The advent of the Buhari/Osinbajo administration has seen Nigeria attempt to diversify the focus of its economy from a predominantly crude – oil based economy to an agrarian one. To this wit, we have seen the administration grant concessions to revive and promote agriculture as a mainstay of the Nigerian economy.
This move on the part of the Nigerian government, has seen a large influx of investors into the sector, with success stories such as the collaborative LAKE rice between the Lagos and Kebbi State Governments.
Although well intentioned, for every one of these investments that succeeds, a hundred more has failed. Therefore, considering the frequency of failed investments, here is a preliminary guide worthy of consideration before investing in an agribusiness in Nigeria.
1. Choosing an Agribusiness
The first factor you need to consider is deciding the area of agriculture to invest in. This is the foundation of your foray into agribusiness, and it is upon this foundation that every other activity and effort is built.
As a potential agribusiness owner, it is not sufficient to venture into an area of agribusiness because other agribusiness owners have been successful in it. Rather, it is vital that you consider if that particular agribusiness is the right fit for you, if you have enough resources to establish same, if there is sufficient demand for the agribusiness and if you have the adequate capital and skill to ensure a smooth operation and management of the agribusiness.
Whether you decide to venture into crop farming or animal husbandry, it is important for you to conduct a thorough and independent research to make the best decision.
The next step is to source for business capital. For the uninitiated, capital in its simplest form, is the amount of money you need to start and sustain a business. The operative word being “sustain’’.
Many agribusiness owners do not source for sufficient capital from the onset and then get crushed by the demand for capital midway.
To ensure the longevity of your agribusiness, there must be a projection of your operating costs to start the agribusiness and for a considerable period thereafter. It is important to have a clear picture of your source of capital to ensure the overall success of the business.
You may source for capital from your personal savings, sale of personal assets, loans from friends and family, loans from banks, loans and grants from government agencies providing support to small and medium scale businesses or special loans and grants from government reserved for agribusiness.
3. Site Selection
Depending on the agribusiness, the factors you need to consider when choosing a site include suitability of the site for its intended purpose, for example, if your plan is to plant maize, you should look out for a fertile plain with loamy soil as against one with clayey soil which is more suitable for planting cabbages.
You should also consider security and access to your site. Security in terms of safeguarding your produce from pests, predators as well as thieves and access in terms of proximity to your target market, having motorable roads as well as the cost and duration of transportation as this will translate to keeping your produce fresh and appealing and ensuring it stays competitive.
The cost of acquiring the site is a significant aspect, the site may be self-owned, leased on a long or short term basis or leased on a temporary basis (for those who are granted occupation by the landowner at no cost to prevent encroachment).
The location of your site will determine how beneficial same will be to your operations, if you acquire a site to operate a poultry or piggery business in a residential area or estate, you may have to contend with constant interruptions, complaints from homeowners within the area due to air, noise and water pollution generated from your business. Essentially, you must certify that your agribusiness will not conflict with any area association regulations which are against your specific type of business or commercial activities generally.
Agricultural inputs such as shoot and seeds in the case of crop farming and stock in the case of animal husbandry are very important to the quality of output of the business.
Your primary concern when purchasing input should not be motivated by low cost as poor input will invariably churn out bad output which can lead to a loss of your entire investment. Therefore, identifying where to get the best agricultural inputs before planting or stocking successfully guarantees that all things being equal you are sure to expect quality output. This protects and secures your agribusiness investment in the long run.
5. Off takers
This is a very important factor, if not the most important factor to consider when investing in an agricultural business. Off-takers are persons who buy the finished product from the producer. You need to consider whether there is a demand for your produce or product in the market and whether or not the market is over-saturated with your produce or product. Identifying these factors will help you create a clear and defined channel of supply to your target market.
For example, breeding catfish to sell either fresh or smoked has been the norm however it is now common to find smoked and packaged catfish on supermarket shelves which takes the product from the agribusiness owner directly to the consumer thereby eliminating the middle man in open markets.
Innovative supply strategies such as these are best formed before going into the business to better guarantee a successful turnout. However, failure to do so, increases your chances of a loss of investment due to spoilage and deterioration.
6. Regulatory Landscape
This is another critical factor agribusiness owners or investors overlook. Just like in any other sector, failure to pay attention to applicable legislations can make or mar investments in agribusiness. As an investor, you should be conversant with the legislations regulating your intended area of agribusiness before you proceed to invest. Ask yourself questions like: are there legislations restricting you from taking certain actions? Are there legislations conferring certain benefits on you?
An example of this factor in play, is the closure of Nigeria’s land borders to trade imports in August 2019. Following the Federal Government order, the demand for locally produced rice which was usually considered by consumers as a distant substitute for the imported rice, rose to an all-time high thereby increasing profit and validating the choice made by an investor to invest in local rice production.
Conversely, if and when the Federal Government opens the land borders to trade, the demand for locally manufactured rice may fall given the availability of the preferred imported rice and this may occasion loss of profit or loss of investment to the investor.
Therefore, to sustain a successful agribusiness, attention needs to be paid to existing legislations and changes to same.
7. Business Entity
The business model and corporate structure an investor wishes to operate determines the corporate vehicle the investor will deploy in respect of the business. It may be registered as a Business Name, a Limited Liability Company, a Limited Liability Partnership or a Limited Partnership and each type of entity has its benefits and shortcomings.
It is important to determine this prior to making an investment, to save cost and facilitate the smooth operation of the business. For example, if you have decided to source funds for your agribusiness from government grants or bank loans, your application will have a higher success rate if you have chosen a limited liability company as opposed to a registered business, so rather than lose the opportunity and fail to meet the requirements, this decision should be taken before hand to save cost and time.
In conclusion, whilst the above highlighted factors are not exhaustive, they will go a long way in helping you avoid most of the pitfalls of starting or investing in an agribusiness.
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