COVID-19 and Food Systems: how SMEs in Nigeria can adapt and respond
Forty minutes wait at the carefully marked “social distancing” lines in front of my local Shoprite supermarket in Jabi, Abuja, moving forward as the shop empties to balance the number of shoppers in the store at any time. Finally, I get in and there are no sweet peppers! No red, no yellow, no green! Not just that, no mushrooms, no rocket, and no tomatoes. In short, no veg on the shelves! I know sweet peppers are not what millions of Nigerians are worried about right now, but for me it meant no salads. More worryingly, this points to the shortages we now face for nutritious foods, and for most food items, as the effects of restrictions imposed to control the spread of COVID-19 begin to take their toll on the Nigerian food system. This portends a looming socio-economic crisis that may end up being worse in its medium to long term impact on the country than the health crisis from the pandemic. And it’s not even the Shoprites of this world that I am especially worried about.
As restrictions on movement have increased, the Global Alliance for Improved Nutrition (GAIN) and the Scaling Up Nutrition (SUN) Business Network (SBN) have become increasingly concerned about the implications for the real drivers of local food systems in Nigeria – the small (often micro) and medium sized businesses (SMEs) that produce, transport, process, market and retail the food and related services that millions of Nigerians rely on.
It has become increasingly clear that as the health-focused response to COVID-19 ramps up, SMEs will face serious challenges to their operations, from pressures on supply chains to increased costs of production and distribution. The obvious consequences are food shortages and price shocks for the consumers who rely on them, and unemployment and bankruptcies for these already fragile businesses. Action is needed to ensure this health crisis does not cause a food and malnutrition crisis. So, what should we be doing now?
The first step is to better understand the specific challenges SMEs are facing. Then work with them to identify quick mitigation measures to dampen the consequences and help them ride this season in a way that can increase their chances of emerging on the other side. The key focus has to be on collaborative solutions, drawing in all the key actors and interests to ensure that we can reinforce and build the resilience of local food systems with nutrition at its core.
To initiate this process, SBN Nigeria facilitated a webinar on 8th April 2020 to bring together businesses from across the food value chain (processing, marketing and retail, nutrition, food safety, logistics and financing), as well as business ecosystem connectors, key government agencies and other development actors. The goal of the webinar was to generate shared understanding of the challenges faced by SMEs in the food sector as a result of the ongoing response to the pandemic, identify critical support needs of these businesses and mobilise the collaborative solutions, risk management strategies and business continuity options that will help SMEs adapt and respond, all the while focusing on nutrition.
What did we learn? Nigerian SMEs in nutritious foods production and processing told us that accessing raw materials, especially agricultural produce was becoming a critical bottleneck. Supply and demand challenges have also led to an inability to meet loan and lease repayment schedules. As the overall volume of production falls and cash starts to run out, some have already had to offload staff while others have introduced reduced work hours for staff. Ultimately, if things do not improve in the short term, these SMEs will have little option but to shut up shop and lay off even more staff.
Adenike Adeyemi, Executive Director, FATE Foundation, a key ecosystem actor that provides business incubation, growth and accelerator support to SMEs said the Foundation had already surveyed SMEs in Nigeria to understand their challenges and current plans against a number of business parameters. A striking finding was that 52% of the SMEs surveyed were not sure of staying operational beyond 4 weeks due to cashflow problems, with one in five saying they would definitely be out of business within that timescale if things remained the same.
For any business and particularly for SMEs, “cash is king”, warned Ndidi Nwuneli, Managing Partner, Sahel Consulting, and Co-Founder AACE Foods. SMEs must immediately review their cash flow and plan for a range of scenarios taking a painstaking look through all fixed and variable costs. Lenders and other funders may be able to help ease cashflow problems, but they will be keen to see how aggressively current costs are being managed. The approach must be ruthless if the business is to survive. She also advised that this was not the time to close out on supplier relationships but rather a time to keep supply chains as open as possible to take advantage of potential new sourcing relationships if businesses are able to access services that help map sources with markets. Operating models have to evolve quickly in these conditions and digitalising B2B and B2C channels is now going to be a feature of the business environment of the future. SMEs must explore e-commerce mediated direct sales and opportunities to share digital spaces such as websites with complementary businesses to reduce costs.
Professor Ogunmoyela, Executive Director, CAFSANI, an advocacy platform for food safety and nutrition underlined the importance of sustaining food hygiene, including hand washing, infection control and cross-contamination prevention, as well as keeping an eye on quality implications of reduced production and capacity utilisation as offtake reduces.
Beyond changes to business operations, how are COVID-19 related interventions from the government helping to cushion the negative impacts on SMEs? Victoria Madedor, Head Agribusiness and FMCG, BOI Investment & Trust, a subsidiary of the Bank of Industry (BoI) outlined some of the intervention funds available through the BoI and the Central Bank. For example, the interest rates for Central Bank interventoin funds in agriculture had come down to 5%. BoI is also making “Impact” funds available without the need for stringent collateral for loans below 10 million Naira, as well as other flexible collateral options for higher amounts. Some of these measures are targeted specifically at the food and nutrition sector. However, businesses noted that accessing these instruments remains difficult for SMEs, therefore clear actions are required to ensure this health crisis does not result in a food and malnutrition crisis.
In summary, SMEs must be engaged and supported. The proximity of food and nutrition SMEs to local communities means they are well placed to shape their businesses in response to consumer demand and adapt their businesses to new distribution and delivery models, especially around last-mile distribution. This is likely to work much better than the government-led distribution models currently in play. As we better integrate and expand the response to COVID-19, we must make additional investments in alleviating the disproportionate care burden on our women and ensure that support to women-owned and women-led SMEs is prioritised.