July 1 (Bloomberg) -- Shittu Ibrahim ekes out a living for his two wives and 11 children by selling tomatoes he grows to passersby along a highway that runs through the Kadawa Valley near Kano, the biggest city in northern Nigeria. With no way to find new customers, about two-thirds of his crop rots.
Now the country’s central bank and Africa’s richest man, Aliko Dangote, have teamed up to establish a $25 million tomato-paste factory that could boost income for Ibrahim and the 8,000 farmers who live in the valley.
“We are doing this only to feed, as you can see, I can’t afford the luxuries of life,” the stocky 56-year-old said as he sat on a stool on June 6 outside his mud-walled house, which is surrounded by tomato fields as far as the eye can see. “There are better prospects in supplying Dangote because people will buy from them from all over the country. We hope that things will improve.”
The intervention by the Central Bank of Nigeria, which commissioned a study to show that processing local tomatoes is cheaper than importing paste from China, is part of the government’s drive to cut annual food imports of more than $10 billion. It also plans to boost agriculture in a country that was food self-sufficient in the 1960s, and create jobs in the north where poverty and unemployment have fueled an Islamist insurgency.
“We want to take Kadawa as a model and prove that with the right application of government policy we could get finance to the sector, improve productivity, create jobs and raise income,” Central Bank of Nigeria Governor Lamido Sanusi said in a June 25 e-mailed response to questions.
The 2011 study showed that Nigeria, Africa’s most populous nation, pays $360 million to import more than 300,000 metric tons annually of tomato paste from companies including Hebei, China-based Baoding Sanyuan Food Packing Co. and Singapore’s Olam International Ltd. a year. The country produces 1.5 million tons of tomatoes annually of which about 900,000 tons rot, Agriculture Minister Akinwunmi Adesina said at a June 13 presentation in the capital, Abuja.
Annual consumption is about 900,000 tons. Tomatoes feature in popular Nigerian dishes like Suya, a spicy northern delicacy of meat kebabs with raw tomatoes, as well as a tomato stew eaten with rice, beans, yams and cassava dough.
Dansa Holdings Ltd., a unit of Dangote Group, the company that accounts for the bulk of Aliko Dangote’s $19.9 billion wealth, took up the project after a a failed attempt to get importers including Olam, Conserveria Africana Ltd. and Chi Group Ltd. to form a venture. The plant is expected to start by November and will produce more than 400,000 tons of tomato paste annually. Most of its tomatoes will come from farmers in Kadawa Valley.
Farmers will receive a guaranteed price of about $700 per ton compared to an average of less than $350 now, the central bank said.
Dangote, the world’s 32nd richest man according to the Bloomberg Billionaires Index, owns businesses including flour mills, fruit canning plants and palm oil refineries. He also owns cement, salt and oil assets. He was born in Kano.
“It’s a win-win situation. We have a price we can compete with and the farmer has a price that makes the tomato a good value,” said Sani Dangote, vice president of Dangote Group and a brother of Aliko Dangote, in a June 18 interview in Abuja. “It’s only agriculture that can take poverty away overnight because it doesn’t take long for the farmer to see the results and reap the rewards.”
While agriculture accounts for more than 40 percent of the economy of Africa’s biggest oil producer, most output is by subsistence farmers who eat much of what they grow.
Gross domestic product per capita is $1,436 in the south and $718 in the north, according to Lagos-based Financial Derivatives Co.
Nigeria is now the world’s second-largest importer of rice and sub-Saharan Africa’s biggest wheat and sugar buyer.
Farmers in northern Nigeria once grew cotton, peanuts, cowpeas and rice for export. Half of Nigeria’s 160 million people dwell in rural areas and four-fifths of those live on less than a dollar a day, according to the United Nations’ International Fund for Agricultural Development.
Nigeria attracted agricultural investment worth more than $8 billion in the past 18 months, Adesina said. Still, only 40 percent of its 21 million hectares (51.9 million acres) of arable land is cultivated.
“Our strategy is to change the face of the north,” Adesina said. “We’re using agriculture for poverty reduction; our intention is to create wealth.”
Key to the government’s plan to end rice imports, now costing 1 billion naira ($6.2 million) a day, by 2015 and expand crop exports, is a central bank plan to channel credit to agriculture.
The Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending, or Nirsal, a unit of the Central Bank of Nigeria, which carried out the tomato study, also provides credit guarantees to enable banks to lend to farmers, Jude Uzonwanne, its head and a former consultant at Boston-based Monitor Group, said in an interview in Abuja.
At Kadawa, Nirsal determined that “about 8,000 farmers producing in about 5,000 hectares needed roughly 4 billion naira in working capital,” he said. It also established a farm office of agronomists and managers “to run all the middle mechanics between growing crops and delivering to the Dangote factory.”
Nirsal has the mandate to guarantee as much as 75 percent of loans to agriculture. Since giving its first cover for a loan by Sterling Bank in July last year, it has gone on to work with most lenders in Nigeria, according to Uzonwanne. By April, it had issued guarantees for loans worth 25 billion naira, covering an average of 57 percent of lending, he said.
Apart from tomatoes, Nirsal has provided similar guarantees for producers of cassava chips, rice, soybeans, cocoa and leather.
Loans to agriculture as a share of total credit rose to 3.8 percent in February from 1.5 percent in December 2009, according to figures released by the Bankers’ Committee. The central bank has set a target of 10 percent of all loans to agriculture by 2016.
Dansa expects to produce enough tomato paste for both the local market and export, Sani Dangote said.
Chinese exporters to Nigeria have responded.
“We’ve seen prices prices from China drop 30 percent in the light of our plan,” he said. “Everyone in the tomato world is aware of our project.”
For Ibrahim these developments mark a turn of fortune.
“Before the price of tomatoes would keep going down because all the farmers sell at the same time,” he said. “With the coming of the Dangote factory, prices won’t go down that way any more. We can be sure of a stable income.”
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