Incentives matter. And I confess that whenever I see a basic economic law working as it should in Nigeria, it puts my mind at rest and helps to dispel that myth that ‘Nigeria does not follow any economic laws’.
When I was in Nigeria recently, I got talking policy with a few friends and how this government is seemingly obsessed with banning stuff or putting punitive tariffs on them in the name of boosting local production. The problem is that banning is always the first thing they do. Before any local capacity is added, they ban the thing. Given that we have been banning things since the ’70s at least, it is unclear why the government persists with this line of action even when it obviously don’t work. Usually the effect is nothing more than raising the price Nigerians pay and delivering a boost to smugglers and Benin Republic.
Specifically we discussed the rice policy and how people who have invested in rice processing mills are struggling to find paddy to mill. Yields are low and there is general scarcity.
But let’s use some simple numbers to show that Nigerians are rational afterall.
If you’ve been casually following the news, you will have noticed that the NDLEA have been actively seizing large amounts of cannabis from farms especially in the South West. Usually a big show is made of this with the bags lined up and burnt often with the state governor in attendance. They are ‘sending a message’ to cannabis farmers – we will find you and we will smoke your weed (not literally but you get the gist).
Here’s an example from last month in Oyo State:
Over 124,000kg of drugs has been burnt in the State since 2006. According to Giade, “in 2006, the Agency destroyed 2,000kg of drugs. The largest quantity of 80,050kg was destroyed in 2008 while in 2011, 27,400kg was also destroyed. Today’s exercise will bring the total quantity of drugs destroyed in the State since 2006 to 124,082.386kg
That is just one state. Roughly 2,500 bags of cannabis destroyed in 5 years. Bear in mind that these are the farmers unfortunate enough to have been caught. I am pretty sure Nigeria doesnt import cannabis so there is enough making it to the market. I will go as far as speculating that production hit a peak in 2008 which then attracted more farmers and then subsequently crashed prices the following year.
When cannabis was destroyed in Ekiti a couple of weeks ago, the NDLEA chairman, Ahmadu Giade, had this to say:
According to him, the Agency had detected and destroyed 875 hectares of cannabis farm in Ekiti in 2013, advising that “we must explore every strategy to promote the cultivation of economic crops instead of cannabis
During another smoking exercise, the same NDLEA boss said:
It is sad and disturbing that most farmers are now abandoning food and economic crops for cannabis. This 1,404.27 hectares of land could have changed the fortunes of our agricultural sector if properly utilised
I am sad and disturbed that the NDLEA boss is sad and disturbed. Another report from July 2013 breaks down how widespread this ‘farming business’ is:
In data SUNDAY PUNCH obtained from the Head, Public Affairs, NDLEA, Mr. Mitchell Ofoyeju, on Friday, the agency said the plantations were concentrated in Ekiti, Ondo, Osun, Ogun and Oyo states.
It added that Delta and Edo states in the South-South top the list of states with the largest cannabis farms from other zones.
NDLEA said, of the 8,052 drug suspects arrested, North-West had the highest with 2,185.
This was followed by South-West, with 1,591; South-South, 1,480; North-Central, 1,230; South-East, 960; and North-East, 606.
The agency seized 233,700kg of narcotics in the year under review, with the South-South having the highest, with 106,676.716kg.
The South-West came second, with 94,036.265kg; North-Central, 14,472.309kg; North-West, 10,357.895kg; North-East, 4,548.268kg; and South-East, 3,608.309kg.
On the list of states with the largest volume of drugs seized, Edo led with 81,541.71kg. Ondo had 61,246.35kg; Delta, 23,418.48kg; Ogun, 8,469.99kg; Oyo, 7,232.08kg; and Ekiti, 6,685.23kg.
Kano State recorded the highest number of arrests, with 705 suspects – all males.
Shout out to my Yoruba people – they are planting the most according to the NDLEA but other regions planting less are suffering more arrests and seizures than the South West. Perhaps this is a skill that can be exported one day.
Finally I found the following paragraph in a report by the International Narcotics Board for 2012:
In 2011, the National Drug Law Enforcement Agency (NDLEA) of Nigeria seized a total of 192 tons of cannabis herb, which represents a 10-per-cent increase over the total in 2010. Also in 2011, Nigerian authorities eradicated a total of 918 ha of cannabis plant cultivation, compared with 593 ha in 2010. According to the Agency, that amount of cultivation is equivalent to a yield of 1,836 tons of cannabis herb
So the obvious question is – why are Nigerian farmers ignoring the clear risks and pressing ahead with cannabis farming? Clearly a lot of people are smoking in Nigeria but the same can be said of how people eat rice. So why aren’t our farmers planting rice instead? I remind you again, this is what was seized. What didn’t get seized is anyone’s guess.
I saw a long report about rice farming in The Vanguard newspapers today and I think I have the answer. It’s a long piece and it’s worth reading in full but let me quote the part that jumped out at me:
In one hectare, if there is no delay in rain and all goes well, about have 2. 5 tonnes of rice can be got from one hectare, that is about 100 or 50 bags.We use 25 or 50 kilo bags. We sell 25 kilo at N3, 500 and 50 kilo for N7, 000. So about N350, 000 can be realised as gross profit on one hectare but so many factors can reduce the profit on that.
Before the rice is harvested, the farm has to be weeded so as not to harvest weeds with it. About 10 people are needed to weed one hectare and they get N1, 500 per day. It takes about five days to weed one hectare. That is about N75,000 on weeding per hectare alone and there are many other expenses that are incurred.
So farmers need working capital to cover such expenses. So we keep imploring the government to provide access to finance so as to have mass production of food
Will you farm one hectare – roughly 15 plots of land – for N350,000 gross profit? This is assuming all goes well. And rice farming is back-breaking work as anyone knows.
Given that cannabis is a banned substance in Nigeria, you are not exactly going to find the price on Konga.com but I stumbled on this blog post from last year that put the price of 10 grams at N400 (please correct me on this if you have better information). So from a 50kg bag of cannabis you can get a staggering N1,000,000 even if we discount 50% at wholesale prices.
For the same 50kg of rice, the farmer in the Vanguard report says they get N7,000. This is an absolute brainer. And I imagine cannabis involves much less work.
All of these have policy implications in terms of whether or not the government is doing the right thing by slapping 110% tariffs on rice and even planning to ban importation totally in 2015. Will this really make Nigerians start farming rice more? Clearly the enemy is not just abroad, it is within as well.
A few days ago, Premium Times carried a report where they quoted extensively from one Mr. Akinola, the spokesperson of the Seaport Terminal Operators of Nigeria. It was very revealing to say the least. Read the whole thing but I will quote the part I found most interesting:
Before January 2013, rice importers paid a 60 per cent duty, but when it was increased to 110 per cent, importers shun Nigerian ports for neighbouring countries.
No rice vessel has berthed at any port in Nigeria in close to a year now. What that means is that government is losing revenue that the Customs should have collected.
The vessels just go to neighbouring ports where they will pay far less duty and the smugglers end up bringing the same rice into the country illegally,” he said.
He said that the policy has affected the revenue of the Apapa Command of the Nigeria Customs Service from rice import.
Mr. Akinola said the Command had so far collected only N11 million as duty on rice as against what it used to be.
The Area Controller of Apapa Customs said that rice was the highest revenue-earner for them, but this year, the Command collected only N11 million as import duty on rice.
In 2012 and 2011 about N138 billion and N135 billion respectively was collected as revenue on rice importation. You can see the monumental loss to the Nigerian government,” Mr. Akinola said
This is shocking stuff. The Nigerian government has thrown away (or given it to Benin Republic) almost $1bn in revenues in the name of ‘saving’ money on imports. The same rice is still finding its way into the country only now through the artificial line that we call our border with neighbouring countries. I want to call this the Laffer Curve in action but the collapse in revenues is so comprehensive that I think we need a stronger term for it.
This mess highlights the crazy way we tax and spend in Nigeria. Ordinarily, there should be a link between revenues raised from rice imports and what the agriculture ministry gets via its budget. I do not know of any country in the world where rice is planted on a huge scale and the government doesn’t somehow support its farmers. It is just too difficult and not profitable enough except you are doing it on an industrial scale or adding value at the milling end.
There is nothing to be afraid of from importing rice, we can actually eat our cake and have it. The problem is not that farmers don’t want to plant rice so banning imports is hardly going to solve the problem.
So here’s my policy recommendation in 3 easy steps
1. Return the tariffs to what they were and end all talk of banning rice in 2015. In fact I will slightly lower the tariff to 50% instead of the 60% it was before.
2. Direct the bulk of the revenues raised from rice imports to the agric ministry. I will say 80% at the very least. That’s N110bn based on 2012 figures. This money should be earmarked specifically for a rice programme.
3. Use the money to bribe farmers to plant rice by guaranteeing the amount they will get for any rice they plant. Some of the money should also be used to build storage for rice reserves. Farmers don’t have to be paid the same amount as cannabis as that crop has risk of arrest and destruction built into the price. But N7,000 cannot cut it. The ministry can experiment on an annual basis with the price to see how much production increases. Start at N9,000 then raise it by N1,000 every year until we get the production we are looking for.
There’s nothing strange at all about all this, governments do it all the time for different things like the UK government recently guaranteeing the price of nuclear energy for private investors to build nuclear energy plants in the country.
The problem with the method we are adopting is that it gets more and more expensive for consumers and does not increase efficiency. This is a lesson we can learn from Japan where rice is a political crop:
To protect its wildly uncompetitive farmers, Japan has erected one of the world’s highest tariffs: the duty on imported polished rice is 777.7%. Mr Abe’s surprise decision in March to bring Japan into talks on the Trans-Pacific Partnership (TPP), a free-trade grouping, has brought these duties under pressure. Even though a final deal on TPP is far from certain, the talks are still a powerful force for change.
The phasing out of gentan should spur rice production, allowing prices to fall at last. That in turn should encourage small landowners to hand over their paddies to be farmed by larger operators, says Takeshi Niinami, the government’s chief adviser on the reform. Another of Mr Abe’s plans is to create new agencies in each prefecture to gather farmland from smallholders, consolidate it and lease it in larger chunks to companies. The combination of the two new policies could halve the cost of growing rice from an average of ¥16,000 ($160) a 60kg sack to just ¥8,000, says Mr Niinami. At those levels, Japanese rice could hold its own against imports, and even make inroads in export markets.
That gentan policy began in 1971 and is now proving impossible to remove. But Shinzo Abe, who is working, is on the case. Japanese consumers are paying ridiculous amounts of money just to keep a dwindling group of farmers happy.
Too often the debates about economic policies in Nigeria take on a zero sum approach – to have local industry we must stop imports. There’s never a middle ground. This encourages the government’s itchy fingers to reach for the banning and tariff levers as the first step. My good friend Olusegun Aganga first raised tariffs to 70%. Then he announced that the coming Made in Nigeria cars will cost as little as N1.2million. Simple logic makes you wonder – if these new cars are going to cost N1.2m, why do you need high tariffs to discourage imports again?
Please if you know these people in government, appeal to them to calm down with all this banning. We all want Nigeria to develop and there’s no need treating Nigerians as if they are the enemy because they buy things from abroad.
Happy new year