Cashew farming and Nigeria’s diversification from oil and gas

Cashew farming and Nigeria’s diversification from oil and gas

Nigeria’s continuous decline in cashew production between 1970 to 2000 was a result of many factors, particularly unavailability of loans from financial institutions due to collateral. Olomola (1999) cited inadequate storage facilities as one of the major setbacks. On the other hand, the Nigerian economy has leaned on crude oil’s fragile legs in the past 18 years, with no impact on poverty reduction or job creation despite records of huge earnings from the sector. This buttresses the fact that no country can achieve economic advancement without first diversifying its economy (Onodugo., 2015; Adelman., 2001). However, in Nigeria’s current economic quagmire, research shows that GDP growth and economic development are not achieved in a vacuum. A shift from non-oil exports is the only remedial strategy from this self-inflicted torture (Malden., 2017).

The Central Bank of Nigeria (CBN), in its 2010 annual report, noted that revenues from the oil and gas sector made up over 80.0% of Nigeria’s foreign exchange earnings whereas the non-oil sector contributed 20.1% despite a decline in global oil prices.

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Image 1: Percentage of financial returns from Agriculture and Oil & Gas in 2010 (Source: CBN)

The agriculture sector has performed below expectations notwithstanding several institutional frameworks and policies implemented by the federal government. Such economic growth strategies and policy frameworks include the Structural Adjustment Policy (SAP) in 1986 and Abuja Stock Exchange (ABE), which was established in 2001. These efforts and historic failures highlight the importance of establishing proactive marketing boards for export promotion, providing SMEs and entrepreneurs with low-interest funds, and adopting nationwide and state-centric regulations/strategies to boost agricultural production. However, economic growth is not achieved in a vacuum; no nation can improve its earnings from the agriculture sector without adding value to its products (Osuala., 2006; Uwolloh., 2005).

Further, crude oil production in Nigeria as well as earnings from the oil and gas sector have fluctuated in recent years. On the other hand, Mr. Tola Fasheru, President of National Cashew Association of Nigeria, stated that earnings from cashew farming had been on a steady increase from 2015. According to Onuba (2018), the country realised N284 billion ($813.05m) from its 3-year cashew-nuts business projection between 2015 to 2017. Details are explained in the Figure 1.

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Figure 1: Cashew farming contributions to GDP growth

Source: CBN (2017)

The Nigerian government documented a total of $152m, $259m and $402.05m from cashew business in 2015, 2016 and 2017 respectively. This remarkable achievement in the cashew industry could have been higher except for setbacks from the Apapa gridlock, which the federal government is yet to give a lasting solution. The release of 2,600,000 jute bags and provision of N20 billion to finance cashew exports, Mr. Fasheru said, will aid packaging of cashew nut harvest and increase profits for the year 2018. Nigeria produced 220 metric tonnes of cashew nuts in 2017 but exported only 120,000. But total earnings for 2018 is projected at $480million from last year’s $402 million (Odeyemi., 2018).

Nigeria is one of Africa’s largest producer of oil and gas, with about 2 million barrels lifted per day. In Sub-Saharan Africa, Nigeria is also rated first in oil and gas reserves. According to Resource Governance, revenue from the oil and gas industry amounted to $55.45 billion in 2014 (Malden., 2017) and has been unstable till date.

 

Graph 2: Revenues from the Oil Sector (Source: CBN)

In July 2016, the Central Bank of Nigeria (CBN) noted a decline in the country’s oil revenue. Earnings from April 2016 stood at N391.3 billion (oil) and N204.7 billion (non-oil sector), about 47.71% and 52.31% of the gross earnings recorded by the federal government in 2016 and 2017 which were far lower than its April 2015 forecast totalling 52% (N814.87 billion). Nigeria’s apex bank also documented in its Economic Report for the First Quarter of 2016 that N396.47 billion was earned from crude oil and gas sales, PPT and Royalties in comparison to N601.52 billion it recorded in the fourth quarter of 2015 (Odeyemi., op cit.).

Problem Statement:

According to Akinwale et al (2001), over 70% of participants in an agricultural survey conducted to identify the main challenges faced by small-scale cashew farmers in Nigeria agreed on inadequate capital as the major concern whereas lack of storage facilities earned the second-highest votes (5.5%) among others. The following research question will therefore focus on “how adequate finance can solve the problem faced by smallholder cashew farmers in Nigeria.”

Objectives:

This research will focus on the following areas:

  1. To examine cashew farming activities in selected states of the federation.
  2. To assess the prospects of small-scale cashew farmers in Nigeria.
  • To ascertain the major sources of finance and financial constraints encountered by small-scale cashew farmers in Nigeria.
  1. To suggest ways of transforming the cashew industry for increased production.

Methodology:

The author will employ a mix of qualitative and quantitative analytic methods to review the financial constraints to adding value to smallholder cashew farming in Nigeria, with focus on data gathered from Clynes Farm Ltd, public libraries, published/ unpublished project works, print media, and the internet.

An insight from the Clynes Farm financial forecast shows cashew is a profitable venture with vast untapped potentials for individual farmers, cooperatives, companies, government, foreign investors and businesses.

 

Graph 3: Cashew Nuts Financial Projections between 2018 to 2022 (Source: Clynes Farm)

Unlike the oil sector’s fluctuating prices and profits, the cashew industry has experienced incremental growth in the past 8 years. Viable investment opportunities are expected in the next five years. Further, the cashew industry has a present net value of 40,541 per tree, and a 4-year financial projection of $64.189 (2019), $87, 838 (2020), $111,486 (2021) and $135,135 (2022), even for a short harvesting period of just 3 months. This feasibility study highlights the lucrative nature of cashew farming as well as the need for a review or establishment of government-sponsored small-scale enterprise program as a foundational measure for financial institutions and corporate investors.

 

Table 6: Clynes Farms Pro Forma Cash Flow (Source: Clynes Farms)

Table 6 shows the costs and returns from cashew production within a 5-year period by costing both fixed and variable inputs. It highlights the viability of Clynes’ net present value (N14,064,458,961) plus the worth of value addition to cashew nuts by the agro-based company.

Clynes’ total budgeted initial capital outlay is N114,647,050 whilst its Net Present Value is N14,064,458,961. Using the Internal Rate of Return Method, the Project potentially has the probability of generating an internal rate of return of 1038% within five years of operation while the Profitability Index Method turns up a probability of profitability index valued at 123.68 within the period under study.

 

Table 7: Clynes Profitability Index

Using the Discounted Payback Period Method, the Project potentially has the probability of generating cash Inflows to recoup the initial capital outlay within 45 Days of implementation. Results from these appraisal methodologies support the hypothesis that cashew farming presents a great opportunity for economic diversification—with agriculture as the fulcrum.

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