RECESSION IS HERE; WILL DEPRESSION FOLLOW? – 2
The first part of this series ended abruptly last week on account of space constraints. Readers I hope will understand and pardon me if the last paragraph is repeated fully. Otherwise what follows might not make sense. Thanks for your understanding.
First, the farm workers who in the 1940s to 1970, who made Nigeria the leading exporter of palm oil, groundnut, cocoa, timber, cotton etc have been replaced by children who are not interested in farm work. Even in the good old days, women and produced a large percentage of the food items – ably supervised by the male farmer and occasionally the male children. Today, in Nigeria, the typical farmer is an old woman about fifty years old practising the same method of agriculture which the rest of the world discarded in the last century with the advent of the Green Revolution. The Green Revolution, itself, which allowed mankind to escape mass starvation in the bottom half of the last century has also gradually given way to biotechnology. Between the two advances in agriculture they have made it possible to increase crop yield per hectare in advanced countries by more than forty times. The Nigerian farmer, still stuck in the Stone Age cannot compete anymore. Globalisation of markets has reached the Nigerian farm and it is making expansion of production almost a wasted effort because Nigeria cannot compete on price. That is the problem we are now experiencing with rice.
“Nigeria’s Biggest Tomato Facility Idle Again As Farmers Dump Crop.”
DAILY INDEPENDENT, Monday, September 16, 2019, p 10.
Several other newspapers also carried the report which provides the back ground for the second reason why we might be headed for something far worse than a mild recession. To state that the Nigerian farmer of 2019 is unpredictable and cannot now be relied upon for sustainable supply of any food commodity is to be polite. It might be more appropriate to use the word frivolous and unreliable. This is not a new phenomenon. A good percentage of our farmers, from time immemorial, seldom stay with the same crop(s) for years. They substitute one crop for another based on several variables which create incentives for them to switch. The report stated as follows:
“Currently, the 1,200-ton-a-day factory tomato-processing factory is closed; unable to get its required feed stock as farmers have switched to other crops at the beginning of the rainy season in May.”
Dangote had established the factory because according to Abdulkareem Kaita, the Managing Director “We knew tomato is a seasonal crop before we started as it’s the case in China and Europe. What we set out to do was to reduce the post-harvest loss yearly to feed the factory.” If the MD is correctly quoted, then the company might have fallen into an age-long trap which had consumed other companies in the past – e.g Nigerian Sugar Company, Bacita, Haske Rice Mill, Sokoto. For lack of a better term let me call it The Delusion of Permanent Excess Supply. For a lot of reasons too complex to discuss in a short article, occasional excess supply of a commodity develops and everybody assumes that it will continue indefinitely. But, the basic principle of supply and demand comes into play. Excess supply depresses the price of the crop. Farmers earn less, not more, that year and hundreds of thousands of them switch to what is now the most profitable item.
Government subsidies and active support for any crop invariably attracts farmers to it – until the support is withdrawn or yield becomes high as to create the delusion of Permanent Excess. We experienced it with cassava. FG focus in the last four years has been on rice. So, farmers in rice growing states had migrated to planting rice in large numbers. The same farm cannot produce rice and tomato – even though they can be cultivated in the same geographical zones. More farms moving to rice means less tomato output. Suddenly, the surplus disappears. But, that was not the only challenge tomato faces this year.
When the Governor of Central Bank of Nigeria, CBN, announced the banks support for cotton this year. He was reminded of several historic precedents of government singling out one crop for attention. Invariably, several farmers switch to the “new game in town”. Unfortunately, without much previous experience with that particular crop, their first attempt is almost always disastrous. It takes a few years before they can obtain good yields by Nigerian standards – which are far lower than global levels of output per hectare. Many of Dangotes farmers have now moved on to rice and cotton and they will not return for a while. By contrast, Chinese and European tomato farmers remain with the same crop for years; develop knowledge and increase yields as they learn more about their crop. That puts us at a disadvantage.
I have gone to great lengths to analyse the problem we have with food production and, by extension, export of agricultural products, in order to highlight how bleak the future is on that front given a relentless rising population.
The recent restrictions placed on foreign exchange for food importers which in theory seeks to induce Nigerians to produce what we eat instead of importing them had been tried before. Jawaharlal Nehru, 1989-1964, India’s first Prime Minister, 1950-1964, faced a situation similar to our own in Nigeria today. The future was bleak. He prohibited food and textile imports. He justified his measures by saying that “If India cannot clothe and feed herself, then India will go naked and starve.” The people took up the challenge. It was tough for decades and India was the poverty capital of the world. But, they have risen.
Unlike Nigeria, India did not experience the curse of crude oil. And its leaders were mostly not corrupt. They embraced education and applied it. Today the country’s economy is growing higher than global average. Nigeria’s is dragging down the average. Nigeria was in recession in 2016 when the world was growing at three per cent or more. The world is now entering into a recession. Nothing in the Medium Term Expenditure Framework or the 2020 Budget suggests that we can grow above the global average next year. On the contrary everything points to another negative growth of GDP. Crude oil might dive below US$55 per barrel. Is depression not knocking at the door?
Conventional wisdom holds it that Nigeria’s future lies in return to agriculture. If so, it is going to be a painful and heart wrenching return. Nigeria can now not develop an agro-allied sector because manufacturers and food processors cannot rely on uninterrupted supply of raw food materials unlike India, China, the USA or even South Africa. It will take year before we can return to those days when raw food was plentiful and supply guaranteed. Meanwhile, the downward trend in crude oil prices will continue for years and the interplay of the two will take us down the road to depression.
LAST LINE: The President has just appointed an Economic Advisory Committee made up of world class economists. It is a step in the right direction. It might have come too late to save us.