Rice Importation Quotas and the abuses by Crusoe Osagie

This report looks at the recent abuse of the rice import allocation quotas vis-a-vis the objectives of the federal government's much heralded agricultural transformation agenda.

The agricultural sector is undoubtedly the segment of the economy where the performance of President Goodluck Jonathan can hardly be faulted.

Available records showed that the Minister of Agriculture, Akinwumi Adesina has successfully made farming the focal point of the current federal government with agricultural policies and issues getting the attention of the president even more than issues in the oil and gas sector.

Not even in the era of the farmer-president, Olusegun Obasanjo, did farmers in the country enjoy as much synergy with the administrators of the sector, resulting in an unprecedented increase in the agricultural productivity of the country.

A food commodity such as rice tells an eloquent story of how well the present administration has transformed the fortunes of farmers and the nation's agricultural sector in the last four years.

Nigeria has currently attained 80 per cent self-sufficiency in paddy rice production, adding seven million metric tonnes of paddy rice to the domestic food supply. These are not empty statistics because the companies and investors latching on the massive growth of the sector are known and the claims can be independently verified.

For example, the newly commissioned integrated rice mill of Olam Nigeria Limited has brought the company’s total investment in the integrated farm and milling facility to over N18 billion.

Managing Director of Olam, Africa and Middle East, Mr. Venkataramani Srivathsan, who oversees a 6,000-hectare greenfield farm in Nasarawa State, said the rice mill would produce additional 36,000 metric tonnes for the nation’s domestic market.

Srivathsan stated that the establishment of the rice mill was part of the company’s contribution to the federal government’s quest for the actual inaction of self-sufficiency in rice production.

Dangote certainly is not an investor who channels resources to segments of the economy where policies are disorderly. The Africa’s richest man's commencement of the single largest investment in rice production with an investment of $1 billion (N175 billion) for commercial rice farming and modern integrated rice mills speaks volumes of the performance of the agricultural sector under the present administration. 

Spanners in the Works

However, having placed the rice sector on the path to enduring growth, information filtering out indicate danger ahead for the sector initially poised to save the country nearly $2 billion annually from the foundation so far laid by the current leadership.

It was recently reported that Nigeria may be losing not less than N40 billion annually in the rice segment of the agricultural sector due to the activity of smugglers and individuals pretending to be investing in the local production and processing of rice.

THISDAY gathered that as a result of the lapses in the implementation of the backward  integration policy for rice in the course of the year, smugglers have benefitted to the tune of N20 billion.

Also, phoney investors in rice processing have been said to have pocketed N20 billion, posing as genuine investors and obtaining rice importation quotas which attract reduced taxes and levies.

According to market sources, the federal government has been hoodwinked into granting waivers indiscriminately under the backward integration plan, thereby promoting the activities of smugglers, while putting the rice backward integration policy under threat.

Under the backward integration policy, importation quotas which attract lower importation levies and taxes are issued out to genuine local rice processors or investors already putting verifiable investment into the local processing of the commodity.

The policy empowers only these genuine investors in local production and processing of rice, to imports the difference between what the country can produces locally and the shortfall that must be covered through importation.

Stakeholders in the rice industry however believe that the alleged indiscriminate approach of the federal government in granting waivers and import allocation quotas to investors who have no investments in the industry, either in form of paddy or milled rice may be stifling the backward integration programme in the sector.

THISDAY also gathered that many of the investors who got the import allocation quotas are already trading it to interested stakeholders at between 60 to 80 per cent levy, having got the same at 20 per cent levy.

Specifically, documents obtained by THISDAY showed that investors who have only submitted expression of interests in the sector without tangible investments in the sector, may be enjoying waivers amounting to at least N20 billion under the exercise.

For instance, allocation of rice import quotas under the new rice policy by the Federal Ministry of Agriculture and Rural Development showed that a move to bridge the supply gap of import-grade rice of 1.5 million metric tonnes as determined by the federal government was designed to ensure that existing rice millers and new investors receive a preferential levy of 20 per cent and duty of 10 per cent while other importers pay higher levy of 60 per cent and duty of 10 per cent.

In a letter from Adesina to the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala on the allocation of rice import quotas, Adesina noted that the criteria for the allocation under a methodology, which assigns weight to key criteria of self-sufficiency in rice production and milling in Nigeria include the submission and approval of a Domestic Rice Production Plan (DRPP) among others.

According to Adesina, a supply gap of import-grade rice was determined to be 1.5 million metric tonnes for 2014 while an inter-ministerial committee discussed the methodology for allocation of the import quotas.

Subsequently, a letter was sent to existing rice millers and new investors, to submit a DRPP, and based on their submissions; a total of 1.3 million metric tonnes of rice import quotas was issued to 25 qualifying millers at the preferential levy of 20 percent and duty of 10 per cent. The remainder 0.2 million metric tonnes of rice imports will be at the higher levy of 60 per cent and duty of 10 per cent for other rice importers”, the letter read in part.

However, documents obtained revealed that the supply gap estimate is unrealistic when compared to a total of 2.74 million metric tonnes of imported rice that made its way into the country in 2014 (representing a combination of rice imported into the country and the smuggled commodity from neighbouring West African countries).

Similarly, the documents further showed that new investors without milling capacity or investments in the country received the highest quota of the allocations to approved rice millers, while millers did not receive allocations and in some instances, received very low allocation.

The list of beneficiaries of the preferential import quotas, quantities of rice imports approved and corresponding performance bond to be  submitted shows that of the 28 beneficiaries, only 16 have mills, while the remaining 12 have no mills and account for higher imports than millers.

With at least $183.6 million enjoyed in bonds, stakeholders have begun to question the sincerity of government under the backward integration plan, considering the fact that investors who have only expressed interests allegedly enjoy higher imports than those who have remained committed to the plan.

More than Just N40 billion

If all the loss to the Nigerian economy on account of this administrative loophole is the N40 billion that would go into fraudulent pockets annually, it would be a serious problem but not as serious as the threat to the goal of rice self-sufficiency, which even pessimists and the biggest critics of the federal government believe may be achieved latest by 2017.

If these saboteurs can be kept at bay, the Nigerian rice industry, which currently has local annual revenue flow of over $2 billion can be fully domesticated with all the attendant economic benefits to the country. After the full domestication, Nigeria may now be able to generate a marketable surplus which would be channeled towards export. At that level the revenue potential are almost boundless.

With crude oil prices tumbling and the Naira struggling against other global currencies, non-oil revenue flow into the country appears to be the only way out for the threatened Nigerian economy. What the country needs to do to get out of the present predicament is simple; import less. Even if exports potentials of the country cannot be significantly increased, if Nigeria can arrive at the point where it no longer needs to depend on other countries for essential commodities like rice, petroleum products, sugar, vegetable oil, fertiliser, among others, it would have made enough effort not only end the current threats but also to put the nation in a position to make good progress.