AFEX Nigeria Discusses Risk Management Approaches for Agricultural Finance and Trading
In its lineup of necessary issues to be discussed around agriculture and food security for the 2019 Agribusiness and Food Security Summit held on the 18th of July 2019 in Lagos, Nigeria, BusinessDay hosted a panel session on ‘Risk Management Approaches and Solutions in Agricultural Finance and Trading.’ Inherent in the theme for the session was a recognition of the dependency of Nigeria’s agricultural sector on collaboration between all stakeholders, who need to be supported by the right funding instruments and tools that are tailored to help deliver rapid growth and development. A key factor in this development can be identified as the various risk management approaches and solutions that are necessary to be implemented at all steps of the agriculture value chain.
Driving finance into the agricultural sector in Nigeria is a task with a high level of importance. The efficacy of interventions and solutions around agricultural finance and trading are, however, reduced drastically by the risks in the sector. Partnerships formed between industry players, banks, investors and the government reduce the risks, allow for economic exploitation of ideas and talents, and give rise to opportunities, which eventually form a risk management approach by extension.
The panel, which was moderated by BusinessDay journalist Caleb Ojewale, included AFEX Nigeria’s Country Manager, Ayodeji Balogun alongside the CEO of NIRSAL Aliyu Abdulhameed, the ED of the Bank of Agriculture, Bode Abiyoke, the Director, Development Finance, Central Bank of Nigeria, Dr Mudarshir Olaitan, and the Managing Director, Ecobank Nigeria, Patrick Akinwuntan. The discussion focused on investigating the current perceptions of risk management in agriculture by key stakeholders and then sketched out some of the innovative solutions currently emerging in the space.
Addressing the risk in agricultural financing, Mr. Balogun stated that agriculture is a significant part of the Nigerian economy, which is still driven largely by fragmented crop production. Grouping the risks faced under macro and micro views, he identified food security, inflation, foreign exchange and economic diversification as concerns on a macro level while product availability, credit risks, business & cash flow risks were grouped under the micro level. Mr. Balogun also pointed out the effect of price volatility and low levels of loans/ credit to agriculture, stating that although the constraints to lending might be understandable, considering the instability and the unpredictable nature of the sector, it is clear that limited financing represents a severe impediment to the industry.
Mr. Balogun then offered some solutions to the risk management process, listing some possible interventions that could be carried out on both the demand and supply side in the short, medium and long terms. Starting out with his proposed solutions, he explained that trades need to be logged on a trading platform for transparency and price discovery, with the application and processing systems automated for speed and independence. He also suggested that risk share facilities need to be put in place; a food security special intervention fund needs to be established; and the Staple Crop Processing Zone projects (SCPZ) need to be restructured.
Agricultural finance and trading are a vital component of the AFEX Nigeria business model. The private sector commodities exchange firm regularly takes part in and runs a series of events to promote dialogue between the government, smallholder farmers, processors, banks and investors around driving finance to the agricultural sector in Nigeria. The Agribusiness and Food Security Summit, and other such dialogue opportunities, are needed to continually put forward the shared value that can be enjoyed by enabling a wide range of collaborative projects that help mitigate risks and drive finance into the agricultural sector, meeting the ambitions of both industry players and national authorities.