Cross state government, in a move to reduce its reliance on FAAC allocations has gone into partnership with Arewa cotton. The farm is expected to produce 30,000 tonnes of cotton by year end, and will be located in Woda community, Yala local government.
How the state benefits
The cotton produced will provide raw materials for the state-owned garment factory. The farmers that will be employed under the scheme will earn extra income which will be spent within the state, therefore boosting the local economy. The state government also benefits from enhanced tax revenue from the staff that will be employed. If the farm does well, it is likely to encourage other investors to move to the state. Dwindling oil prices have led to a drop in FAAC (Federal Account Allocation Committee) allocations for states, leading to many of them owing salaries and pension obligations. FAAC allocations are revenue earned from crude oil and tax that are shared by the three tiers of government on a monthly basis. The state becoming an investment hub, provides a much more stable source of revenue compared to oil revenue which fluctuates.
How does the company gain
Opening a farm in Cross River State increases the production capacity of the company, enabling it to benefit from economics of scale. Economics of scale are the cost savings a company makes by operating on a large scale. Arewa cottons in 2013, had signed a similar MOU with the Ogun State government and farmers in the state. Partnering with the state government also reduces the likelihood of the community disrupting work on the farm or harassment from various agencies of government for taxes and levies. Greater profits from the farm mean more profits to the owners of the firm. Proximity to an export processing zone, means the company can decide to export the cotton to ither countries, therefore earning foreign exchange.
