High financing costs force underproduction in Nigeria’s

Nigeria's poultry sector is operating far below capacity, not due to lack of demand but because farmers cannot afford the cost of capital. This paradox—idle production lines amid food shortages—reveals a deeper structural crisis in agricultural finance that threatens both food security and investor returns across the continent's largest economy.

Olajide Basorun, CEO of Rhyss Farms, one of Nigeria's leading poultry producers, disclosed that prohibitive borrowing costs are the primary brake on expansion. While consumer demand remains robust, farmers are rationing investments in feed, vaccines, and infrastructure because credit from commercial banks now exceeds 25% annually—making productive expansion mathematically impossible for operations with typical 15-18% profit margins.

## Why are Nigeria's farming credit costs so high?

The Central Bank of Nigeria's monetary tightening, designed to combat inflation, has cascaded into the real economy. Commercial lenders facing elevated policy rates now price agricultural lending as high-risk, despite the sector's essential role. Additionally, limited collateral options—many farms lack land title documentation—force banks to apply risk premiums that small and medium-sized producers cannot absorb. The result: a liquidity trap where growth capital remains unavailable regardless of market opportunity.

## How does underproduction affect Nigeria's food inflation?

When domestic poultry output stalls, consumer prices rise, eroding household purchasing power and widening inflation beyond the Central Bank's control. Nigeria's inflation rate exceeded 34% year-on-year in late 2024, with protein costs among the fastest-growing components. Underutilized capacity means supply cannot respond elastically to demand shocks, locking in price premiums that ripple through the economy.

The sector's underutilization also creates a vicious cycle. Farmers deferring expansion cannot justify bulk purchases of feed and inputs, which keeps supplier margins thin and discourages competing suppliers from entering the market. Infrastructure gaps—unreliable electricity, poor road networks, inadequate cold chain logistics—compound financing constraints by raising operational costs per bird produced.

## What are the investment implications?

For investors, the poultry sector presents a bifurcated opportunity. Established producers with strong balance sheets (like Rhyss Farms) can capture market share if they secure offshore financing at lower rates than domestic options. Conversely, the financing bottleneck makes greenfield entry or small-farm aggregation models challenging without patient capital or government-backed guarantee programs.

The Federal Government's Central Bank initiatives—including the N5 trillion National Accelerated Productive Employment and Youth Empowerment (NAPEP) program and targeted agricultural lending windows—offer partial relief, but uptake remains constrained by bureaucratic delays and stringent collateral requirements.

Basorun's statement reflects a sector-wide frustration: Nigeria has the demand, the expertise, and the existing infrastructure to double poultry output, yet capital structure failures prevent it. Until financing costs normalize or alternative funding mechanisms (agricultural bonds, private equity) scale meaningfully, Nigeria will remain dependent on imported poultry products, draining forex reserves and perpetuating food insecurity despite domestic capacity.

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