What went wrong in the agriculture sector in Nigeria?
In the year 2013 , Indonesia made $19b from exporting palm oil, this is more than the entire 2014 budgets of the South East, South South and Ondo (crude oil states) combined
(South South N1,981trn, South East N619bn, Ondo N162bn)
How is this even possible?
In 1832, 75% of the global palm oil export came from Nigeria. Between 1961 and 1965 world oil palm production was 1.5 million tons, with Nigeria accounting for 43% of that production. Today, Nigeria, ranks behind Malaysia and Indonesia accounting for only 7% of world palm oil production. It’s important to add that Malaysia and Indonesia are also oil producing nations, yes they have crude oil.
By 1960, Nigeria was the World’s largest exporter of shelled groundnuts, with a 40% global market share, today we have 0% market share. Groundnuts were special to Nigeria, between 1956 and 1967, Groundnuts was one of Nigeria’s most valuable export crop, and there were groundnut pyramids in Kano, now all gone. To be specific, groundnut exports fell from 502,000 tons in 1961 to 291,000 tons in 1970 to zero by 1980….
So why did the groundnut pyramid disappear from Nigeria? Sure there was Aflatoxin contamination that affected the groundnut exports. So why did the Northern region not just fumigate and fix the contamination? Why did it just allow exports cease?
Why has agriculture collapsed? Well everyone says crude oil, but it’s not just crude oil, it’s the way we have structured our fiscal federalism.
I explain .
Below is the progression of fiscal allocation formula.
1953 Sir Louis Chick: The penultimate revenue allocation formula for Nigeria was done by Sir Louis Chick. His formula was presented and unanimously agreed at the 1953 constitutional conference in London. It was basic, it read “all mining taxes will be collected federally, distributed based on derivation, same for income taxes ”.
To be clear, it was income tax, mining rent & royalty to be collected and shared 100% to states based on derivation. Federal government got 0%. The minerals at this time was Tin, Columbite and Coal.
Export duties was 50% to state of origin of export, 50% to federal government….
1958 Raisman; Commissioner Raisman amended Sir Chick formula. He slashed the 100% derivation to states to 50%…thus Mining rights was now 50% to state of origin by derivation. Of the other 50%…20% was given to the Federal Government and 30% was again pooled into the “Distributable Pool ” and shared by all four regions again, in this formula… North 40%, East 31%, West 24%, and Southern Cameroon 5%.
Export duties was 100% to state of origin
1963 constitution ….this followed the 1958 Raisman allocation, in summary it remained, mining rights for oil producing regions 67.4%, Federal Government 20%, non-oil regions 12.6%
Export duties maintained at 100% of state of origin
1970 Decree no 13, the Military steps in, the states lose fiscal autonomy, maintain derivation. The Distributable pool was gone, the Oil producing states lost 5% of their derivation percentage. The new formula was now…mining rights for oil producing states, 45%, Federal Government 55%
1975, Decree 6: the military further reduced derivation to 20%, thus mining rights to oil producing states….20%, Federal Government 80%
1977, Aboyade Commission . The Military created the Federation Account. Derivation abolished. Thus mineral rights to oil producing states 0%, Federal Government 100%.
Export duties now 0% to state of origin
Thus in 13 years, Nigeria went from state share of mineral rights at 67% to 0%, and took states share of export proceeds from 100% to 0%
There remains NO incentive for State Government to encourage agriculture. States own the land, Where the land is commercially farmed, the companies pay incomes taxes to the FGN, when the cash crops are exported, export duty is paid to the FGN. The states were left with nothing. The States receive a share of these taxes via Consolidated Revenue Fund, but not according to derivation). It was during this period when the States lost the right of fiscal federalism that commercial agriculture crashed in Nigeria.
When the Federal Government took the crude oil and non oil export proceeds revenues what did they do with it? The FGN shared it back to the States and Local Government according to a formula. States got on average 32%, Federal 47%, LGAs 15% (*note there are statutory transfers to Ecology, Agric development etc )
Export taxes remains 0% to States as derivation, Company income taxes remain 0% accrued to states as derivation…..This means states do not retain as revenue to their budgets the export duties on cash crops produced in their States.
But that is not the whole story….
That 31% the FGN shares to states, is it shared equally? NO how is it shared? That’s called the horizontal revenue allocation formula. The key sharing heads are
1. Equality 45%,
2. Population 25%
3. Land mass 5%
Lets pause here
What this means is that just being a State in the Federation with a high population guarantees any State 65% of the allocation to States from the Federation purse ….
The FGN took the mineral and non-oil export earning to an central account, retained 47% of that account, then returned 51% to the States and LGAs but determined it will be shared out based on“equality” and “population”… not derivation, ie where the income was generated.
Thus all States now focused on their population figure, not agriculture. Any attempt by the National Population Commission to discuss population shifts is met with stiff resistance and with good reason too, population and “equality” not exports or derivation determine how states receive revenues from the 51% allocation. That is why a state can violate the constitution and conduct her own census…it’s that serious.
Palm Oil for instance can be farmed in 24 states in Nigeria including Southern Kaduna specifically in Abia, Akwa Ibom, Cross River, Rivers, Bayelsa, Imo, Anambra, Ebonyi, Enugu, Delta, Edo, Ondo, Ogun, Osun, Oyo, Ekiti, Benue Kwara, Kogi, Nasarawa, Plateau, Taraba, Adamawa and Kaduna…….but why bother planting palm oil? It’s much easier to lobby the National Population Commission for a high population count.
As States in Nigeria started to receive a greater percentage of their income from the federal government, they stopped farming. And you can’t blame them. If groundnuts export revenues still went to Kano State 100% via derivation, there would still be groundnut pyramids in Kano today, but Kano lost the export proceeds funds to FAAC, thus no incentive to plant groundnuts.
Same for Abia State, as they lost the oil palm export proceeds to FAAC, they then put their eyes squarely on “Abuja ”
Is there a suggestion that we unhook states from crude oil funded FAAC and push them to farming? By giving them 100% of their export proceeds from their agriculture cash crops? YES
To fix agriculture we must fix the incentive process. If States retained even 13% derivation on income taxes and export duties on agricultural produce, they would see the incentive to attract companies to come to their States and push non oil exports. If we had left the derivation to states at 100%, then every state today would be viable.
The problem with agriculture in Nigeria is not crude oil, but our faulty fiscal federalism (FAAC)….
So what should Nigeria do?
We reward what you want to improve, if you want safer drivers you reward drivers with zero car scratches. Return back to the States the fiscal principle of derivation on agricultural exports. That will mean states can see a direct relationship between farming and IGR and this will spur investment in agriculture. Governors will seek out agriculture investors the same way and vigor they seek out Shoprite Malls.
Derivation on agriculture is also fair. All states have land, all states can farm, agriculture is still a major contributor to our GDP growth, and it still employs millions of Nigerians in every state. A fiscal amendment to give states 100% export earning can have two massive impacts
In the short term, it makes agriculture attractive in the long term it makes all states fiscally viable.
So agree to increase derivation on agricultural exports from state of origin back to 100%.
It’s our problem, we can fix it.
http://www.businessdayonline.com/whats-problem-agriculture/

Nice write up

Insightful read.

The dividends of military dictatorship of which our honourable president was part of back to back...

Okay.

Already on FP

Yes

r

But oil fills up the useless purse of the FG to encourage such lazy sharing of funds to states...and we know which states benefits more from allocations on the basis of population...this is the madness the country was running not until the Niger deltans woke up to violently ask for resource control..

seen

So true

Nonsense analysis... the problem is simple...every region was blessed with something. Every region left their resources and got fixated on ND resources.

Na today?

As you all can see from this write-up, Nigeria was better off under our colonial masters.

The root-cause of our problems are negative colonial legacy, poor leadership, politics of the belly, omnipotent state, greed and selfishness.

Yes its not, when we are not using oil to plant our crops

Beautiful, I wish this can get to Aso rock.

Dats true imagine a country blessed with minerals and fertile land but not blessed with the sense to utilize it. Its quit a shame

Wonderful writeup.... But my problem is that some unreasonable nairalanders will soon come an bring a different issue here...
Well I've started planting my palm trees.... But thus is five years now, and I've not started harvesting... Its frustrating guys... There was a time I almost cut down all the palm trees...
I am thinking of getting good nursery again, so I can plant about 150or 200 more during the rainy season... I lived around Abuja... Karu precisely... If you you where I can get too nursery please help a brother

Agriculture is the way to go. It is the largest & most profitable industry today in the world and it will continue to be.

To acquire Agricultural Farmland in Abuja, visit: https://abujafarmland..com.ng/

OR check my signature here to contact me

Robbin7:
Beautiful, I wish this can get to Aso rock.

Funny enough, they know the hard truth but deviating and relying on ND oil... Resource control to me is the key...

B

That is why BUHARI is a curse to Nigeria...
His killer herdsmen and hungry cows has made it impossible for farmers to sow and reap bountifully.....

And the same reason they are rejecting restructuring

Very apt. I can't agree less

Bede2u:
Nonsense analysis... the problem is simple...every region was blessed with something. Every region left their resources and got fixated on ND resources.

Dude please try to read and Comprehend, the states did not willingly leave their resources but the federal government practically killed all initiatives at the state level, will you work for a company if you are told you will not receive a salary? the current system has been designed to benefit no one except the politicians, even if the FG wants to go back to derivation now, I am sure the state governors will kick against it because they are already used to the sharing formula.

Who read it?

What is the summary of it?

Wow... This is it... The miracle we ve been looking for... If only we ve a listening govt. Our leaders are so dumb that they only focus on their tummy.

A good write up. In my own opinion, Nigeria's land to population ratio does not allow for a viable and sustainable agriculture. In other words, there is no land for serious agriculture and to make matters worse, the laws governing lands are laughable. That is why i hardly see any healthy cows in Nigeria, they walk from zamfara to lagos to ph and back to zamfara. When you see healthy cows you will know, no be by mouth.

It boils down to leadership, expertise, and cooperation. We cannot have small and be exporting everywhere without thinking.

Below are some healthy cows and personal farms of a serious nation citizens.

Well since this appeared on businessday newspaper, I hope someone close to decision makers would have read it and begin to think. Like the writer said: It's our problem. We can fix it.

Well researched.

This is just one of it. I mean one of the problems. Population as means of allocation was a northern oriented agenda. Who doesn't know that they have more population.
If we change our fiscal policy things would change. How can we give no reward for hardwork.

For me it's a northern agenda

This is why restructuring is being clamour for......we cant continue like this and be hoping for a miracle, we need to change the system.