No rush – agbusiness investment should be with caution!

For a long time to come, oil will remain the major source of revenue for Nigeria and that is not going to change anytime soon. However, given several recent events, broadening our revenue base beyond oil will help protect the economy against further radical currency devaluation, and prolonged recession which all have lasting implications. 

In broadening that revenue base, there is a strong drive towards promoting agriculture especially as a tool to generating FX through exports. The recent fanfare around the exportation of 70tons of yam is a testament to this hysterical excitement. However, here is where I want to throw in the element of caution!

Nigerians have been diagnosed with the most extreme case of FOMO (Fear Of Missing Out) which is why everyone suddenly gravitate toward the reigning thing. We have seen several waves of such: MMM, UK masters, FitFam, Lekki-Ikoyi link bridge jogging, US immigration, (you can add yours to the list). If we understand well the principle of an efficient market, we will see that the market eliminates all arbitrage by a self adjusting demand-supply movement. Hence, more often that not, at the peak of this frenzy, new entrants are mostly already late to the party. 

The new focus of our FOMO is agbusinesses. And many are rushing in without understanding the market, eventually getting their fingers burned. For example, if you are planting cassava, who is your target market? Will the variety you’re growing satisfy the requirement of your target market? Is your location the best for growing such crop? Will the logistic cost to market eliminate your margins? Can you produce competitively? Can you store your output or you want to take market price? Are you realistic with your yield expectations given various unexpected issues? I have seen too many variants of this and many groan under the weight of huge losses. 

We need to first understand that unlike most businesses, agriculture involves nurturing lives – plants or/and animals which comes with various risks which though can be mitigated must be identified and managed.

Agbusinesses indeed present huge opportunities for wealth creation but cannot be done half-heartedly. Hence, please, proceed with caution!

AgInvestment Guide #1 – Breaking some myths about agricultural investments (Part 1)

I thought it would be ideal to start the series by first dispelling some myths about investing in the agriculture space. I expect that if you are reading this, you are interested in investing some of your hard earned income or time into agriculture. If you are financially savvy, you would also want to compare the return on investment (ROI) from an agricultural investment to more mainstream investments such as bonds, treasury bills, real estate, etc, (I will run the numbers on the ROI for several investment options later on). Hence, it will be good to know if your thoughts around agricultural investments are founded or endeavor to understand why some of your earlier investments failed.

Myth #1:  I need a sound agricultural background to invest in agriculture.

The truth is that in any  investment, a technical knowledge always comes in handy but it’s overrated to think without that knowledge, you cannot invest. It will however be helpful to build your technical knowledge and expertise along the way. Your will be amazed at how relevant even your current skills are to succeeding in agricultural investments.

Myth #2: I can’t invest in agriculture because farm work is hard work which I’m not prepared for

Indeed, agriculture is hard work but increasingly, it’s becoming more intellectual than physical. With the basic knowledge of technology – improved seeds, crop protection, fertilizers, irrigation, aggregation, market, etc – it becomes less dependent on physical exertion. However, one thing many fail to realize is that investing in agriculture does not necessarily have to be on farm. People need to understand the value chain perspective of agriculture and see what part of the value chain they have an appetite for and go for it.

Myth #3: I will not be competitive with imported products

Indeed, imported products are major concerns in Nigeria. In 2011, over $1.8m was spent importing rice, and this has been on the increase. However, observing trends in the country, Nigeria is starting to place more emphasis on local production in order to promote employment. While importation (both legal and illegal) will not disappear immediately, you will be doing yourself a lot of good by getting into the local production early

Myth #4: You cannot go wrong in agriculture

I’m sure some of you will have had horrific experiences investing in this space and lost money doing it. Long gone are the days when you think agriculture is about throwing the corn seeds in the soil, go to sleep and come back for a bountiful harvest or buy the birds, let them run around and get your daily crates of eggs. If you want to make money in agriculture, you have to understand that it takes good management to succeed. You have to also do your research. There was a wave of cassava investment at a time without a clear idea of the market to absorb that particular variety of cassava you were growing. Yes, while some varieties might be great for garri making, they might not be suited for processing into beer etc.

To be continued…

(Feel free to ask questions and I will do my best to answer them as exhaustively as possible – you can submit your questions on my twitter handle @amdeji or below)