Dollar sale ban to BDCs shows up in rising cost of cooking Jollof rice
The average cost of cooking a pot of Jollof rice for a family of five has increased to N8,000.50 from N7,618 within the last three months according to the latest SBM Intelligence Jollof Index report and government policy on foreign exchange is adding to the problem.
According to the Africa-focused geopolitical research firm, the suspension of FX sales to BDCs and the closure of websites that offer parallel rates led to information asymmetry and panic-driven price surges as most importers source their FX from the parallel market which in turn relies on information from such web pages, the report said.
The report said that in July, there was a reduction in the average cost of making a pot of jollof rice, but that the prices rose again in August and September.
“Our interviews with FX traders show that because there were no central means of determining the parallel rates, most of them increased the prices of FX to be on the “safe” side. Some components of the Jollof Index; Rice and Turkey are imported as demand supersedes internal production rates,” the report further stated.
Information asymmetry (unequal or lopsided) affects the cost of food prices. The lack of real market information on parallel rates further pushes up the cost of FX which is passed on to the final consumers.
Ayorinde Akinloye, a consumer analyst at United Capital Plc noted that the continued spike will exacerbate the pressure on consumer pockets.
“Inflation is still in double-digit, and we are yet to see a commensurate increase in incomes, so it is expected that consumers will continue to feel pressured.”
In July, the Central Bank of Nigeria ended the sales of FX to BDC operators, saying the parallel market has become a conduit for illicit FX flows and graft.
Before the FX ban on BDCs, factors such as insecurity, adverse weather conditions, lack of storage facilities, increased energy tariffs, land border closure policy and the Covid-19 Pandemic have led to a surge in food prices.
Although the country’s food inflation rate has been experiencing a marginal decline, it is still high at 19.57 percent as of September 2021 compared to 16.66 percent last year September. Recently, the World Bank noted that the country’s surging inflation rate has pushed seven million Nigerians into poverty.
According to the Bank, before inflation started rising steadily, there were 82.9 million poor Nigerians but the number has risen to 90.1 million.
SBM Intelligence uses Jollof rice, a common delicacy that most Nigerian households enjoy, as a proxy to measure food inflation (prices) across the country.
The commodities that make up the Jollof Index include; rice, curry, thyme, Knorr seasoning groundnut/vegetable oil, turkey/chicken (poultry), beef, seasoning, pepper, tomatoes, salt and onions.
And the data on the most common ingredients used in making Jollof rice are collected from 13 markets on a monthly basis across Nigeria’s six geopolitical zones.
“When we tried to find out from traders and sellers of these commodities the reason for the constant increase, they simply said it is because of the present dollar rate against the naira, especially for commodities imported from outside the country,”
A rice trader in Lagos who retorted with some hostility said, “We should ask the government that it’s not her fault that the prices have also increased from her source, so she has to increase so as to break even.”
Another reason given by traders, especially for perishables such as tomatoes, peppers and vegetables, is because of the present security situation in the states where these items are produced.
To tackle the continuous increase in food prices, the report recommends improving market information. “Information asymmetry affects the cost of food prices and it should be the first concern of the government as it can help both in the long and short term.”
Other recommendations are an investment in agricultural interventions targeted at increasing production levels for real farmers with built-in monitoring and evaluation techniques, incentivising and de-risking investment in agriculture, investing in food storage infrastructures and removal of import restrictions for essential food items.
“Away from “government should” recommendations, we recommend that solving the problems of food insecurity should take a “whole of society approach”, involving the participation of different stakeholders across the food supply chain rather than the top-down approach,” the report further advised.