Agricultural logistics services

Agricultural logistics services
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Agricultural logistics services
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Beverage
Food and Agriculture
Business Model Description

Provide logistics services to connect smallholder farmers with the nearest processing/storage facilities, and offer online payments with the possibility to schedule pick-up services for products.

Expected Impact

Increase value added in food chains, strengthen economic growth and generate decent jobs.

Indicative ReturnDescribes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
> 25% (in IRR)
Investment TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Medium Term (5–10 years)
Market SizeDescribes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
3 million farmers are not connected to transportation services.
Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Direct ImpactDescribes the primary SDG(s) the IOA addresses.
Zero Hunger (SDG 2) Responsible Consumption and Production (SDG 12)
Indirect ImpactDescribes the secondary SDG(s) the IOA addresses.
Good health and well-being (SDG 3) Reduced Inequalities (SDG 10) Life on Land (SDG 15)
Country
Regions
  • Nigeria: North West
  • Nigeria: North East
  • Nigeria: North Central (Middle Belt)
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Beverage
FB

Development need: About 25.5% of Nigeria’s population lacks adequate and improved nutrition.(1) Similarly, data from the National Bureau of Statistics suggests 26.4% of the population experienced severe food insecurity in 2016.(1) The Sustainable Development Report ranks Nigeria number 48.0 for SDG 2 (Zero Hunger). While performance against this Goal has improved, major challenges persist.(2)

Policy priority: The government intensified efforts to improve agricultural yield, and investments aim to improve agricultural infrastructure.(1) Policy priorities outlined in the Economic Recovery and Growth Plan aim to: increase agricultural GDP (gross domestic product) to NGN 21.0 trillion in 2020 at an average annual growth rate of 6.9%; reduce food imports; and become a key exporter of agricultural products.(3)

Gender inequalities and marginalization issues: Agriculture and trade account for the majority of Nigeria's employment opportunities. Most people in these sectors work informally (92% of those employed in agriculture, and 56% of those employed in trade), and so rely on daily wages. Generally, informal workers have no pension or life insurance, and have limited health insurance coverage. They are more exposed to shocks, especially to their health, and are vulnerable to poverty and hunger. Micro, small and medium enterprises (MSMEs) are most likely to be affected by the upcoming recession, and will take longer to overcome the economic impacts of COVID-19.(4)

Investment opportunities introduction: The government is also considering strategies such as providing irrigation infrastructure to enable year-round production to boost agricultural productivity.(3)

Key bottlenecks introduction: The Sustainable Development Report ranks Nigeria number 48.0 for SDG 2 (Zero Hunger). While performance against this Goal has improved, major challenges persist.(2)

SubsectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Agriculture
FB.1

Development need: In 2018, agriculture accounted for 21.2% of Nigeria's GDP (gross domestic product) and employed two-thirds of the working population.(3) Indicators of adult obesity have improved, while indicators of undernourishment have underperformed. Prevalence of stunting in children is falling.(5)

IndustriesMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Agricultural Products
FB-AG
Investment Opportunity Area

Agricultural logistics services

Business Model

Provide logistics services to connect smallholder farmers with the nearest processing/storage facilities, and offer online payments with the possibility to schedule pick-up services for products.

Critical IOA UnitDescribes a complementary market sizing measure exemplifying the opportunities with the IOA.
3 million farmers are not connected to transportation services.

Agriculture accounts for the largest sector of Nigeria’s economy, employing over one-third of the working age population.(6)

96% of agricultural producers have access to transportation services, leaving nearly 3 million farmers unconnected.(7)

Smallholder farmers account for 88.4% of all farmers in Nigeria.(8) According to a FAO (Food and Agricultural Organization of the United Nations) survey, all smallholder farmers use informal channels to sell at least part of their produce. 94% of those smallholders also sell at least some of their crops at local markets.(8)

IRRDescribes an expected annual rate of growth of the IOA investment.
> 25%
ROIDescribes an expected return from the IOA investment over its lifetime.
20% - 25%

A benchmark company from Ghana, AgroCenta, is expected to have an internal rate of return on investment of approximately 30%.(9)

The estimated return rate for investors is 19.5% - 23.5%. This rate is a benchmark calculated as cost of equity with a country risk premium, reflecting an average return required by investors active in the transportation and logistics subsector.(10)

TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Medium Term (5–10 years)

Based on a sectoral statistics for transportation and logistics, the investment period is estimated as 5-15 years.(10)

Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Business - Supply Chain Constraints
Insufficient road infrastructure limiting the profitability of the business (11) and need for truck drivers (skilled workforce) and available trucks (12)
Capital - Limited Investor Interest
Online payment systems are mostly used in urban areas.(13) There is only a small degree of financialization of micro, small and medium enterprises (MSMEs) and farmers.(14)
Market - trust in the market
Farmers mistrust new companies and the solutions they bring.(15)
Sustainable Development Need

43.5% children under the age of 5 in Nigeria suffer from malnutrition.(16) Improving access to food could contribute to solving this issue.

The majority of rural communities lack the logistics necessary to deliver their produce to aggregation points. Logistics services are costly, and aggregation and storage centers are scattered around the country, so much of the agricultural yield is lost, consumed locally or does not undergo value adding.

Approximately 70% of the fresh agricultural produce becomes spoilt during road transportation.(17)

Gender & Marginalisation

COVID-19 deepened food insecurity for the already troubled Nigerian population.(17) Over half (53.5%) of people live below the absolute poverty line of USD 1.90 per day(18), and are therefore particularly vulnerable to food insecurity.

A rise in food prices caused by COVID-19 has exposed many more millions of people to food insecurity, heightening the need to maximize productivity and minimize food losses.

Expected Development Outcome

Investments could improve food security and decrease food waste. It could also reduce logistics costs that save farmers money, which translates as a cheaper product price per unit.

Investments could reduce poverty levels due to higher supply of agricultural products, and increase cash inflows through exports by improving the trade balance.

Investment may help overcome trust issues between farmers and processors.

Gender & Marginalisation

Economic Recovery and Growth Plan (NERGP) 2020 target for female population that owned agriculture: 80.8%. SDG target by 2030: 100%.(26)

Primary SDGs addressed
2 - Zero Hunger
Zero Hunger (SDG 2)

2.1.1 Prevalence of undernourishment

2.1.2 Prevalence of moderate or severe food insecurity in the population, based on the Food Insecurity Experience Scale (FIES)

2.2.1 Prevalence of stunting (height for age <-2 standard deviation from the median of the World Health Organization (WHO) Child Growth Standards) among children under 5 years of age

2.2.2 Prevalence of malnutrition (weight for height >+2 or <-2 standard deviation from the median of the WHO Child Growth Standards) among children under 5 years of age, by type (wasting and overweight)

Current Level

25.5% in 2015.(27)

Moderate: 26.4%. Severe 19.6%.(27)

37.4% in 2015.(26)

16.4% in 2015.(26)

Target Level

Derived ERGP (Economic Recovery and Growth Plan) target by 2020: 17%, by 2030: 0. (27)

Derived ERGP (Economic Recovery and Growth Plan) target by 2020: 17.6%, by 2030: 0.(27)

Derived ERGP (Economic Recovery and Growth Plan) target by 2020: 18.7%, by 2030: 0. (26)

Derived ERGP (Economic Recovery and Growth Plan) target by 2020: 10.9, by 2030: 0. (26)

12 - Responsible Consumption and Production
Responsible Consumption and Production (SDG 12)

12.3.1 (a) Food loss index and (b) food waste index

Current Level

N/A

Target Level

N/A

Secondary SDGs addressed
3 - Good Health and Well-Being
Good health and well-being (SDG 3)
10 - Reduced Inequalities
Reduced Inequalities (SDG 10)
15 - Life on Land
Life on Land (SDG 15)
Directly impacted stakeholders
People
Farmers, households living off agricultural production
Corporates
Small and medium enterprises, markets, processing facilities, wholesalers, retailers
Outcome Risks

Investments may redistribute food away from regions threatened by hunger, leaving insufficient food and also causing potential food waste.

Investments may increase pollution from increased transportation.

Impact Risks

Efficiency risk given these models are usually scaled using concessional financing.

Stakeholder participation risk given land use issues may arise after agricultural production reaches large scale.

Unexpected impact risk given the negative effects of agricultural production especially on biodiversity.

What

Improving transportation and connectivity between agricultural producers and silos/processing facilities can strengthen the value chain and increase farmers' and processing companies' income.

Who

Smallholder farmers and processing companies that are affected by inadequate logistics services.

Risk

Although this IOA has been implemented in some regions of Nigeria, the current quality of roads and number of available trucks threatens the range of offered services.

Impact Thesis

Increase value added in food chains, strengthen economic growth and generate decent jobs.

Policy Environment

Anchor Borrowers Programme (ABP): This government intervention fund operates through the Central Bank of Nigeria. Its main goal is to reduce post-harvest losses, which currently contribute to high default rates in loan repayments by smallholder farmers.(19)

Anchor Borrowers Programme (ABP): ABP supports aggregation points and storage infrastructure in designated local government areas of each state. It aggregates produce when smallholder farmers within commodity associations or cooperatives bring their yields to the aggregation points.(19)

The sector is mostly evaluated at a regional level, so state governments play an important role in supporting agricultural development through: counterpart funding, extension services, support to the International Fertilizer Development Center (IFDC) in identifying farmers, and available storage facilities in local government areas and village levels.(20)

Financial Environment

Financial incentives: Central Bank of Nigeria/Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) cooperation provides the following incentives: financing to agricultural companies, dealers, farmers etc., investment in the sector through access to credit, and single digit interest rates.(22)

Fiscal incentives: Agricultural companies are exempt from income tax for 5 years. Incentives are available for companies located in rural areas, including tax reductions for enterprises located at least 20 km from available electricity, water and tarred roads.(23)

Regulatory Environment

The National Agency for Food and Drug Administration and Control (NAFDAC) is the regulatory body responsible for regulating and controlling food product manufacturing, importation, exportation, advertisement, sale and distribution in Nigeria. This includes food handling, transportation and storage.(21)

NAFDAC regulates food production under the provisions of Act No 19 of 1993 (as amended) and the Food and Related Products (Registration) Act No. 20 of 1999.(21)

Private Sector

Standard Chartered, Crop2Cash, Verdant, Sahel Capital, OLAM, Nasco, Nestle

Government

Federal Ministry of Agriculture, Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), Central Bank of Nigeria

Multilaterals

African Development Bank (AfDB), World Bank, USAID, International Fund for Agricultural Development, Cultivating New Frontiers in Agriculture (CNFA)

Non-Profit

International Fertilizer Development Center, Alliance for a Green Revolution (AGRA), Acumen Fund

Public-Private Partnership

Africa Agriculture and Trade Investment Fund (AATIF)

country static map
rural
Nigeria: North West
The majority of agricultural activities are concentrated in Kaduna, Gombe, Bauchi, Benue and Nassarawa, making these regions the most convenient for rolling out transportation schemes due to proximity of suppliers.(24)
rural
Nigeria: North East
The majority of agricultural activities are concentrated in Kaduna, Gombe, Bauchi, Benue and Nassarawa, making these regions the most convenient for rolling out transportation schemes due to proximity of suppliers.(24)
rural
Nigeria: North Central (Middle Belt)
The majority of agricultural activities are concentrated in Kaduna, Gombe, Bauchi, Benue and Nassarawa, making these regions the most convenient for rolling out transportation schemes due to proximity of suppliers.(24)
Sector Sources
  • 1) Federal Republic of Nigeria (2017). Implementation of the SDGs: a national voluntary review. https://sustainabledevelopment.un.org/content/documents/16029Nigeria.pdf 2) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G. (2019). Sustainable Development Report 2019. New York: Bertelsmann Stiftung and Sustainable Development Solutions Network (SDSN). 3) Federal Republic of Nigeria (2017). Economic Recovery and Growth Plan 2017 - 2020. Abuja: Ministry of Budget and National Planning. 4) Dalberg (2020). Charting the future for Africa's largest economy: Economic impact of COVID-19 in Nigeria. https://dalberg.com/wp-content/uploads/2020/04/FINAL_Dalberg-Report-Charting-the-Future-of-Africa%E2%80%99s-Largest-Economy.pdf 5) Federal Republic of Nigeria (2011). Agricultural Transformation Agenda 2011.
IOA Sources
  • 6) PwC (2019). Responding to the Impact of COVID-19 on Food Security and Agriculture in Nigeria. https://www.pwc.com/ng/en/publications/impact-covid-19-food-security-nigeria.html 7) Dayo P, Ndirpaya Yarama D (2020). Digitalization in Agriculture, Food and Nutrition - A Case Study of Nigeria. (Forum for Agricultural Research in Africa, March 2020). https://library.faraafrica.org/wp-content/uploads/2020/03/Digitalization-in-Agriculture-Food-and-Nutrition-A-Case-Study-of-Nigeria-.pdf 8) Food and Agriculture Organization of the United Nations (2020). FAO in Nigeria, http://www.fao.org/nigeria/fao-in-nigeria/nigeria-at-a-glance/en/ 9) African Green Revolution Forum (2020). The Agribusiness Deal Room at the 2019 African Green Revolution Forum (AGRF). https://agrf.org/dealroom/wp-content/uploads/2020/07/Agribusiness-Deal_Room-AGRF-booklet_020919.pdf 10) PwC analysis based on Prof. A. Damodaran data 2020. 11) Ogunleye O, Ajibola A, Enilolobo O and Shogunle O (2018). Influence of road transport infrastructure on agricultural sector development in Nigeria. https://content.sciendo.com/view/journals/jlst/9/1/article-p39.xml?language=en 12) World Bank (2019). Future of food: harnessing digital technologies to improve food system outcomes. http://documents1.worldbank.org/curated/en/941601554962010560/pdf/Future-of-Food-Harnessing-Digital-Technologies-to-Improve-Food-System-Outcomes.pdf 13) USAID. The digital financial services landscape in Nigeria: enabling market conditions for pay-as-you-go solar. https://www.usaid.gov/sites/default/files/documents/1860/Enabling_Market_Conditions_for_Pay-As-You-Go_Solar_Executive_Summary.pdf 14) Central Bank of Nigeria (2013). Financial Inclusion In Nigeria: Issues And Challenges. https://www.cbn.gov.ng/out/2014/rsd/occasional%20paper%20no.%2045%20issues%20and%20challenges.pdf 15) World Bank (2019). Future of food: harnessing digital technologies to improve food system outcomes. http://documents1.worldbank.org/curated/en/941601554962010560/pdf/Future-of-Food-Harnessing-Digital-Technologies-to-Improve-Food-System-Outcomes.pdf 16) World Bank Database. 17) PwC (2019). Responding to the Impact of COVID-19 on Food Security and Agriculture in Nigeria. https://www.pwc.com/ng/en/publications/impact-covid-19-food-security-nigeria.html 18) Alkire et al. Charting Pathways out of Multidimensional Poverty: Achieving the SDGs. 19) Central Bank of Nigeria (2017). Anchor Borrowers’ Programme Guidelines 2017. https://www.cbn.gov.ng/out/2017/dfd/anchor%20borrowers%20programme%20guidelines%20-dec%20%202016.pdf 20) Federal Ministry of Agriculture and Rural Development (2011). Agricultural transformation agenda: we will grow Nigeria’s agricultural sector. http://unaab.edu.ng/wp-content/uploads/2012/10/Agricultural%20Transformation%20Blue%20Print.pdf 21) Omojokun, J (2012). Regulation and Enforcement of Legislation on Food Safety in Nigeria. https://www.intechopen.com/books/mycotoxin-and-food-safety-in-developing-countries/regulation-and-enforcement-of-legislation-on-food-safety-in-nigeria 22) Federal Ministry of Agriculture and Rural Development (2011). Agricultural transformation agenda: we will grow Nigeria’s agricultural sector. http://unaab.edu.ng/wp-content/uploads/2012/10/Agricultural%20Transformation%20Blue%20Print.pdf 23) PwC. Tax summary. https://taxsummaries.pwc.com 24) Agronews Nigeria. Nigerian States and Their Agricultural Products. http://agronewsng.com/nigerian-states-and-their-agricultural-products/ 25) TAK Logistics. About TAK Logistics. https://taklogisticsltd.com/about/ 26) Federal Republic of Nigeria (2017). Implementation of the SDGs: a national voluntary review. https://sustainabledevelopment.un.org/content/documents/16029Nigeria.pdf 27) Federal Republic of Nigeria (2020). Integration of the SDGs into National Development Planning: A Second Voluntary National Review (2020). https://sustainabledevelopment.un.org/content/documents/26309VNR_2020_Nigeria_Report.pdf