Nigeria enters one of worst food crises in history

It now costs Nigerians twice the amount they spent on food five years ago to buy similar quantity today.

That is after food prices rose to the highest level in the 12 years since the National Bureau of Statistics (NBS) started collating inflation data, a worrying trend for many Nigerians whose incomes have been declining since 2015 and are increasingly falling into the poverty pit.

Food is the largest single item Nigerians spend on, accounting for over half of total spending in 2020.

Food inflation, which measures the rate of increase in food prices, quickened by over 150 basis points to 20.57 percent in January from 19.56 percent in December.

It marks the 17th consecutive month of increase since the border closure, which has now been lifted, was enacted.

Nigerians have seen price increases in virtually all food items, particularly in oil and fats, fish, potatoes, yam and other tubers, fruits, meat, vegetables, and bread and cereals.

“This is one of the worst food price crises in Nigeria’s history,” said Omotola Abimbola, senior associate, investment research, ‎Chapel Hill Denham.

What is worse, according to Abimbola, is that “the abrupt increase in the food inflation was partly self-inflicted.”

Why food prices in Nigeria are rising

Nigeria’s increasing food prices can be tied to a number of factors including supply chain disruption emanating from the pandemic, FX restrictions, hike in petrol prices, insecurity, border closure and climate-related shocks, among others.

FX restrictions: Since the 2014 collapse in oil prices and oil production that caused Africa’s most populous nation to slip into a recession four years ago, Nigeria has resorted to banning imported items as a way of saving the country the needed foreign exchange.

In 2015, Nigeria placed a ban on 44 items from accessing dollars in its official window.

Among these items include fruit Juice in retail packs, cocoa butter, powder and cakes, spaghetti/noodles, pork, beef, bird’s eggs, excluding hatching eggs, maize, refined vegetable oils and fats (includes mayonnaise), among others.

What this means is that importers of these items would have to seek foreign exchange from the parallel market where the naira is known to trade at a weaker value.

That would increase the cost of import and result in what economists call imported inflation.

Nigeria’s naira ran into troubled waters last year, losing nearly 25 percent of its value after the global pandemic collapsed petrodollars and exerted pressure on the reserve.

Manufacturers wanting to import key equipment to boost production locally were starved of dollars with pile-up of unmet FX request running into billions.

At the parallel market, the naira exchanged as much as N500 to a dollar, further pushing up prices of imported commodities.

NBS data show that Nigeria’s food imports surged to a five-year high in the first nine months of 2020, with food imports accounting for most.

A total of N1.2 trillion worth of food products were imported into the country from January through September in 2020, indicating a 65-percent rise when compared with N726 billion in the corresponding period of 2019.

With manufacturers faced with a higher cost of importation, they have had to pass on the higher cost to consumers in the form of higher prices.

Border Closure: In what it said was aimed at boosting local production and curbing the smuggling of food and illegal items, Nigeria in August 2019, embarked on a protectionist policy, shutting its land borders against its neighbours.

While the policy helped boost local production, particularly rice, it has on the other hand hurt companies from carrying out legitimate exports.

Commodity prices, which were already trending downward, reversed upward, rising for the 17th consecutive month.

The border closure also dealt a blow to Trade, Nigeria’s second-largest contributing sector to GDP, as the sector continues to wallow in recession.

To show how the border closure worsened food prices, Nigeria’s food inflation moderated month-on-month to 1.83 percent in January from 2.05 in the previous month.

Going forward, analysts at stockbroking firm, CSL, said while the decision to reopen the border was a positive development, food prices would remain elevated on continued insecurity challenges in food-producing regions.

Heightened Insecurity: The rising spate of insecurity in the country has continued to impede Nigeria’s food production drive.

The clash between farmers and herders in most parts of the country has continued to push farmers out of farmland, thereby reducing agricultural harvest.

On the other hand, the incessant attacks by the dreaded terrorist group, Boko Haram, particularly in the Northern region where major agricultural products are cultivated, has killed hundreds of thousands and sent many packing as Internally Displaced Persons (IDP).

Growth of the agricultural sector came to 1.4 percent in the third quarter of 2020, compared with the average 5.5 percent growth in 2014.

Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said food continued to be the biggest driver of Nigeria’s inflation due to high cost of transportation, the security problems affecting farming communities, the seasonality of agricultural production and climate change.

“Until these challenges are addressed, we would not see a moderation in food prices,” Yusuf told BusinessDay.

How the government can tackle increasing food prices

To stem increasing food and commodity prices, BusinessDay spoke with a number of business leaders and experts on what can be done to reverse the tide of rising food prices.

According to Ayodeji Balogun, CEO, AFEX, there are three things that need to happen.

“We have an aggressive dry season production, which will then be harvested around April/May. That can help to stem the trend otherwise we see the trend continuing until October,” Balogun told BusinessDay.

“We also have to find a way of increasing our strategic food reserves. As a country, we produce about 30 million metric tons of grains, so we should be storing around 1.5 million metric tons or 5 percent of the total value as a minimum.

“Currently, our strategic reserves are always around 50 to 100 thousand. We need around 1.5 million as a minimum so as to help us intervene on prices a lot better.

“The longer-term solutions would be to have a derivatives market that then starts to manage and reduce the volatility of prices,” Balogun said.

Moses Ojo, chief economist/head, investment research, at PanAfrican Capital Holdings Limited, said the government needs to address the conflict between herders and farmers in some parts of the country.

“If the conflict persists, it will make the current high food inflation in the country worse,” Ojo said.

“Also, in the medium to long term, there is a need for the policymakers to tackle infrastructural deficiency such as bad roads that makes the movement of food crops from remote farms to the urban centres difficult and expensive.

“On the monetary side, the central bank monetary policy committee is expected to change its focus from economic growth to price stability in order to rein on inflation once the country is out of recession,” Ojo said.

Emmanuel Ijewere, vice president, Nigerian AgriBusiness Group (NABG), said the biggest problem in the country was the lack of storage and preservation.

“At the time of harvest, there is a lot of waste, so the way forward is for us to look inwards and start the process of food preservation, storage and take it as a policy, especially at a time of harvest,” Ijewere said.

“Secondly, to ensure food security, we need to start a proper irrigation system so that we can now plant food all the year-round rather than the seasonal farming we are doing,” he said.