Financing the Agriculture sector

It was reported few days back that the Securities and Exchange Commission (SEC) expressed worry that credit to agriculture sector in the last 10 years remains as low as 5%, severely hampering the sector’s growth.

According to the report, the Acting Director-General, SEC, Mary Uduk noted that only the capital market has the capacity to unlock better access to credit and finance for the sector through innovative financing structures and products.

Agricultural financing

The CBN had at various times dedicated funds to agricultural financing through various schemes with the aim of resuscitating the agricultural sub-sector which is a major contributor to GDP and employs a high percentage of the labour force.

One of such schemes is the Commercial Agricultural Credit Scheme (CACS) established in 2009. The scheme is financed through a N200 billion Bond raised by the Debt Management Office (DMO). Loans are given to qualifying companies at a maximum interest rate of 9%.

Another such scheme is the Anchor Borrowers’ Program (ABP). The Program was launched in 2015 to create a link between anchor companies involved in agricultural processing and smallholder farmers (SHFs) of the required key agricultural commodities. The SHFs are provided with farm inputs in kind and cash to boost production of these commodities and ensure stability of these inputs supply to agro-processors.

At harvest, the SHFs supply these produce to the Agro-processors and are paid for the products. There have also been World Bank assisted Agricultural Development Programmes (ADPs) and the States’ Agricultural Credit Programmes. However, not much seems to have been achieved through these schemes.

Though financing the agricultural sector via capital market type funding may be a clearly better approach, growth in the agric sector is dependent on more than availability of finance in our view. Adequate infrastructure, re-establishment of the commodity boards, efficient storage facilities etc are structures that need to be in place to accelerate growth in the sector.

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