When Supply Unlooked Demand

How did you go bankrupt?
Ernest Hemingway: Two ways. Gradually, then suddenly

I stumbled on the chart below in a PwC report on food security in Africa and found it fascinating and worthy of a quick post. (Click on the chart to go to the report itself).

The chart shows rice production and consumption in Nigeria since the country gained independence. Going further into the report, we see this:

However, at the turn of the millennium the picture for domestic consumption altered radically. In 2000, domestic consumption broke through the 3m tonne barrier for the first time and rose sharply thereafter. In 2006, consumption reached 4m tonnes, 5m tonnes by 2011, and by 2013 6m tonnes were being consumed in Nigeria. Breathtaking figures for sure.
However, the domestic supply response, as noted, was muted. Throughout the 1990s Nigeria produced 1.5–2m tonnes of rice per annum. At the beginning of the 1990s, the country had to import 200,000 tonnes of rice. This rose steadily throughout the decade so that by 1999, the country had to import almost 1m tonnes a year.
Domestic production also rose, but was insufficient. In fact it took until 2005 for Nigerian domestic production to go above 2m tonnes by which time imports were 1.65m tonnes. The critical year for rice was 2011 when the government launched the Agricultural Transformation Agenda (ATA). That year, rice imports (3.2m tonnes) exceeded output (2.9m tonnes) for the first time.

There’s a big story here. You can see production rising steadily over the years. The colonial model was based on extraction which meant that the excess output was being exported somewhere. But over time, surely, exports would have gradually reduced.

Gradually, gradually, gradually…domestic consumption was increasing. And then suddenly! Nigeria became a rice importing country ‘overnight’. While all this was happening, Nigeria continued to chase shadows by banning imports. We even created a whole new rice paper game as I wrote previously.

One can’t also rule out the effect of Dutch Disease. As oil dollars poured into the economy, the naira was always going to be stronger than it’s real value meaning that imports became cheaper.

There is a lesson here for people who like to say production should be targeted to meet ‘local demand’ first before thinking about exports. Here is a clear example of local demand crying out to be met and yet, no response from the local supply side. Until there was no option but to go and look for it outside.

How about the people who export rice to Nigeria? Do they not have a local market? How do they have so much to eat and still send across the world? The report also says:

As it initiated the ATA, the government laid out the failings of the Nigerian agriculture sector somewhat starkly as it initiated the ATA in 2011. Among its observations: the country’s mechanisation intensity of some 10 tractors per 100ha was in sharp contrast to the 241 tractors per 100ha of Indonesia. In irrigation, less than 1% of Nigeria’s arable land was irrigated versus 28% in Thailand, the world’s biggest rice exporter. It also noted how Indonesian yields in 1961 were lower than Nigeria and yet, within two decades, Indonesia had lifted yields threefold

Ah, I see. So they reinvested some of the money they earned from rice to increase their productivity while Nigeria spent money on Udoji Awards and various other forms of consumption as well as eating its seed corn?

There really is nothing to see here. Those who cannot irrigate their land for rice farming are destined to buy rice from those who can irrigate theirs.

What’s the moral of this story? Let’s stop falling for cheap stunts and platitudes from politicians who beat their chest and say things like we need to ban rice imports because we can produce all the rice we need ourselves. The devil is not abroad — it is right there at home. Any serious plan must involve serious investment to increase productivity rapidly. It is not about sharing quotas. It requires irrigation infrastructure and an atmosphere that allows foreign investments to come and flourish side by side with local investment.

If you did not read Calvin Burgess’ story of his (mis)adventure with rice production in Nigeria, do so here.

Remember: This is the window of opportunity to address these issues now that oil prices have been pinned down by gravity. I assure you, if oil prices gain escape velocity, nobody will be talking about all these problems again. We will go back to our sweet Thai rice.

The Agric minister, Audu Ogbeh, says that the policy framework for the agricultural sector will be published in 2 weeks time. Get ready. If you love your country and the plan turns out to be the usual beating about the bush without addressing the fundamental issues, you must give him feedback with both barrels. There really is no time to waste.


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