How market governance failures stifle wealth creation in agric sector – RBS Consulting MD, Osijo

Managing Director of RBS Consulting Limited, Aderemi Osijo, based in Ikeja, Lagos, has identified significant market failures hindering wealth creation in Ogun State’s agricultural commodity markets. In this interview with Sodiq Adelakun, Osijo highlighted the need for proper market governance, regulation, and infrastructure to address issues such as informality, cartels, and post-harvest losses. He emphasised the importance of changing mindsets from public sector dominance to market-driven approaches and investing in critical infrastructure like bonded warehouses. See full interview below:

What are the significant market failures hindering wealth creation in Ogun State agricultural commodity markets?

There are several market failures, I can only mention a few. All are strategic. The best approach is to seek an entry point that can give a multiplier effect. The most significant is to look at the governance structure of the state agric industry which I refer to as the market.

There are two structures that govern a market- formal and informal. The formal is led by the government based on policies and supporting legislation. The other is led by the informal sector driven by informality and cultural norms. Unfortunately, the formal governance structure seems to be absent in the agric sector in Ogun State with informal being the dominant market. Where you have informality and norms guiding a sector, there is no uniformity. Transaction is not informed by weight nor by quality standard. Such sectors are usually dominated by powerful informal cartels.

So whether you like it or not, most of the agricultural produce that you have there are governed by what we call traditional norms and discipline. And of course when you have such a market, it ends up like Alaba market and it doesn’t help anybody. It doesn’t help to pull investment. And that is why you don’t have to be trying to… It is disorganised.

In the absence of formal government structures, competition among cartels ensue and this can lead to chaos and conflict over control of interest. That’s why we have farmers-herders clashes across the nation. The cattle industry is driven by cartels, the same thing is seen in all our sot markets. The biggest challenge in agric is that it’s not attracting investments as no investor will want to risk their investment in such a chaotic environment.

To address the problem, there is an urgent need for the government to find a creative way of creating synergy between the informal and formal sector. The government can have an understanding of any given trade, isolate the champions among them and formalise their trade policies, norms and culture. I think this is the starting point for Ogun State. It is one of the quick ways of improving internally generated revenue as all actors are known, certified and licensed to practise their trade and also insured against professional malpractices.

So, what are your thoughts about the current agricultural policies in Ogun State? 

The current policies in Ogun State can be improved upon and sharpened for better impact. I can give one or two examples. The state government invested in agricultural produce airport freight in Iperu – an agric cargo airport. But I’m not aware of the government thinking about having in place policies and strategies that will crowd in investment into the place- things like labelling, packaging and longer-term value preservation for pricing arbitrage.

Without such policies in place, it may be difficult to see the airport function as designed. It’s a good project but it seems largely unsupported by policies – legislation that can help it function as designed. The Ogun government seems to be interested in the traditional push policies at the supply end, encouraging farmers to produce without thinking of how to preserve.

If the push policy is not synchronised with push demand policy, you have significant loss of produce. It’s so sad that  what the farmers produce can’t even be evacuated, talk less of preservation. There is a need for a roundtable conference to draw out effective agric policies that will involve all sectors and stakeholders in the industry.

Farmers are meant to have an act to go and produce, but they will say produce for off takers. But the question is that, these off takers that you want to pick up these produce from these farmers, what is their capacity?

What laws are in place to actually help that objective? Because most often than not, when they want to off take, they are challenged with so many, many things, including the issue  of transportation.

You can load a very good produce in the trucks you have there, and before you get to the destination, it could be spoiled, due to poor handling. They need to do some regulation about what kind of vehicle can be used to transport food items.

We want to work with the government to create an environment that sets up what farmers produce. We can gradually start to build the future. It is not going to happen right away. But if we start to put in those processes whereby we help farmers to create wealth, you know, if the farmer produces today, he has to sell immediately and he doesn’t make money because there is a glut in the market.

But if there is somebody there who can take it from him, preserve it, keep it there and sell it at a time that is favourable to him, that works better.

Government can also help by creating an environment where the school lunch programme takes off from such occasions. At the end of the day, it is the farmer that benefits. But if there is an outlet, there are services that help them to preserve their wealth. Of course, nobody will tell them before they start expanding  their operations.

So there are quite a lot of feelings, you know, market governance failures, service market failure as well as market information failures. You know, the service market is not there. You know, infrastructures are not there. I mean, things are just not alright.

So, the policy environment actually could be a little bit better and that is why we are here to work with the government and to interface with them so that we can have a proper policy environment.

What are the opportunities and challenges in developing agricultural value chains in Ogun State? 

There are several opportunities that agric value chains in Ogun State could respond to. The first opportunity that comes to mind is proximity to large urban central populations such as Ibadan, Lagos, Abeokuta, Ijebu-Ode, Benin and so on. These urban centres’ demand for food items is growing astronomically. The feeding pattern is moving from domestic cooking to outdoor fast food chains. Most of these chains are internationally branded and governed by strict hygiene regulations. Many of them can’t even afford to put  their brand at risk due to concerns of being sued and reputation damages.

Apart from this, the organised retail sector is also growing. Packaged and well-preserved foods are now in high demand. Also of interest is the demand for wholesome food for the airline industry serving Lagos and its environ. Ogun State should position itself to capture those markets and in doing so, it will not only be creating opportunities for farmers, but for all stakeholders within the value chain -packaging, labelling, etc.

The starting point is the creation of an enabling environment that is properly governed to attract private investment particularly in produce evacuating, preservation and value addition. Agricultural sector over the years has been dominated by the public sector and it is a challenge transiting it from a public sector dominated into a market-driven sector. You will always find some resistance but once we can work on this mindset and people start seeing the opportunities in being a provider within an organised market, that is the beginning of wealth creation.

So, the biggest challenge is perhaps the question of clarity particularly among public servants and policy makers about how a functional market system promotes wealth creation. It requires a  shift of mindset that the economic space should be controlled by the public sector. A public sector dominated economy is a disincentive for the private sector.  So, we need to moderate such thinking.

Is there any investment that is needed to develop the bonded warehouses and other critical infrastructure of the business?

Of course. Well, may I talk to you about the strategies? And what basically people do is to have very, very, very large investment in agric commodity value preservation services for price arbitration.  That is, companies that operate commodity-bonded warehouses. So you need major providers like AFEX, Olam, and so on that the government can contract to handle grain storage or food security programmes. Such companies would then issue warehouse receipts systems for the government which the government can then trade.

And basically what you just do is that you contract them to obtain or maintain warehouses at one particular level. And you pay them for that. So they become what they call the market coordinators. They will coordinate the market.They will get the tractors.They will get everything in there. And of course, they keep those produces in there. And they issue government warehouse receipt systems. They are warehouse receipts, just like your normal stock exchange certificate, which are tradable. And the government can continue to sell gradually. And once you start doing that, and there are pockets of these bonded warehouses clustered around industrial areas, what you are just simply going to see is that the market itself gets organised, and everybody continues to make money from commercial relationships.

Changing mindset from what it is to what it should be can be difficult but that is not to say that it can not be surmounted.

How can we enhance last-mile produce evacuation and logistics to reduce post-harvest losses?

There are input distribution chains. Those chains are also used  in aggregating farm produce from the last mile to the centre of consolidation. Last mile produce evacuation, during the era of commodity bus, there are distribution chains all the way to the last mile, they sell all their inputs and services through those chains and many of them sell everything that is agriculture and those same chains can be used to buy from farmers to aggregate until you get to the bonded warehouses.

There is no rocket science about it, it is just for us to study what we have done before and contextualise it within a private sector driven market system.

Before it was being run by the government, this time around, it is an opportunity for investors to go in. All we have to do is to do the figure, do the feasibility, and of course, once people are convinced, they will put their money into it.

It is the beginning, this would help farmers to  move  from subsistence agriculture to commercial agriculture, and this can be done by moving away from one hectare to hectares and start thinking about 10, 20, 50, 100 hectares.