• Thursday, July 18, 2024
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Economic Analysis: Rising food costs grip Nigeria: Implications for families and economic stability

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The chart illustrates the steady increase in both inflation and food prices in Nigeria from January to May 2024. Inflation rates rose consistently month by month, starting at 29.9 percent in January and reaching 33.95 percent in May.

Similarly, food inflation followed a similar upward trend, starting at 35.41 percent in January and peaking at 40.66 percent in May. These figures highlight ongoing economic challenges, particularly concerning affordability and household budgets across the country.

Q: “Higher input costs, including energy, transportation, importation, and the devaluation of the currency, have trickled down from manufacturers to consumers.”

While inflation may be cooling in some nations globally, one area that continues to significantly impact Nigerians’ budgets is stubbornly high food prices.

According to the latest report by the National Bureau of Statistics (NBS), rising food costs were a major contributor to the unexpectedly high inflation figures. Food prices increased by 0.13 percent in May, rising from 40.53 percent in April to 40.66 percent.

Read also: Households groan as food prices soar in ambush for new minimum wage

This increase in food prices, though slightly slower, is still significant compared to the overall rise in the Consumer Price Index (CPI), which climbed by 0.26 percent from 33.69 percent to 33.95 percent during the same period.

The persistently high food prices can be attributed to several factors. Higher input costs, including energy, transportation, importation, and the devaluation of the currency, have trickled down from manufacturers to consumers.

Additionally, record-low poultry numbers have driven up the cost of chicken. Insecurity hindering the food supply chain exacerbates the issue. According to the NBS, increases in the prices of staple foods such as garri, beans, yams, eggs, and pepper are major factors responsible for the surge.

However, some policy experts argue that other factors are at play. They claim that corporations are exploiting the situation to increase prices arbitrarily.

These experts warn that companies are “ripping people off” through practices like price gouging, “greedflation,” and shrinkflation. Greedflation refers to companies hiking product prices beyond the rate of inflation to boost their profits, according to William Dickens, an economist.

Amaka Nwosu, a 35-year-old single mother of three, lives in Lagos and works as a primary school teacher. Her salary, which has barely increased over the past few years, is now stretched thinner than ever due to the rising cost of food. “It’s getting harder every month to feed my children,” Amaka says. “I have to make difficult choices between buying food and paying for other necessities like school fees and healthcare.”

Amaka’s story is a common one across Nigeria. The high cost of staples means that many families are forced to cut back on the quality and quantity of food they consume. “I used to buy a crate of eggs for 1100 Naira, but now it costs almost 3800 Naira,” she laments. “We used to eat eggs regularly, but now it’s a luxury.”

The economic strain caused by rising food prices extends beyond individual households to impact the broader economy significantly. As food prices continue to escalate alongside inflation rates, it is regrettable that the most vulnerable segments of society bear the heaviest burden. This trend is expected to exacerbate poverty levels, posing a serious threat to overall economic stability.

According to Stephen Onyeiwu, a professor of economics and business at Allegheny College, Nigeria’s inflation is attributed to a combination of factors. These include the removal of oil subsidies and the devaluation of the naira.

Additionally, longstanding supply constraints such as instability in food-producing regions of the country, deteriorating rural infrastructure, the impact of climate change, and the migration of rural residents to urban centres in search of better opportunities exacerbate the situation.

Regrettably, despite the Nigerian government’s concerted efforts to curb inflation rates, such as tightening monetary policy and raising the Monetary Policy Rate (MPR) by 750 basis points over three consecutive adjustments, stubborn inflationary pressures persist.

These measures were implemented in an attempt to stabilise the economy and mitigate the impact of rising food prices on households and businesses alike. However, the effectiveness of these policies in stemming inflation has been limited, highlighting the complexity and resilience of the underlying economic challenges facing the nation.

Moreover, the persistence of high inflation underscores the urgent need for a multifaceted approach that addresses not only monetary policy tools but also structural issues contributing to price instability.

More sustainable solutions lie in increasing agricultural productivity. This can be achieved through investments in infrastructure, technology, and research. Improving roads and storage facilities can reduce post-harvest losses, while modern farming techniques can boost yields. Ensuring farmers have access to affordable inputs, such as seeds and fertilisers, is also crucial.

Insecurity, particularly in the northern regions of Nigeria, poses a significant challenge to food production and distribution. Frequent conflicts and banditry disrupt farming activities and transportation networks, leading to shortages and higher prices. Addressing these security issues is essential for stabilising the food supply chain.

Another fiscal measure that could be implemented to mitigate the effects of the current food crisis is the temporary opening of borders to facilitate the importation of essential food items. This strategic move could help alleviate immediate supply shortages and stabilise prices in the domestic market.

Simultaneously, enhancing agricultural investment is crucial for boosting local production and reducing dependency on imports in the long term. By investing in irrigation systems, modern farming techniques, and providing subsidies for fertilisers and seeds, the government can support farmers and enhance their productivity.

Allowing increased inflows of food through imports can address the urgent challenges posed by supply constraints and seasonal fluctuations in agricultural output. However, it is essential to strike a balance between imports and domestic production to ensure food security and safeguard the livelihoods of local farmers.

These fiscal measures, coupled with ongoing efforts to improve rural infrastructure and mitigate the impact of climate change on agriculture, are essential for building a resilient food system capable of withstanding future shocks. By taking proactive steps now, Nigeria can better navigate the current food crisis and lay the foundation for sustainable agricultural development and food security in the years ahead.

Corporate practices also play a role in the high food prices. Some experts argue that large corporations and traders are exploiting market conditions to increase their profits.

This is known as “greedflation,” where companies hike product prices beyond the rate of inflation to boost their profits. Shrinkflation, where products are sold in smaller quantities for the same price, is another tactic used by companies to increase profits without appearing to raise prices.

Regulating these practices can help protect consumers. The government needs to ensure that competition laws are enforced and that companies do not engage in anti-competitive practices. Greater transparency in pricing can also help consumers make informed choices.

Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).