DYNAMICS OF THE NIGERIAN PADDY MARKET

Wiritten by Michael Okunoye

Rice (Oryza sativa L.) has become one of Nigeria’s leading food staples because of increasing urbanization, income, changing consumer preference and huge public and private sector investment. National consumption far overweighs production and deficit compensated through importation. Hence successive governments have tried under different policy regimes to restrict imports and encourage local production.

However, national importation have increased during the last few decades and is now a significant external reserve draining factor, making Nigeria the second largest importer of rice globally. Reducing importation and increasing national production and processing capacity is now an important policy thrust of Nigerian government.

Several interventions and initiatives have been introduced recently starting with Agricultural Transformation Agenda (ATA) and Agricultural Transformation Agenda Support Program – phase 1 (ATASP-1) to support and promote rice production and processing for increased competitiveness and food security. These steps have significantly increased local production, but vital link which require urgent improvement is the local capacity development in improved rice postharvest practices and related issues. Investment in the rice postharvest system if carefully implemented well is expected to push good quality paddy and milled rice to meet millers and consumer demand, and when this is significantly achieved, postharvest losses will greatly enhanced.

The whole chain of production operations that rice goes through from the point of harvest until it reaches the consumers table is referred to as rice postharvest system.

Courtesy: knowledgebank.irri.org

Good quality milled rice (parboiled or not) that could effectively compete with imported rice would save a lot of scarce foreign exchange. It will also boost local rice production and provide large employment for producers, processors, youth and women etc. The multiplier effect is certainly repositioning the economic status of the large section of people involved in the rice post-production chain and increase entrepreneurship.

The understanding of this dynamics in rice postharvest practices is expected to enhance the understanding of market dynamics of paddy marketing channels and postharvest losses and improve demand and consumption of Nigerian rice; it will also create jobs and improve national food and nutrition security.

CHARACTERISTICS OF PADDY MARKET IN NIGERIA

In 5 years that I have handle paddy purchase, out-growers scheme and value chain coordination in Niger, Zamfara, Kwara etc. I have been able to note the following as characteristics of the Nigeria paddy Market. However, they are not limited to these points alone.

1. The paddy Market is very dynamic:The Nigeria Paddy Market is very dynamic in nature. The Market structure does not have a particular pattern and it varies from one location to another. This dynamism is due to cultural and economic structure of various villages.
2. There is no modern market structural system: The paddy market system survives on the traditional methodology of various locations. The market system is hinged on what the villagers have been used to since time immemorial so it is very difficult to change the way the farmers/agents do business. As a first timer in the business, this will be a real stumbling block. But if one can understand how the market system works then you can influence it for your gains.
3. Most Paddy sellers in the market are ‘Agent Farmers’:          Most people who sell in the market are agents but also farmers too. They have more capital than the average farmer to run the paddy business. These men/women buy from the direct farmers, add their own profit and sell at the market places. Thus, the paddy you mostly find in the market are second level sale paddy. However, to get directly from the farmer in the market one has to arrive very early as 6:30am. This is when the farmers will be bringing their produce to the market to sell because he needs to return home on time and attend to hi/her farm.
4. Price of paddy fluctuates with impunity: The price of paddy fluctuates without control. You can hardly have a standardized price in the market for a whole day. In the morning you will have a price but when you come back in the afternoon prices have gone up and then in the evening another price. This is a big challenge for any Rice Mill. To solve this challenge, every Rice Mill must find a way to standardize their buying price.
5. The ‘INFLUENCERS’ of Paddy price are too much: The price of paddy is influenced from different directions/ sometimes at the same time and sometimes intermittently. The influencers of Paddy price include:

• Farmers
• Rice Miller (Integrated rice mills and Local Rice Miller)
• Farming Seasons
• Traditional rulers
• Festivities
• Paddy Agents/Dealers
• Demand and Supply mechanisms

1. The Paddy Market chain is long and complex: It takes real hard work to get to the source of paddy distribution chain. The Main farmer himself is down below the ladder of distribution while the agents crowd the top of the chain at various levels. This is because farmer groups’ farms are not located in a cluster. Their farms are scattered in different locations thus aggregating becomes difficult. So different dealers/agents aggregates at various levels according to their financial strength and farmer influence.
2. High level of insincerity/ lack of trust:The Paddy market is filled with so much insincerity and lack of trust. Farmers/dealers can promise heaven on earth when they talk to you but in reality it’s not true. This is because they are after the money and not relationship as such. I got to understand that this trend is due to the Government’s insincerity with dealing with farmers, high illiteracy rate amongst farmers and using farming as a political scorecard tool. However, there are few honest farmers that will stand by the truth always and build good relationship. When you find such, don’t leave them.

MARKETING PATHWAYS FOR PADDY IN NIGERIA

When you study the characteristics that exist in the Nigerian paddy market, you will then have to find ways to buy paddy because Rice Mills need paddy in large volume.

It is advisable that rice mills should use all channels available and credible to buy paddy because paddy availability in Nigeria is not sufficient for all rice mills. So you maximize all opportunity available to mop up large quantities that will make you be in business.

1. OUTGROWER SCHEME: It is very important to have group of farmers that are farming to supply the mill paddy at every season. The structure of the out-grower scheme is based on the flexibility of the rice mill, the risk taking level of the rice mill and organizational goals and objectives.

The key elements that must be addressed thoroughly when structuring an out-grower system are:

• Trust
• Sincerity
• Contract agreement

These things should not be taken for granted from the beginning of the process of structuring. Both parties should be fully aware of the process and the consequences for any breach in contract. 

2. OPEN MARKET: Going to the open market to buy paddy just like every other buyer is also another way rice Mills can purchase paddy. This could be achieved through the use of contract staff (from such location), company’s permanent staff and/or trusted paddy agents. In this channel, the rice mill has less influence on paddy price and quality.

3. FARM LEADERS: Rice Mills could approach various leaders of the farmers to help them purchase paddy from their villages at an agreed price. These leaders are traditional leaders, opinion leaders and/or cooperative groups’ leaders.

The rice mill will thereby have to give the Leaders commission either on per bag basis or whatever arrangement preferred. However it will be good if the Rice Mill have an aggregation centre close to the villages.

1. AGGREGATORS: In purchasing paddy rice mills can also employ aggregators to help in aggregating as much paddy as the rice mill wants. The Aggregator System can work into 2 ways; the Rice Mill can either employ individuals from the paddy location to aggregate on their behalf or use Lead Farmers within the paddy location to aggregate the paddy.

Aggregators could be paid salaries or commission. This is based on what works best for the rice mill.

1. PADDY SUPPLIERS:       These are business men in the paddy business. They buy paddy from various farmers and sell either at the open market or directly to the rice mill. These men have built a robust working network with the farmers in the interior and this network have lasted a very long time.

The advantage of having paddy suppliers is that they can muscle very large quantities of paddy at a short time because the already have established working paddy network. However, the disadvantage of this arrangement is that the cost might be slightly expensive based on the fact that they will add their profit and running expenses on the price they will be offering to supply to the rice mill.

It is therefore pertinent for all rice millers (existing and prospective) to critically assess the paddy market and choose whatever means that suit the organization. However, the understanding of the dynamic nature of the industry will help rice mills plan better as it relates to the business of rice milling. Also, the cost of paddy is 50% – 65% of the total cost of production, which means that paddy operations largely determine the survival of any mill.

REFERENCES:

1. https://www.irri.org
2. www.fao.org
3. https://en.m.wikipedia.org