Nigeria Agricultural Transformation Agenda Support Programme


Overview

  • Reference: P-NG-AAB-003
  • Approval date: 30/10/2013
  • Start date: 20/02/2015
  • Appraisal Date: 08/07/2013
  • Status: OngoingOnGo
  • Implementing Agency: FEDERAL MINISTRY OF AGRICULTURE
  • Location: Bida-Bad, Adani-Omor, Kebbi-Sok, Kan-Jig

Description

The approach: considering the innovative nature of the ATA, and the limited experience of the Bank and the Government in agricultural commodity value chains development, ATASP would be implemented along a pragmatic and flexible approach with the following two distinct phases:

An Initial Phase of three years to put in place the delivery and institutional mechanisms through a learning by doing and piloting approach. During this phase, the Program will work on a limited number of commodity value chains, and in a limited number of Staple Crop Processing Zones (SCPZs) to develop approaches with respects to partnering with commercially-oriented rural women, youth and farmers' organizations, private sector, community-based, and other public sector delivery or enabling institutions. To conform to demand-driven and participatory intervention model, detailed implementation design studies and preparation of bidding documents for the development of infrastructure for retained commodity value chains will also be carried out during this phase. By the end of this phase, the Program would have adopted a robust inclusive private sector development approaches and instruments. The outcomes of this initial phase will be measured through clear indicators which will inform the expansion phase.

An Expansion Phase of four years, building on the knowledge gained during the initial phase. During this expansion phase, program design will be adjusted and its resource directed towards the most effective interventions and commodity value chains. Also, innovations developed during the initial phase will be scaled up, and a larger number of commodity value chains and SCPZs will be supported. The Program's exit strategy will be implemented.

The proposed ATASP-1 has been formulated into three components as follows:

(i) Infrastructure Development;

(ii) Commodity Value Chain Development; and

(iii) Program Management. The Program will provide improved production, processing and marketing infrastructure necessary for selected commodity value chains. ATASP-1 will rehabilitate water conveyance structures necessary for irrigation; train value chain actors in technical and managerial skills; provide extension services to producers and processors; facilitate and improve key accesses through peri-urban/urban cities passing through markets. It will rehabilitate and construct schools, health centers; and provide sanitation and potable water facilities in the Processing Zones (PZs). The Program will enhance employment of youth and women by providing access to improved productive resources (including credit) and practical skills and increase the number of SMEs and persons engaged in the agriculture value chain.


Objectives

Its specific objective is to increase, on a sustainable basis, the income of smallholder farmers and rural entrepreneurs that are engaged in the production, processing, storage and marketing of the selected commodity value chains. The direct beneficiaries are the 45,300 economically active smallholders living in the rural areas who are already participating in commercial agriculture. This number is expected to increase significantly when other economically active value chain entrepreneurs enlist in the Program. The indirect beneficiaries include existing or potential small, medium and large-scale entrepreneurs and business associations who provide services to rural households. Among the target group, women and youth play a major role in crop and animal production, processing, small enterprises operation and marketing. They will be specifically targeted for Program activities and benefits.


Rationale

The Agricultural Transformation Agenda (ATA) has a great potential in enhancing the role of agriculture as an engine of inclusive growth leading to rural employment, wealth creation, and diversification of the economy. A major policy accomplishment in the sector is the liberation of seed and fertilizer supply, which had hitherto been controlled by the Federal Government, undermined the private sector and did not deliver the inputs to genuine farmers. Since September 2011, fertilizers and seeds are being sold by the companies directly to farmers. Lending commitments from commercial banks has been leveraged using guarantees issued by the Ministry of Finance to finance the seed and fertilizer supply. In order to provide a legal framework for the establishment and perpetuity of Staple Crop Processing Zones, and transform the Nigerian agriculture sector with significant multiplier effects on the entire economy, an Act to provide a legal framework for the establishment of Staple Crop Processing Zones (SCPZ) is currently being drafted prepared and to be presented to the National Assembly for adoption.

An assessment of past investments in the agriculture sector shows that the alignment of the country's strategic orientation with development objectives and strategy of the Bank Group were satisfactory. Current performance of the Bank's portfolio in Nigeria is satisfactory with a rating of 2.3/3, compared to 2.2 in 2008. The Bank Group is ideally suited to supporting Nigeria through this intervention because:

(i) the Bank Group has gained useful experiences in the development of the agriculture sector; and

(ii) the partnerships with other technical and development agencies such as the Consultative Group of International Agricultural Research system (IITA and AfricaRice), International Fund for Agricultural Development (IFAD), and others is an asset that the Bank can draw upon. Synergies and complementarities has been developed in on-going projects to sustain their achievements through ATASP in the fields of infrastructure development, capacity development, science and technology, access to financial services and outgrowers' schemes or contract farming. Several studies were conducted in relevant areas, such as infrastructure surveys for the four PZs, and value chain assessments for the priority commodities, which guided the Bank's design approach.

The Program is also in line with the Bank's Agricultural Sector Strategy (AgSS) (2010-2014) which emphasizes investment in agricultural infrastructure as means of boosting agricultural productivity, food and nutrition security, and wealth creation; and Bank's Strategy (2013-2022) as it pertains to inclusive growth objective through the involvement of youth, women and skills development. It is also in alignment with Pillar 2 (improving rural infrastructure and trade-related capacities for market access) and Pillar 3 (increasing food supply and reducing hunger) of the Comprehensive African Agriculture Development Program (CAADP). Furthermore, the Program is relevant to Pillar I (Linking Regional Markets) of the Regional Integration Strategy Paper of March 2011by potential increase in volumes of processed food commodities transported to landlocked countries such as Niger and Chad through rehabilitated access and trunk roads.


Benefits

A financial assessment of the programme was undertaken using cost-benefit analysis of ex-ante activities models and on the basis of prevailing market prices. The key assumptions underlying the analyses include:

(i) successful program implementation will generate benefits in the areas of farm-based businesses, agro-processing, agro-industries, health, education, public works and related activities (agro dealers, machinery rental services, artisans and equipment fabricators);

(ii) a 20-year time period was used in line with the optimal duration for the exercise;

(iii) hired labor value was adjusted by a conversion factor of 0.65, in line with the standards;

(iv) the conversion factor of subsidized fertilizer was estimated at 1.33;

(v) the opportunity cost of capital (OCC) was estimated to be 12%; and

(vi) based on the green growth concept, the Program has further considered solutions to the impact of local environmental changes. Therefore, carbon sequestration and soil restoration were included as non-tangible benefits of the Program.

Principal Economic and Financial Results

NPV (base scenario)NGN42,824.65 million IRR (base scenario)19.6 % ERR (base scenario)29.7 %

Financial analysis: The financial analysis yielded, based on the above assumptions, a combined net financial impact of NGN22,188.10 (USD143.15) million per annum at optimum operational phase starting at year nine of the 20-year operational period. The Program cost run for five years yielded an internal rate of return of 19.6%. This outcome means that if the revenues generated from the Program were sourced by private entities, they could afford paying back a loan equivalent to the overall cost of the Program by supporting an interest rate as high as 19.6%, which is still above the opportunity cost of capital of 12% as captured above. The overal Net Present Value (NPV) was also estimated at NGN42 ,824.65 (USD276.29) million. On the basis of what precedes, it can be concluded that the project is financially feasible, under the above-stated assumptions.

Economic analysis: The economic analysis of the Program was undertaken using the above models, and the economic values or shadowed values or values to society of products (outputs) and inputs, instead of market prices of tradable goods (outputs and inputs), as indicated above. The economic analysis, based on the above assumptions yielded a combined net economic impact (NPV) of NGN68,615.98 (USD442.68) million for a 20-year operational period and an economic rate of returns (ERR) of 29.7%. This outcome means that ATASP-1 will have a multiplier effect or a positive economic value to society in terms of tangible and non-tangible benefits. The tangible benefits include the increase in targeted beneficiaries' incomes through jobs creation (including youth and women) along the commodity value chains. As a private sector led operation, the major challenge remains, however, for a better distribution of the margins among the actors through strong farmers' organizations, trade and business associations, trained and skilled in business management. For the country, an increase in production of the strategic commodities (rice, sorghum and cassava) will generate substantial foreign exchange savings because of the reduction of food import into the country. Non-tangible benefits of the Program include improvement in the well-being of the population in terms of health and education. These relate to reduction in number of sick days per annum; improvement of school attendance rates especially of the girl child; reduction of water borne diseases; provision of potable water; and better nutrition for under-fives and the aged arising from fortification of food using new processing methods.

Sensitivity analysis: The results of financial and economic analyses are quite robust in the event of adverse changes from successive declines in output prices by 5, 10, 15, 20, 25, and 30% with a combination of yield decline reflected by the result of the sensitivity analysis. A decrease in output prices by 40% (switching values) would have to occur before the program's economic benefits reduces to break-even point at 12%, the opportunity cost of capital.

The financial and economic results show that ATA Support Program Phase-1 is financially and economically viable as it enhances agricultural value chain incomes and competitiveness and wealth creation (jobs creation, increase in income, food and nutritional security).


Key contacts

AMADOU Ibrahim Ahamed - OSAN2


Costs

Finance source Amount
ADFUAC 99,030,000
GovernmentUAC 14,510,000
TotalUAC 113,540,000