‘Optimal agric production should be handled as a matter of national security’

The challenges facing poultry business in Nigeria have deepened to the extent that birds have to skip meals because of the cost of maize and other input. In this interview, Yemi Ogundien and Ahmed Ali tell OBODO EJIRO and KOSISO UGWUEDE that government will handle agric business better if it see it as a matter of national security.

 

As a country, we have attained some measure of diversification. Do you think the government is doing enough to diversify our export base through agriculture?

 

For now, diversification is just grammar. We need to see more of action and less of talk. Now that you are saying you want to diversify, for the existing farmers, those that are still in that business what are you doing to encourage them to stay in business? As we speak, poultry farms are shutting down every day.

I can put a call through to someone now; this guy is someone that clears people’s birds and his hands are full right now. He has a lot of people who want to off-load their birds. Once he gets to you and he’s done, he moves to the next farm. Yet we are talking about diversification through agriculture while people in that business are running away.

Let’s look at Nigeria as a whole. What seems to be happening is that government finds itself in a situation where there’s a problem and starts asking, ‘what do they want to hear?’ then they start telling the people what they want to hear.

Now when we got to this point of the crash in crude oil prices and no revenue from selling of crude oil, everyone was agitating and the government started saying ‘We are going to diversify.’

What are you going to diversify? People are watching and they’ve not seen anything.

The Abakaliki rice that we are all shouting for today has always been there just that they were not encouraged. I remember when I started banking in 1999 – 2000. Myself and my friends will gather money together and send somebody to the east to get us suits and when you buy them, it could compete favourably with the ones that were imported. But what happened along the line? Those guys were not encouraged to continue in that business and they faded out.

In those days, we get the shoes from Aba, top quality shoes. Those guys were improving. If they were encouraged over time, I’m sure by now, we won’t have to import anything.

Agric sector has always been there. Obasanjo started poultry farming in the 70s’, and all the big big farmers started in the 70s’ 80s’. So they’ve always been there.

So for government to come out and say they want to diversify the economy, what new thing are they bringing on board? Nothing new!

They are not saying anything new. They’re just telling us what we want to hear so we can relax.

Why is it that imported birds are cheaper that locally grown birds, even after factoring in cost of transportation from Europe and elsewhere?

 

Let me explain it to you. Number one, the whole production process is done in their countries. They manufacture the drugs for the birds; they plant the maize and soya beans. They do everything internally. So the cost of production might come to say $1. And it is also a matter of national security; food security. They do all in their power to encourage their farmers so that the nation can have enough food and no country holds them to ransom.

If you are fighting a political war, that’s different but if food is used in war against you, you can’t survive. So it’s a matter of national security for them to have food security. It’s both tied together. And even when they over produce, the government buys it off them.

I get a report from USDA every day. And I see how the government intervenes in that market to ensure continuous production so they can produce for the next five years as they have a guaranteed market so to speak. That is why they say most of the imported chickens are antique chickens because they may have been produced for years and they just store it in their cold rooms. Power is not a problem.

In addition to what has been said about why the imported frozen chicken is cheaper, I have friends that work in supermarkets and stores over there. Now, this chicken has a shelf life of about 2-3 weeks. So once its 2-3 weeks and they are not sold, they are discarded.

Remember what happened to one of these big stores on the island sometime last year when someone was bringing in a toxic ingredient used in making ice cream and cake because he wasn’t paying anything for them. In fact they were paying him to get rid of those things.

Same thing happens here too. These stores, when these products are no longer good enough to stay on their shelves, they get people to get rid of them without paying anything. And when you are not paying anything, you can just bring them here, add your cost of transportation and make your margin.

Again, when you talk about the issue of interest rates, government cannot continue to fix interest rates that are not competitive. It is not appropriate.  Treasury bills today are selling for as high as 21% for a 365 day tenure. So I’m a banker, I’ve collected funds from everyone in the public at an average cost of say 5% for savings, current account and fixed deposit. I’m supposed to lend to farmers and to manufacturers for a single digit of say 9% but here is it; I have government instruments. The government itself is competing with manufacturers, farmers and business people and the government is borrowing at 21%, risk free.

Why are poultry farms closing up?

 

 The cost of production is going out of the roof. Farmers cannot afford to feed their birds any more. I can show you, I brought a register with me.

There is our formula for a layer mash that is feed for the layers. At every point in time, as the price of material changes we have to get the cost of a bag of layer mash which is 25kg. We have about 11 items on the list to make the mash.

From maize to soya, wheat offal, limestone, bone meal, salt, methionine, lycine, toxin binder, and premix. Now we use 530 kg of maize per tonne. This is the formula for a tonne of feed. As at June 2015 we were buying maize at N57 per kg. As at then we were milling our feed at N1, 991- that’s the cost of a bag as at June last year.

By August last year it was N65 per kg. By April this year, maize was N90 per kg. By June, it was N110 per kg.

Once you reduce the quantity of maize, you are also reducing the capacity of the birds to lay and probably the quality of eggs. Now by July, maize was selling at N115 per kg. Today the price of dry maize is now N140 from N57.

There’s new maize now in the market for N110 per kg. But the thing is that you cannot use new maize to mill for your birds. If you use new maize, your production will drop and your birds will die because the moisture content is still very high; the toxin level is also still very high.

Let me mention one thing you need to know about this diversification of a thing. When you look at our GDP, agric takes a great chunk of our GDP, what is the value from agric? The value is next to nothing. So rather than diversify, I will talk about efficiency in every sector of our economy.

Efficiency is what is most important. If you have something taking, according to you, 22-25% of your GDP that thing should give at least 25% of your revenue. How do we achieve that? That is the question. Today if you plant maize in Nigeria, the best yield you will have is 2.5-3 tonnes per hectre whereas in Nebraska it is 11-12 tonnes per hectre. So what it means is that, for a small farm like ours that we use 30 tonnes or a trailer load off feed every week, what it means is that for you to be able to plant for us as a crop farmer, multiply 30 tonnes by 52 weeks and divide by 2 tonnes.

Do you know the number of hectres you will need to plant maize for a small farm like ours? When you now compare it to Feed mill and other big farms that can use 30 trucks of feed in a day, do you know the number of hecrage of land you’ll need to use. So we need a lot of efficiency in our production process. What are the current practices now? How can we make the few ones very efficient?

The farms that feed America are few but they feed the country and still export. So why will the whole Nigeria need to go into farming to feed a population that is a third of the American population. So the question is efficiency in the existing facilities that we have. How can we make sure that our farmers have the best equipment, the best seed, fertilizers, best practices? Are we getting value from it?

Is the market stable? So these are the things. Do you know that 60% of what we plant gets wasted every year because we do not have the right technology to store? I planted 5 hectres of maize, I couldn’t store anything, everything got spoilt and I lost all the investment I made in that maize plantation. We need to look at all those things rather than to keep saying diversify, diversify.

I stand to be corrected but the government should itemize what they are doing in agriculture and let us appraise them, not rhetorics. Itemize what you are doing and let us come to say, yes you are doing the right thing. Yes, there’s traction in the agricultural sector but it is being driven by the private sector not by the government.

And so government must itemize what they are doing; are we providing funding? We have released this number of naira to so and so farms; we have opened up roads in these areas to give better access to farmers and what they plant there is cassava or tomatoes…We want them to itemize what they’ve done so we can appraise them not the rhetorics. So a lot of things need to be done. Even the oil sector that we are talking about – how efficient are we?

Are we getting full value from the crude? Can we not talk about refining very well and getting all the constituents of the fractional distillation that we can get from crude oil? So these are the questions. Efficiency is the problem of this economy, not resources and not diversification. How can we increase efficiency? Can’t you bring big farmers from America, Argentina to partner with the private sector and develop the sector so that the small hecrage gives a higher yield?

To add to the topic of efficiency. If you notice the rural-urban migration in recent times, most of the people coming from the northern part of the country are coming here to beg. Why are they coming here to beg? Or drive okada?

Because once they come into Lagos and beg, in a day they could make as much as N2,000 and they call their friends and say, ‘Guy, I’m making so much money here o’, and the guy joins the next trailer bringing cows to Lagos and he’s in Lagos begging. We need to keep those guys there. If we are able to empower them; we just mentioned the statistics of hecrage needed to plant maize to supply our farm.

Now if they plant maize, there’s a readily available market here. If those guys are there planting and they are sure that once they harvest the maize and dry, one farm in the South-west is coming to pick it, they won’t come to Lagos. But some of those guys have been there and they planted many things.

But maybe they all got rotten or they didn’t get much for their effort.

 

What are the challenges the poultry business faces?

 

One of the things I think we need to do in the poultry sector or agric sector generally is that we need to have a structure. Any business or anything that is running without a structure is bound to fail.

Having said that, looking at the poultry sector, how many poultry farmers do we have in the country? We do not even know. How many eggs do we produce every day, we don’t know. Why is this very important? Sometime a few months ago, the government launched a National Egg Programme and the whole idea is to produce 50 million eggs per day, I think, in the country because they want to feed school children.

Fine, it’s a noble idea but now the question is that you want to produce 50 million eggs per day, how many are you producing currently?

So we need to have records so if for example we are producing 30 million eggs now and you need it to increase to 50 million, you can say okay, this is how much we need. See the problem is not just finance.

Yes, we need financial support but you need to know where you’re putting your money into. And then you come up with this programme and say yes, this is a good programme then you take all the money and give to one farmer and tell every other farm to go and meet that farmer.

In the last 6 months maize has been very scarce; I‘ve been screaming everywhere, on social media and the rest.

The other day I took up Federal Ministry of Agricultural Research Development I told them there’s no maize, they said maize is in the country. I went to their website, they said the demand for maize in the country is 7.5 million tonnes and that supply is 7 million tonnes.

You see that information alone is wrong, anyone that sees that kind of information as an investor won’t come to invest in maize.

When my friend and I saw that information, we did our own calculation; the poultry industry alone will take more than 5 million tonnes in one year not to talk of other sectors. You can imagine now that even the information we have from the government is distorted. These are some of the problems.

Let me add to the challenges of the poultry industry. Because he has given a broad perspective, let me try and narrow it down to two main issues. First is the lack of adequate data which is not peculiar to the poultry sector. Government needs to invest in data gathering to know where we are.

Secondly, lack of education of the part of most practitioners is a big challenge. The average farmer does not even know what his production costs are. For now, if you have a facility that can do 8,000 layer birds, it will give you an average of 200 crates of eggs on a daily basis.

I can tell you not every farmer can give you those figures off hand. And for you to invest into 8,000 birds to give you 200 crates of eggs daily, you need about 38 – 40 million without inflation. I’m talking about the value about a few months ago.

For the pen alone you spend an average of N16 million to construct the pen. To buy the cage which has to be imported, you spend about N10 million, I’m being conservative with these amounts. Then the birds alone; when you buy the birds at N200 each but the cost to take it down to 24 weeks when it begins to lay commercially (at 20 weeks it begin to lay for you personally), it will cost you about N1,500 for each bird.

 

And that’s about N12 million. So for you to increase by just 200 crates you need N38-40 million. So you can see the quantum of investment you need to put. So these figures, are they available to every farmer? As a farmer, do you have these records? Can you tell me how many birds you are losing in a day?

Can you tell me how much feed your birds are consuming? What we do in Mayor Farms is that every day we watch productivity of every pen we have, for every bird. So, on a weekly basis we can say, ‘okay, this pen is not producing very well’ because we plug in our data every day. And we can say ‘okay, this is what we need to do in this place’. We take blood samples randomly on a weekly basis and we go do tests, come back and administer drugs.

How many go to that level of sophistication; because for us it is a business not just a hobby and we have to return value to our stakeholders. So those are the critical things we need to be doing and when we do that, the average farmer will not be able to sell his egg at N700 because N700 is not the cost of production for egg. But because it is free entry, no education, they sell at any costs and when they buy feed they are not able to feed their birds. So in a short while they phase out.

That’s why in Africa the lifespan of a poultry farm is about 2 or 3 years and they are off. What is the cost of staff, power; can you compute everything? We knew we were losing money but we said ‘let’s wait and see if the price of maize comes down’. But we found out that look, nothing was happening we had to switch. Is the government investing in research to find an alternative to maize? Today cassava can do what maize can do but you need to invest in some research to be able to do it. We are doing some little work on that area to find out how we can use cassava to substitute maize.

We are investing funds into that research; it is not our function, it is not our job. It is the role of the government. So these are the things we are talking about not just for today but for the long run. If we see farms in the US, in the UK, they are third, fourth, fifth and sixth generation farms. Do we have second generation farms in Nigeria?

Even if we do, maybe one or two. Do we have a third generation farm in Nigeria? No. So the government must see agriculture as more than just a sector, it is key to our national security. If Cameroon and other borders in Africa or any country we import from have a food war against us, I don’t know where we are going to get food from.

So it’s a matter of national security not just a business. And the government must be deeply involved – strategy, planning, working with the farms, getting data.

 

When it comes to data collection, what sort of technology do you employ in your farm to keep track of your data and can it be shared so that small scale farmers especially can learn to collate data to feed the government with.

Its best to incentivise data collection. In each state, we have a Poultry Association of Nigeria (PAN). And the PAN has state chapters, they have regions in different local governments and they in turn have their own groups. So the data can come from the group, and from the different local governments it goes to the state and from there to the federal government.

And of course for anyone who is not in any such groups, you know you are not going to benefit from anything. It can’t be 100% efficient but it is something substantial.

Let me give you an idea of what we mean by technology. Government did this programme with a phone in the last administration. People were going to get alerts to have fertilizers delivered to them. Deploy the same technology.

The question is does the government want the data? It worked for the first time but they couldn’t sustain it

If you have a farm, send your name, the name of your farm, the particular location of your farm and the number of birds in your farm to that government data warehouse and they pick it up. When they pick it up from all over, they collate it and find a way to verify it.

We have NYSC guys all over the country; send a message through the NYSC office; go verify this information. Simple, you verify the information, and you are able to update your database and you can get everything right. The question is, is the government, the Federal Ministry of Agriculture, hungry for this data?

 

How about the issue of fictitious farms?

What is your stake in giving me fictitious data? The handing out of input from the government is secondary.  Data cannot be 100% correct, there’s a margin of error. Over time, you will see if this information is correct or not. So all these things can be verified.

But let’s even start first with collecting the data before we can start complaining about the correctness of the data. What we want is data first. Or if the government is incapable of doing it, commission the data collection process to the private sector. If their pay is tied to the information they will get it done.

That will even generate employment. We will not get anywhere if we do not take the first step. Let us take the first step and forget about the challenges.

 

Tell us about Mayor Farms and the capacity of the farm?

It is an agro services company which commenced operations in 2012. We started with 5,000 laying birds and 6 months thereafter  we increased to 13,000 laying birds due to demand.

Basically our expansion then was demand driven as we had to meet requests from customers.

In late 2013, as demand kept increasing, we approached a commercial bank to obtain a facility to increase capacity by 15,000 laying birds.

So as at then we had roughly 28,000 birds. We got the facility from the commercial bank for three years.

We got it on a term loan and overdraft. The facility was paid down in 2 years because we wanted to access cheaper fund from the central bank which was involved in the Commercial Agric Credit Scheme.

By 2014, we paid down the high commercial loan and by December 2014 we were able to access the intervention fund from CBN which was used for further expansion. In all we have a capacity of 38, 400 laying birds at present.

Over the years, we also put up a feed mill. Initially, we were buying feed from commercial feed millers; that was late 2014. Sometime last year in June, we decided to go into meat production. Basically what we were doing was just egg production because the laying birds are basically for eggs and when the birds are spent, you sell them off as meat. But there’s another market for the meat which is the frozen chicken market and due to the ban on importation of frozen chicken we realized that there is a gap in the market which we decided to play into.

We started with 500 birds and have grown to 6,000 birds I that segment of the market.

 

How big are the previous facilities you obtained?

The first facility we had was about N36 million and was a commercial loan priced at 26% interest rates which obviously was just to increase capacity as we were not making any margins on that so we paid it down in less than 2 years.

Secondly, we accessed another N80 million under the Commercial Agric Credit Scheme from the federal government through the CBN at 9% all in rates and that’s what we’ve been enjoying since. We used that the start off the feed mill and do some other expansions on the farm. We also obtained private loans from other people, very costly too but all for us to be able to grow the business over time. So what we’ve been doing is to use those funds.

But if you continue to use very expensive funds, you will not be able to make good margins so we are saying, for the new expansion we are trying to do in the broiler market, how do we access enough non-commercial loans, intervention funds as it were so we are able to make good margins.

Because for agric business, you need long term funding to be able to grow the business because the returns don’t come very quickly as with other businesses. Like the layer business, you need a minimum of one year and ten months to be able to complete a whole cycle.

But what we found out about the broiler business is that within 8 weeks you can complete a whole cycle and what it means is that in one year you can do five cycles and you are able to be profitable.

So we approached a bank to ask for a loan in the range of 100 million naira to be able to expand our broiler market. Because there’s a part of it you need to raise, stock raw material, you need to be able to process and then sell and you still need to have some sort of available credit for those to whom we sell because when you sell in bulk you don’t get your returns very quickly.

And if you don’t get cheap funds, you will not be able to compete with imported frozen foods because what it means is that your cost of production will be very high. The government can continue to ban frozen foods, but the only ban we can do is a price war. If we can produce at lower cost, it means that without putting any ban, the imported frozen foods market will die a natural death.

But even though the government has banned frozen chicken it is still coming into Nigeria. Why? Because what is brought from elsewhere is cheaper than what we produce locally. So it is important that we have funds at very low costs so that we are able to match the imported goods sector. And it comes right through the whole value chain from raw materials down to cost of raising the birds, processing and all the whole process involves finance.

When you put all those costs together and you then add your cost of borrowing funds and your cost of investments, you are really under pressure. So if we must match the cost of imported frozen foods then we must be able to bring down our cost of production.

 

Tell me about your expansion plans.

We are trying to increase our capacity to do as much broilers as possible. We have not reached our peak in egg production but we have reached a sizeable amount. We have about 38,000 – 40,000 laying birds for egg production which we feel is okay for the short run.

We want to try and scale up in the broiler market because the banks have not really come to grabs with the broiler market. It is not a market that they are willing to play in as it were. So what we are doing basically is to try to increase our capacity to do broilers which we are just trying to manage.

We just have about 6,000 – 8,000 capacity which is nothing in the market. Because you need to be able to do a substantial amount every cycle. So what we are doing right now is to increase our capacity to do broiler, put in place facility and increase our capacity to reach the market. And we need to increase our own capital.

We talked about maize; we need to be in control of our input whereby we will be able to produce at a very reasonable cost. Because if we do not have the capital to do such things then we will be at the mercy of feed millers. We had to be paying 2, 3 feed millers to be able to get feed in the farm. And so we are looking at about N290 million.

And this is our philosophy; we are trying to run a business that will outlive us. So we are going to bring people to run the business with, give them shareholding in the business and let’s grow the business together. This is just the first phase we are going into; raise 290 million to increase our capacity to do more of the broiler business. That’s what we are trying to do in terms of expansion for Mayor Farms.

In addition, the reason why we had to go by way of equity is because as

A consultant advised us also to go by way of equity. Equity gives you room to do so many other things.

The equity will help us be able to do more and be more flexible even though they say equity is more expensive than debt.