Nigeria’s Rice Policy: That Glorious Piece of Paper – Feyi Fawehinmi

A lot of the economic problems facing Nigeria can be traced to a way of thinking. This thinking believes that markets can never be a good thing if left to their own devices and so they must be subjugated. Prices must be controlled. And so on. It affects everything from forex policy to fuel subsidy to rice policy to cement policy.

It was the same under the military as it is now under civilians. Ideas that have been tested to destruction elsewhere and abandoned continue to find a willing audience in places like Nigeria.

The latest example of this comes from a report by Premium Times today into Nigeria’s rice policy under the previous government. 2 years ago, I wrote about the policy and how the problem was a price and incentive one. Since then, it appears things have only gotten worse.

Here’s the gist of the policy:

The policy specified that owners of existing rice mills and new investors with verifiable backward integration in the rice value chain will be allowed to import rice at 10 per cent duty and 20 per cent levy (30 per cent); while merchants who have nothing to contribute to local production in the form of rice farms or mills will be charged 10 per cent duty and 60 per cent levy (70 per cent). Technically, it was a subsidy aimed at building local capacity in rice production.

Subsequently, an inter-ministerial committee was set up to work out the national rice supply gap and allocate import licenses with appropriate quotas in order to bridge this gap, same time advancing the objectives of the national rice policy.

When you hear ‘committee’ — red flag!. If you then hear ‘import licences’, you know it’s game over. ‘Appropriate quotas’ is simply the finishing move in the horror movie. When stuff like this happens, it is important to understand what actually happens as opposed to what was the intention of those who designed it. Anyone can have good intentions — that’s not why we are here.

The moment a quota or a licence is created, you have imputed value into that piece of paper. That piece of paper turns to currency — it can be bought or sold or exchanged for something else of equal value. Looking for patriotism in such a scenario is a complete waste of time. If the policy that gave birth to that quota requires patriotism or ‘church mind’ to function correctly, it is dead on arrival.

Premium Times, for all their good work in reporting this, also managed to miss this fundamental point:

In the final analysis, the rice policy was scuttled to serve everything butnational interest. Companies who have no investment in the rice value chain were granted quota. These companies in turn sold the quota to other importers who already had vessels on the sea.

The sellers of quota made huge profits without any investments in Nigeria’s local rice production and indeed did so without taking risk or lifting a finger.

The same sellers have been working hard to get more quotas in the bid to get more money from the scheme without any investments, thus holding the domestic rice policy to ransom.

This is the exact thing that should happen. The piece of paper (quota) that has been imputed with value becomes tradeable. This increases demand for that piece of paper. And since the piece of paper is issued by the government who do not understand its value in the real world, it is bound to be underpriced. Ergo, if you can get it from the government and sell it in the open market, you can make a fortune. As a friend of mine likes to say ‘buy sheep, sell deer’.

This has absolutely nothing to do with national interest or holding anyone to ransom. It is people responding to crooked incentives very rationally.

Everybody and their Mummy was in on the game:

Investigations by PREMIUM TIMES revealed that the 26 companies that benefitted from the rice import quota scheme included Milan, Bua, AA Ibrahim, Stine Rice Mills, JMK Foods, Labana Rice Mill, Elephant Group, Honeywell, Kerksuk Farms, Wacot, Mikap Rice, Golden Penny, Stallion, Umza International Farms Limited, Dangote and Olam. Others were Tara Agro, Ebony Agro, Atari Rice Industry, Ashi Foods, JAI, Arewa Rice Mill, Onyx Rice Mill, Bansara Rice, Danmodi and Klysat.

Investigations revealed that Mikap Rice is owned by a former Attorney General of the Federation, Michael Aondoakaa, while Ebony Agro is owned by Charles Ugwu, a former minister of commerce and industry.

Ashi Foods is owned by the immediate past governor of Benue State Gabriel Suswam. Milan Group is a business interest that also owns Intercontinental Hotels while Bua is owned by billionaire Ishaku Rabiu. Honeywell is owned by Oba Otudeko while Elephant Group is owned by Tunji Owoye. Labana Rice is owned by former Kebi State governor Adamu Aliero while Keresuk is owned by one Rotimi Williams.

Investigations revealed that for instance, Umza Internationa Farms Limited has a rice mill in Kano with a capacity of 30,000 MT. Beyond this mill, Umza has no other investment in local rice production. However, the company was given import allocations in two categories: 36,000 MT under existing miller allocation and also got 49,207 MT under investor allocation.

Dangote and Golden Penny have no existing mills but got 115.204 MT and 91,887 MT respectively. Stallion got a total allocation of 89,989 MT; that was 59,989 MT under investor allocation and 30,000 MT under existing miller allocation. It has two mills — one in Kano and another in Markurdi.

If na you nko? Looking at the names of those people, they are not people who have a particular love of rice. They are simply after that valuable piece of paper and will use their political connections to obtain it from government at a discount. This is a law of life and Nigeria is not immune from it.

But this is the best part for me:

One smoking gun on sale of import quota is found with Umza International Farm Ltd. Shipping documents obtained by this newspaper showed that shortly after the release of quota allocations and Umza was named one of the beneficiaries, a letter dated December 20, 2014 instructed Marietta Bolten (owners of a ship MV Marietta) to divert a cargo of rice originally meant for delivery at Cotonou Port to Lagos Port. The cargo in question was a 15,500 MT Thai Parboiled Rice 100PCT Sortexed of Thailand Origin. The letter reads in part: “The above cargo was shipped on the above vessel … for delivery at the port of Cotonou — Benin but we, Navision Shipping A/S, hereby request you to order the vessel to proceed to and deliver the said cargo at Port Lagos — Nigeria to Pearl Universal Impex Ltd, 7A Asa Afariogun Street, Off Osolo Way, Ajao Estate, Isolo, Lagos, Nigeria.

The same Navision Shipping on the same day gave two more instructions to Marietta ordering it to divert another cargo of 3900.650 MT Thai Parboiled rice to Port Harcourt for Pearl Universal Impex. This second cargo, originally meant for Cotonou Port was originally consigned to STE Premiere Sarl, Niamey, Niger Republic. The third cargo, 18,500MT Thai Parboiled rice, originally destined for Cotonou Port was diverted on instruction to Port Harcourt.

The guy who owns Umza Rice used to be a member of the House of Reps. It is safe to say he knows how these things work. It is my considered opinion that the man deserves a national award for this wonderful money making scheme he concocted for himself.

What is described above is what is known as a win-win. He ordered rice from Thailand and put them on a ship destined for Cotonou. During the journey, he managed to get an import quota. This forced him to recalculate his risks — why send it to Cotonou and then pay to bribe customs officials and other attendant risks by smuggling it across land borders? With that valuable piece of paper in his hand, the 110% tariff reason for going to Cotonou in the first place had been reduced to 30%. Bringing it directly to Nigeria probably saved transport costs so he diverted it.

This also has implications for Nigeria’s foreign exchange policy because that piece of paper also allows you to access forex from CBN at the official rate. Imagine if the forex used to purchase the rice originally was sourced from the black market. All of a sudden, your costs have dropped by maybe N30 per dollar. That difference alone can buy you a Range Rover even before you have sold a single bag of rice. Friends, this is sweet business.

The other angle to the scam is caused by acute foolishness on the part of government:

There are also discrepancies in milling capacities and the local rice production capacity. Under Minister Akinwunmi, the agric ministry claimed Nigeria was producing 2.2 million MT of paddy.

However, investigations by this reporter revealed that all the rice mills in Nigeria have a combined annual capacity to mill only 600,000 MT of paddy. The question that naturally arises is: where are the remaining 1.6 million MT milled if indeed domestic production was 2.2 million MT? Yet, allocations of rice import quota were based on these phoney capacities of rice millers and investors, many of whom at the end sold off their quotas to the detriment of the rice subsidy goals

The only reason why this part of the scam could have worked is that someone from the government did not check the actual milling capacity of these millers before handing them quotas. Obviously, the more capacity you have (or claim to have), the bigger the piece of paper you can get from the government. This is another no-brainer — the logical thing to do is to inflate your milling capacity which will increase the size of the piece of paper due to you. Planting and milling is much more stressful compared to trading pieces of paper when you think about it.

How can a newspaper go out and check actual mills while a whole Agric ministry gets taken for a ride? Write your answer on a blank piece of paper and post it to me.

Shout out to my good man, Boni Yayi:

The story of smuggling of rice and other items from Cotonou is almost hackneyed and indeed is the mainstay of that country’s economy. In 2013 the government of Benin Republic slashed its tariff on rice the moment Nigeria hiked its to keep alive transhipment, which actually is a fancy name for smuggling.

For a country to continue to survive on Nigeria’s foolishness tells you how long the foolishness has been going on. It also suggests that the people of Benin Republic are working on the assumption that Nigerians are terminally stupid when it comes to economic policy so all they need to do is wait and a hare-brained policy by Nigeria is guaranteed.

In April and May 2014 a frightening dimension was recorded in the rice import business. Eleven ships, all carrying rice, sailed into Nigeria’s territorial waters but instead of berthing at Apapa Port, they all chose to stop nearby and wait. Their positions were so close they could be sighted from the Lagos Bar Beach. There were no engine failures, no congestion at the destination port and no internal crisis in the host country to warrant the sudden refusals of the ship captains and crew to complete their journeys. The names of the ships were MV Hector, MV Star Capella, MV Wariya Naree, MV Aqua Runner, MV Silvretta and MV Eternity. C. Others were MV Aeolos, MV Lake Hakone, MV Mraki, MV Atlantic Trade and MV Quest.

But why would 11 ships sail all the way from Thailand into Lagos but refuse to berth at the port? Port workers knowledgeable about official corruption proffered that the ships were negotiating tariffs before they could enter Apapa.

In the complex and dodgy multi-billion dollars rice import racket that employs top figures in the Nigeria Customs Service, the Nigeria Navy, officials of the Ministry of Finance and the Nigerian Maritime Administration and Safety Agency (NIMASA), calculations had suddenly gone wrong somewhere, hence the ships were told to halt sail. Had they sailed further into Apapa port, then the rice merchants must pay the 110 per cent tariff on rice import imposed early 2013 by the Federal Government to discourage import dependency and support local production.

The 11 ships were expected to pay a total tariff of N16.5 billion to the Nigerian government. This, the rice mafia were determined to evade. Should negotiations fail to go their way in such a situation, the ships would proceed to Cotonou from where the cargoes would one way or the other find their way into the Nigerian market.

When you check the Medium Term Expenditure Framework (MTEF) recently submitted to the National Assembly by the Buhari administration, the above makes some sense. Nigerian Customs Service had a target to pull in N630bn in import duties for the year. As at the end of September, it had managed to get N345bn. It will take an absolute miracle for it to get near that target by the end of the year. Practically all of the rice revenues have been lost to neighbouring countries.