THE IMPACT OF NIRSAL ON RICE FARMERS IN BENUE STATE OF NIGERIA

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THE IMPACT OF NIRSAL ON RICE FARMERS IN BENUE STATE OF NIGERIA

CHAPTER ONE

INTRODUCTION

Introduction

Rice is one of the traditional crops in Nigeria. It is the second largest grain crop in Nigeria after maize and is a major food crop in the country. Nigeria is leading producer of paddy rice in Africa with 6.7 million Metric Tonnes and an average of yield of 2.2 MT/Ha (FAOSTAT, 2016). Rice is grown at an estimated 3 million Ha but less than 40 percent of land is said to be unfavourable for rice production in Nigeria. In Nigeria, rice is cultivated in all agro-ecologocal zones. However, production is concentrated in the north particularly in the west and central states with Benue state being second highest producer after Niger. Out of the thirty six States in Nigeria, only eight States can produce rice in a large scale. These states include: Anambra, Nassarawa, Ebonyi, Kaduna, Niger, Kano Kaduna and Benue (FMARD, 2017, Udemezue, 2018)

In Nigeria, the demand for rice is continuously on the rise and has always fallen short of domestic demand, leading to high proportions of imports. In 2004, it was estimated that 5.4 million MT of milled rice was under demand in Nigeria but only 3.8 million MT was produced locally leading to demand-supply shortage of 1.6 million MT which was complimented by rice importation. According to PwC Analysis (2017), rice production in 2017 stood at 3.7 million tonnes with domestic consumption approximated to be 6.4 million tonnes leaving a huge gap of 2.7 million tons. Nigeria is the second leading importer of rice after China, importing an estimated 2.4 million MT of milled rice from countries such as Thailand and India (USAID, 2016). The demand in rice is estimated to increase in over 5% from 2015 to 2050. It constitutes more than 20 percent of total food expenditure among urban and rural dwellers (FMARD, 2017). This situation has continued to exacerbate dependence on importation. Since this rice import is paid in foreign currency, this has led to the precarious balance of payment position of the country (Okeke, Mbabasor and Nto 2019). Small holder farmers who are the main producers of rice in Nigeria are confronted with so many challenges that negate rice production in the country. Most of these farmers neither utilize good production practices nor improved inputs, which explains the low yields recorded in the country (USAID, 2016). Also, poor performance of the Nigerian rice sub-sector are high cost of inputs, diversion of subsidized farm inputs, soil degradation, annual bush burning which destroys the soil organic matter, land issues, lack of capital, neglect of the agricultural sector, inadequate extension agents, market failures, insufficient technical know-how in the area of fertilizer application and improved seeds, and inadequate essential inputs for rice farmers (Osanyinlusi and Adenegan, 2016; Ahmed, Xu, Yu and Wang, 2017).

In response to the above, Federal Government initiated programmes to reduce the countries over reliance on imported rice through catalyzing local investment and production of rice. These policies have mixed success but government did not relent in its task by modifying some policies and programmes and initiating and implementing new ones. In 2013 the FGN increased import tariff on brown rice with the aim of discouraging imports and encouraging local production. The unintended consequence however was a significant increase of smuggled rice. In 2014, the FGN introduced a different approach that aimed to encourage the gradual growth of local production, while allowing some rice imports to meet domestic demand. The policy classifies rice importers into traders, who have no rice processing facilities and simply import rice to be resold in the country, and investors, who have processing facilities associated with or a part of rice farms. Under this policy, investors pay lower import tariffs than traders on imported rice. The policy also appeared to produce underwhelming results.

In 2015, the Anchor Borrowers Programme was introduced. The programme is one of the intervention program of CBN is design to alleviate farmers’ challenges, through provision of necessary agricultural input such as farm equipment, fertilizer, water pumping machine, seedling, cash as well as extension services among others. The scheme involves a finance model whereby the anchor firms, CBN, NIRSAL and State Governments organize the out-growers and ensure that they comply with contractual terms thereby reducing the incidence of side-selling. The financing institutions will serve as veritable channels for delivering credit to the outgrowers. The stakeholders were drawn from government agency, farmers association, bank of agricultural and individual farmers while, CBN is to service as coordinate organ and financial intermediation.

The programme was said to have benefited a total of 12 million rice producers and four million hectares of FADAMA rice land (RIFAN, 2017). With the introduction of the programme, it has been reported that, consumption had increased because of increased local production of the commodity. The consumption rate now is 7.9 million tones and the production rate has increased to 5.8 tons per annum (RIFAN, 2017; FMARD, 2017). Benue state is one of the states that benefitted from the Anchor Borrorwer’s Programme. Under the programme farmers through associations were given financial assistance at 9% interest rate and inputs such as improved rice seeds to cultivate rice. At the end harvest period, government was supposed to estimate the financial value of the rice produced and buy the rice from the farmers based on the estimates. The report show that the programme made significant impact in accelerating rice production in Nigeria (FMARD, 2017).However, despite the programme being reported as a success, it is likely that it may underperform in certain state or local government areas. Studies have been conducted on the Anchor Borrower Programme in Nigeria. However, these studies seem to focus other variables rather than rice production which informed the initiation and implementation of the programme. For instance, study by Saheed, Alexander, Isa and Adeneye (2018) focused on determining the impact of Anchor Borrower Programme on price of rice and whether support to rice farmers led to employment generation in Argungu Local Government in Kebbi state. Another study by Badejo (2018) also investigated impact of the programmme of poverty alleviation in Argungu Local Government Area, Kebbi state. In Benue state, a study by Okeke, Mbabasor and Nto (2019) compared the technical efficiency level of beneficiaries and non-beneficiaries rice farmers of the Anchor Borrowers’ Programme. The study also estimated the determinants of technical inefficiency among beneficiary rice farmers of the ABP and described the technical efficiency level of beneficiary rice farmers of the ABP. These studies ignored three issues. The first issue was determining the influence of sociodemographic characteristics on access to assistance from anchor borrower programme. Secondly, the study wills the assessment of impact of ABP on rice production which is informed the programme. Secondly, the studies ignored the study area which is one of the major producers of rice in Benue state which is also one of the top producers of rice in Nigeria. The study is therefore aimed at filling the void left by these studies.

Background of the study

The Nigeria Incentive-Based Risk Sharing system for Agricultural Lending (NIRSAL) was launched in 2011 and incorporated in 2013 by the Central Bank of Nigeria (CBN) as a dynamic, holistic USD500 Million public-private initiative to catalyse the flow of finance and investments into fixed agricultural value chains.

NIRSAL seeks to address the causes of low funding levels in the agriculture sector, including lack of understanding of the sector, perceived high risks, complex credit assessment processes/procedures, and high transaction costs.

The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc.) is a US$500million Non-Bank Financial Institution wholly-owned by the Central Bank of Nigeria (CBN) created to Redefine, Dimension, Measure, Re-Price and Share agribusiness-related credit risks in Nigeria.

Established in collaboration with the Federal Ministry of Agriculture and Rural Development (FMARD) and Nigerian Bankers’ Committee in 2013, NIRSAL’s mandate is to stimulate the flow of affordable finance and investments into the agricultural sector by de-risking the agriculture & agribusiness finance value chain, fixing agricultural value chains, building long-term capacity, and institutionalizing incentives for agricultural lending through its five (5) strategic pillars, namely: Risk Sharing, Insurance, Technical Assistance, Incentives and Rating.

On 16 September 2016, the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) signed a MoU with the Bank of Industry.

The core scope of this MoU is for these two institutions to establish a scheme which would enable them to boost the local Nigerian agriculture sector through:

a) enhancing the rates of job creation and import substitution at a local level and

b) contributing towards the realization of the key objectives of the National Agricultural Promotion Policy i.e. a Policy which core objectives are to ensure that the local agriculture industry does meet the domestic food requirements as well as is able to export high-level quality output in foreign markets.

Consequently, the parties that are designated to benefit from this scheme are :

primary producers and smallholder farmers operating in the crop, livestock or fishery subsectors;

agro-input suppliers specialising in fertilizers, seeds, crop protection chemicals, fish & livestock feed;

agricultural mechanisation service providers

Therefore, the highlighted scheme embedded in this MoU is aimed to function according to the following principles :

Bank of Industry is set to provide loans to agricultural projects which NIRSAL as an institution mandated to fix the local agriculture value chain has identified to be impactful and sustainable for loan provision purposes. Although no specific details are provided concerning the terms under which these loans will be granted, the official statements do indicate that the loans will be provided under very low-interest rates as well as their credit approval process will be 50% faster than the standard one predominating in the country.

NIRSAL is to provide credit guarantees for all the agricultural project loans that are to be granted by the Bank of Industry. The credit guarantees that are to be provided by NISRAL amount up to 75% of the total value per each granted loan, and are part of its USD 300 million worth Risk Sharing Facility.

NIRSAL is a state-owned Nigerian institution designed with the scope of ensuring the existence of affordable financing schemes to all players along the agricultural value chain in Nigeria. NIRSAL has several schemes or facilities embedded in its institution: a) Risk-sharing Facility, b)Insurance Facility, c)Technical Assistance Facility, d)Holistic Bank Rating Mechanism and e)Bank Incentives Mechanism. The Risk-sharing Facility (USD 300 million worth) is a credit guarantee-based mechanism under which NIRSAL does share the potential losses that commercial banks might incur in the process of lending to local agriculture beneficiaries. Specifically, via the Risk Sharing Facility, NIRSAL aims to encourage commercial banks to provide loans to local agriculture players via de-risking their loan provision investments through the credit guarantees it provides. The Insurance Facility (USD 30 million), on the other hand, does aim to optimize the insurance infrastructure available to local players in the industry of agriculture via : a) expanding the coverage of existing products provided by the Nigerian Agricultural Insurance Corporation and b) by piloting and scaling new products, such as weather index insurance, pest and disease insurance, life insurance, yield based as well as price index insurance. The Technical Assistance Facility (USD 60 million) is a mechanism of NIRSAL which aims to: a) provide banking institutions with the expertise and knowledge they would need in order to lend sustainably to the local agriculture sector; b) provide agricultural players with the necessary expertise to use the loans that they acquire more effectively (and therefore generate better quality output). Furthermore, the Holistic Bank Rating Mechanism (USD 10 million) aims to provide a rating for banking institutions on the criteria of the effectiveness of their agricultural lending as well as their overall social impact. Lastly, the Bank Incentives Mechanism (USD100 Million) provides further incentives (primarily cash-based) for Banks which have a high rating under the Holistic Bank Rating Mechanism — in order to boost their lending to the national agriculture sector of Nigeria.

Statement of the problem

Rice farmers in benue state have a been facing an upheal task of expanding their production capacity, improving their productivity and efficiency. At the center of these challenges is inability to access adequate credit facilities and funds to institute or implement necessary processes needed. This nagging problem have stagnated the growth and operational improvement of rice farmers in benue state. Moreso, because of poor or rather little production turnover, leading to low profit margins, lack of economies of scale have left rice farmers with little or nothing as resources to reinvest, leading to continued breakdown of any effort or efforts to improve production capacity, and efficiency. There is a dire need for a comprehensive and total revamping of this unencouraging trend.

Objectives of the study
To know the total population of rice farmers in Taraba state
To understand the proportion of rice farmers that have access or relationship with NIRSAL
To know the output level of NIRSAL participants
To identify the input packages given by NIRSAL
To know the interest rate at which NIRSAL loans are issued
To understand the output level of non-NIRSAL participants

Research questions
What is the total population of rice farmers in Taraba state
What is the proportion of rice farmers that have access or relationship with NIRSAL
What is the output level of NIRSAL participants
What are the input packages given by NIRSAL
What is the interest rate at which NIRSAL loans are issued
What is the output level of non-NIRSAL participants

Research hypothesis

H0: There is no significant difference between output levels of NIRSAL participants and non-NIRSAL participants

H1: There is a significant difference between output levels of NIRSAL participants and non-NIRSAL participants

H0: NIRSAL have no strong positive impact of economic improvement of rice farmers in benue state

H2: NIRSAL have a strong positive impact of economic improvement of rice farmers in benue state

Literature review

Poverty is one of the intractable problems facing mankind. This challenge is more severe in developing countries such as Nigeria. Poverty in Nigeria is largely rural in nature as majority of the poor live in rural areas. This portion of the population depends on agriculture for a living. Other studies (Okunmadewa, 1997 and FOS, 1999) have revealed that majority of the rural people are farmers, of which rice farmers are a subset.

Ravallion (1994) saw poverty, as a lack of command over basic consumption needs i.e. the situation of inadequate level of consumption; giving rise to insufficient food, clothing and shelter. While, Ghosh (1990) viewed poverty from the perspective of moneylessness and powerlessness, moneylessness means insufficient of cash and chronic inadequacy of resources of all types to satisfy basic human needs such as nutrition, warmth, rest and body care. Powerlessness on the other hand means lack of opportunities and choice to govern oneself. According to Noah, Gafar and Muftan (2009), the importance of the measurement of poverty is to know; who is poor, how many people are poor and where the poor are located.

Foster et al (1984) opined that, the most frequently used measurements are: (i) the headcount poverty index given by the percentage of the population less than the poverty line. (ii) Poverty gap index which reflects the depth of poverty by taking into account how far the average poor person’s income in from the poverty line; and the distributionally sensitive measures of squared poverty gap defined as the mean of the squared proportionate poverty gap which reflects the severity of poverty. However, they see poverty as a state of involuntary deprivation to which a person, household, community or nation can be subjected.

The distinguishing characteristic of rice farming is the use of poor yielding inputs, such as seed, pesticides and fertilizer and rudimentary technologies. Consequently, yields are generally low. The subsector also suffers from enormous post-harvest losses which are estimated at 35 to 40 per cent of landed weight (Tobor, 1985). These losses have a profound adverse impact on the rice farmers whose status and income often depend on post-harvest activities. Again, rice farmers get very little returns for their efforts due to the existence of middlemen, poaching and predation. Hence, there are low returns in terms of farm income to them. This contributes to some level of poverty among farmers. Such poverty is exacerbated by governments’ policies which often concentrate resources in the modern large-scale commercial farming while small-scale farming find it difficult to obtain credit, extension services, marketing assistance and similar aid from development programmes. About four thousand people are currently engaged either directly or indirectly in rice farming and rice-based industries as producers, processors and distributors in Benue State (Abur and Torruam, 2012) For food security to be attended there must be an understanding of poverty as a necessary precondition towards increasing agricultural production in the rural areas. The knowledge of poverty and how it relates to living standard is a logical basis for planning towards reducing poverty in the economy. This is so as poverty incidence impacts negatively on the ability of the individual to be productive.

Accessing financial support either in form of a grant or loan is one of the challenges that most SMEs in Nigeria face. Small businesses need financial support for various reasons ranging from raising business capital to expanding it. Typically, if your business has less than 500 employees, it is regarded as an SME. So, if you own an SME you will agree that accessing a loan at any point in time can be the stepping stone your business needs to get into the big league.

Thanks to NIRSAL microfinance, SMEs in Nigeria can now access several loan options to help them start,

The name NIRSAL is an acronym for Nigeria Incentive-Based Risk Sharing System for Agricultural Lending. If you look at the full meaning of the name NIRSAL, you may be quick to think that only small agricultural businesses qualify to apply for loans from this microfinance bank. However, that is not entirely true.

NIRSAL is a financial institution that was established in 2019. This microfinance bank has a variety of loan options that SMEs in Nigeria can access to expand their businesses. The best part is that the repayment plan is quite convenient.

NIRSAL Microfinance Bank Loan Options

As stated earlier, NIRSAL has put in place varieties of loaning options to help support and encourage SMEs in Nigeria. Each loaning option has been created to help in meeting varieties of business types and needs.

Here are the NIRSAL loaning options that SMEs in Nigeria can apply for:

1. AGSMEIS Loan

AGSMEIS is an acronym for Agribusiness Small and Medium Enterprises Investment Scheme. The purpose of this loan is to help in promoting agricultural SMEs in Nigeria. It is the federal government’s way of ensuring the small agricultural business have the financial support they need to grow. This loaning option seeks to promote agricultural MSMEs as a vehicle that is crucial to generating employment and developing the economy of the country.

SMEs in Nigeria that has been granted the AGSMEIS loan have a moratorium of about 24 months. The first 18 months moratorium is on the principal loan and the last 6 months moratorium is on the interest. A moratorium simply implies that these SMEs will be given the stipulated time to grow before they begin refunding. This loan option attracts an interest rate of 5% per annum and owners of the businesses are expected to pay up within the space of 7 years.

Businesses that are eligible for the AGSMEIS loan includes;

· Small Agribusinesses

· Petrochemical, mining, and manufacturing businesses

· Creative industry and ICT businesses

2. NIRSAL Micro Loans

The NIRSAL micro loaning option allows students, traders, and entrepreneurs to access repayable financial support for their businesses. With this loan option, SMEs in Nigeria have the opportunity to receive up to N1 million loan. The microloan can only be applied by existing SMEs. This implies that this form of loan is not accessible to people looking to start a business.

The total interest rate on NIRSAL loans depends on the repayment duration. However, you should know that the interest rates on NIRSAL loans is minimal and probably the least you will ever find. This loaning option is aimed at supporting small business owners that have no access to typical financial services like banking. All these types of business owners are often referred to as “unbankable” by large financial institutions.

The micro loaning option is aimed at helping micro-business owners who deal with an incredibly small amount of money each day. Such business owners don’t have credit histories and are not able to meet the traditional requirements of financial institutions.

3. NIRSAL SME Loans

The NIRSAL SME loaning option is aimed at helping SMEs in Nigeria with the financial support they need to either buy fixed assets or as working capital. SME owners that apply for this loan can access a little over N500,000. The repayment tenor is quite comfortable as the NIRSAL microloan allows small business owners to pay off their loans within the space of 2 years.

4. NIRSAL NYIF

The term NYIF is an acronym for Nigerian Youth Investment Fund. It is an idea of the Federal Ministry of Youth and Sports Development and it is fully funded by CBN (Central Bank of Nigeria). This NIRSAL’s loaning option aims to provide youths the financial support they need to achieve their business ideas and boost job opportunities in the country.

The purpose of the NYIF loaning option is to encourage Nigerian youths to be wealth creators, labour employers, nation development contributors, and entrepreneurs. Hence, the NYIF loaning option is a funding scheme that is created to invest in the talents, skills, and innovative ideas of the youths in the country.

Applicants of the NIRSAL’s NYIF loan must be between the ages of 18 to 35 years. They will also be required to go through a uniquely crafted Entrepreneurship Training Certification Program. Both individuals (also referred to as non-registered businesses) and registered businesses can apply for NIRSAL’s NYIF loan.

Advantages Of NIRSAL Microfinance Bank Loans

There are several reasons why NIRSAL’s microfinance bank loans are perfect for SMEs in Nigeria and here are a few of them:

· Convenient Repayment Plan: NIRSAL microfinance bank loans have one of the most convenient loan repayment plans in the country. Most of their loaning options give business owners sufficient moratorium they need to grow their businesses to a certain extent before refunding.

· Accessing Larger Loans: NIRSAL microfinance bank loans give small business owners access to large loans. Some of their loaning options allow business owners to access loans up to N5 million.

· Amazing Interest Rates: With NIRSAL microfinance bank loans, you don’t have to worry about vindictive interest rates. Their loaning options have one of the lowest interest rates in the country.

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