Leaked letter by Poultry Farmers Association triggered CBN approval to import maize

A letter from the Poultry Farmers Association of Nigeria is touted as the trigger for the recent decision by the Central Bank of Nigeria to approve emergency importation of 262,000 tons of maize into Nigeria.

Nairametrics confirmed this, after sighting the letter signed by the President of Poultry Farmers Association, Onallo S. Akpa, dated July 3rd, 2020.

In the letter, the association called on President Buhari to allow for guided importation of maize, in order not to shut down the poultry business in Nigeria, since poultry farmers rely heavily on maize to feed their chickens.

The laundry list of what they asked for include:

1. The FG should instruct the Federal Ministry of Agriculture & Rural Development, to release 300,000Mt of maize and 10,000Mt of soyabeans to the association, at subsidized rates, in order to keep the poultry industry going.

2. A guided importation of maize in order not to shut down the entire poultry industry in Nigeria. They specifically requested for a Feed Grade Maize of 2,100Mt and soyabeans meal of 10,000Mt.

3. Poultry farmers will be the ones to import the maize and soyabean meal themselves, which they will make available to their members.

4. That the importation will serve their needs for 5 months.

5. That the FG should make available $70 million in forex at the prevailing exchange rate, for the importation of Feed Grade Maize and soyabeans.

6. Import duty and VAT exemptions to sustain the poultry production business, and stabilize protein supply for the country.

7. Halt the export of ‘critical commodities’ to neighboring countries, in order to ensure food security for Nigerians.

The motive for CBN’s import ban

The Central Bank, in July, adding to its 41 items ban list, announced a ban on forex for maize importation into the country, so local farmers could compete. It is unclear if the CBN was privy to this letter when the circular was issued on July 13th, 2020.

However, soon after the ban was announced, criticisms poured in against the CBN directive.

The CBN has also heavily invested in agriculture, through several intervention funds directed at farmers. A source at the CBN, informed Nairametrics that the quantum of investments in the sector was a major factor in deciding on the import ban.

The apex bank has resorted to restriction of access to forex as a monetary policy tool, to dissuade importation of items that compete directly with locally produced substitutes, backed by intervention programs.

Since last year, the Federal Government has closed the country’s borders to the importation of goods, piling pressure on Nigeria’s trade and jacking up inflation. Nigeria’s food inflation has risen to 15.48% as of July 2020, on the back of several policy measures of the government.

Poultry Farmers Association is the trigger

The letter from the poultry farmers, who are also benefiting from a ban on the importation of frozen chicken, demonstrates how difficult it is to stir local production through government actions such as import substitution, bans on forex access, and increase in import duty.

It also highlights the challenges of policy making, particularly by the CBN, who is often blindsided by several other fiscal policies working at cross purposes. The letter from the Poultry farmers is a classic example.

When the ban on importation of maize was first announced, policy analysts pointed to the effect it could have on poultry farmers. In a report, the Academic Director, Agribusiness, Lagos Business School, Dr Ikechukwu Kelikume, explained that the policy could further compound the woes of poultry farmers, given that maize, which constitutes over 50% of poultry feed content, is currently very scarce, and where available, very expensive, with an ever increasing price.

On the consequences of the CBN directive, “The situation spells doom for poultry farmers across the country, who are beginning to cut down on production, because of the high cost of feed and imported medication for the birds. A negative spillover effect of the high cost of feed is egg scarcity, and a consequent rise in its price across the country. The implications of the current challenges in the maize value chain are that, the gains of employing more people in the agricultural sector will be rolled back in the coming months,” said Kelikume.

Mr Kalu Aja, CEO, AfriSwiss Capital Assets Management Limited, speaking to Nairametrics says its simple “supply fell,” citing that it is basic Economics 101, “if you ban a product supply where demand remains same, the price will increase.”

He added that banning the import of maize will affect the poultry industry, as other feeds go up, especially chicken feed, since maize is an important component for poultry, and with the chicken feed going up, the cost may have to be passed to the consumer.

FG u-turn

As the controversy raged on, pressure piled on the government to assuage their request, culminating in the President deciding early in September, to release 30,000 tons of maize from the Federal Reserves, to animal feed producers, in order to deal with the high cost of poultry production after the ban on maize imports.

The next day, the Nigeria Customs Service confirmed that four companies were given CBN emergency approval, to import 262,000 tons of maize into Nigeria. The companies are Wacot Limited, Chi farms Limited, Crown Flour Mills Limited, and Premier Feeds Company Limited.

A reliable source at the CBN also informed Nairametrics that the decision to select these four companies was because they were already implementing backward integration operations, and they are the largest importers of Maize in the country. They also will not be utilizing the nation’s forex reserve, as they will rely on their own forex exchange sources to process Form M required to facilitate the imports.

Despite the lifting of the ban for the importation of maize, the government is still insisting on its forex for food ban, maintaining that the policy was aimed at protecting local production.

Bottom Line: Nigerians will at some point have to choose between accepting foreign imports, and its attendant negative consequences, which include, killing of farming jobs, mothballing of factories, and risk of food security due to its heavy reliance on imports. The other option is to protect local production and forex reserves, while facing the short to medium term pain of higher food prices.