Story Highlights
- Rice mills in the north have been shutting down basically due to a spike in operational costs and the absence of intervention
- Mills noted that high energy costs, high borrowing costs and the absence of rice paddy have necessitated the shutdowns in most cases
- Economic reforms such as fuel subsidy removal and unification of the forex market have pushed the cost of production for most firms in the real economy beyond the roof with many finding it difficult to stay afloat
- The price of rice in the market has increased by over 140% in the last year to around N100,000 per 50kg bag in the market.
Rice mills in the Northern part of the country have been shutting down on the back of an increase in production cost as well as the halt of intervention finance in the last 18 months.
In the years between 2015 and 2020, rice mills sprang up across the country especially in the Northern states, owing to the determination of the federal government to ensure the country achieves self-sufficiency in rice production.
In fact, the then President Buhari’s mantra was that “we must grow what we eat, and eat what we grow” emphasizing the need to wean Nigeria out of food import dependency.
Mr. Retson Tedheke is a farmer in Nasarawa state who keyed into the initiative but today nearly regrets committing millions to the venture as the current economic woes make the business almost unsustainable. While his mill is still running, the cost of operation is the highest it has ever been and there is no support from both government and private sector.
Speaking to Nairametrics, he said, “I spend N1 million on diesel for our operations because electricity is not regular and we have to buy diesel at N1,400. I run a 300KVA diesel generation.”
The price of diesel has more than doubled in the last 18 months, pushing energy cost for businesses to the roofs. This coupled with the new electricity tariffs for Band A customers has been a major blow to the business community.
Retson is not the only farmer complaining about the high cost of operation. Mr. Sadiq, another farmer, stated that the price of diesel has nearly tripled in the last 24 months coupled with the cost of maintaining rice mills in terms of parts which are mostly imported has made the business an unprofitable venture and necessitated the shutdown and even auctioning of rice mills.
In a bid to stem the rise in diesel prices, the federal government recently announced the removal of 7.5% VAT on diesel imports; a similar move was made in December 2023 to help reduce the increase in diesel prices.
Confirming the impact of high running costs, Mr. AY Hassan stated that his rice mill has been shut down for over a year now on the back of the high cost of production and other problems. According to him, “We have stopped production in our mill for over one year now. We are planning on reopening when this economic crisis settles a bit.” However, he didn’t provide a timeline for the firm’s proposed reopening.
Scarcity of rice paddy
But it is not only the high running cost that is responsible for the spate of shutdown of rice mills. From the conversation with Messrs. Retson and Sadiq, other factors can be identified including the absence of rice paddies and the high cost of lending.
- Mr. Retson explained that he travels as far as Cameroon to source rice paddy while for Mr. Sadiq Abubakr, middlemen have hijacked the process making sourcing the paddy by miller costlier.
- Getting rice paddy for mills has become a herculean task in the past few years owing to the significant disruption in rice supply following the destructive floods of 2022. The Lagos state government, which built a massive rice processing plant- arguably one of the biggest in West Africa has seen very minimal activity due to the absence of rice paddy.
- The state government had earlier appealed to the federal government to allow for the importation of rice paddy to put the plant to work. In August, the federal government granted approval for the importation of grains including white and brown rice paddy as well as maize and others.
High cost of borrowing
Another problem that stems from the discussion with farmers and millers is the absence of government support and recent reforms by the current administration. According to Mr. Retson, the high cost of borrowing is an obstacle to production, especially at a time when inflation is at record levels.
- The Central Bank of Nigeria (CBN) under the leadership of Governor Yemi Cardoso has raised interest rates at record by a combined 850 basis points from 18.75% to 27.25%. The apex bank noted that further monetary policy tightening is needed to curb the twin threats of inflation and volatility in the foreign exchange market.
However, Mr. Retson says there is a need for the government to offer low-cost financing to farmers and producers in general.
According to him, “The last time I checked at the bank, interest rate 37%… how can you produce or do business with that?… Most of my people who own rice mills now are just selling it in order to recoup capital and a lot have shut down.”
- While the administration of President Buhari and the then CBN Governor, Godwin Emefiele were known for significant interventions to the productive sector especially agriculture and rice farmers in particular, their successors have halted such intervention.
- The current CBN leadership has explained that the nearly N10 trillion in intervention was partly responsible for the current money supply problem and further crisis.
- Governor Cardoso explained that the CBN does not have the capacity for such interventions and the bank will be returning to orthodox monetary policy.
Reacting to the current report, Dr. Augustine Maduka the President of the Community Allied Farmers Association of Nigeria (COMAFAS) noted that the current prevalence of shutdown of rice mills was inevitable considering the two critical reforms embarked upon by the current administration.
He said, “Following the removal of fuel subsidy by the current President, it is expected that firms experience these difficulties. It is not surprising at all.”
However, he explained that to bring the rice mills back to life, inputs for these rice millers should be subsidised to reduce the effects of these economic shocks on their business.
He further advised that relevant government authorities at the federal and state levels should be aggressive about the upcoming dry season farming considering the impact of recent floods on harvest in the current farming season. According to him, it is meant to “increase the supply of rice paddy to millers going forward.”
Inflation and increase in rice prices
On the other hand, Mr. Sadiq Abubakr stated that the reforms instituted by the current administration have pushed inflation to record levels and significantly reduced the purchasing power of many Nigerians, making products nearly out of the reach of the common man.
- As rice millers shut down their facilities and cut their losses and the delay in implementation of the duty-free importation of rice paddy by the Nigerian government through the Nigeria Customs Service lingers on, the price of rice continues to increase unabated.
- The latest National Bureau of Statistics (NBS) food price watch reports that the price of rice in the last one year has increased by over 140% across the country. Currently, a bag of rice sells for around N100,000- more than the recently revised minimum wage.
