Summary
The Nigerian government has announced new trade measures in support of the local tomato sector. However such measures would be likely to fall foul of the provisions of the EU-West Africa economic partnership agreement related to tariff standstill commitments and the ‘prohibition of quantitative restrictions’. Beyond these EPA related policy complications, trade policy tools can only be effective in supporting agricultural development if they are deployed as an integral part of wider government programmes aimed at comprehensively addressing infrastructural, policy and logistical constraints on the efficient functioning of local agri-food sector supply chains.
At the end of March 2017 the Federal Government in Nigeria announced new measures to promote the local production of tomatoes and develop the local tomato supply chain. This consisted of a ban on the importation of tomato paste, powder and concentrate in retail ready form and an increase in the duty on tomato concentrate from 5% to 50% alongside the application of a $1,500/tonne levy (1). The new measures are to be introduced in May 2017. The government is also to waive tariffs on greenhouse equipment and supplies and extend eligibility for production incentives to tomato production (10). The measures are aimed at boosting production, stimulating local investment and encouraging the use of locally produced tomatoes across the value chain (10).
‘Current demand for fresh tomato fruits is estimated at about 2.45 million metric tons per annum (MTPA) while the country produces only about 1.8 million MTPA‘. However around 40% of production is lost to post harvest spoilage. Imports of tomato concentrate average 150,000 metric tons per annum at a cost of US$170 million (10).
The new policy forms part of the Nigerian government’s wider Nigerian Industrial Revolution Plan (NIRP), ‘which prioritises agro-allied businesses‘, in areas where Nigeria is perceived to have a comparative advantage. The government expects this new policy ‘create at least 60,000 additional jobs in fresh fruit production and processing‘ (10).
The new policy measures were announced against the background of the declaration in November 2016 by Nigeria’s largest tomato paste manufacturer, Erisco Foods, that it would close its Lagos factory, with the loss of 1,500 jobs and move its operations to China, from where it would export tomato paste to Nigeria (3).
The company’s decision ‘followed a 30-day ultimatum sent by Erisco’s management to the Nigerian government to completely ban the importation of tomato paste into the country’ and accusations from the company’s CEO that the Central Bank of Nigeria (CBN) had allowed ‘importers access to foreign currency to import the finished product, despite tomato paste being on the CBN’s list of 41 items banned from accessing foreign exchange for importation’. The CEO also maintained Erisco Foods had ‘struggled to access its own reserves of foreign currency to import the necessary machinery, spare parts and raw materials to continue local production’ (3).
Foreign exchange availability has become a serious issue for Nigerian industry in recent years, compounding broader problems of competitiveness. Reports posted on agri4africa.com suggest that from Lagos it ‘can be cheaper to source tomatoes from countries in southern Africa than from 90km outside of the city’ due to infrastructural inefficiencies and logistical constraints (4).
These infrastructural constraints alongside a ‘lack of access to finance, insurance, quality and affordable inputs, market information and secure land tenures’ (4) is creating a situation where expanded food demand resulting from rapid urbanisation and rising incomes is being met largely from imports rather than expanded domestic production (5).
However in April 2017 following the announcement of the new trade regime for tomato paste and concentrate, the CEO of Erisco Foods reversed its November 2016 decision declaring ‘it would increase manufacturing, farming and the entire tomato value chain’ (6). In a briefing to the media CEO Eric Umeofia expressed his appreciation of the governments new tomato sector policy, asserting it ‘confirms that this government is a listening government’. He maintained that within 18 months of the adoption of the new policy ‘Nigeria would see the effects … because farmers would be more buoyant, the industry would grow’. However, he indicated this would require new initiatives from the Central Bank of Nigeria (CBN) to provide foreign exchange to the tomato sector and new initiatives from the financial sector to make cheaper loan financing available (6).
Elsewhere, based on the failure of other similar initiatives in other agricultural sectors, there is some scepticism about the likely success of the policy. Some traders argue the policy as designed, is likely simply to lead to higher prices in a context where tomatoes account for 18% of vegetable consumption in Nigeria. According to the President of the National Union of Food, Beverage and Tobacco Employees it will ‘take years for the planting, harvesting and processing of the produce into concentrate‘ (10)
| Comment and Analysis The decision to introduce both tariff increases and non-tariff trade policy measures in the tomato sector is symptomatic of the gulf which could exist between the Nigerian governments’ agricultural trade policy and the commitments the Nigerian government would be required to enter into as part of a regional EU-West Africa economic partnership agreement. Under the EU-West African EPA a variety of provisions are included which could potentially constrain the Nigerian government in the application of such measures to trade with the EU. This will depend on how the wording of these provisions are interpreted in practice. For example, it could be argued that the tariff standstill commitments made under article 9 of the EU-West Africa agreement would prevent any increase in tariff rates applied to all imports from the EU. It could be argued that products included in Annex 4 schedule D, which deals with products not subject to liberalisation (so called ‘exclusions’) (8), merely covers exclusion from tariff reduction commitments and does not exclude these products from any other of the commitments entered into through the provisions of the agreement. If this line of argument were accepted as the basis for the implementation of the EPA, than the ‘standstill’ commitments made under Article 9 could be held to extend to a prohibition on tariff increases, including for products not subject to tariff elimination commitments (such as tomato paste and concentrates) (9). This could then similarly be applied to commitments related to the ‘prohibition of quantitative restrictions’, which would then de facto limit the ability of the Nigerian authorities to ban tomato paste and concentrate imports in trade with the EU. Everything will hinge around how often ambiguous compromise provisions are interpreted and applied in practice.
The extent to which the EU would be likely to make an issue of the new developments in the Nigerian governments tomato sector policy under any EPA, would be critically influenced by the commercial interests at stake. Since 2013 EU exporters have been losing out to third country suppliers on the Nigerian prepared tomato product market. Current EU commercial interests are thus limited. However the experience in the South African poultry sector of the trade effects of the introduction of new tariff and non-tariff measures applied to third parties, from which the EU is excluded by virtue of the provisions of a reciprocal preferential trade agreement, suggest EU exporters could well insist on the full application of any EPA provisions to which the Nigerian government may sign up (for details of the South African poultry sector case see companion articles ‘EU frozen poultry meat exports to South Africa begin to bite’, 15 December 2016 and ‘Africa continues to grow as export destination EU poultry meat despite AI outbreaks’, 24 April 2017). These, and similar policy issues would suggest the likelihood of the Nigerian government signing on to the EU-West Africa EPA is receding. EU exports to Nigeria of ‘Tomatoes prepared or preserved otherwise than by vinegar or acetic acid’ (tonnes)
Beyond this trade policy constraint, the criticism from Erisco Foods CEO suggests effective policy implementation and continuity of policy direction, represent serious challenges in Nigeria. In addition, infrastructure and logistical constraints will still need to be addressed if rural production zones are to be efficiently linked to urban based agri-food processors. Trade policy measures alone are likely to prove singularly ineffective, unless the multiplicity of other constraints inhibiting competitive agri-food processing, based on locally sourced raw materials are comprehensively addressed (for more details of the generalised nature of this challenge see the companion article ‘How can West African agro food sectors benefit from rising yet changing domestic food demand?’, 13 March 2017). However, given the current moves are driven by the foreign exchange crisis resulting from low oil revenues, it is unclear whether the Nigerian government will have the resources available to set in place the comprehensive, multifaceted approach to local tomato sector development required. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Source:
(1) Nigeria Today, ‘Nigeria Bans Importation of Packaged Tomato Paste’, 28 March 2017
https://www.nigeriatoday.ng/2017/03/nigeria-bans-importation-of-packaged-tomato-paste/
(2) Reuters, ‘Nigeria to raise tomato import duty to boost local production’, 8 February 2017
http://www.reuters.com/article/us-nigeria-economy-idUSKBN15N2IZ
(3) agri4africa.com, ‘Tomato paste giant’s troubles embody Nigeria’s economic woes’, 22 November 2016
http://www.agri4africa.com/index.php?dirname=docs_02newsletters/00010newsletter.php&lookupArticleId=376
(4) agri4africa.com, ‘Why Lagos might choose to buy tomatoes from southern Africa – rather than 90km away’, 30 November 2016
http://www.agri4africa.com/index.php?dirname=docs_02newsletters/00010newsletter.php&lookupArticleId=382
(5) How we made it in Africa, ‘Why are African food companies struggling to compete with foreign products?’ 2 December 2016
https://www.howwemadeitinafrica.com/african-food-companies-struggling-compete-foreign-products/
(6) thisdaylive.com, ‘Umeofia: Nigeria Will Be Self-sufficient in Tomato Production in 18 Months’, 20 April 2017
https://www.thisdaylive.com/index.php/2017/04/20/umeofia-nigeria-will-be-self-sufficient-in-tomato-production-in-18-months/
(7) EU, ‘Economic Partnership Agreement between the West African States, the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (UEMOA) of the one part, and the European Union and its Member States of the Other part’
http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153867.pdf
(8) EU, ‘Proposal for a Council Decision on the conclusion of the Economic Partnership Agreement (EPA) between the West African States, ECOWAS and the UEMOA, of the one part, and the European Union and its Member States, of the other part – Annex 4 part 1/10
http://eur-lex.europa.eu/resource.html?uri=cellar:8f3fea2b-3ce7-11e4-8c3c-01aa75ed71a1.0002.03/DOC_11&format=PDF
(9) EU, ‘Proposal for a Council Decision on the conclusion of the Economic Partnership Agreement (EPA) between the West African States, ECOWAS and the UEMOA, of the one part, and the European Union and its Member States, of the other part – Annex 4 part 3/10
http://eur-lex.europa.eu/resource.html?uri=cellar:8f3fea2b-3ce7-11e4-8c3c-01aa75ed71a1.0002.03/DOC_14&format=PDF
(10) This Day, ‘Govt’s policy on tomato – an appraisal’, 23 April 2017
| Key words: Nigeria, Tomatoes Tags: Horticulture, West Africa EPA |