Agricultural logistics services
Agricultural logistics services
Business Model Description
Provide logistics services to connect smallholder farmers with the nearest processing/storage facilities, and offer online payments with the possibility to schedule pick-up services for products.
Expected Impact
Increase value added in food chains, strengthen economic growth and generate decent jobs.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Nigeria: North West
- Nigeria: North East
- Nigeria: North Central (Middle Belt)
Sector Classification
Food and Beverage
Development need
About 25.5% of Nigeria’s population lacks adequate and improved nutrition.(1) Similarly, data from the National Bureau of Statistics suggests 26.4% of the population experienced severe food insecurity in 2016.(1) The Sustainable Development Report ranks Nigeria number 48.0 for SDG 2 (Zero Hunger). While performance against this Goal has improved, major challenges persist.(2)
Policy priority
The government intensified efforts to improve agricultural yield, and investments aim to improve agricultural infrastructure.(1) Policy priorities outlined in the Economic Recovery and Growth Plan aim to: increase agricultural GDP (gross domestic product) to NGN 21.0 trillion in 2020 at an average annual growth rate of 6.9%; reduce food imports; and become a key exporter of agricultural products.(3)
Gender inequalities and marginalization issues
Agriculture and trade account for the majority of Nigeria's employment opportunities. Most people in these sectors work informally (92% of those employed in agriculture, and 56% of those employed in trade), and so rely on daily wages. Generally, informal workers have no pension or life insurance, and have limited health insurance coverage. They are more exposed to shocks, especially to their health, and are vulnerable to poverty and hunger. Micro, small and medium enterprises (MSMEs) are most likely to be affected by the upcoming recession, and will take longer to overcome the economic impacts of COVID-19.(4)
Investment opportunities introduction
The government is also considering strategies such as providing irrigation infrastructure to enable year-round production to boost agricultural productivity.(3)
Key bottlenecks introduction
The Sustainable Development Report ranks Nigeria number 48.0 for SDG 2 (Zero Hunger). While performance against this Goal has improved, major challenges persist.(2)
Food and Agriculture
Development need
In 2018, agriculture accounted for 21.2% of Nigeria's GDP (gross domestic product) and employed two-thirds of the working population.(3) Indicators of adult obesity have improved, while indicators of undernourishment have underperformed. Prevalence of stunting in children is falling.(5)
Agricultural Products
Pipeline Opportunity
Agricultural logistics services
Provide logistics services to connect smallholder farmers with the nearest processing/storage facilities, and offer online payments with the possibility to schedule pick-up services for products.
Business Case
Market Size and Environment
3 million farmers are not connected to transportation services.
Agriculture accounts for the largest sector of Nigeria’s economy, employing over one-third of the working age population.(6)
96% of agricultural producers have access to transportation services, leaving nearly 3 million farmers unconnected.(7)
Smallholder farmers account for 88.4% of all farmers in Nigeria.(8) According to a FAO (Food and Agricultural Organization of the United Nations) survey, all smallholder farmers use informal channels to sell at least part of their produce. 94% of those smallholders also sell at least some of their crops at local markets.(8)
Indicative Return
> 25%
20% - 25%
A benchmark company from Ghana, AgroCenta, is expected to have an internal rate of return on investment of approximately 30%.(9)
The estimated return rate for investors is 19.5% - 23.5%. This rate is a benchmark calculated as cost of equity with a country risk premium, reflecting an average return required by investors active in the transportation and logistics subsector.(10)
Investment Timeframe
Medium Term (5–10 years)
Based on a sectoral statistics for transportation and logistics, the investment period is estimated as 5-15 years.(10)
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Capital - Limited Investor Interest
Market - trust in the market
Impact Case
Sustainable Development Need
43.5% children under the age of 5 in Nigeria suffer from malnutrition.(16) Improving access to food could contribute to solving this issue.
The majority of rural communities lack the logistics necessary to deliver their produce to aggregation points. Logistics services are costly, and aggregation and storage centers are scattered around the country, so much of the agricultural yield is lost, consumed locally or does not undergo value adding.
Approximately 70% of the fresh agricultural produce becomes spoilt during road transportation.(17)
Gender & Marginalisation
COVID-19 deepened food insecurity for the already troubled Nigerian population.(17) Over half (53.5%) of people live below the absolute poverty line of USD 1.90 per day(18), and are therefore particularly vulnerable to food insecurity.
A rise in food prices caused by COVID-19 has exposed many more millions of people to food insecurity, heightening the need to maximize productivity and minimize food losses.
Expected Development Outcome
Investments could improve food security and decrease food waste. It could also reduce logistics costs that save farmers money, which translates as a cheaper product price per unit.
Investments could reduce poverty levels due to higher supply of agricultural products, and increase cash inflows through exports by improving the trade balance.
Investment may help overcome trust issues between farmers and processors.
Gender & Marginalisation
Economic Recovery and Growth Plan (NERGP) 2020 target for female population that owned agriculture: 80.8%. SDG target by 2030: 100%.(26)
Primary SDGs addressed
2.1.1 Prevalence of undernourishment
2.1.2 Prevalence of moderate or severe food insecurity in the population, based on the Food Insecurity Experience Scale (FIES)
2.2.1 Prevalence of stunting (height for age <-2 standard deviation from the median of the World Health Organization (WHO) Child Growth Standards) among children under 5 years of age
2.2.2 Prevalence of malnutrition (weight for height >+2 or <-2 standard deviation from the median of the WHO Child Growth Standards) among children under 5 years of age, by type (wasting and overweight)
25.5% in 2015.(27)
Moderate: 26.4%. Severe 19.6%.(27)
37.4% in 2015.(26)
16.4% in 2015.(26)
Derived ERGP (Economic Recovery and Growth Plan) target by 2020: 17%, by 2030: 0. (27)
Derived ERGP (Economic Recovery and Growth Plan) target by 2020: 17.6%, by 2030: 0.(27)
Derived ERGP (Economic Recovery and Growth Plan) target by 2020: 18.7%, by 2030: 0. (26)
Derived ERGP (Economic Recovery and Growth Plan) target by 2020: 10.9, by 2030: 0. (26)
12.3.1 (a) Food loss index and (b) food waste index
N/A
N/A
Secondary SDGs addressed
Directly impacted stakeholders
People
Corporates
Outcome Risks
Investments may redistribute food away from regions threatened by hunger, leaving insufficient food and also causing potential food waste.
Investments may increase pollution from increased transportation.
Impact Risks
Efficiency risk given these models are usually scaled using concessional financing.
Stakeholder participation risk given land use issues may arise after agricultural production reaches large scale.
Unexpected impact risk given the negative effects of agricultural production especially on biodiversity.
Impact Classification
What
Improving transportation and connectivity between agricultural producers and silos/processing facilities can strengthen the value chain and increase farmers' and processing companies' income.
Risk
Although this IOA has been implemented in some regions of Nigeria, the current quality of roads and number of available trucks threatens the range of offered services.
Impact Thesis
Increase value added in food chains, strengthen economic growth and generate decent jobs.
Enabling Environment
Policy Environment
Anchor Borrowers Programme (ABP): This government intervention fund operates through the Central Bank of Nigeria. Its main goal is to reduce post-harvest losses, which currently contribute to high default rates in loan repayments by smallholder farmers.(19)
Anchor Borrowers Programme (ABP): ABP supports aggregation points and storage infrastructure in designated local government areas of each state. It aggregates produce when smallholder farmers within commodity associations or cooperatives bring their yields to the aggregation points.(19)
The sector is mostly evaluated at a regional level, so state governments play an important role in supporting agricultural development through: counterpart funding, extension services, support to the International Fertilizer Development Center (IFDC) in identifying farmers, and available storage facilities in local government areas and village levels.(20)
Financial Environment
Financial incentives: Central Bank of Nigeria/Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) cooperation provides the following incentives: financing to agricultural companies, dealers, farmers etc., investment in the sector through access to credit, and single digit interest rates.(22)
Fiscal incentives: Agricultural companies are exempt from income tax for 5 years. Incentives are available for companies located in rural areas, including tax reductions for enterprises located at least 20 km from available electricity, water and tarred roads.(23)
Regulatory Environment
The National Agency for Food and Drug Administration and Control (NAFDAC) is the regulatory body responsible for regulating and controlling food product manufacturing, importation, exportation, advertisement, sale and distribution in Nigeria. This includes food handling, transportation and storage.(21)
NAFDAC regulates food production under the provisions of Act No 19 of 1993 (as amended) and the Food and Related Products (Registration) Act No. 20 of 1999.(21)
Marketplace Participants
Private Sector
Standard Chartered, Crop2Cash, Verdant, Sahel Capital, OLAM, Nasco, Nestle
Government
Federal Ministry of Agriculture, Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), Central Bank of Nigeria
Multilaterals
African Development Bank (AfDB), World Bank, USAID, International Fund for Agricultural Development, Cultivating New Frontiers in Agriculture (CNFA)
Non-Profit
International Fertilizer Development Center, Alliance for a Green Revolution (AGRA), Acumen Fund
Public-Private Partnership
Africa Agriculture and Trade Investment Fund (AATIF)
Target Locations
Nigeria: North West
Nigeria: North East
Nigeria: North Central (Middle Belt)
References
- (1) Federal Republic of Nigeria (2017). Implementation of the SDGs: a national voluntary review. https://sustainabledevelopment.un.org/content/documents/16029Nigeria.pdf
- (2) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G. (2019). Sustainable Development Report 2019. New York: Bertelsmann Stiftung and Sustainable Development Solutions Network (SDSN).
- (3) Federal Republic of Nigeria (2017). Economic Recovery and Growth Plan 2017 - 2020. Abuja: Ministry of Budget and National Planning.
- (4) Dalberg (2020). Charting the future for Africa's largest economy: Economic impact of COVID-19 in Nigeria. https://dalberg.com/wp-content/uploads/2020/04/FINAL_Dalberg-Report-Charting-the-Future-of-Africa%E2%80%99s-Largest-Economy.pdf
- (5) Federal Republic of Nigeria (2011). Agricultural Transformation Agenda 2011.
- (6) PwC (2019). Responding to the Impact of COVID-19 on Food Security and Agriculture in Nigeria. https://www.pwc.com/ng/en/publications/impact-covid-19-food-security-nigeria.html
- (7) Dayo P, Ndirpaya Yarama D (2020). Digitalization in Agriculture, Food and Nutrition - A Case Study of Nigeria. (Forum for Agricultural Research in Africa, March 2020). https://library.faraafrica.org/wp-content/uploads/2020/03/Digitalization-in-Agriculture-Food-and-Nutrition-A-Case-Study-of-Nigeria-.pdf
- (8) Food and Agriculture Organization of the United Nations (2020). FAO in Nigeria, http://www.fao.org/nigeria/fao-in-nigeria/nigeria-at-a-glance/en/
- (9) African Green Revolution Forum (2020). The Agribusiness Deal Room at the 2019 African Green Revolution Forum (AGRF). https://agrf.org/dealroom/wp-content/uploads/2020/07/Agribusiness-Deal_Room-AGRF-booklet_020919.pdf
- (10) PwC analysis based on Prof. A. Damodaran data 2020.
- (11) Ogunleye O, Ajibola A, Enilolobo O and Shogunle O (2018). Influence of road transport infrastructure on agricultural sector development in Nigeria. https://content.sciendo.com/view/journals/jlst/9/1/article-p39.xml?language=en
- (12) World Bank (2019). Future of food: harnessing digital technologies to improve food system outcomes. http://documents1.worldbank.org/curated/en/941601554962010560/pdf/Future-of-Food-Harnessing-Digital-Technologies-to-Improve-Food-System-Outcomes.pdf
- (13) USAID. The digital financial services landscape in Nigeria: enabling market conditions for pay-as-you-go solar. https://www.usaid.gov/sites/default/files/documents/1860/Enabling_Market_Conditions_for_Pay-As-You-Go_Solar_Executive_Summary.pdf
- (14) Central Bank of Nigeria (2013). Financial Inclusion In Nigeria: Issues And Challenges. https://www.cbn.gov.ng/out/2014/rsd/occasional%20paper%20no.%2045%20issues%20and%20challenges.pdf
- (15) World Bank (2019). Future of food: harnessing digital technologies to improve food system outcomes. http://documents1.worldbank.org/curated/en/941601554962010560/pdf/Future-of-Food-Harnessing-Digital-Technologies-to-Improve-Food-System-Outcomes.pdf
- (16) World Bank Database.
- (17) PwC (2019). Responding to the Impact of COVID-19 on Food Security and Agriculture in Nigeria. https://www.pwc.com/ng/en/publications/impact-covid-19-food-security-nigeria.html
- (18) Alkire et al. Charting Pathways out of Multidimensional Poverty: Achieving the SDGs.
- (19) Central Bank of Nigeria (2017). Anchor Borrowers’ Programme Guidelines 2017. https://www.cbn.gov.ng/out/2017/dfd/anchor%20borrowers%20programme%20guidelines%20-dec%20%202016.pdf
- (20) Federal Ministry of Agriculture and Rural Development (2011). Agricultural transformation agenda: we will grow Nigeria’s agricultural sector. http://unaab.edu.ng/wp-content/uploads/2012/10/Agricultural%20Transformation%20Blue%20Print.pdf
- (21) Omojokun, J (2012). Regulation and Enforcement of Legislation on Food Safety in Nigeria. https://www.intechopen.com/books/mycotoxin-and-food-safety-in-developing-countries/regulation-and-enforcement-of-legislation-on-food-safety-in-nigeria
- (22) Federal Ministry of Agriculture and Rural Development (2011). Agricultural transformation agenda: we will grow Nigeria’s agricultural sector. http://unaab.edu.ng/wp-content/uploads/2012/10/Agricultural%20Transformation%20Blue%20Print.pdf
- (23) PwC. Tax summary. https://taxsummaries.pwc.com
- (24) Agronews Nigeria. Nigerian States and Their Agricultural Products. http://agronewsng.com/nigerian-states-and-their-agricultural-products/
- (25) TAK Logistics. About TAK Logistics. https://taklogisticsltd.com/about/
- (26) Federal Republic of Nigeria (2017). Implementation of the SDGs: a national voluntary review. https://sustainabledevelopment.un.org/content/documents/16029Nigeria.pdf
- (27) Federal Republic of Nigeria (2020). Integration of the SDGs into National Development Planning: A Second Voluntary National Review (2020). https://sustainabledevelopment.un.org/content/documents/26309VNR_2020_Nigeria_Report.pdf