3rd Africa Rice Congress Theme 4: Rice policy for food security through smallholder and agribusiness development Mini symposium1: Trade policies to boost Africa’s rice sector Author: Kuku-Shittu

1. Policy options for accelerated
growth and competitiveness of
the domestic rice economy in
Nigeria
By
Oluyemisi Kuku-Shittu
Postdoctoral Fellow, Development Strategy & Governance
Division, International Food Policy Research Institute
(IFPRI-Nigeria)
October 21, 2013
Africa Rice Congress 2012
Yaoundé, Cameroon
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

2. NSSP Rice Study Team
(alphabetic and by location)
In Nigeria
In Washington, DC
Akeem Ajibola
Kwabena Gyimah-Brempong
Oluyemisi Kuku-Shittu
Xinshen Diao
Paul Dorosh
Michael Johnson
Jawoo Koo
Mehrab Malek
Angga Pradesha
Hiroyuki Takeshima
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

3. Background of the Rice Study
 To achieve a transformation of the agricultural sector and food security
in Nigeria, the government has identified rice as one of the key food
staples – with high ambitions to..
• Reverse decades of neglect in agriculture
• Catch up to an Asian type green revolution (including transforming the rice
post-harvest sector), AND in the process..
• Achieve rice self-sufficiency by 2015
 IFPRI was asked to provide research evidence and help the
government in identifying priority policy areas for achieving this goal.
 The following are drawn from the results of analysis by the “Rice Study
Team” of NSSP
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

4. Research Objective
 What is the potential to increase rice production (quantity and
quality) in Nigeria to achieve self-sufficiency?
• Does local rice have the potential to realize a higher growth rate in yield and
production? And if it does, will this be enough to achieve self-sufficiency?
• Does it have the potential to improve product quality to effectively compete
with imports?
 In the wake of the Government introducing higher import tariffs
and promoting the expansion of large scale milling operations to
quickly achieve its policy goal..
• Is this economically efficient and effective in the long run?
• What alternative (or complementary) policy strategies will be needed given the
characteristics of the rice economy?
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

5. Methodology
 Review the characteristics and current state of the rice economy
in Nigeria (demand and supply)
 Assess the potential to increase competitiveness – rice yields,
production, and improve rice quality in Nigeria?
• Analysis of bio-physical production potential and identification of
most promising competitive rice farming type
• Analysis of rice value chain and optimal rice processing sector
development
 Using an economic model, weigh in the welfare effects of
alternative policies for realizing this potential (e.g. through import
tariffs and improvements in production, quality and marketing) --measured in terms of the self-sufficiency goal, increased rural incomes,
and food security.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

6. A simple fact.. Rice has quickly become one of the
leading food staples in Nigeria
(Both by per capita consumption and HH expenditures)
Urban
Rural
Commodity
kg/pc
Rank
kg/pc
Rank
Rice
35.0
2
30.6
2
Maize
18.2
4
27.5
4
Sorghum
8.7
5
39.3
1
Millet
8.5
6
26.2
5
Cassava*
38.2
1
30.3
3
Yam
22.7
3
15.7
6
*Processed
 An average Nigerian household spent 6% of total income on rice consumption
 In monetary term rice ranks No.1 in consumption among all staple items for
both rural and urban households
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

7. Demand for Rice has been rising rapidly in per capita
terms – leading to rising imports
(Production has only kept up with population growth)
360
Milled Rice Imports (million tonnes)
5.0
4.0
Milled Rice Production (million tonnes)
Population (million) - R-axis
300
240
180
2.0
120
1.0
60
0.0
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
3.0
Data source: USDA international database (2012)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Population (Million)
Production & Imports (Million tonnes)
6.0

8. Explaining the rise in demand..
 Urbanization and rising incomes (50 percent of Nigerians now live
in urban centers)
 Imported rice is preferred for higher quality and versatility
• Cleanliness (free from stones and other debris)
• Swelling capacity and taste
• Grain shape (non-broken, long grained)
 Local rice has a lower price and some household prefer its taste or
choose it for specialized uses, but it is often not properly
processed (high percentage of brokens, etc.)
Per capita consumption (kg/pc)
Local Rice
Imported Rice
Income elasticity of demand
Local Rice
Imported Rice
Urban
National
average
Rural
Urban
Rural
Urban
Rural
Urban
Rural
10.9
21.4
24.1
9.1
0.20
0.64
0.53
1.03
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

9. The Result... domestic & imported rice are not perfect
substitutes
220
Enugu Imported
180
Naira/Kg
200
Enugu Local
160
Enugu Import Parity w Tariff
140
120
100
80
60
Aug-11
Mar-11
Oct-10
May-10
Dec-09
Jul-09
Feb-09
Sep-08
Apr-08
Nov-07
Jun-07
Jan-07
Aug-06
Mar-06
Oct-05
May-05
Dec-04
Jul-04
Feb-04
Sep-03
Apr-03
Nov-02
Jun-02
Jan-02
Aug-01
Mar-01
40
Source: Authors’ calculation using NLSS 2011
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page
9

10. Implications...
 Even under the best of circumstances, does Nigeria have
the potential to..
• Grow the rice sector and produce enough to meet local demand?
• Improve the final product and branding of local rice in order to
compete more favorably with imported rice?
 What does it mean given the government’s current policy
framework and strategy for achieving these objectives?
• On paddy production and access to inputs and output markets to
rapidly expand output?
• On post harvest / rice milling capacities – to improve quality and
branding
• On import tariffs? (which has its own challenges)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

11. For example, a big challenge for Nigeria is import
tariffs have not been easy to enforce in the past
 Officially reported imports are much lower than the number estimated from
exporting countries’ reports (e.g. most rice imported by Benin is re-exported to
Nigeria)
 The high tariffs may encourage under-reported imports to avoid tariff payment
Nigeria Rice Import Data and World Export Data, 2006-2010
Million MT
3.0
Nigeria Imports
2.5
Exports to Nigeria
2.0
1.5
1.0
0.5
0.0
2006
2007
Source: COMTRADE data.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
2008
2009
2010

12. Can Nigeria rapidly expand its
Domestic rice production?
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

13. Assessing Potential for Production Growth
Suitability of Rice Production Areas
Highly suitable and rice is grown
Highly suitable and other crops (rice not grown)
Highly suitable but no crops are grown
Medium suitability and rice is grown
Medium suitability but no crops are grown
Low suitability
Source: IFPRI Spatial Production Allocation Model (SPAM), Global
Irrigation Map (University of Frankfurt), Various literature
Area (1000 ha)
Category
Rainfed rice
Irrigated rice
Other crops
High
suitability
area
Output (1000 ton)
Medium
suitability
area
High
suitability
area
Medium
suitability
area
68
843
96
1,162
3
103
11
403
1,231
1,231
No crops
2,871
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
24,617
Page 13

14. Even under the best scenario, Nigeria will not
be able to produce enough to meet demand
Biophysical Rice Output Potential (Million MT) – based on crop simulation results
under different technology inputs
Suitability
High
Medium
Low
Total
(Current rice area, 1000 ha)
(71)
(946)
(573)
(1,590)
Baseline Output, Rainfed
(current, million metric tons)
0.1
1.6
0.8
2.5
1. Seeds, Rainfed
0.2
1.8
0.8
2.8
2. Seeds + Fertilizer, Rainfed
0.2
2.3
0.9
3.3
3. Seeds + Fertilizer + Irrigation
0.2
2.4
1.4
4.0
Simulation Output Results
(million metric tons)
Source: Crop simulation model results
Page
14

15. What of the potential to
improve product quality?
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

16. Comparing rice value chains between Nigeria & Thailand („09)
0.19
0.45
1.1
0.09
0.9
0.28
0.8
0.06
0.7
0.6
0.10
0.18
0.19
0.5
Thailand, Maneechansook (2011) and
FOB data from the Association of Rice
Exporters in Thailand for Par-boiled
rice 100%
0.32
0.3
0.2
0.1
Exporter Margin and FOB
Freight & handling
Potential Quality Premiun
Retailer Margin
0
Import Tariff & Retail Margin
Source: Nigeria: Author field visits;
0.36
Wholesaler Margin
Paddy production cost
in Nigeria is 35% of
total value chain and is
1.3 times higher than
in Thailand
0.4
Paddy Trader & Processing Margin

Trader/Wholesale costs
& margins for smallscale rice value chain
are almost double that
of Thailand
Farm Gate Margin

Farm Gate Margin
Quality premium can be
20% of total value
chain (potential)
1
Import Parity
Price, 1.12
Paddy Trader & Processing Margin

1.2
US$/kg
Starting with Small
Scale Channel for
Nigeria

17. Comparing rice value chains between Nigeria & Thailand (‟09)
1.2
Import Parity
Price, 1.12
1
0.06
0.7
0.10
0.6
0.19
0.5
0.4
0.36
0.32
0.3
0.2
0.1
Farm Gate Margin
Exporter Margin and FOB
Freight & handling
Import Tariff & Retail Margin
Potential Quality Premiun
Retailer Margin
Wholesaler Margin
0
Paddy Trader & Processing Margin
Oguntade (2011);
Thailand, Maneechansook (2011) and
FOB data from the Association of Rice
Exporters in Thailand for Par-boiled rice
100%
0.8
Paddy Trader & Processing Margin
Source: Nigeria, Author field visits and
0.50
0.9
Farm Gate Margin
 Beyond the farm
gate -- milling,
trader, and
Wholesale costs and
margins are
significant (about
2.4 times that of
Thailand)
0.45
0.06
1.1
US$/kg
.. With the Medium /
Large Scale Channel in
Nigeria
0.19

18. So – what does it all mean? (looking at price structure of the rice
value chain in select countries (2009, USD and %)
1.20
Import parity price = $1.12
1.00
23%
Rice Trader/Marketing Margin
 Nigerian farmers capture the
smallest share of final price (32 to
39%) compared to Thailand and
Bangladesh (52 to 81%) – although
prices (USD equivalent) at farm gate
are about equal.
US$/kg
Paddy Trader/Miller Margin
0.80
Farmgate Price
41%
0.60
45%
20%
17%
20%
31%
0.40
0.20
32%
39%
11%
7%
52%
81%
22%
58%
Standard
Premium
Nigeria
Premium
Thailand
Standard
 Wholesale trader and marketing
price margins in Nigeria capture
the bulk of the final price, especially
along small scale milling channel (41%)
– more than twice those seen in Asia.
Premium
 The key to lower production and
market costs is through yield growth
and improved market efficiencies
 The key to improve competitiveness
with import brands is through
improved processing and handling
for quality products
Bangladesh
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Source: Nigeria, Author field visits and Oguntade (2011);
Thailand, Maneechansook (2011);
Bangladesh, Minten, Murshid, & Reardon (2013).

19. What are the alternative strategies
for Nigeria, therefore – to achieve
competitiveness and growth in rice
production?
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

20. Policy Scenario 4 (S4)
“Import Restrictions”
Policy Scenario 2 (S2)
“Market Improvement”
1.20
Import parity price with tariff = $1.12
23%
1.00
Tariff
US$/kg
To answer this question, we used an Economy-wide Multimarket
Model (EMM) to address 4 alternative policy scenarios
Rice Trader/Marketing Margin
0.80
Paddy Trader/Miller Margin
41%
0.60
Farmgate Price
45%
0.40
Policy Scenario 1 (S1)
“Technology Change”
20%
0.20
39%
32%
Standard
Premium
Policy Scenario 3 (S3)
“Combined S1 & S2”
Premium
Standard
Premium
Page
20

21. Improving rice competiveness is a Win-Win strategy
on production side, and...
58.0%
Minimum
45.1%
Increased
Accelerated
21.5%
24.7%
18.3%
11.4%
4.4%
5.7%
S4 - Import RestrictionsS1 - Technology Change
Source: Nigeria EMM model simulation result
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
2.5%
4.8%
7.0%
S2 - Market
Improvement
8.5%
S3 - Combined S1 & S2
Page
21

22. .. consumption side, and...
9.8%
7.0%
0.9%
3.3%
2.7%
0.0% 0.3%
1.0%
Minimum
-7.7%
Increased
Accelerated
-14.9%
-19.3%
S4 - Import
Restrictions
S1 - Technology
Change
S2 - Market
Improvement
S3 - Combined S1 & S2
Source: Nigeria EMM model simulation result
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page
22

23. .. on household incomes
% change in rural pc real income from the base
13.2%
Minimum
Increased
Accelerated
7.7%
0.9%
2.9%
1.3%
0.5% 0.9%
4.7%
1.5%
-2.6%
-6.8%
-13.4%
S4 - Import Restrictions S1 - Technology Change
S2 - Market
Improvement
S3 - Combined S1 & S2
% change in urban pc real income from the base
Minimum
Increased
Accelerated
0.2% 0.7%
2.0%
0.2%
0.3% 0.5%
0.4%
1.3%
3.7%
-2.1%
-6.0%
-13.4%
S4 - Import Restrictions S1 - Technology Change
Source: Nigeria EMM model simulation result
S2 - Market
Improvement
S3 - Combined S1 & S2
Page
23

24. Additionally... higher tariffs will create food price
inflation while agricultural real incomes fall
Tariff rate (%)
63
75
78
88
98
100
113
153
169
200
268
400
change in real GDP (%)
12
-0.2
10
-0.4
8
Change in real GDP
-0.6
6
Change in CPI
-0.8
4
-1.0
2
-1.2
Change in CPI (%)
0.0
0
Source: Nigeria EMM model simulation result
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page
24

25. Key Findings (1)
 Technology change can drive much of the growth required, but
not likely to lead to self sufficiency in the short and medium
term..
• A modest increase in rice yield, from 1.9 to 2.2 MT/ha improves the
competitiveness of local rice (esp. when it high quality variety)
• Rice production can reach a similar level achieved by a high tariff rate of
400%
• Rice consumption increases while import-dependency falls to 33% (from
45%)
• Other crop production will not be hurt
 When technology change is combined with market
improvement, local rice competitiveness increases significantly
• Both production and consumption increase while import dependency rate
falls below 30%
• Income gains go to both rural and urban consumers
• Rice growth is not accompanied by domestic food price inflation as in the
case of the high protection policy
Page
25

26. Key Findings (2)
 Historical data has shown that an import restriction policy
alone is not effective in reducing rice imports and
increasing rice production (as the modeling analysis confirms)
• From the model results, it shows that doubling rice import tariff rate
(to 100%) only modestly raises domestic rice production, and at a
tariff rate of 400%, rice production only increases by less than 20%
• Tariff-induced supply response is through rice area expansion without
yield growth
• Other crop production can be negatively affected
 Consumers are hurt by raising high import tariffs alone.
With reduced consumption caused by high tariffs, imports still
account for 20% of total consumption
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page
26

27. Policy Implications (1)
 If import tariffs are warranted (e.g. using the „infant
industry argument‟), it will be essential to ensure..
• Consistency in tariff policies (e.g. to avoid using tariffs simply as an
instrument for domestic price stabilization in the short run), and
• In the commitments of public resource allocations to improve the
enabling environment to attract private sector investments and growth
in the rice sector
 Improving infrastructure condition is key for lowering
processing (e.g. power) and market costs (e.g. roads)
 Encouraging the private sector to lead the competiveness
efforts in domestic market
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page
27

28. Policy Implications (2)
 Finally, profitability cannot be achieved so long as local
varieties are not competitive
• Consistency in policy is the pre condition for profitability to the private
sector
• Proper policies are needed to encourage the private sector to develop
right varieties that can compete with imported rice and make them
available to farmers
• Avoid winner-picking in the milling sector and encourage more small and
medium sizes of millers
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page
28

29. Overall Key Messages
“Nigeria has the potential to increase the competitiveness of
local rice along the value chain – but cannot feasibly achieve its
self-sufficiency goal in the short-to-medium term”
To spur growth and improved competitiveness...
 Increasing yield growth
• Emphasize the right seeds
• Increase the number of small scale competitive rice farmers
• Encourage small-scale and privately operated irrigation technology (are
there lessons from elsewhere, e.g. Asia?)
• Fertilizer market efficiency is important (private sector involvement)
• Mechanization policy to promote intensification (e.g. for double season
production) -- and preferably through private sector service providers
 Increasing quality of domestic rice
• Emphasize right varieties, further processing, and branding
 Import restrictions alone will not be effective at stimulating a large
supply response
Page
29

30. Thank You
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

31. Assumptions in the crop simulation model
Simulation scenarios
1: Seeds
share of Improved
varieties
Inputs
Baseline
Seeds
Share of
improved
seeds
Rainfed
- 50% Improved (IR-8
type), 50% Traditional
Irrigated
- 100% Improved
Fertilizer
(Nitrogen
in
kg/ha)
Irrigation
Share of
irrigation
area
3 All three
Improved
varieties
Fertilizer
Irrigation
Rainfed
- 100% improved varieties in high suitability area
- 75% improved varieties in medium suitability area
- 50% improved (unchanged) in low suitability area
Irrigated
- 100% Improved
Rainfed North
Rainfed South
improved: 56 kg/ha improved: 8 kg/ha
traditional: 0
traditional: 0
Irrigated
North: 64 kg/ha
2: Seeds+fertilizer
Improved
varieties
Fertilizer
South: 95 kg/ha
Rainfed North
Rainfed South
improved: 56 kg/ha
improved: 40
kg/ha
Irrigated
North: 128 kg/ha
South: 150 kg/ha
10%
21%
(Assuming some of the irrigated area is not fully developed irrigation (By substituting
system)
irrigation area for
all other crops to
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
rice)
Page 31

32. Parameters used in the policy scenarios
EMM
scenarios
Exogenous
parameters
shocked
Targeted key endogenous
variables
In the relevant scenarios
base level
Import
restriction
Technology
change
Tariff rates
Low
Medium
High
50%
100%
200%
400%
Yield growth rate,
Level of yield for non1.91 t/ha 1.96 t/ha 2.01 t/ha 2.06 t/ha
non-competitive
competitive local rice (mt/ha)
varieties
Yield growth
Level of yield for competitive 1.91 t/ha 2.16 t/ha 2.46 t/ha 2.82 t/ha
rate, competitive
local rice (mt/ha)
varieties
Area growth rate, non- Area of non-competitive local
97.1%
94.9%
91.8%
85.1%
competitive varieties rice in total rice area (%)
in total rice area
Area growth
Area of competitive local rice
2.9%
5.1%
8.2%
14.9%
rate, competitive
in total rice area (%)
varieties in total rice
area
Market
Market margins
improvement
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
70%
60%
50%
40%
Page
32

33. ..technical change is the driving force for much of the growth
% Change in Yield
26.4%
24.0%
Minimum
% Change in Area
Minimum
20.5%
Increased
27.4%
20.4%
Accelerated
Increased
Accelerated
11.4%
9.8%
4.4%
3.7%
0.5% 1.4%
-1.2%
-2.6%
-3.9%
14.3%
11.9%
7.7%
5.7%
5.4%
1.9%
3.9%
2.0%
S4 - Import
S1 S2 - Market
S3 Restrictions Technology Improvement Combined S1
Change
& S2
S4 - Import
S1
S2 - Market
S3 Restrictions - Technology Improvement Combined S1
Change
& S2
•
Even with modest improvements in rice productivity and market efficiency, rice production can increase
significantly, particularly when yield increases for more competitive varieties
•
Under import restrictions alone (i.e. with no technology change), average rice yields actually fall given
area expansion onto lands less suitable for rice and displacing other crops
•
When growth is centered on technology change, the increase in rice production will not come at a cost of
reducing production of other crops
Source: Nigeria EMM model simulation result Page
33

34. Changes in relative rice prices (% change from base year)
% change in relative producer price from the base
Minimum
Increased
Accelerated 8.2%
0.1%
16.5%
9.6%
7.8%
4.4%
2.0%
4.7%
2.4%
S1 - Technology
Change
S2 - Market
Improvement
6.9%
4.5%
-1.2%
S4 - Import
Restrictions
S3 - Combined S1 &
S2
% change in relative consumer price from the base
163.7%
Minimum
Increased
Accelerated
69.8%
23.1%
0.2% 0.1%
-0.6%
S4 - Import
Restrictions
-1.2%
-2.2%-3.1%
-1.0%-2.4%-5.3%
S1 - Technology
Change
S2 - Market
Improvement
S3 - Combined S1 &
S2