-tremely challenging. Decades of conflict, a severedrought since 1998, and the Taliban regime dev-astated both subsistence and commercial agricul-ture. The market was decapitalized and sector per-formance slumped. New agricultural technologywas not adopted because of lack of incentives.Extension systems became nonfunctional, whichconstrained technology transfer. Lack of invest-ment in infrastructure resulted in its progressivedeterioration. Banks ceased to operate. However,in spite of this difficult environment, the tradersimported fertilizer from neighboring countries andsold it to farmers on a cash basis.

After the Taliban regime was deposed in late2001, the smallholder farmers and returning refu-gees did not have any money to purchase inputs.To provide this segment of the population withemergency supplies of fertilizers without disrupt-ing the existing fertilizer trader network, IFDCdesigned and introduced an income transfer pro-gram using the voucher scheme.

The voucher, printed in the local languages ofDari and Pashtu, authorized a selected farmer toreceive his/her predetermined fertilizer quantityfrom the local dealer without payment at that time.A schematic of the voucher system is shown inFigure 1. Vouchers were designed and printed withspecial markings to ensure that they could not beduplicated easily (Figure 2). The vouchers weredistributed to the farmers through four NGOs thatwere operating in the selected provinces. The farm-ers were selected on the basis of recommendationsfrom the local community organization (Shura),the staff of the extension department of the Minis-try of Agriculture and Livestock (MOAL), and the

NGOs. Along with the vouchers, the farmers re-ceived written instructions in the local languageon the proper use of fertilizer received through thevouchers. The dealer submitted the vouchers toIFDC and was paid promptly through a designatedmoneychanger in the area. This scheme requiredtraining the NGO staff, the Shura representatives,and the participating dealers in the basics of theprogram. The NGOs and Shura representativeswere encouraged to hold meetings with the localfarmers to explain the workings of the programand its benefits.

More than 16,000 tons of fertilizer was dis-tributed to the needy farmers in the agriculturallyimportant provinces of Kabul, Parwan, Kapisa,Laghman, Nangarhar, Wardak, Badakshan,Baghlan, Kunduz, Takhar, Ghazni, and Helmand.Through a post-operation monitoring and evalua-tion survey, it was determined that in the distribu-tion of fertilizer for fall wheat, 98% of the intendedfarmers received the urea and DAP. Yield estimatesof more than 4 tons/ha were obtained in many fieldsalthough the variability was high among fields andprovinces due to various crop production factors.The repayment after harvest to the Shura has beenvery good and averaged more than 84%. The farm-ers in the 42 districts in these 12 provinces werepleased with the program because it helped themto overcome their initial difficulties in reenteringthe farming cycle with very limited resources oftheir own. Many farmers felt that they could nothave managed without this program. The many in-dependent small fertilizer dealers who willinglyparticipated were also very pleased with the pro-gram since it improved their sales efforts by creat-ing a good demand through the vouchers. Theywere also pleased with the prompt reimbursements.Overall the program did provide a stimulus to thelocal fertilizer market and cemented the relation-ship between the farmers and the dealers.

Mr. Chairman, as a part of the DAIMINAproject, IFDC undertook a study of the fertilizermarket in Nigeria, including the subsidy given bythe federal and state governments. Important find-ings include:

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• Fertilizer use is profitable on the main crops.• Fertilizer price is not the only significant con-

straint; poor quality and non-availability of fer-tilizer products are substantial constraints; inad-equate access to credit is also a constraint,especially for smallholders.

• More often, subsidized fertilizers were not reach-ing the intended beneficiaries.

• Dual pricing system is inefficient and leads todistortion of the marketing system.

• Against an agronomic potential of 3.8 millionnutrient tons and economic potential of 1.5 mil-lion nutrient tons, Nigeria is using only 100,000-150,000 nutrient tons (less than 10% of economicpotential and less than 4% of the agronomicpotential).

• By not realizing its economic potential for nu-trient use, Nigeria incurred a foregone loss of 3million tons of maize in 2000.Similar losses were incurredfor other crops. Total economicloss could be staggering.

The study recommended the following actions:

• Fertilizer subsidies and government distributionshould be reassessed.

• Fertilizer prices should be reduced by loweringtransaction costs through improvements in pro-curement, transportation, port handling, dealernetworks, and regulation.

• For resource-poor farmers, targeted subsidiesshould be introduced through the voucher sys-tem, as IFDC did in Afghanistan.

In conclusion, Mr. Chairman, I hope that theexperiences that I have shared this morning willbe useful in the deliberations of this workshop.

Thank you.

Figure 1. Schematic Diagram of the Voucher System.

Figure 2. Voucher for Urea Fertilizer.

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REMARKS ON THE AGRI-INPUT WORKSHOP

Dawn LiberiUSAID Mission Director, Nigeria

Introduction

It gives me great pleasure to address this dis-tinguished assembly of participants on the nationalagri-inputs policy workshop. Permit me to take thisopportunity to publicly congratulate His Excel-lency Mallam Adamu Bello on his reappointmentto the Federal Executive Council as the Ministerfor Agriculture and Rural Development. USAID/Nigeria has enjoyed working with the Ministryduring his first term, and we look forward to con-tinuing our strong working relationship. We areconfident that farmers and entrepreneurs in theagricultural sector have a great partner in the per-son of Honorable Minister Bello.

Role of the Private Sector

It gives me great pleasure to participate in thisworkshop on the USAID-funded Developing Ag-ricultural Input Markets in Nigeria (DAIMINA)project, which is implemented through IFDC. Weare pleased that the Government of Nigeria iscounting on the private sector to procure and mar-ket agricultural inputs. This is consistent with theobjectives of the new agricultural policy thrust inorder to improve input availability and supply. Italso makes good sense because agriculture is mostproductive when it is driven by markets operatingfreely. The public sector has the very crucial roleof providing and maintaining the necessary infra-structure and for putting in place a supportivepolicy environment.

The Need for Competitive Markets

Since 1999 USAID has funded about $27 mil-lion in assistance to the agriculture sector in Nige-ria. Over the past years, USAID has undertaken arigorous exercise to develop a new 5-year strate-gic plan for assisting Nigeria in its economic, po-

litical, and social development. Through a processof stakeholder consultations, analyses, discussions,and internal debates, we have concluded that agri-cultural development is the key to the economicgrowth of the nation. However, developingNigeria’s agriculture presents some very greatchallenges.

We believe that an effective approach to de-veloping Nigeria’s agriculture sector is by improv-ing the competitiveness of key commodity sectors.This requires an integrated approach that recog-nizes the complex linkage between farms andmarkets. The most important outcome is the de-velopment of an efficient marketing system, whichwill provide accurate market information to allparticipants. This will improve decision-makingand reduce transaction costs resulting in net gainfor suppliers and farmers.

We have seen improvement in the linkage be-tween producers and buyers through the RuralSector Enhancement Program (RUSEP) project,which is being implemented by the InternationalInstitute of Tropical Agriculture (IITA) in Katsina,Adamawa, Oyo, and Abia States. Participatingfarmers in some of these states have signed amemorandum of understanding with certain com-panies for the purchase of their farm output, in-cluding maize and cassava. In Katsina, the partici-pating farmers were able to secure loans fromUnion Bank, which facilitated their access to pro-duction credit.

The Supporting Policy Environment

This workshop has been convened to obtainyour input into developing an efficient agriculturalinput marketing system. To successfully promotecompetitive input supply systems, policy stability,and provide regulatory framework for quality

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standards, the government needs to rely on the pri-vate sector for procurement and marketing of ag-ricultural inputs.

While the policy assessment will be reviewedin more detail later, a number of the recommenda-tions from the IFDC policy report are worth noting:

• The Federal Government of Nigeria (FGN) mustcontinue to develop the private sector fertilizermarket and delivery system and support activi-ties that decrease the transaction costs of the fer-tilizer delivery systems.

• The Nigeria fertilizer subsidy policies should becritically examined in the context of Nigeria’sWorld Trade Organization agreements.

• The FGN should consider replacing the currentsubsidy policy and experiment with a vouchersystem.

• Policy dialogue needs to be continued with boththe federal and state governments with all thestakeholders in the agricultural sector.

• Fertilizer and related data collection and analy-sis need to be strengthened.

Conclusion

USAID supports an active dialogue on optionsto improve the provision of fertilizer supply andaccess through the private sector. This is criticalto the development of Nigeria’s agriculture sectorand to improving the health and welfare of itspeople. I look forward to the continued supportand interest of the Ministry of Agriculture andRural Development to accomplish this task.USAID is pleased to be a partner in this endeavor,and I look forward to the outcome of this workshop.

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OPENING ADDRESS

Adamu Bello (FCIB), Honorable MinisterFederal Ministry of Agriculture and Rural Development

It is indeed my honor and privilege to be herewith you at this national workshop on agriculturalinput policies. I consider the timing of this work-shop appropriate because it is coming at a timewhen the government is articulating implementa-tion strategies for the new agricultural policy thatwill impact immediately and positively in enhanc-ing the quality of life of the ordinary Nigerian. Letme congratulate the IFDC-DAIMINA project forworking closely with the Federal Ministry of Ag-riculture and Rural Development (FMARD) to or-ganize this important workshop.

An Overview of the AgriculturalSector and Government Policy

Since the inauguration of President OlusegunObasanjo in May 1999 as the democraticallyelected President of the Federal Republic of Nige-ria, there has been a deliberate drive toward a com-plete diversification of the Nigerian economy andan active promotion of a pre-eminent role for theprivate sector in the development process. Timelyaccess to affordable and good quality agriculturalinputs is one of the objectives of the new agricul-tural policy of the Obasanjo administration.

Agriculture, as we are all aware, is the engineof growth of the Nigerian economy and a signifi-cant pillar of Nigeria’s national security. The sec-tor holds the key to rapid economic growth, pov-erty alleviation, and stable democracy. Itcontributes about 40% of the gross domestic prod-uct (GDP), 88% of the non-oil foreign exchangeearnings, employs nearly 70% of the active laborforce, and provides raw materials for the agro-al-lied industrial sector. The sector also provides al-most all of the staple food consumed by the na-tional population and exports grains and otherfoodstuff informally to the Economic Communityof West Africa States (ECOWAS) sub-region. The

sector recorded an overall growth rate of about4.1% in 2001. The same margin of growth wasrecorded in 2002, compared with populationgrowth of 2.8%.

In order to achieve sustained growth and struc-tural transformation of the economy, the agricul-ture sector requires well designed, articulated, andsustainable policies. The newly approved NigerianAgricultural Policy is a framework of carefullychosen action plans designed to achieve overallagricultural growth and development. The policy,which has been approved by both the Federal Ex-ecutive Council and the Council of State, is a prod-uct of a review of the 1988 agricultural policy,considering the current national and global eco-nomic situation with an active participation of themain stakeholders, including farmers’ organiza-tions. The strategies for implementing the new ag-ricultural policy, including the Presidential Initia-tives, are in the early stages of implementation,and I am happy to announce some are already yield-ing positive results.

The new agricultural policy is aimed at achiev-ing the following broad objectives:

• Attainment of food security in basic foodcommodities.

• Increase in production of agricultural raw mate-rials to meet the growth of an expanding indus-trial sector; increase in production and process-ing of exportable commodities to increase theirforeign exchange earnings capacity and furtherdiversify the country’s export base and sourcesof foreign exchange.

• Modernization of agricultural production, pro-cessing, storage, and distribution through theinfusion of improved technologies and manage-ment so that agriculture can be more responsiveto the demands of other sectors of the Nigerianeconomy.

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• Creation of more agricultural and rural employ-ment opportunities to increase the income offarmers and rural dwellers and to absorb pro-ductively an increasing labor force in the nation.

• Protection and improvement of agricultural landresources and preservation of the environmentfor sustainable agricultural production.

The Policy Thrust of this Administration aimsto:

• Create the macro-environment that will stimu-late greater private sector investment in agricul-ture so that the private sector can assume its ap-propriate role as the main actor in agriculture.

• Rationalize the roles of the tiers of governmentin their promotional and supportive activities tostimulate growth.

• Reorganize the institutional framework for gov-ernment intervention in the sector to facilitatesmooth and integrated development of agricul-tural potentials.

• Articulate and implement integrated rural devel-opment as a priority national program to raisethe quality of life of the rural people.

• Promote the necessary developmental, support-ive, and service-oriented activities to enhanceproduction, productivity, and marketingopportunities.

• Increase fiscal incentives to agriculture, amongother sectors, and review import waiver anoma-lies with appropriate tariffs of agriculturalimports.

• Promote increased use of agricultural machin-ery and inputs through favorable tariff policy.

Since the implementation of the policy objec-tives is the collective responsibility of all, the policyhas clearly defined complementary and synergicroles to all the stakeholders comprising the threetiers of government—federal, state, and local—and the private sector. More importantly, the con-stitution of the Federal Republic of Nigeria assignsfacilitatory and promontory roles in both the ex-clusive and concurrent legislative lists to all thetiers of government.

The Role of the Private Sectorin Agricultural Development

The expected roles of the private sector in thedevelopment of agriculture are clearly elaboratedin the new agricultural policy as follows:

• Investment in all aspects of agriculturalproduction.

• Agricultural produce storage, processing, andmarketing.

• Agricultural input supply and distribution.• Production of commercial seeds, seedlings,

brood stock, and fingerlings under governmentcertification and quality control.

• Agricultural mechanization.• Provision of enterprise-specific rural infrastructure.• Support for research in all aspects of agriculture.

Therefore, in essence, the roles of the privatesector focus on production, processing, storage dis-tribution, and marketing. The private sector has asignificant role to play for our country to experi-ence substantial growth and development in thesector, which is critical to a successful transfor-mation of the economy. In order to feed thecountry’s teeming population, which numbers over120 million and is growing at an average rate of2.8%, and supply adeequately to the manufactur-ing and exporting industry, the abundant scope ofproductivity improvement in the sector must beexploited.

Investment opportunities abound in all the vari-ous areas of the sector. I will concentrate on just afew as follows:

• Input Supply and Distribution—Serious im-pediments to agricultural production and produc-tivity in Nigeria are inadequate production, im-portation, and distribution of inputs. Agriculturalinputs in the form of improved seeds, seedlings,brood stock, feed, vaccines, fertilizers, agro-chemicals, machineries, implements, etc., areessential ingredients for high productivity. Thereality, however, is that the delivery system is

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still faced with many problems. Therefore, thereis a need for an effective and sustainable privatesector-led input delivery system. The organizedprivate sector is expected to take over the pro-duction, importation, distribution, and market-ing of fertilizer and other inputs. The private sec-tor should prepare for this challenge.

• Presidential Initiatives—As part of the effortsto restore Nigeria’s agriculture to its past emi-nent position in the economy, Mr. President hadat various times organized Saturday forumswhere he met with relevant stakeholders in therice, vegetable oil, sugar, cassava, livestock, andtree crops industries, respectively. The purposeof the forums was to identify the problems thatare unique to each industry and to chart the wayforward. Subsequent to the forums, various presi-dential committees met to design a blueprint forachieving increased production of each crop andlivestock with the aim of achieving self-suffi-ciency and for export within 5 years. The vari-ous committees submitted their recommenda-tions to the Federal Executive Council forconsideration and approval. It is important to notethat five out of the seven reports have been ac-cepted and approved by the Federal ExecutiveCouncil: rice production, vegetable oil, sugardevelopment, cassava production, and establish-ment of the national agricultural developmentfund. Reports on livestock development andfunding of tree crops of long gestation are soonto be considered. The objective of these programsis for the country to be self-sufficient in the pro-duction of these agricultural products in the shortterm (2005) and to produce for export in themedium term (2007). The private sector has avery important role to play and needs to makeinvestments in almost all of the above activities.

Other Areas of Private Sector InvestmentSeveral opportunities exist for private sector

participation in the following areas:

• Storage and processing.• Fisheries.• Support for agricultural research.• Provision of rural infrastructure.

The Issue of Fertilizer Subsidyand its Implementation

The federal, state, and local governments haveall been involved in fertilizer procurement and dis-tribution and subsidy administration. Agricultureis, of course, on the concurrent list so it is the re-sponsibility of the three tiers of government. Thenew agricultural policy has assigned each tier ofgovernment some common and some overlappingresponsibilities. Fertilizer subsidy administrationin Nigeria started in the early 1970s when govern-ment was promoting the use of chemical fertiliz-ers to Nigerian farmers. In 1976 the Fertilizer Pro-curement and Distribution Division (FPDD) wascreated and the Single Superphosphate FertilizerCompany (FSFC) began operation in Kaduna.Also, the federal government assumed full andoverall responsibility of procurement and distri-bution of fertilizers throughout the country thatyear. By 1992 the federal government was spend-ing up to N30.00 billion Naira (equal toUS $222,929,367.70)2 annually in fertilizer sub-sidy. The situation was clearly not sustainable, andat the beginning of the 1990s, the federal govern-ment initiated a policy of gradual withdrawal offertilizer subsidy and began to promote the estab-lishment of private- and state government-ownedfertilizer-blending plants. From two privatelyowned fertilizer-blending plants in 1990, Nigeriahas more than 27 plants operated mainly by theprivate sector today. Since the early days of theObasanjo administration, the government has lib-eralized and even waived value-added tax (VAT)and duty to facilitate the rapid inflow of importedfertilizer products by the private sector. The gov-ernment is continuing its efforts to nurture, encour-age, and build the capacity of the private sector toassume full control of fertilizer production, mar-keting, and distribution.

The two fertilizer manufacturing plants at PortHarcourt and Kaduna are already under the Bureauof Public Enterprises for sale to the private sector.

2US $1.00 = 138.310 Nigerian Nairas (NGN).

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Distinguished ladies and gentlemen, this Ad-ministration, concerned as it is with easy accessi-bility of fertilizers to Nigerian farmers, has initi-ated serious dialogue with all significantstakeholders in the fertilizer industry to chart anddevelop farmer-friendly policies that will makefertilizer easily accessible to Nigerians. Among thepolicy options proposed in early 2001 were:

• The need for the subsidy to provide farmers fer-tilizer at an affordable price.

• The resolve to arrive at a subsidy policy that issustainable, effective, and feasible.

• Regular meetings to be held with National As-sociation of Road Transport Owners (NARTO)and the Nigerian Railway Corporation (NRC) todiscuss problems of fertilizer transportation.

• To convene a conference of all states, the pri-vate sector, and other important stakeholders toconsult on implementation modalities of the fer-tilizer subsidy policy.

I am happy to note that this recommendationto hold a policy workshop is being implementedtoday and look forward to the recommendationsand resolutions derived from your deliberations.

Conclusion

Distinguished ladies and gentlemen, there isno doubt that there is ample opportunity and po-tential not just in input distribution but also in theentire agricultural sector for private sector invest-ment. I expect all stakeholders, especially in theprivate sector, to join hands with government aspartners in progress to achieve and even surpassthe targets of the presidential initiatives and otherpolicy initiatives of President Obasanjo.

I hereby declare the National Workshop onAgricultural Input Policy open.

I thank you all very much for your attention.

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II. TECHNICAL SESSIONAgri-Input Policies and Their Impact on the

Development of a Free and Competitive Market

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SOME THOUGHTS ON POLICY REFORMS INAGRI-INPUT MARKETING IN NIGERIA

Prof. Ango Abdullahi,Special Adviser to the President on Food Security

Introduction

The contemporary Nigerian economy presentsa perplexing paradox of both “hope” and “hope-lessness” at the same time. The “hope” is predi-cated on what is commonly understood to be vastand near inexhaustible potential, which exists inthe country. The “hopelessness,” on the other hand,is the recurring inability to harness these vast re-sources for the general good of Nigeria’s citizensto the extent that today Nigeria belongs to the un-enviable group of 15 of the poorest nations of theworld. Recent surveys by many independent in-ternational groups and agencies have shown thatup to 70% of Nigerians are classified as poor witha daily per capita income of less than US $1.

For a long time and up until the end of the1960s, Nigeria’s economic growth and develop-ment received its impetus and driving force mainlyfrom agricultural production—both for domesticneeds and for exports. Since over 60% of thecountry’s labor force is employed in the agricul-tural sector, no economic discourse can ignore thecentral and multidimensional importance of theagricultural sector to the social and economic lifeof the Nigerian nation, notwithstanding the factthat its share in the gross domestic product (GDP)has been declining from as high as 65% in the1960s to about 40% in recent years.

Nigeria’s agricultural resource strength andpotentialities are defined and assessed in terms ofthe vastness of land, geographical location, topog-raphy, climate and soils, and vegetation types. Theextensive latitudinal expanse from 4° to 14° northof the Equator permits the existence of many dis-tinct and diverse ecological zones from the south-ern mangrove swamps through high rainforests to

the Guinea and Sahel savannas of the far north.These diverse ecological settings make possiblethe production of a variety of agricultural com-modities for both domestic consumption andexports.

Some General Observations on the CurrentState of Nigeria’s Economy and itsAgriculture

Despite the significant role of oil from the mid-1970s, agriculture continues to date to be the main-stay of Nigeria’s economy. Apart from providingthe food security of the nation, agriculture employsthe bulk (estimated at 60%) of the country’s laborforce. Its contribution to the GDP is about 40%compared with 12% contributed by oil. It also con-tributes 90% of the country’s non-oil exports. Fur-thermore, it is expected to be the country’s sourceof cheap raw materials for competitive agro-industrial development.

Through various acts of omission and commis-sion, the agricultural sector, unfortunately, sufferedserious neglect (from the mid-1970s) from boththe private and public sectors, to the extent that itfailed to keep pace with the country’s basic needsfor ample food and raw materials for industry. Thetraditional agricultural exports, such as cotton,groundnuts, cocoa, palm products, rubber, etc.,virtually disappeared and, ironically, the countryis now a net importer of these commodities, in-cluding some basic staples. Today, Nigeria’s im-port bills for assorted agricultural products standat a staggering N250 billion per annum.

General Remarks on Impediments toAgricultural Growth In Nigeria

The numerous constraints to satisfactorygrowth of Nigeria’s agriculture are very well

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known and well documented in a large number ofreports coming out of research institutes, confer-ences, seminars, and workshops over the past threeto four decades. Most of the commonly mentionedones revolve around or within the following broadcategories:

• Inappropriate public policies and programs, bothfiscal and monetary, which are not conducive torapid agricultural growth, or which are, in fact,directly or indirectly biased against the agricul-tural sector, in general.

• As a consequence of the above, investments criti-cal for agricultural growth from both the publicand private sectors remain too low and, in mostcases, have shown a decline in the last two de-cades. The common adage that “no growth with-out investment” aptly applies here.

Low or badly managed investment in any busi-ness endeavor, not the least in agriculture, couldlead to low productivity or even out-right failure.It is this scenario that today gives Nigeria’s agri-culture its characteristic feature of low productiv-ity. Instead of scarce public resources being in-vested in vital institutional support services suchas agricultural research, agricultural extension,essential rural infrastructures, private sector devel-opment, etc., they are usually diverted to directproduction operations and/or importation of foodproducts, which have turned out to be largely in-efficient and wasteful ventures with very littlevalue added for agricultural growth.

Because of these policies, Nigerian farmers,95% of whom are peasant small operators, havebeen unable to apply and exploit even the mostelementary of the many modern methods of farm-ing. We are not talking about the high-technologyagriculture or developed agricultural systems. Weare talking about our apparent inability to deal withthe basics of modern agriculture that requires farm-ers to improve production by using the full incor-poration of modern agricultural inputs in theirfarming system like seeds, fertilizers, pesticides,and farm implements.

Agricultural Inputs in Nigerian Agriculture

In this presentation we shall concentrate onthree main inputs—i.e., seeds, fertilizers, andCPPs. It is important to remember that virtuallyall the successful agricultural revolutions achievedaround the globe, especially from the middle ofthe 19th century, were made possible through newtechnologies which incorporated improved seeds/seedlings, enhanced/ complementary soil fertility,and control of injurious crop pests. Farmersthrough effective advisory/extension services andcommercialization brought about these new tech-nologies only through sustained scientific researchbefore their adoption. Today, differences in the stateof agricultural development between countries andregions of the world can be explained or illustratedby the intensity/quantum of consumption/usage ofagricultural inputs per unit area of land. Table 1shows the levels of fertilizer use in some countries.

Table 1. Selected Examples of FertilizerApplication Rates Around theWorld

Fertilizer consumption trends (tons/000 ha) inNigeria relative to other parts of Africa are illus-trated in the following periods: 1961-64, 1965-69,1970-74, 1975-79, 1980-84, 1985-89, 1990-94,1995-99: SSA (1.70, 2.87, 4.73, 5.93, 8.00, 9.34,9.49, 9.00); South Africa (23.06, 37.19, 52.75,69.07, 85.15, 63.61, 54.97, 52.69); Zimbabwe(25.20, 37.74, 56.21, 47.92, 61.90, 56.44, 52.29,53.31); and Nigeria (0.08, 0.29, 0.58, 2.80, 8.06,10.61, 13.56, 6.09).

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The very low consumption (almost nonuse) offertilizers in Africa compared with other regionslargely explains the wide gap between the highlyproductive agriculture elsewhere and the prevail-ing low productivity of African agriculture. Thesituation is even worse when other inputs like im-proved seeds and pesticides are included in thedata. Needless to say, there is a strong relationshipbetween fertilizer, improved seeds, and pest con-trol. In most cases the full genetic potentials ofimproved crop species cannot be realized underthe low soil fertility conditions and injurious croppests.

Even though Nigeria is considered the largestuser of chemical fertilizers in sub-Saharan Africa,its per unit land fertilizer rates are too far belowwhat should be obtained in developed agriculturalsystems. Table 2 shows total quantities of chemi-cal fertilizer supply to Nigerian farmers between1989 and 2000.

Figures in Tables 2 and 3 show a very widegap between actual fertilizer available to Nigerianfarmers and potential consumption based on re-searched recommended rates and estimatedhectarage of the major arable crops in the country.If hectarage of other smaller crops and tree cropsare included in estimates, the current overall po-

tential consumption in Nigeria should be close to10 million mt of NPK (20-10-10) equivalent. The500,000 tons available on average over the past10 years represents just about 5% of the currentrecommended fertilizer consumption for the coun-try. Such a situation not only represents subsistencefarming and sluggish rural economic growth, it canlead to serious depletion of already low fertility ofthe Nigerian soils.

Possible Explanations for Low Consumptionof Fertilizers in Nigeria

The persistent unacceptable low rate of fertil-izer use in Nigeria has a number of antecedentsand possible explanations, which include thefollowing:

Ignorance of Farmers—This was particularlythe case at the beginning of its introduction by ourformer colonial masters who wanted to boost theproduction of export crops for the recovery of theirindustries after the First and Second World Wars.This constraint was partly overcome through edu-cation and economic inducements including giv-ing the fertilizers “free” and later at “subsidized”prices. In later years, it was realized that the farm-ers actually paid the full price in the old Market-ing Board Systems through direct and indirect taxa-tion of their produce.

Table 2. Showing Available Fertilizer Product (10-Year Period)

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Table 3. Showing Potential Fertilizer Consumption Based on Recommended Rates of Appli-cation to Some Major Crops

Scarcity or Insufficient Supply—Scarcity orinsufficient supply, against effective demand atappropriate time and place, has remained a sig-nificant cause of low consumption of fertilizersover the years. For example, fertilizers needed inthe south of Nigeria in February/ March do notmake sense to farmers when brought in duringMay/June. Similarly, most arable crops in thenorthern savannas would need fertilizers aroundMay/June/July. Yet we have situations where gov-ernment-procured fertilizers arrive in August/Sep-tember. Experience in Nigeria has shown that scar-city is both from inadequate sources of local supplycomplicated by an inefficient and faulty distribu-tion network.

High Pricing and Marketing Costs—Eachtime demand exceeds supply, whether real or arti-ficial, the consequence is high price. The decisionof the consumer to pay for an artificial rise in theprice of fertilizer depends on whether he has theresources in the first place, and the costs availableto him. But it is obvious that insufficient avail-ability, high marketing costs, and lack of competi-tion have led to unfair price hikes and to low con-sumption of fertilizers in Nigeria in the last 10years.

Public Sector Monopoly/Involvement inFertilizer Business—The lack of growth in agri-input business, particularly fertilizers, has beenblamed on past government’s over-involvement inthe production importation and distribution. On theother hand, the government has justified its con-tinued involvement on the grounds of the subsidyit has built into the prices paid by farmers, whichin some past years was up to 85% of the cost ofthe fertilizers. While the principle of subsidy (someprefer to call it “farm-support”) is noble and verymuch consistent with current trends all over theworld, it is becoming increasingly apparent thatthe price subsidy is not reaching the intended ben-eficiaries because of increasing corruption and in-efficiency in the entire chain from procurement tologistics management and delivery.

Latest Situation/Trends on Ground

The government has “liberalized” the fertilizerbusiness; i.e., it has opened up the fertilizer busi-ness to the following extent:• Private entrepreneurs are free to set up manu-

facturing and blending plants, and can sell di-rectly to consumers or indirectly through retail-ers and government. Private entrepreneurs can

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import and sell without need to apply for importlicenses.

• Federal and state governments still own and op-erate fertilizer manufacturing and/or blendingplants with varying sizes and capacities. Indica-tions are that the federal government (at least) isabout to sell its plants to the private sector.

• Governments—federal, state, and local—stillprocure and distribute fertilizer to farmers. Themain issue/problem here is that they operate in-dividually and independently without any coor-dination at all. The result is utter confusion notonly for inter-state prices but also in pricingamong private sector sources.

• Subsidy on fertilizers still continues at the fed-eral level as well as in some of the states. Thehigh degree of variability in the level of subsidyand the mode of its administration and imple-mentation are causing confusion and distortionsin the entire fertilizer marketing system.

• Quantities of fertilizers available to farmers inthe country remain abysmally low and on thedownward trend. The government blames theprivate sector for failure to capitalize on its lib-eralization policy. On the other hand, the privatesector remains apprehensive in its commitmentof more resources to the business because of theuncertainties in the present dual system in whicha sudden shift in government policy could causefinancial disaster to private investors.

Developing Agri-Inputs Marketin Nigeria—The Way Forward

Despite some of the changes that have taken(and are still taking) place in agricultural inputdevelopment in Nigeria, we cannot at this pointsay we are about to “come out of the woods.” Infact, some even argue that things, rather than im-proving, are getting worse. The latter view is basedon the current low availability of fertilizers in themarket, which have been declining in the past 10years. The optimistic reformists, however, main-tain that good policy announcements in themselvesalone do not automatically lead to success.Changes will be gradual, especially in the begin-ning, but when they occur they should become

permanent and consistent. For us to move forward,both the public and private sectors need a soberreflection on the very serious crises on our hands.The agricultural sector is the mainstay of thecountry’s socioeconomic life and should providethe basis for the country’s economic recovery andreconstruction. It will remain in crisis unless somedrastic measures are taken to reduce or eliminatethe constraints in the present agricultural inputsupply system. Furthermore, it should be appreci-ated that all activities within the agriculturalsubsector must be in the context and seen as anintegral part of the national economy. In most cases,unfavorable conditions in the economy, generally,could have adverse effects on agricultural produc-tion and, without removing the causes, we can onlycontinue to treat symptoms without achieving per-manent solutions.

To sustain the growth and development of agri-input markets in Nigeria, we must examine theimmediate and remote causes of its slow growth.It is the responsibility and duty of all the stake-holders to come together and find lasting solutionsto this national problem. The principal stakehold-ers in the fertilizer business today are:

• Government (public sector).• Non-governmental organizations (NGOs).• Private manufacturers and blenders.• Private importers, wholesale and retail dealers.• Donor agencies.• Farmers and farmer organizations.

All the stakeholders listed above have roles andresponsibilities if agri-input market developmentis to succeed now or in the future. The critical is-sue at any time is that these roles and responsibili-ties must always harmonize, and must not in anyway be in conflict. The ultimate objective of ourcombined effort is to serve the interest of agricul-ture and its development. In so doing, the socio-economic development of the nation is served. Itmust be emphasized that the most important linkin the chain of activities is the farmer and throughthe farmer the economic development.

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Understanding the Micro-EconomicSituation of Nigerian Peasant Farmers

The Nigerian peasant farmer may be small,poor, and uneducated, but he is a very shrewd busi-nessman. At every stage he constantly analyzes hisoperational decisions within his limited resources.He invests his resources (land, labor, and capital)to ensure maximum returns for the food and othersecurity needs of his family. He is extremely effi-cient and resourceful. However, the variable fac-tors affecting his economic decisions are too manyand, in most cases, unpredictable and outside hisinfluence, let alone his control. For example, atpresent he does not in any way influence eventsthat determine the prices he has to pay for criticalinputs. Worse still, he does not influence the forcesthat determine what price he receives for his prod-ucts at any point in time. In other words, the farmeroperates in the dark and for most of the time, it isa case of shooting in the dark—sometimes you“hit” the target, but in most other attempts you“miss” the target. That is why the Nigerian ruralenvironment remains at a disadvantage, and thismay explain the pervasive poverty in that socialsetting today.

Let me illustrate this point by what has hap-pened in the last 6 months (i.e., 2003 cropping sea-

son) when most Nigerian farmers were makingdecisions on how to allocate their farming re-sources. Fertilizers were generally scarce andprices became exorbitant. The price of urea andNPK in most grain-producing areas fluctuated be-tween N2000 and N3500 depending on the sourceand location of purchase. This is in sharp contrastwith the 2002 growing season when prices of dif-ferent types of fertilizers fluctuated between N1200and N1600 per 50-kg bag. Let us look at the esti-mated production cost of maize in 1 ha of landshown in Table 4.

Assuming an output of 3.5 tons/ha (against thenational average of 1.2 tons) the break-even pricefor the farmer cannot be less than N1,830 per 100-kg bag of maize. If we make a reasonable provi-sion of 25% profit margin, the farmers selling pricebecomes N2,290 per 100-kg bag of maize. Cur-rent market surveys show that maize is being soldfor between N1,400 and N1,700 per 100-kg bag.This is certainly a bad signal for the farmer andwould negatively affect his investment attitude tofertilizers and improved seeds. The point beingmade by this illustration is the direct relationshipbetween production costs and crop produce pric-ing. At the same time manufacturers and dealersof fertilizers are expected to make a profit to re-main in business and the same consideration must

Table 4. Estimated Production Cost/Hectare Maize

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be extended to farmers if they are to remain in thefarming business.

In order to have a balance in this presentationwe should also take a closer look at the costs in-volved in procuring a metric ton of fertilizerthrough importation using current costs as illus-trated in Table 5.

Estimated break-even price for one bag of fer-tilizer at farm gate is about Nl,970 per 50-kg bag.If we allow a profit margin of 20%, the commer-cial price should be N2,068 per 50-kg bag. Giventhe prevailing exorbitant prices of up to N3,500per 50-kg bag, the private sector distribution net-work could be accused of profiteering at the ex-pense of a desperate farming population.

What Is the Solution?

In a free market economy, official price con-trols are not usually the best answer to problemsof scarcity and profiteering. The better way is thecompetition, by way of increasing the supply ofthe commodity and increases in the options ofsourcing it. In the current Nigerian situation, thesources of fertilizers are many, but the quantumstill remains grossly inadequate. The current inad-equacy is also closely linked to the inadequacy ofthe national capacity to produce fertilizers.

The two fertilizer plants belonging to the fed-eral government—NAFCON, which is now closeddown, and FSFC with a combined installed capac-

Table 5. Estimated Current Cost of 1 Ton of Fertilizer

ity of nearly 1 million tons per annum—are facingvarying degrees of problems. The installed capac-ity of the private and public blending plants—roughly about 1 million tons—has been adverselyaffected by the closure of NAFCON because itsources virtually all its raw material fromNAFCON. The blenders have resorted to impor-tation of their raw materials with attendant bottle-necks of foreign exchange sourcing and complexhandling costs. In the case of importers—both pri-vate and government—the problem also remainsof adequate financing and logistics of handling atthe point of sale. In the case of the government,there is the compounding factor of subsidy.

Implications of Input (Fertilizer) ShortagesThere are several consequences arising from

shortages of fertilizers in the agricultural systemin Nigeria and elsewhere. Some of these are listedbelow:

• The overall application rate per hectare of culti-vated land drops, usually by the same propor-tion the supply is reduced.

• Farmers avoid the cultivation of fertilizer “sen-sitive” crops in favor of those less demanding ofit. In Nigeria farmers tend to avoid maize andrice in favor of sorghum, millet, soybeans, andcowpeas if they cannot find fertilizers. It is alsoknown that improved varieties/hybrids of cere-als perform optimally only if soil fertility isadequate.

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• Farmers try to compensate for shortages ofchemical fertilizers by turning to organic manure.The problem again is that it is in short supply.

• Where there is abundance of land as in the cen-tral parts of Nigeria, farmers resort to the oldpractice of “shifting cultivation” with all the at-tendant long-term consequences and its disad-vantages for the environment.

• In the heavily populated areas with acute short-age of agricultural land, inadequate crop hus-bandry practices lead to accelerated degradationof soils, which regressively fail to support thebasic needs of those who subsist on it

Fertilizer Subsidy—Its Prospects AndProblems

Agricultural subsidy has a long and checkeredhistory around the world. In general terms, it ispredicated around the following broad objectives:

• Encourage and stimulate the adoption of newbeneficial farm technology or practice.

• Encourage long-term capital investment andimprovement on farm and environmentgenerally.

• Promote institutional development in support ofagriculture.

• Stability and confidence in the agricultural in-dustry and agribusiness.

• Ameliorate the adverse effects of local and im-ported inflationary pressures on farmers and farmbusiness.

• Serve as a tool for transfer of incomes from non-farm to the farm sector.

• Compensate farmers for unfavorable terms oftrade and macro-economic distortions.

In Nigeria the history of subsidy goes back tothe colonial interest of Britain trying to recoverfrom both the First and Second World Wars. Inthose years, fertilizers for cotton, groundnuts, co-coa, and palm were initially given “free” and latertoken charges were introduced. Obviously, themotive was to boost the production of theabovementioned export crops. In later years it wasunderstood that the fertilizers given to the farmers

were neither “free” nor “subsidized.” The Market-ing Board pricing policies, at the time, had takencare of all costs of inputs in deciding the prices ofexports to Britain.

Be that as it may, the policy of subsidizing ag-ricultural inputs has remained to this day, and thejustification for its retention is predicated on oneor a combination of the objectives stated above.While subsidy per se has no serious opposition,its problem over the years is its administration toachieve maximum results. Most of the oppositionagainst it is based on the widespread abuses in thesubsidy administration, which some say make theexercise worthless. It may therefore be useful tolook in some detail at the cost implications of thesubsidy based on the overall national interest.

Annual Financial Implicationsof Fertilizer Subsidy

It is difficult under frequently changing poli-cies and conditions to accurately determine thelevel of subsidy to agricultural inputs generally andfertilizers in particular. This is because the datafor the exercise are not easily available. Nonethe-less, it is possible to have a fair picture based oneasily available current statistics and some sen-sible assumptions and generalizations. For thepurpose of this exercise, I wish to use 1 milliontons as the minimum quantity of fertilizers to besubsidized in a year all over the country. Averageprice is N2,300/50-kg bag.

From Table 6 it is shown that for 1 million tonsof fertilizers at current costs, the level of total sub-sidy is N4.6 billion (@ 10%), N9.2 billion (@20%), and N13.8 billion (@ 30%).

Let us now examine the budgets of the gov-ernments of the Federation. Here again the figurescannot be precise, but I hope they still make illus-trative sense for our purpose. The existing revenuesharing formula for the three tiers of governmentis approximately 45% federal, 35% state, and 20%local governments. It is estimated the size of the

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Table 6. Cost Implications of Subsidizing 1 Million Tons of Fertilizer

General Conclusions

Nigeria’s economy is in crisis. Most seriousanalysts would agree that economic recovery inNigeria would only be possible and rapid if its mostproductive sector—agriculture—is seriously ad-dressed, especially at the policy level. Agricultureis facing numerous constraints, most of which aremanmade. Presently, one of the main constraintsis an inadequate agricultural inputs supply that hasgrossly failed to satisfy the demand. The non-growth of the agri-input sector had been blamedon excessive control and direct involvement ofgovernment. However, the government has liber-alized the agri-input business hoping that the pri-vate sector will lead the way to the much-neededgrowth. Progress to date has been rather slow and,in some cases, negative. But all the stakeholderswho need to cooperate with each other in all thefacets and dimensions of this endeavor must sus-tain the struggle.

Global Review of Subsidies3

World population is projected to reach over8 billion in 2025 and over 9 billion in 2050. Over90% of the projected increase will occur in thedeveloping and transitional economies where foodinsecurity and environmental degradation are se-rious challenges. In confronting these challenges,the use of mineral fertilizer and associated inputswill continue to play a critical role, as it has donein the past.

Federation account is about Nl,900 billion per an-num based on the existing sources of revenue.Thus, the annual budgets for the three tiers are asfollows:

3A summary of IFDC’s position paper on Input Subsidiesand Agricultural Development, Issues and Options for De-veloping and Transitional Economies (IFDC P-25).

Assuming an average allocation of just 5% foragriculture by the three tiers of government, totalfunds for agriculture should be about N95 billionper annum. If we isolate the Federal Government,which controls 45% of the national budget, andapply the 5% allocation to agriculture, the mini-mum federal allocation should not be less thanN42.75 billion. If we go further to recommend aminimum allocation of 10% to agriculture (muchless than the 20%-25% recommended by the FAOfor developing countries), then the federal budgetfor agriculture should not be less thanN85.5 billion.

On the basis of all known criteria that justifysupport for agriculture, the levels of subsidy (thathave been complained about) can be easilyaccommodated.

This workshop should offer participants theopportunity to concentrate on how best to admin-ister subsidy for the benefit of the agriculturalindustry.

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Environmentally sound use of modem inputsdepends on technology, agronomy, and policy-re-lated factors. Once the agronomic practices areknown and suitably engineered products are avail-able in the market, it is the policy-related factorsthat carry the burden of moving the cart forward.Through a conducive and stable policy environ-ment, many countries, especially in Asia, have re-corded high growth in fertilizer use and other in-puts, and input subsidies played a central role insuch policy environments. Nevertheless, driven bypolicy and market reforms, many countries havephased out input subsidies during the 1990s.

In the context of market reforms and the Uru-guay Round Agreement on Agriculture (URAA),this paper provides an assessment of argumentsfor and against input subsidies, especially fertil-izer subsidies, and discusses various alternativesto subsidies and IFDC’s experiences in dealingwith fertilizer subsidies. The assessment of vari-ous arguments and experiences indicates that ar-guments in favor of fertilizer subsidy are no longeras strong as those that are against it. The sustain-able alternatives to subsidy are even stronger, giventhe universal moves towards market-based devel-opments. The alternatives include efforts to reducethe cost of fertilizers through a number of strate-gies that will shift the supply curve to the rightand promote public investment in marketing in-frastructures, improve profitability of fertilizer usethrough investment in soil fertility restoration, andprovide support under the Green Box measures ofthe URAA. Situations are also identified in whichdirect subsidies could be considered, but even inthose cases, accompanying measures should betaken to avoid misuse of resources and thedistortionary impact on the market. However, na-tional governments should continue to take the leadin investing in public goods through public-pri-vate partnerships, in internalizing the externality(leading to market failure), and in providing nec-essary support for soil fertility and natural resourcemanagement in a market-friendly way. Where theconcern is poverty alleviation, a voucher systemof support is preferred because it addresses the twin

objectives of poverty alleviation and marketdevelopment.

The direct subsidy scenario is usually basedon the assumption that agri-input markets remainunder-developed and fragmented in the develop-ing and transitional economies, and that the under-developed nature of these markets keep input priceshigh resulting in policymakers arguing for subsi-dies. It has now been established that transactioncosts could be reduced by 20%-30% when vari-ous distortions are removed. This reduction of costcan be achieved in the following ways:

• Ensure that conducive and stable policy envi-ronment is maintained to promote the develop-ment of private sector-based input markets. Thiswill entail the removal of all price and non-pricedistortions introduced by the government, do-nors, NGOs, or other stakeholders.

• Development of human capital to sharpen busi-ness, marketing, and technical skills to operate asuccessful input business.

• Improved access to finance to give life to busi-ness development. Issues relating to high inter-est rates, under-developed financial infrastruc-tures, stringent collateral requirements, and riskneed to be addressed. The attitude of the bankstoward agriculture also needs to be addressed toallow easy flow of funds for businessdevelopment.

• Market information should be provided in atimely manner and the information should flowsmoothly. All stakeholders should have accessto information on prices, stocks, deliveries, etc.,to engender transparency.

• The enactment and enforcement of regulationdealing with quality, quantity, nutrient content,etc., are critical for a private sector-based freemarket system. The responsibility of protectingconsumers’ (farmers) interest is that of the pub-lic sector and, therefore, government needs tobuild the necessary capacity for the assignment.

• Development of infrastructures such as roads,ports, and communication networks will signifi-cantly reduce transaction costs. The government

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is best suited to invest in these public infrastruc-tures and institutions to ensure that the benefitsarising from there translate to reduction in trans-action costs.

Highlights of the Nigerian Fertilizer PolicyStudy and Some Suggested Alternatives4

The study focused on the policy and other dis-tortions in the input supply chain. The objectivesof the study are as follows:

• Review the structure and function of the agri-input markets.

• Assess the potential of the private sector to sup-ply agri-inputs efficiently and in a sustainablemanner.

• Identify constraints to the private sector partici-pation in input markets.

• Develop programs and policies for strengthen-ing the functioning of agri-input markets.

• Prepare an action plan for implementing the pro-posed policies and programs.

The study reiterated the need for governmentto provide more investment in the agricultural sec-tor and to ensure consistency in policy formula-tion and the political will/commitment to imple-ment the policies.

The study revealed that inconsistent policieshave discouraged the private sector operators ininvesting in the agri-input subsector. Also, the sub-sidy on fertilizer does not reach the targeted farm-

ers. A dysfunctional market is thus establishedthrough the recycling of subsidized fertilizer intothe parallel markets. This development has indeedrestricted the use of fertilizer. Fertilizer use hastherefore remained at 12% of its agronomic po-tential and only 12% of its economic potential.

The study also indicated that price was not amajor constraint to fertilizer use, but the timelyavailability as well as the quality of the productwere factors. It emphasized that there is enormouspotential for the private sector in the input marketand recommended a holistic approach to strengthenthe liberalization process and develop efficient andsustainable agricultural input markets (AIMs) inNigeria. The measures proposed in the paperinclude:

• Creation of a macro policy environment condu-cive and adhering to consistent input marketpolicy.

• Building of human capital for marketdevelopment.

• Improved access to finance.• Develop and implement regulatory framework.• Promote market transparency through a market

information system (MIS).• Promote technology transfer activities.• Strengthen research capacity for promoting pri-

vate seed industry.

The study concluded that the above measureswould only be achievable if there is constructivepartnership between the private and public sectorsin the country, and made a case for the vouchersystem as an alternative mode of subsidy provi-sion in justifiable circumstances.

4An intervention based on the study “The Assessment ofNigerian Government Fertilizer Policy and Suggested Alter-native Market-Friendly Policies.” See Annex 1 for the Ex-ecutive Summary of the study.

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III. WORKING GROUP SESSION

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REPORT OF GROUP 1

Need Assessment of Commercialization of Agriculture

(Chairman: Vice Admiral M. Nyako)

A. Agriculture in Nigeria is mainly subsistence farming. Identify five major constraints thathinder its transformation to commercial agriculture.• Lack of access to affordable and timely credit.• Lack of timely supply of inputs at affordable prices.• Poor crop marketing system, including processing transformation and information services.• Inadequate research and extension services.• Poor physical, social, and institutional infrastructures.

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B. Work out the practical solutions to the constraints, as identified in A above.

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C. Suggest the role of public and private sector agencies in improving the agriculture produc-tion scenario in Nigeria

D. Do you consider that government policies are affecting the development of agriculture inNigeria? If yes, what policy changes will you propose?• Political will and consistency of policies.• Harmonization, coordination, and proper implementation of government policies among the three

tiers of government and public and private sector agencies.• Effective management of macro and micro economic policies affecting agricultural development,

especially with respect to import substitution.• Deliberate encouragement of private sector participation in agricultural development.

E. Do you think the current budgetary allocations to agriculture (more specifically funds allo-cated to agricultural development) are sufficient? If not, what level of budget do you recom-mend to be provided in the national budget? No.

Proper implementation of the United Nations’ (UN) recommendations that 25% of developmentbudget on a sustained basis be legalized and passed into law at the federal and state levels.

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F. Group 1—Recommendations• Timely release of budgetary allocations.• Mobilization of all stakeholders for immediate increase of productivity of the agricultural sector.• Respect and protection of the rights of farmers and other stakeholders.• Legalization of 25% budgetary provision and other policies.

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REPORT OF GROUP 2

Review of the Agri-Input Marketing System in Nigeria

(Chairman: Dr. A. Joshua)

A. Describe the existing agri-input marketing system and specify the role of government andprivate sectors in providing the goods and services to farmers.

B. Based on the past performance, the world scenario of free trade and global competition, whatrole will you prescribe for public and private agri-inputs production and marketing agenciesin Nigeria?

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C. If you have decided to allocate greater responsibilities to the private sector, what should bethe role of government and NGOs in the promotion of private sector participation in agri-marketing?

• Creation of enabling environment, i.e.,– Right policies.– Provision of infrastructure.– Constitutional support.

• Favorable exchange rates and low interest rates for agricultural loans.• Enforcement of quality control and regulations, and monitoring and evaluation.• Human resource development.• Industry development.• Research and development support.• Market information system (MIS) development.• Improvement of communication.• Forum for government/private sector/farmer/stakeholder interaction.• Intellectual property rights.

Recommendations of Group 2:• Government should minimize holding/hosting of symposia, workshops, and seminars and pay more

attention to effective and timely implementation of policies and recommendations.• Need for an aggressive campaign for use/promotion of improved seeds and seedlings.• Encourage agro-industries to produce part of their raw material requirement.• Minimization of the multiple port tariffs, levies, and taxes on agricultural input and raw materials.• Development and maintenance of rural agri-input and output marketing systems.• Improvement of rail, road, and water transportation systems to reduce high transport costs.• Effective utilization of local consultants and experts.• Harmonization of marketing policies of agri-inputs so that no sector is at a disadvantage.• Implement a credible and carefully phased subsidy removal program.• Design and enforce realistic, attainable, effective fertilizer, seed, and agro-chemical legislation, regu-

lations, and quality control schedules/mechanisms.• Create institutions to facilitate public/private sector interaction.• Support human resource development both in the public and private sector.• Need for a national seminar on seed subsector policy.

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REPORT OF GROUP 3

Policy Reforms

(Chairman: Professor Ango Abdullahi)

1. Are the current agri-input policies conducive to attract private sector participation and in-vestment in agri-inputs production, importation, and marketing?No—The public needs to divest interest in direct production, importation, and marketing of agri-inputs. If no, what are the major repellent factors (mention five key factors)?• Low producer price.• Inconsistent policy.• Lack of laws/regulations governing the sector.• Exchange rate fluctuation.• High-transport cost as well as energy.

2. If current policies are not private sector friendly, what should be done to improve the policyenvironment? Key points listed:• Policy stabilization.• Expunge laws that discourage or hinder private sector participation.• Stabilize exchange rate.• Strengthen the capital market.• Apply rule of law strictly.• Stabilize/reduce cost of transport and energy.• Facilitate good producer price(s).• Improve market information.

3. Knowing that no single sector can meet the requirements of agriculture, suggest three optionsto promote public and private sector participation in agricultural development:A. Public

• Agricultural research.• Advisory/extension services including soil-testing service.• Range of infrastructure.

B. Private• Development/Provision of cottage industry.• Provision of efficient storage facilities.• Develop effective distribution channels/markets.• Provide quality service to customers.• Patriotism.

4. If direct/indirect subsidy on fertilizers and other inputs is essential, how can it be ensured thatsubsidies reach the target beneficiaries?• More efficient administration of the subsidy program where it is maintained.• Consideration of other more effective options.

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• The options should be at the output end rather than the input end. The options are:– Stable fair prices; i.e., guaranteed minimum producer price.– Food for work.– School lunch program.– Free food.– Voucher system.

• Indirect subsidy:Concessions on taxes, duties, and tariffs.

Group 3. Recommendations• Create conducive policy environment and adhere to consistent input market policy.• Stabilization of the exchange rate. This will in effect stabilize agri-input prices.• Strict application of the rule of law to ensure security of life and property.• Expunge laws that hinder private sector participation in agribusiness.• Strengthen the capable market with a view to making credit available at a moderate interest rate.• Stabilize/reduce the cost of transport and energy to reduce cost of input.• Ensure stable/fair producer prices for farmers to sustain production.• Improve market information system to promote market transparency.• Need to harmonize government policy on subsidy administration at the three levels of government

considering that agriculture is on the concurrent list. This will ensure avoidance of confusion createdby different subsidy regimes operated by the three levels of government.

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IV. COMMUNIQUE SESSION

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REPORT OF GROUP 1

Communiqué of the National Workshop on Agri-Input Policy

IntroductionThe Federal Ministry of Agriculture and Rural Development organized a national agri-input policy

workshop in collaboration with the IFDC/USAID DAIMINA project at the Nicon-Hilton Hotel, Abuja,August 26-27, 2003. One hundred and fifty two participants attended the workshop, including keyplayers and stakeholders involved in production, importation, and distribution of fertilizer, seeds, andcrop protection products. The Honorable Commissioners of Agriculture and Program Managers/Man-aging Directors of ADPS and fertilizer-blending plants represented state governments. The Minister ofState for Agriculture and Rural Development, Chief Bamidele Dada, declared the workshop open. TheNational Chairman of the Ruling Peoples’ Democratic Party and Honorary Adviser on Agriculture toMr. President, Chief Audu Ogbeh, delivered the keynote address. The other important dignitaries werecomposed of representatives of the Senate and House Committees on Agriculture, the Mission Directorof USAID, the President and Chief Executive Officer of IFDC, a representative of FAO in Nigeria,Permanent Secretary and Directors of FMARD, President of ALFAAN, Chairman of the Project Advi-sory Committee on DAIMINA, Agri-Input Dealers Associations, and senior staff of IFDC. The work-shop focused on three sub-themes, namely:

• Commercialization of Nigerian agriculture.• Agri-input marketing systems.• Policy reforms.

Workshop MethodologyThe workshop started with an inaugural session during which the welcome address, inaugural speech,

and the keynote address were presented. This was followed by two technical sessions where seniorexecutives of IFDC, USAID, IITA, agri-input companies, and farmer organizations presented the tech-nical papers. After the technical sessions, the participants were divided into three groups to identify theconstraints and suggest the way forward in the commercialization of agriculture, input marketing, andpolicy environment. The working groups presented the identified constraints and suggested solutionsto the plenary session. Far-reaching resolutions were reached during the plenary session, and at the endof the deliberations the workshop came up with a summary of recommendations.

Constraints Identified by the Working GroupsThe major constraints identified by the working groups included the following:

• Lack of consistent policies.• Inadequate budgetary provisions and late releases.• Government intervention in input supply and distribution.• Inadequate and untimely supply of quality agri-inputs at affordable prices.• Lack of access to affordable and timely credit.• Poor marketing infrastructure.• Lack of appropriate post-harvest technologies (agro processing).• Lack of reliable and timely market information.

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• Inadequate research and extension delivery.• Poor state of rural infrastructure, including physical, social, and institutional infrastructures.

Solutions Identified by the Working GroupsThe practical solutions to remedy the constraints identified by the working groups were as follows:

• Policies and Budget—Enactment and adherence to consistent policies, timely policy pronounce-ment to assist decision by private sector, adequate budgetary provision (of about 25% of capitalbudget recommended by FAO) to agriculture, timely cash backing, and release of budgetary allocations.

• Input Supply—Phased withdrawal of government within 3 years from input supply and distribution,creating an enabling environment to encourage private sector involvement and investment in agricul-ture, and enforcement of quality regulations to protect farmers against the supply of substandardproducts.

• Credit—Invigoration of NACRDB, proper implementation of existing policies for providing finan-cial services to agriculture such as Agricultural Credit Guarantee Fund (ACGF), Agricultural Devel-opment Fund (ADF), Nigerian Agricultural Insurance Company (NAIC), etc., and simplifying thebureaucracies and procedures to access these facilities, such as requirement for collateral and prob-lems in securing offshore credit.

• Marketing and Processing—Provision of reliable market information/intelligence, improving theprocurement/importation strategies, promotion of food processing and value addition including en-forcement of grades and standards, and skillful application of the four P’s of marketing—right prod-uct, right place, right price, and right promotion.

• Research and Extension—Adequate and sustained funding of research and extension to improveproductivity, fast track application of proven technologies, effective Research-Extension-Farmer-Input Dealers-Linkage (REFIL), encourage involvement of private sectors in research and extensionactivities (including service providers and NGOs), promotion of demand-driven extension deliveryservices, encourage youth to go into agricultural extension services, improve extension worker/farmerratio, provision of improved and sound agricultural education in universities and colleges of agricul-ture, and strengthening of farmers’ groups/associations.

• Rural Infrastructure—Development of physical and marketing infrastructures, including rural roads,marketing structures to include produce and input markets, storage and agro-rocessing facilities,rural institutions development, and provision of adequate commercial infrastructure, especially elec-tricity, water, and telephone services.

Discussions at the Plenary SessionThe above constraints and solutions were presented by the working groups and further discussed by

the workshop participants during the plenary session, and the following resolutions were reached:

1. The role of public and private sectors in agri-input production and marketing in Nigeria needs to beimproved tremendously. Hence, the need for appropriate policy changes in a number of aspects suchas:• Political will to bring about policy reforms and to ensure consistency of policies.• Harmonization, coordination, and proper implementation of policies among the three tiers of

government and the private sector.• Effective management of macro and micro economic policies affecting agricultural development.• Deliberate encouragement of private sector participation and investment in agricultural development.

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2. The current budgetary allocations to agriculture (more specifically, funds allocated to agriculturaldevelopment) are grossly inadequate. Therefore, a substantial increase to about 25% (recommendedby FAO) of development budget on a sustained basis should be legalized and passed into law by thefederal and state governments.

3. The performance of the agri-input marketing system in Nigeria is unsatisfactory. The performanceof the public and private sectors was assessed in various aspects and judged as follows:• Production of Agri-Inputs—The performance of both public and private sectors in production of

seeds and fertilizers is generally unsatisfactory. It was noted that there is no production of CPPs inthe country.

• Importation of Agri-Inputs—The performance of the public sector is unsatisfactory for seed,fair for fertilizer, and good for CPPs; the performance of the private sector is fair for seed and goodfor fertilizer and CPPs.

• Selling and Marketing of Agri-Inputs—The performance of the public sector is fair; the perfor-mance of the private sector is good.

• Research and Development—The performance of both public and private sectors is unsatisfac-tory in each case.

4. The public and private sectors, farmer organizations, and NGOs have important roles to play in theproduction, importation and marketing of agri-inputs and crop produce, provision of market infor-mation, and quality control regulations. The role of the public sector in the marketing of agriculturalcommodities should be limited to non-commercial purposes, specifically as buyers of last resort andsellers for price stabilization, for international trade promotion, and creation of an enabling environ-ment for private sector participation through the right policies, provision of infrastructure, and con-stitutional support. In addition, public sector support is required in the areas of favorable exchangerates, low interest rates for agricultural loans, quality control regulations, monitoring and evaluation,human resource development, agro-industry development, research and market information services(MIS), communication improvement, forum for government/private sector/farmer/stakeholder in-teraction, intellectual property rights, etc.

5. The current agri-input policies are not conducive to attract private sector participation and invest-ment in the production, importation, and marketing of agri-inputs, particularly fertilizers. There istherefore an urgent need for the public sector to divest interest in the production and marketing ofagri-inputs. The key constraining factors here are inconsistent policies, lack of laws/regulationsgoverning the sector, exchange rate fluctuation, low producer price, and high transport costs. Thefollowing steps are necessary to make the policies more private sector friendly: (a) policy stabiliza-tion, (b) expunge laws that discourage or hinder private sector participation, (c) stabilize exchangerate, (d) strengthen the capital market, (e) apply rule of law strictly, (f) stabilize/reduce cost of trans-portation and energy, (g) facilitate good producer price(s), and (h) improve market information services.

6. Participants recognized that no single sector could meet the requirements of agricultural develop-ment. The options to promote public/private sector partnership for the benefit of agricultural devel-opment are: (a) strengthening agricultural research and extension services including soil testing, (b)improving the rural infrastructure and development of cottage industry, (c) provision of efficientstorage facilities, (d) development of effective private sector-led distribution and marketing chan-nels, (e) provision of quality services to farmers, and (f) patriotism.

7. Participants recognized that subsidy on fertilizers and other inputs is necessary and the options toensure that the target beneficiaries are reached effectively are: (a) efficient administration of thesubsidy program and (b) consideration of other subsidies that are more effective and private sectorfriendly like voucher system, subsidy at the output end (guaranteed minimum producer price), food

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for work, school lunch program, free food, and indirect subsidy (concession on taxes, duties, andtariffs).

Summary of RecommendationsThe following specific recommendations emerged from the workshop:

1. Need Assessment of Commercialization of Agriculture.• Timely release of budgetary allocations.• Mobilization of all stakeholders for immediate increase of productivity of the agricultural sector.• Respect and protection of the rights of farmers and all other stakeholders.• Substantial increase and legalization of a budgetary provision to agriculture.

2. Agri-Input Marketing System.• Implementation of a credible and carefully phased program of government withdrawal from pro-

curement and distribution of fertilizers and subsidy on agri-inputs in a 3-year period.• Design and enforce realistic, attainable, effective fertilizer, seed, and agro-chemical legislation,

regulations, and quality control systems.• Curtail expenditure of public funds and minimize participation in symposia, workshops, seminars,

and study tours and ensure effective and timely implementation of the New Agricultural PolicyThrust.

• Promote use of improved seed and seedlings.• Encourage agro-industries to produce part or their entire raw material requirement.• Minimization and rationalization of the multiple port tariffs, levies, and taxes on agricultural in-

puts and raw materials.• Development and maintenance (including business training) of a rural agri-input and output mar-

keting system.• Improvement of the rail, road, and water transportation systems to reduce the high transport costs.• Effective utilization of local consultants and experts.• Harmonization of agribusiness policies (particularly agri-input policies) so that no sector is at a

disadvantage.• Facilitate government and private sector interaction.• Support human resource development both in the public and private sectors.

3. Policy Reform.• Create a conducive policy environment and adhere to consistent input-market policies.• Stabilization of the exchange rate. This will in effect stabilize agri-input prices.• Strict application of the rule of law to ensure security of life and property.• Expunge laws that hinder private sector participation in agribusiness.• Make credit available at an affordable interest rate.• Stabilize/reduce the cost of transport and energy to reduce cost of input marketing.• Ensure stable/fair producer prices for farmers to sustain production.• Improve market information to promote market transparency.• Harmonize government policy on subsidy administration at the three levels of government in

collaboration with private sector. This will ensure avoidance of confusion created by differentsubsidy regimes operated by the three tiers of government. The harmonization will also ensure

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price consistency across the country and encourage private sector participation and investment inagriculture.

4. The workshop recommended a targeted supply of fertilizers in the next 4 years as follows:

5. The workshop recommended setting up a committee comprised of both government and privatesector representatives to follow up on the recommendations after consideration by the governmentfor logical implementation.

Done at Abuja.September 19, 2003

2004 1,000,000 tons 2005 1,500,000 tons 2006 1,750,000 tons 2007 2,000,000 tons

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ANNEXES

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ANNEX 1Assessment of Nigerian Government Fertilizer Policy and

Suggested Alternative Market-Friendly Policies

Executive Summary5

Joseph Nagy and Wole Edun

The focus of this report is twofold. The report first examines the impact of past Nigerian fertilizerpolicies on economic efficiency, equity, and food security. Issues such as the cost to the treasury andtransparency of policies and programs are also examined. An attempt is made to identify some of thecosts to the Nigerian economy from past fertilizer policies. Second, the report outlines the main policyoptions that the Nigerian government can take and again examines the policies in terms of economicefficiency, equity and food security, budget aspects and transparency. It is hoped that the report can bea basis for dialogue to identify market-friendly policies for the Nigerian fertilizer sector. Informationwas gathered by interviewing stakeholder representatives from the fertilizer sector including farmers.Previous studies were also consulted and available fertilizer and related data were analyzed. Agricul-ture is and will remain an important and vital sector of the economy in Nigeria. The agriculture sectorin the future will be called upon to supply more food to a growing and more prosperous population andto be a foreign exchange earner. At current growth rates, the population will double from 120 million to240 million by 2030, thereby at least doubling food demand. Currently, Nigeria imports food. In 2000,N164 billion was spent on food imports, which accounts for about 13% of the total value of imports.Food imports since 1990 increased at an average rate of 13% per annum. On the supply side, Nigerianagriculture has experienced growth in the production of primary cereal and tuber crops. However, thegrowth in yield since 1990 has been either very low or negative. This means that most of the increase inproduction is coming from increases in land area sown to crops and not from yield increases. Nigeriahas not embraced science-based agriculture and the use of fertilizer, improved seeds, and crop protec-tion products (CPPs). Land expansion is limited and without science-based agricultural inputs, agricul-tural production will decline. Nigeria, therefore, needs policies that encourage an agriculture sector thathas a high investment/high growth rate. A key element of this strategy is an efficient and well function-ing agricultural inputs market making use of the complementarities among fertilizer, improved seeds,and crop protection products.

A conceptual framework for assessing alternative fertilizer policies and how effectively they de-liver fertilizer to the farmer is presented in this report. Two fertilizer delivery systems are identified.The first is a high-cost inefficient delivery system characterized by government intervention and sub-sidy. The second is a low-cost efficient system based on private sector participation and the marketeconomy. The conceptual framework shows how a subsidy can be used to increase fertilizer use versusthe strategy of increasing fertilizer use by lowering the cost structure of the fertilizer sector. It is hypoth-esized that Nigeria would more effectively deliver fertilizer to the farmer at a lower cost by transform-ing from a high cost structure industry with government intervention to a market-driven, low coststructure fertilizer industry. A historical review of Nigerian fertilizer policies indicates an inconsistency

5The Executive Summary of the policy study that served as the main workshop document.

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of government fertilizer policy over the years. Policies kept changing almost year by year to try toanswer problems of availability, leakage, and arbitrage. None of the policy changes succeeded.

The FGN monopoly on pre-1996 fertilizer procurement and the subsidy policy stymied the privatesector. The FGN did not properly follow through on the liberalization process started in 1997 by ensur-ing that the preconditions for a transition to a privatized fertilizer sector were implemented. The FGNopted for a full withdrawal from fertilizer procurement and subsidy, leaving the industry stranded. Theprivate sector did respond, but the ad hoc procurement/ subsidy policies of the FGN in 1999, 2001, and2002 were damaging to the growth of the private sector. Annual fertilizer use fell by about 50% in thepost-1996 period compared with the pre-1996 period.

The main constraints to fertilizer use are seen as high prices, low fertilizer quality, and non-avail-ability of fertilizer at the time required. The government’s stated reason for fertilizer subsidies is thatfarmers cannot afford a free market fertilizer price. However, most stakeholders and farm-level surveysindicated that quality and availability are the main constraints. Farmers will use more fertilizer if pricesare lowered, but they would use much more fertilizer at prevailing market prices if the quality was goodand if fertilizer was available when needed.

Empirical evidence from farm budgets and fertilizer response studies indicate that fertilizer appli-cation does have a payoff at unsubsidized fertilizer price levels for most crops. It is true that for acertain number of small resource-poor farmers, affordability is a significant problem. However, moststakeholders indicated that little of the subsidized fertilizer was reaching the resource-poor farmersunder the post-1997 subsidy programs. The critical question is thus one of how to transform the fertil-izer system to deliver improved quality fertilizer at the amounts demanded at the time demanded andnot one of price subsidy.

It can be argued that the amount of fertilizer procurement under the government monopoly era wasbased on the port, transport, warehousing, and blending capacity along with budgetary considerationsand not on a free market demand. The dysfunctional dual private/public market system after the gov-ernment monopoly era also shorted the market. If the total amount of fertilizer had been based on theeconomic optimum amount that the market demanded, farmers in the country would have used muchmore fertilizer. This was the consensus of most stakeholders. A calculation of the economic optimumamount of fertilizer that would have been used was made. The economic optimum fertilizer amountwas four times the actual amount used in 1989/90 and about nine times the actual amount in 1999/2000. An increase in fertilizer use of this magnitude would have had an enormous impact on economicefficiency, equity and food security. A calculation was made of the loss to Nigeria of not using aneconomic optimum amount of fertilizer on maize in the year 2000. The calculation indicated that theloss in net revenue to the nation was in the order of N15.5 to N31.0 billion and a loss in maize produc-tion of between 1.5 and 3.0 million tons. This calculation is only for one year and for one crop. Themagnitude of the production increases would have significantly altered imports and exports of agricul-tural products and foreign exchange earnings and costs.

Government fertilizer policies also had an effect on national, state, and local government budgets.From 1990 to 1996 the fertilizer subsidy costs (as a percentage of the national budget) ranged from16.8% in 1991 to a high of 42.7% in 1992. Money spent on subsidy programs is money that cannot bespent on more worthwhile programs or on programs that support the farmer through decreasing thetransaction costs of the fertilizer delivery system.

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Government fertilizer policy also failed to capture the benefits of using the considerable resourcesavailable in Nigeria to produce fertilizer for in-country use and for export to the rest of Africa. Nigeria,like many developing countries, established fertilizer plants. Today, Indonesia has the capacity to pro-duce 9,229,000 tons of urea. The National Fertilizer Company of Nigeria (NAFCON) had the capacityto produce 1,488,000 tons of urea, but after 1992 never reached its capacity and ceased to function in1999. The lost revenues from not producing fertilizer for in-country use and the lost revenues fromforeign exchange earnings, when calculated, would be immense.

The main policy options for the fertilizer sector include: (1) the market economy approach thatallows the private sector to operate in a competitive environment, (2) the market economy approachwith a government-supported voucher scheme to help resource-poor farmers, and (3) variations of agovernment fertilizer procurement and subsidy approach. Each of these policy alternatives has a differ-ent effect on economic efficiency, equity, food security, and the cost to the treasury. Each policy alsohas unique transparency issues. The preconditions for the market economy approach are a strong com-petitive private sector and strong government enforcement of regulations. The approach is likely to useresources in the most efficient manner and does not compromise economic efficiency, equity, and foodsecurity goals. Once in place, the cost to the treasury is not an issue. In the case of Nigeria, moving froma high-cost fertilizer delivery system with government intervention to a market economy approachrequires a strategy with a new set of preconditions. These preconditions include: (1) creation of aconducive macro policy environment, (2) declaration and adherence to a consistent input marketingpolicy, (3) increasing human capital for market development, (4) improving access to finance, (5) de-veloping and implementing regulatory frameworks, (6) promotion of market transparency through marketinformation systems, (7) promotion of technology transfer activities, and (8) strengthening researchcapacity for promoting the private seed industry. Nigeria failed to take the preconditions into consider-ation when the liberalization of the fertilizer sector occurred in 1997. Some steps have recently beentaken to address some of the preconditions. The IFDC Developing Agri-Input Markets in Nigeria(DAIMINA) project addresses building human capital and agribusiness training of the fertilizer, seed,and crop protection wholesalers and retailers. However, the other preconditions have not been met,especially the declaration and adherence to a consistent fertilizer policy. A liberalized Nigerian fertil-izer sector that follows a market economy approach will bring down fertilizer prices over time andimprove fertilizer quality and availability. There may be a role for government support to very resource-poor farmers. A fertilizer and seed voucher scheme along the lines of the Food Stamp program in theU.S.A. could be instituted. The targeted farmer would purchase seed and fertilizer in the market, butpay the difference between the price and the amount shown on the voucher (equivalent to subsidy), andthe dealer will redeem the face value of the voucher by a FGN authorized bank. In extreme cases ofnatural disaster or other catastrophes, the Government of Nigeria may use vouchers to pay the full priceof the product (as a safety net). Thus, the voucher system is flexible enough to accommodate variousconditions ranging from free distribution of inputs to a partially subsidized one. In addition, the Gov-ernment of Nigeria can target the neediest recipients for vouchers.

The scheme would be market friendly; there would be little distortion of the fertilizer sector or ofcrop production and prices. Both the equity and food security goals would be satisfied. The main pre-conditions are the proper identification of the targeted farmers and strict monitoring and informationgathering for administrative purposes. Nigeria has an opportunity to experiment and transform thecurrent subsidy program into a voucher scheme that would be more market friendly. Much of the workof identifying target farmers has already been done by the states and local governments under the

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current subsidy program. If the same amount of fertilizer was targeted to poor farmers under the voucherscheme as the current subsidy program (165,000 tons) and the targeted farmers paid 75% of the fertil-izer cost, the total voucher scheme cost would be about N1.25 billion. This is equivalent to what thecost would be under the original 25% subsidy scheme. However, the preconditions for a successfultransition to a market economy fertilizer distribution system must still be adhered to. Governmentintervention can include: (1) government monopoly procurement and subsidy on the final product,(2) government partial procurement and subsidy on the government-procured final product only, (3) sub-sidy at source, and (4) subsidy at source including transportation subsidy to delivery points. The firsttwo have been past policies of the FGN and the subject of the impact study in this report. The FGN hasindicated that it plans to introduce and implement a subsidy-at-source policy. A subsidy is given tofertilizer importers and in-country fertilizer producers, and they sell the fertilizer to wholesalers andretailers at the subsidized price. The wholesalers and retailers operate in a competitive market economy.The preconditions are strong competition, government consistency with the policy, strong regulatoryadherence, and not compromising transparency when setting the source fertilizer prices. The total amountof fertilizer use must be subsidized, or the problems of a dual public-private market will persist. If allthe preconditions are met, there will still be distortions to the market. If the scheme was workingproperly, more fertilizer would be used than would be at the economic optimum at non-subsidizedprices. Equity considerations would be compromised if the full subsidy were not transmitted to thefarmers, which would likely be the case. The costs to the treasury could be very high depending on thelevel of subsidy and the success of the transition. Policymakers must ask if a subsidy is really requiredin the face of information that indicates that there are returns to fertilizer use at market-price levels. Ifemployed, the subsidy-at-source policy should only be used as a tool for the transition of the fertilizersystem from where it is now to a market-economy approach. The blueprints are available for a transi-tion from a high-cost fertilizer delivery system with government intervention to that of a low-costfertilizer delivery system predicated on the workings of the market economy. Market-friendly optionsare available from within this framework for poverty alleviation of the extreme poor. What is requiredis a strong commitment by FGN, consistent policies, and a willingness to pursue transparency through-out the fertilizer delivery system.

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ANNEX 2

Workshop Program

Time Activity Action By Day 1: August 26, 2003 9:30–10:30 am Registration of participants DAIMINA and FFD PLENARY SESSION: Chairman: Mallam Adamu Bello, Hon. Minister of Agriculture & Rural Development (Reporters: Dr. G. B. Ayoola and Mr. E. H. Ekpiken) 10:00–10:05 am Opening prayers/National Anthem

10:05–10:10 am Introduction of dignitaries Dr. U. A. Alkaleri, Project Manager IFDC-DAIMINA

10:10–10:20 am Welcome address and objectives of the National Agri-Input Policy Workshop

Mr. O. A. Edache, Permanent Secretary, FMARD

10:20–10:50 am DAIMINA experiences of private sector development in Nigeria Dr. H. B. Singh, IFDC-DAIMINA

10:50–11:10 am Keynote address–Government priorities for development of agriculture and projected role of private sector

Dr. Audu Ogbeh, National Chairman PDP/Honorary Advisor to President on Agriculture

11:10–11:30 am Farmers’ viewpoint on availability and prices for development of agriculture and projected role of private sector

Vice Admiral Murtala Nyako (Retired President, Apex Farmers Organization)

11:30–11:50 a An overview of Fertilizer Importation and Distribution in Nigeria

Alh. Sani Dangote, Vice President– Dangote Group

11:50–12:10 pm IFDC programs with special reference to policy advocacy

Dr. Amit Roy, President/CEO, IFDC, Muscle Shoals, Alabama, U.S.A.

12:10–12:30 pm An overview of USAID assistance to agriculture and private sector development in Nigeria

Ms. Dawn Liberi, Mission Director, USAID Nigeria

12:30–12:50 pm Highlights of the New Agricultural Policy Thrust of the Federal Government of Nigeria

Mallam Adamu Bello, Hon. Minister of Agriculture & Rural Development

12:50–1:10 pm Questions and Answers All 1:10–1:20 pm Vote of Thanks Dr. S. A. Ingawa, Director, PCU 1:20–2:30 pm Lunch Break All TECHNICAL SESSION I: Chairman: V/A Murtala Nyako (Retired.), President, ALFAAN (Reporters: Mr. Osho and Mr. O. A. Edun) 2:20–3:10 pm Policy Reforms in Agri-Input Marketing in

Nigeria Prof. Ango Abdullahi 3:10–3:50 pm A global review of fertilizer subsidies Ian Gregory, IFDC 3:50–4:30 am Highlights of the Nigeria Fertilizer Policy

study and some suggested alternatives Dr. Balu Bumb, IFDC 4:30–5:30 pm Questions and Answers All Day 2: August 27, 2003 TECHNICAL SESSION II: Chairman: Prof. Ango Abdullahi (Reporters: Prof. V. Chude and Alh. Abba Auchan) 9:30–10:10 am Highlights of the Assessment of Nigeria’s

Agricultural Policy (ANAP) Prof. Anthony Ikpi, University of Ibadan 10:10–10:20 am Formation of working groups Dr. U. A. Alkaleri and Alh. Bello Sule 10:20–12:00 pm Deliberations by working group Group members 12:00–1:00 pm Presentations by groups Group team leaders 1:00–2:30 pm Discussions and recommendations All 2:30–2:40 pm Vote of Thanks Ahl. Saidu G. B. Zakari, National Sales

Manager, Golden Fertilizers 2:40 pm Lunch Break and Close of Workshop

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ANNEX 3

List of Participants

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ANNEX 3

List of Participants (Continued)

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ANNEX 3

List of Participants (Continued)

Special Publications IFDC—SP-38September 20042.5C

IFDCP.O. Box 2040Muscle Shoals, Alabama 35662 (U.S.A.) ISBN 0-88090-148-9