Following the Federal government’s approval in July 2024 of a 150-day duty-free window to facilitate the importation of maize, husked brown rice, and wheat as part of efforts to address escalating food inflation, the Nigeria Customs Service issued additional guidelines for implementing the policy.
These guidelines include a directive that 75% of the imported commodities be traded through exchanges.
Nairametrics is dedicated to helping our audience understand these policy announcements, their implementation, and the likely impact on the relevant sectors.
In this context, we spoke with Mr. Ayodeji Balogun, Group CEO of AFEX Commodities Exchange Limited.
Enjoy the conversation.
NAIRAMETRICS: Could you provide a brief background on Mr. Ayodeji Balogun and his vision for AFEX?
Ayodeji Balogun: With almost twenty years of experience trading across West Africa as well as in building and scaling businesses across Sub-Saharan Africa, Ayodeji Balogun is the Group Chief Executive Officer (GCEO) of AFEX, where he is leading a team of experts leveraging technology, innovative finance, and inclusive agriculture to connect agriSMEs and smallholder farmers to commodity and financial markets.
His vision for AFEX is intrinsically linked to the organization’s core vision to enable Africa to sustainably feed itself by deploying capital, storage and investment resources to boost productivity across the supply chain.
He holds an MBA from Lagos Business School and a certificate in Creative Leadership from the THNK School of Creative Leadership.
He has also graduated from the Global CEO – Africa program of IESE Business School, and the Managing Fast Growing Companies Executive Program of the Stanford Graduate School of Business.
NAIRAMETRICS: Could you tell us more about AFEX Commodities Exchange and its role in enhancing the efficiency of the agricultural value chain?
Ayodeji Balogun: It is no news that Nigeria and the greater African continent face core food security challenges that threaten about 1 million households today. According to FAO, about 258 million people will face food insecurity in 2022, and this number is projected to reach about 660 million by 2030 unless steps are taken to increase food accessibility and affordability.
Our approach to solving food insecurity is through our three-pronged operation spread across creating infrastructure, access to capital and markets for stakeholders.
For one, our physical infrastructure services allow us to provide aggregation and storage as a service for farmers and agri-service providers, and the clear implication of solving for infrastructure first helps to drastically reduce post-harvest losses, which today is one of Nigeria’s largest problems, as Nigeria loses NGN3.5 trillion naira worth of produce annually due to poor storage facilities.
Additionally, by connecting farmers to formal markets, we have been able to reduce bottlenecks along supply and demand chains. Through our digital trading platform, we have created a marketplace for buyers and sellers to trade and invest in commodity-backed investment contracts. Our solutions enable price transparency and standardization, boost export confidence, promote quality, provide better access to markets, and reduce the exploitation of farmers.
Finally, and usually, the first contact with farmers, processors and more, is through the provision of capital. For farmers, our input disbursement program allows us to provide essential productivity drivers such as quality seedlings and fertilizers for smallholder farmers, and what we have achieved through this program is increased the productivity and knowledge capacity of farmers, while driving their baseline yield from 0.6 MT/ha, which is 40% lower than the FAO average yield in Nigeria, to over 2.5 MT/ha, which again supports demand network.
NAIRAMETRICS: In July 2024, the Federal Government introduced a 150-day Duty-Free Import Policy aimed at addressing current food inflation challenges. Can you explain what this policy entails and how it is expected to impact the economy?
Ayodeji Balogun: Food insecurity in Nigeria has steadily progressed over the past two years, with each year recording all-time high numbers of Nigerians thrust below the food security line.
The Global Hunger Index places 20% of Nigeria’s population as undernourished. The relationship between the hunger situation in Nigeria and its corresponding state of agriculture is one of cause and consequence, where the lack of attention paid to the sector has created a ripple effect where Nigerian households are unable to sustainably feed themselves.
In response to this, as you are aware, is the 150-day waiver on import duties for maize, husked brown rice, and wheat to support measures driving down food inflation.
The policy focuses on essential goods that have seen significant price increases due to a variety of factors, including local production challenges, and broader inflationary pressures.
By suspending import duties, the government aims to reduce the cost of importing these critical items, with the expectation that this will lead to lower retail prices in the domestic market.
The hope is that this reduction in costs will provide much-needed financial relief to consumers, particularly those in lower-income brackets who are most affected by rising food prices.
The expected economic impact of this policy is multifaceted. In the short term, the reduction in import costs is likely to help control food inflation, which has been a significant contributor to the overall inflation rate in Nigeria.
By making essential goods more affordable, the policy could stabilize or even reduce inflation, thereby easing the financial strain on households. This immediate relief is critical for improving the purchasing power of Nigerians during a period of economic uncertainty.
However, the policy also raises concerns about its potential impact on local producers. By making imported goods cheaper, there is a risk that local farmers and producers could face increased competition, potentially harming their market share and profitability during the duty-free period.
This could have longer-term implications for the agricultural sector and the overall economy.
NAIRAMETRICS: In line with this policy, what role will AFEX play, particularly regarding the directive that 75% of the imported commodities should be traded through exchanges?
Ayodeji Balogun: First off, it’s important, I would say, within the scope of this policy direction, for clients and potential stakeholders, to understand the benefits of an exchange model as a facilitator. The model places emphasis on market access & Liquidity, price discovery & transparency, standardization and effectiveness, which significantly lowers transaction costs.
Now speaking to our role, foundationally, we are a commodities exchange, and we sit in the middle where buyers and sellers operate, we are neither buyers nor sellers. Our job is to facilitate trade.
I will also say that exchanges have a crucial role in executing this policy, considering that exchanges are built on transparency and effectiveness.
Our trading platform prioritizes fair pricing and transparency, and we have layered efficient technology to ensure that market players have access to relevant data and historical to make trading decisions. In addition to this, we have, over the years, honed liquidity on the exchange by deploying market makers to ensure that buyers and sellers meet and effectively trade.
NAIRAMETRICS: What, in your opinion, influenced the decision of the Nigerian Customs Service (NCS) to mandate that imported commodities be traded through exchanges? How can this model enhance the efficiency of the commodities market and support the agricultural value chain?
Ayodeji Balogun: I think fundamentally the answer to the question on the NSC’s motivation is implied in what exchange models bring to the commodities trading ecosystem, and as earlier mentioned, the foundation of the model’s success is tied to four main features: Efficiency and Cost reduction, Standardization and Regulation, Price discovery and Transparency, and Market access.
The policy states that these commodities are to be imported in their semi-processed states, e.g paddy rice, wheat husks and exchanges already largely hold both parties within a single trade structure, on their platforms, so the existing liquidity and market movement makes for a seamless environment to trade.
The exchange model is fundamental to modern trading, offering numerous benefits that enhance the efficiency, transparency, and security of markets. By providing that centralized platform for trading, exchanges play a critical role in the global economy, driving innovation, liquidity, and economic growth.
NAIRAMETRICS: What is the potential impact of the duty waiver on the market and the agricultural value chain, particularly from the perspectives of farmers, processors, and consumers?
Ayodeji Balogun: On a very surface level, this sets a foundation to drive down market prices, however, certain conditionalities must exist for us to classify the policy as successful, and much of it has to do with timing.
The way a cycle works is that rains start at a certain time of the year; farmers plant and harvest at a certain time of the year and whatever is done at a certain month of the year has huge implications on harvest. Speaking to this policy, it is important that these imports be made on time, specifically before harvest season, or we risk a situation where farmers harvest and are unable to offload to processors because significant capital and storage investments have been made. This may potentially result in a glut, crashing prices and reducing farmer income for refinancing the next harvest season, resulting in a cycle of low financing, low productivity.
Alternatively, a win-win situation emerges where stakeholders take advantage of the window and begin importation of food items and can immediately process and distribute. Already, the late rains have pushed back harvest by about 2 months, partly caused by changing rainfall patterns, and this presents an opportunity for the value chain to run smoothly and further close the large supply gар.
NAIRAMETRICS: The policy includes strict criteria for companies to qualify for the duty waiver, such as the ownership of milling plants and farmland. How might these requirements affect your clients within the AFEX ecosystem?
Ayodeji Balogun: The policy criteria were set up to make sure that it fulfils the purpose of the waiver which is not necessarily directed at clients already in our ecosystem, but what it does is put in a structure for players across the impacted value chains to alleviate supply pressure.
Our Exchange platform comes in at the point of trade to introduce much-needed efficiency into the entire process but to also allow data to be gathered through the period to set us up for better future responses.
NAIRAMETRICS: Nigeria has consistently emphasized self-sufficiency in food production. How do you reconcile the recent duty-free import policy with the government’s earlier stance on promoting local agriculture? Could this move potentially undermine local agriculture, your Exchange, and its investors?
Ayodeji Balogun: It’s still largely a question of timing and Nigeria contending with numerous agriculture sector challenges that definitely are limiting productivity. It remains important for us to continue to bring that productivity up and increase supply for key staple crops, but what we’ve always seen are multiple interventions being pursued by the government to improve supply.
The key to balancing these interventions is then access to data that enables us to continue to have a free market with interventions made on the back of available data that enable us to strengthen our food security position from season to season.
NAIRAMETRICS: Under the new arrangement, imported food commodities will be subject to a Recommended Retail Price (RRP). How do you foresee this affecting market pricing strategies, and what challenges might arise in enforcing these prices?
Ayodeji Balogun: As an exchange, we are dispassionate on this topic because our role is facilitating trade, but I do think it bears repeating that the government’s policy direction for food security has been aimed at immediate relief, and an RRP if implemented, maybe an extension of that.
Foundationally, an RRP is intended to stabilize the prices of essential food items in cases of extreme inflation and hardship, forcing retailers to align their pricing strategies with government-mandated prices.
This could potentially prevent excessive price inflation in the short term and create a more level playing field, as retailers may have less room to compete based on pricing alone. Instead, they might focus on other strategies such as improving product quality or offering better customer service.
NAIRAMETRICS: The duty waiver is set to last for 150 days. What are your thoughts on the sustainability of this measure beyond the initial period? Should the government consider extending this policy, or are there alternative strategies that could be more effective in the long term?
Ayodeji Balogun, Group CEO:
The policy is a necessary intervention for where the market currently is. A huge supply gap and delayed rainfalls resulting in late harvest puts us at risk of further increasing the demand/supply gap that already is in a precarious situation. Short term, this policy will close that supply gap, but a better question or strategy that yields long-term sustainable results involves strong investments in national grain reserves can help stabilize food prices and ensure availability during lean seasons.
Infrastructure development is another critical component. Investing in modern storage facilities and technologies will reduce post-harvest losses, which currently result in significant food waste. Improving rural road networks will enhance access to markets, reduce transportation costs, and increase farmers’ profitability.
Agricultural support programs are vital for increasing production and improving food security. By providing farmers with access to affordable inputs such as fertilizers, seeds, and credit, they can boost productivity. Training and capacity-building programs will further empower farmers by teaching them modern agricultural practices and post-harvest management techniques.
Policy and regulatory frameworks should focus on incentivizing sustainable farming practices, such as crop rotation and agroforestry, to build resilience against climate change. Long-term sustainability initiatives, including investment in agricultural research and the promotion of climate-smart agriculture, are essential for developing climate-resilient crop varieties and improving soil and water management.
Finally, multi-stakeholder collaboration is crucial. Public-private partnerships can pool resources and expertise, while community engagement ensures that food security strategies are tailored to local needs. By integrating these immediate and long-term strategies, Nigeria can establish a robust food security framework that addresses current challenges and builds resilience against future threats, ensuring access to sufficient, safe, and nutritious food for all Nigerians.
NAIRAMETRICS: Finally, what are your thoughts on improving the efficiency of the agricultural value chain, and how can the AFEX Exchange contribute towards ensuring Nigeria’s food security?
Ayodeji Balogun: Solving Nigeria’s food security challenges certainly requires concerted efforts from multiple stakeholders, and it bears saying that our food insecurity is a multifaceted problem and so any solution must also be multifaceted, targeting blind spots within the value chain.
For one, it’s important that we improve on data and investment around data. Going a step further from this being able to act on what the data says, from a policymaking angle, for governments and a portfolio angle, for potential agriculture investors.
Data helps us to be able to predict what weather patterns will be. We know the fertilizer consumption compared with the previous years, so, before we even start harvesting, we can estimate what the crop performance is here to date. With these data points, we can triangulate and see if we are likely to have baseline production plus or minus a certain range, and then based on that, start to plan and advocate.
Another thing we must solve for is low productivity, a baseline challenge that snowballs into post-harvest losses. Already, we are financing over 500,000 farmers, providing input, storage and extension services to help them boost production and manage post-harvest losses.
It’s interesting to note how much post-harvest losses contribute to our supply problem; for instance, in 2022 the value of our food imports was N1.9trillion, and by contrast, the value of post-harvest losses in the same year was N3.5trillion.
A core focus for us as a market player is to create an enabling environment for efficient trading, and the execution of this goal requires us to work across the value chain providing credit and lifelines to these players to ensure the market moves. With a strong warehouse network in over 32 states in Nigeria, we are building the infrastructure to scale agriculture.
Before a farmer would lose 20%-30% of his harvest due to improper storage, we take the burden and risk of storage off the farmers. Layered over this is our work in bridging the financing gap for these disenfranchised groups. We offer warehouse receipt financing, allowing farmers to use their stored grains as collateral to secure a loan almost instantly.
Through our integration with several banks and advanced technology, farmers can deposit their grains in the morning and obtain a loan within minutes. By investing across these core areas, we can help stabilize food prices, reduce post-harvest losses, and enhance overall food security.
Leave a Comment