Regius Capital Limited has identified a critical disconnect between the surge in agricultural financing in Nigeria and the actual growth in the sector’s productive capacity over the last five years.
The firm’s latest sector commentary, titled “Financing Nigeria’s Agriculture: What Five Years of Credit, Capital and Output Data Reveal,” suggests that while more capital has flowed into the agricultural space, the expected leap in output and industrial efficiency has remained elusive.
The report arrives at a time when the Nigerian government is aggressively pursuing food security to combat soaring food inflation. The findings indicate that simply increasing the volume of credit is insufficient to move the needle on productivity if structural bottlenecks remain unaddressed.
The Credit-Productivity Paradox
For several years, the Nigerian agricultural landscape has been characterised by an influx of intervention funds, primarily driven by the Central Bank of Nigeria (CBN). These funds were designed to transition the sector from subsistence farming to a commercially viable industry capable of reducing the country’s heavy reliance on food imports.
Regius Capital’s analysis focuses on the gap between formal credit disbursement and the resulting output. According to the report, the growth in credit has not been matched by a corresponding increase in the yield per hectare or the overall productive capacity of the farming population.
This disconnect suggests a productivity paradox where the availability of capital does not automatically lead to efficiency. The report indicates that much of the financing may have been absorbed by operational costs or leaked through inefficiencies rather than being invested in high-impact capital expenditures, such as advanced irrigation, mechanisation, or high-yield seed varieties.
The lack of growth in productive capacity is particularly concerning given the scale of the financial commitments made through various state and federal interventions. When capital is deployed without a measurable increase in output, the cost of production rises, often leading to higher food prices for the end consumer despite the increased funding.
The Legacy of Interventionist Financing
A significant portion of the agricultural finance discussed in the report relates to the era of interventionist monetary policy. The Central Bank of Nigeria operated several schemes, most notably the Anchor Borrowers’ Programme (ABP), which aimed to provide loans and inputs to smallholder farmers while linking them to large-scale processors, or “anchors.”
While the ABP succeeded in increasing the volume of credit reaching the grassroots, it faced systemic challenges. Regius Capital’s data points to a trend where the focus was often on the disbursement of loans rather than the sustainability of the production cycle. High default rates became a recurring theme, as many farmers struggled with crop failure, poor market access, or the lack of technical support to implement modern farming techniques.
The report suggests that the reliance on government-backed credit created a distortion in the market. Commercial banks became hesitant to lend to the agricultural sector on a purely commercial basis, preferring the safety of government-guaranteed intervention funds. This reliance stunted the development of a robust, market-driven agricultural credit market where loans are priced based on risk and productivity rather than policy mandates.
Structural Barriers to Capacity Growth
Regius Capital identifies several systemic hurdles that have prevented financing from translating into productive capacity. Chief among these is the persistent issue of insecurity. In the North-Central and North-West regions, which are the breadbaskets of the country, banditry and farmer-herder conflicts have displaced thousands of farmers.
When farmers are forced to abandon their lands, the capital invested in those farms—including seeds, fertilisers, and machinery—is lost. Financing in such an environment becomes a gamble rather than an investment, as the risk of total loss outweighs the potential for yield growth.
Infrastructure also remains a primary bottleneck. The report highlights that without adequate cold-chain storage and efficient transport networks, a significant portion of the increased output that does occur is lost to post-harvest wastage. In many cases, Nigeria loses up to 40% of its perishable produce before it reaches the market. Consequently, increasing the amount of money spent on planting does not necessarily increase the amount of food available for consumption.
Furthermore, the cost of inputs has been severely impacted by currency volatility. The devaluation of the Naira has made the importation of tractors, specialised fertilisers, and improved seeds exponentially more expensive. This means that a loan that would have purchased five tractors five years ago may now only cover two, effectively eroding the real value of the credit flowing into the sector.
The Risk Profile of Nigerian Agribusiness
The report delves into why formal financial institutions remain wary of the sector. Agricultural lending is inherently risky due to biological factors, weather unpredictability, and price volatility. In Nigeria, these risks are compounded by poor land tenure systems and a lack of reliable credit scoring for smallholder farmers.
Regius Capital notes that for financing to drive productive capacity, there needs to be a shift toward “smart capital.” This involves investing in AgTech solutions that can track crop health, provide weather forecasts, and verify the identity and productivity of farmers. By reducing the information asymmetry between the lender and the borrower, the cost of credit can be lowered, and the quality of investment can be improved.
The report also emphasises the need for stronger off-take agreements. When farmers have guaranteed buyers at a fair price, the risk of loan default drops, and the incentive to invest in higher-capacity production increases. However, the current market is fragmented, with too many middlemen capturing the value while the producer remains underfunded and under-productive.
Implications for Future Policy
The findings by Regius Capital suggest a necessary pivot in how the Nigerian government and private investors approach agricultural finance. The era of simply “spraying” credit across the sector is proving ineffective.
Instead, the report advocates for a targeted approach that prioritises value-chain integration. This means focusing financing on the segments of the chain that offer the highest multiplier effect on productivity, such as processing hubs and logistics infrastructure, rather than focusing solely on the planting phase.
The National Bureau of Statistics has consistently shown that agriculture contributes a significant portion of Nigeria’s GDP, yet the sector remains largely inefficient. To close the gap between finance and capacity, the report suggests that credit must be tied to strict productivity milestones and technical support.
Investors are encouraged to look beyond government interventions and explore blended finance models, where philanthropic or public capital is used to de-risk private investments. This could attract more institutional capital into the sector, providing the long-term, patient funding required for structural transformation.
As Nigeria continues to grapple with food insecurity, the Regius Capital report serves as a warning that credit is a tool, not a solution. Without solving the underlying issues of security, infrastructure, and technical capacity, the influx of capital will continue to yield diminishing returns.
The next phase of Nigeria’s agricultural evolution will likely depend on the ability of the government to transition from a lender of last resort to a facilitator of a competitive, market-led agribusiness ecosystem. The focus must shift from how much money is lent to how much food is produced per Naira spent.
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