Nigeria is facing its worst economic crisis in a generation. Between June 2023 and January 2024, the value of its currency, the naira, dropped from N450 to N1,600 to the dollar, causing major disruptions to the economy and further fueling catastrophic inflation. As of November 2024, the country’s annual inflation rate stood at 35 percent, with food inflation nearing 40 percent. Increasing prices for agricultural inputs have led to dwindling agricultural production, rising prices for consumers, and falling consumption—a vicious cycle that threatens to undermine stability and development in Africa’s most populous country.
But as a recent study by DAI makes clear, there is opportunity in this crisis. If Nigeria can properly manage its currency devaluation, it may be able to spur economic expansion on the back of the naira’s increased competitiveness. Managing that process will require concerted and considered government action—not to supplant the private sector, but to provide the right enabling environment in which private actors can respond constructively to market signals.
First, some context. The current crisis was brought on by a combination of internal and external factors. The global impacts of the COVID-19 pandemic and then Russia’s full-scale invasion of Ukraine weakened the overall economic picture and greatly affected oil and fertilizer prices. Nigerian government actions in late 2022 to constrain cash liquidity before the 2023 presidential elections and remove fuel subsidies created distortions to set the stage for the currency collapse.
Then came the devaluation of June 2023. Designed to align the informal and formal rates of exchange, it had dramatic impacts on the cost of energy, agricultural inputs, and capital, and set in motion a pernicious dynamic of rising prices and falling productivity. Despite being Africa’s largest oil producer, nearly all fuel in Nigeria is imported. The reduction in the naira’s purchasing power, combined with the removal of government subsidies on premium motor spirits, caused domestic gasoline prices to triple, with damaging ripple effects extending beyond the transport sector across the entire economy.
Repercussions in the agriculture sector have been particularly jarring. The cost of fertilizer has increased sixfold over the past seven years, while crop protection products are four to five times more expensive than they were in 2017. This spike in input costs stretched farmers to the limit, often requiring them to pay more for next season’s inputs than they were paid for this year’s harvest.
In less tumultuous times, such cash-strapped producers might have had recourse to credit. But in its efforts to curb inflation, the Central Bank of Nigeria has more than doubled its base interest rate from 12 to 26.75 percent, putting borrowing out of reach for smallholders and processors and aggregators who work with them. Even lines of credit tailored specially for agricultural purposes were suspended in November 2023. And in January 2024, Nigerians were hit by a second devaluation when the Central Bank floated the value of the naira. Nigeria’s smallholders, unable to keep pace with the rising costs of farming, find themselves mired in declining production and productivity.
Lessons from 2017
Nigeria’s current crisis is severe but not entirely without precedent. A similar devaluation of the naira occurred in 2017. At that time, DAI and the PIND Foundation studied the effects of that devaluation, focusing on four agricultural value chains: cassava, aquaculture, poultry, and palm oil. DAI’s more recent analysis extends the findings of this earlier study to shed light on the challenges and opportunities facing Nigeria today.
Following the 2017 devaluation, we found, the aquaculture, poultry, and palm oil sectors surged ahead, thanks to the increased international competitiveness of the naira—progress that only came to a halt with the COVID-related global recession of 2020. Major investments by processors in the feed, rice, and maize sectors set the stage for significant potential improvements in those industries, complemented by the rise of new types of firms providing “managed value chain” services, covering everything from input supply to technical advice and off-taking for smallholder farmers and delivery to end buyers.
The cultivation of mutually beneficial “win-win” relationships underpinned increasingly strong bonds between farmers, input suppliers, and processors. Indeed, the sectors that grew the fastest in the aftermath of 2017 were those that established clear alignment between these interests. For example, major investments in the animal feed industry (serving poultry and aquaculture producers) also drove investments in maize (since 50 percent of Nigeria’s maize goes to the feed industry) and soya, both of which were supported by the managed value chain firms.
By contrast, even though investors built 75 new integrated rice mills, that sector has not done as well as the maize and soya sectors, largely because of limited investment by the rice millers in their supply chains.
DAI’s recent study examines the causes and impacts of this latest currency devaluation on Nigeria’s small, medium-sized, and large-scale farmers and agribusinesses to determine if and how market actors can take advantage of the current situation to increase the competitiveness of Nigerian products. Our analysis suggests that with the right actions, Nigeria’s agricultural sector can right itself, but that will entail a strong role for government. Specifically, the government should take the following actions to create an enabling environment conducive to agricultural enterprise:
- Stabilize the naira. A more stable currency will provide assurance to the private sector while breaking the cycle of higher prices, increasing product costs, reduced demand, and worsening poverty.
- Strengthen the supporting marketing systems. Stronger supporting market systems improve connectivity and coordination, enhance competition, and encourage increased production, while making smallholder farmers more resilient.
- Reintroduce government financial support to agricultural value chains. The prohibitive cost of capital is limiting the use of inputs, thereby reducing productivity. A well-designed support scheme will optimize opportunities for smallholders through a systematic structure of delivering inputs, extension services, and output offtake managed by the private sector.
- Deepen joint interventions by the federal and state governments that strategically promote, expand, and support the value chains associated with each state.
- Assess the impacts of all new policies to anticipate potential adverse impacts, identify mitigating measures, and ensure sound implementation.
We go into each of these recommendations in more detail in the full report:
