A common and traditional definition of agro processing refers to the subset of manufacturing industry that processes raw materials and intermediate products derived from the agricultural sector. Agro processing industry thus means transforming products originating from agriculture, forestry and fisheries to finished product.
The potential for agro-industrial development in the developing countries is largely linked to the relative abundance of agricultural raw materials and low-cost labor in most of them.[i] In a study conducted by UNDP which involved Individual in-depth interviews with major agro-processing firms, it was revealed that an overwhelming $10billion Private Sector Investment Opportunities exist in the agro-food industry. which includes:
· Establishment of fruit concentrate processing facility in Nigeria to supply over $1billion market in West Africa
· Investment in large scale cassava plant to exploit over $2billion starch market in West Africa
· Commercial cultivation of soya bean and other oil seed plants in Common Market for Eastern and Southern Africa (COMESA) and West Africa to meet over 400,000tons supply gap
· Investment in commercial production of sorghum in East and West Africa to serve the breweries and the World Food Programme
· Intensive production technologies for fresh vegetables to exploit increasing urban market demand
· Production of milk concentrate in West and Southern Africa to exploit over $2billion urban market
· Aquaculture/Fish Production; .Nigeria alone imports over $900million of fish.
· Maize and rice production to exploit over $5billion domestic market
Field interviews with Friesland, Chi-Vita, Coca-Cola and Dangote shows that West Africa imports over $2billion and $1billion milk powder and fruit juice concentrate respectively[ii].
However, little attention has been given to the value chains through which agricultural products meet end users within the country and abroad. The magnitude of opportunity losses caused by this neglect becomes obvious if one considers the added value and employment gains that can be generated along agro value chains from commodity to consumption.
While developed countries add over US$200 of value by processing one tone of agricultural product, developing countries add less than US$50. Furthermore, while 98% of agricultural production in developed countries undergoes industrial processing, in developing countries barely 30% is processed. Yet agro processing industries in developing countries generate 40% to 60% of manufacturing value added and agro industrial products account for as much as half of their total export.[iii] Examples of some produce that worth a lot more if exported its processed form include Sorghum, Cassava, Rice, and Frozen chicken among others.
IMPORTANCE OF AGRO INDUSTRY FOR DEVELOPMENT
1. Employment creation and generation of income- The agro industry has the capacity to absorb a vast amount of manpower in the primary and secondary level of production. Due to the seasonality of agriculture, a production season may experience high and low demand for labour on the farm. Conversely, after harvesting the processing industry can absorb a whole lot of manpower thus creating jobs for the unemployed and generating income for their livelihood.
2. Contribution to a nation’s GDP and manufacturing industry- Most developed countries like Brasil and some Asian countries get huge returns from the export of agricultural products mostly in their processed forms, example is rice. Majority of the inputs in the manufacturing industry are agricultural products. Rubber Latex is used as a raw material in the shoe and tyre industries.
3. Promotes socio-economic development- Strong synergies can exist between agro-industry, agriculture and poverty alleviation. Agro-industry provides capital and services to farmers (e.g. seeds and equipment, training, production and market information), promotes entrepreneurship, raises demand for agricultural products and connects farmers with markets through the handling, processing, marketing and distribution of agricultural products. As a result, productivity and quality of agricultural production, farm returns, and economic stability for rural households, food security and innovation throughout the value chain can be enhanced.
4. Regional stabilization and sustainability- The dense population of the urban areas can be mitigated by adequately developing economic activities in the rural region. Making agriculture lucrative for the rural inhabitants will curb excess migration and foster economic sustainability for the region.
5. Integration into global markets- Most of what we produce are consumed in the country with only a little portion being exported. This is due to the fact that we barely produce enough to meet our local demand which in turn fosters importation of supplementary products. With the current attention the agro industry is receiving, production are geared towards making Nigeria an Agric export country giving us the opportunity to compete in the global market.
6. Improving food self-sufficiency: Processing can also extend the period of availability of food products, reducing the "hungry gap" between harvests and mitigating the seasonal rise in food costs at these times, which puts so many people a nutritional risk. Several new technologies and refinements of traditional procedure are now available for rural people to use at village level
Agro processing can be classified into three major commodity groups: Crop processing, Livestock processing, and Fish processing. Another latent area is forest wood processing.
CONSTRAINTS FACING THE AGRO-PROCESSING INDUSTRY
1. National and Regional Policies- There is no separate policy articulation for the development of agribusiness except for the brief objectives stated in the 1988 Agricultural Policy for Nigeria document for agricultural commodity processing. The objectives of that section of the agricultural policy are stated as follows
· To widen the demand base for agricultural commodities and, hence, accelerate the rate of growth of the agricultural sector;
· To preserve perishable agricultural commodities thereby reducing their level of waste and degree of seasonal price fluctuations; and
· Diversify employment opportunities in the rural areas through the establishment of rural-based, small scale agricultural commodity processing industries.
There is no specific national policy that focuses on the development of agribusiness as an important sub-sector - especially in the areas of agricultural commodity quality standardization, storage, processing, packaging, haulage, and marketing. The Nigerian industrial policy is outdated and inconsistent with the situation of today. The last industrial policy was formulated in 1985 and ever since then the government has been unable to come out with a comprehensive industrial policy for Nigeria. [iv]
2. INFRASTRUCTURE- The most serious business problem in Nigeria is the state of infrastructure and the biggest infrastructure problem is electricity. According to a survey infrastructure problems are nearly two and a half times worse than the next biggest problem - finance. The deficiencies in the supply of electricity are, by far, the biggest infrastructure problem as reported by 94 percent of the firms in their sample survey.[v]
The response mechanisms to the notorious inefficiency in public electricity supply include private provisioning, where firms purchase and use their own electricity plants, factor substitution, where firms adjust machinery from electronic to mechanical or manual; output reduction where firms reduce their output and product substitution were firms reduce the range of their products in the market. These responses are costly, as they lead to low capacity utilization, reduced output, and high production costs. These costs are in the final analysis transferred to the final consumer while some firms in the recent past have considered relocating their plants to Ghana and Côte d'Ivoire.
Other infrastructural problems include access to land, good roads, storage facilities, water and transportation among others
3. Finance-The next major problem in the Nigerian business sector is the high cost of funds arising from the depreciation of the local currency (Naira) against major currencies coupled with high lending rates and extreme difficulties in accessing credit for working capital, especially for small agribusiness ventures. Presently, the lending rate has been allowed to float and in some banks it is as high as 25 percent. This situation however does not favour the development of the industry.
4. Unpredictable Government Actions- There is a high level of uncertainty and lack of confidence in government and its intentions for the business sector especially with the inability to predict government policy. Uncertainty arises basically as a result of the conflicting objectives of government agencies. It is an oversimplification to speak of ''the government'' as there are in Nigeria, a plethora of agencies of government that oversee the workings of the business environment. For instance, while the Federal Ministry of Agriculture and Rural Development has the mandate of supervising farmers, the Federal Ministry of Industries oversees agribusiness firms and large industries, while the Federal Ministry of Environment oversees matters related to industrial waste and effluents.
The Federal Ministry of Finance along with the Central Bank of Nigeria control matters of credit, regulate the merchant and commercial banks, foreign exchange, interest rate, and import or export regulations. But inter-ministerial relations are almost nonexistent leading to implementation conflicts and this is one reason for policy inconsistencies in the Nigerian agribusiness environment.[vi]
5. Farm Constraints- At the farm level, there are scattered irregular plots of subsistence smallholder production that characterize the Nigerian agricultural system. Geographically, farmers are dispersed and unorganized so that the cost of bulking and consolidating their produce for commercial supplies is enormous. To circumvent the problem of bulking logistics, it is often advised to put farmers into groups.
6. Market Information Service- Market-oriented production requires the use of a real-time market information service. Daily information on market prices can be found in newspapers for traditional export crops such as cocoa but is completely lacking for other crops of industrial importance such as rice, sorghum, cassava, maize, and horticultural crops. Existing market information services are of no assistance to farmers and agribusiness firms as information is collected monthly by public agencies, basically for research purposes. Hence, both farmers and agribusiness firms are forced to operate in a non-transparent and speculative business environment.
Many agribusiness firms and farmers are unable to ascertain beforehand where to buy or sell commodities in order to maximize profits and reduce the risks associated with marketing. This has created a class of market agents who have capitalized on this non-transparent market situation and lack of information to rip off both farmers and agribusiness firms in Nigeria. In general, the agribusiness sector in Nigeria is not price competitive and lacks service linkages to finance technology and export sectors due primarily to the absence of a national market information service.[vii]
However, inspite of the obvious challenges facing the agro processing industry, it is still a very profitable and lucrative venture as it is the only highly viable lee-way for escaping the looming economic issues facing the nation and the world at large. Developed nations have long taken giant steps exploring and benefitting from the opportunities it presents for total economic restoration on a personal, national and international level.
[iv] (Adegbenro, MAN, personal communication, 2002)
[v] Marchet. J. M. Nasir, J, Ramachandran V, Shah M. K., Tyler G., Zhao L 2001. Results of the Nigeria Firm Survey, Regional Program on Enterprise Development, Africa Region, The World Bank, Draft for Review.