By Yinka Kolawole

The Challenge: improving farm productivity Nigeria has 78.5 million ha of cultivable land, but only 33 million ha are currently used for agriculture. Crop yields across the nation have remained relatively stagnant over the past 50 years when compared with yield gains in Asia. Why isn’t Nigeria fulfilling its farming potential?

Agriculture labour is scare, due to the drudgery of manual farm work. This results in lost cropping opportunities; some farmers cannot find labourers for planting, and seasonal demands causes labour cost to rise. Many day labourers lack the incentive or tools to perform the high quality work needed to improve productivity.

Increasing agricultural mechanization is one solution. Nigeria has considerable potential for growth; there is an average of 6.8 tractors per 100 km2 of arable land, compared to 26.9 in Kenya and 195.3 globally. And the potential benefits of using a tractor instead of manual labour are high. It can reduce land preparation costs by 30%, and increase outputs and productivity by making seasonal cropping operations more timely and precise.

The public sector controls Nigeria’s tractor market, resulting in inefficiency and market distortion. Federal and state governments buy tractors to sell at subsidized rates to public agro centres, farmers’ association and other organized buyers.

As a result, private distributors and tractor importers court government purchases to win large contracts. But they lack sales departments or dealership networks. And banks are unwilling to lend money to small buyers, viewing them as too risk prone to repay loans.

Tractor owners often have Insufficient knowledge on how to operate and maintain them, leading to poor performance and mechanical breakdown. The lack of knowledgeable mechanics or spare parts suppliers, especially in rural areas, further limits the tractors’ operational life; only 50% of Nigeria’s tractors are functional.

Agro centres’ tractor hiring services are almost non existent. With many tractors in unusable conditions, where such services are available, political patrons may be favoured, creating waiting lists of many months- little use to poor farmers needing the plant within specified timeframes.

The strategy: Enhance private tractor sale

PrOpCom’s strategy for tractor intervention focuses on developing a private sector sales channel that will equip private tractor service providers (TSPs) with new, functional tractors. This sales model linking private sellers to private buyers- aims to provide an alternative to the dysfunctional public schemes upon which TSPs and farmers have depended.

After considering how the tractor and equipment sales system needed to change, PrOpCom tested the concept before seeking sector wide change. PrOpCom partnered with Spring field Agro, the licensed distributor of Mahindra & Mahindra tractors in Nigeria, to develop its private sector sales channel. Next, PrOpCom linked Spring field Agro to a group of private tractors buyers belonging to the Tractors Owner and Operators Association of Nigeria (TOOAN).

PrOpCom and Spring field Agro approached First Bank of Nigeria to develop a lease license product. This facilitates buyers’ access to credit to purchase expensive tractor assets. Working with an organized group of tractor buyers through TOOAN, as opposed to lending to individual buyers, was an acceptable risk for the bank.

PrOpCom linked Spring field, First Bank, TOOAN and the Central Bank of Nigeria under a risk sharing arrangement to support First Bank’s pilot lease finance scheme. This enabled the private sector purchase of 50 tractors across Kaduna, Ogun and Oyo states, the first such private – private scheme in Nigeria.

PrOpCom supported Springfield Agro’s embedded sales service by sharing the cost of a training session for tractor owners on the proper use and preventive maintenance of Mahindra tractors. PrOpCom also helped Springfield Agro to improve its after sales  support structure through specialized training that encouraged Mehindra tractor mechanics to become certified spare parts dealers.

PrOpCom also helped TOOAN’s members achieve greater operational efficiency, for example aggregating tractor service to multiple farmers at remote locations.

EXPECTED IMPACT

This pilot intervention aims to increase the access of 31590 farmers to tractors services , saving them an estimated 30% on manual labour costs. PrOpCom anticipates that 40% of farmers in the south west states of Ogun and Oyo will be able to prepare their land for dry season farming, increase the land under cultivation by 630ha.

Tractor owners’ loan repayment rates are showing strong signs of success. From July 2010 to April 2011, borrowers made 93% of their loan repayments. Of the borrowers in arrears, 82% are only 1- months behind. Given the risk sharing guarantees provided by PrOpCom and CBN as well as the estimated resale value of the tractors in case of default, First Bank’s exposure is 0%.

Already there are signs of broader systemic change occurring in the tractor leasing market. First Bank now aims to sell 500 tractors across Nigeria through private sector lease arrangements.

The pilot proves that the concept works. PrOpCom has now withdrawn its risk covering support, so that private partners may take up the model on a more sustainable basis. And the farmers are benefitting through reduced labour costs and the ability to increase farming activities to include dry season cropping.

PrOpCom anticipate a direct impact of N54.9 million in increased income for farmers in the first season.