Wallets shrink as food inflation nears all-time high

Consumers’ wallets are rapidly shrinking as Nigeria’s food inflation rate is on course to hit an all-time high this month due to a combination of rising demand, higher transportation cost and worsening insecurity.

BusinessDay analysis of the latest Consumer Price Index report by the National Bureau of Statistics (NBS) shows that food inflation, which constitutes more than 50 percent of headline inflation, rose for the 14th straight time to 37.92 percent in February this year from 35.41 percent in the previous month.

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February’s rate is almost at par with the 38.50 percent in August 2005. In January, food inflation rose by 1.48 percentage points from 33.93 percent in December.

“We most likely would pass the record in March because there has not been any policy or sort of national domestic or regional international headwind that would have effectively served as an inflation breaker,” Ikemesit Effiong, partner and head of research at SBM Intelligence, said.

He said surpassing the record would mean that there is little space or room for consumers to escape the effect of elevated consumer prices.

“If this keeps up, it may cause a dent in GDP growth. So, you might see a situation where the slow positive growth that we see right now fits into almost no growth,” he added.

Analysts at Financial Derivatives Company Limited, led by economist Bismarck Rewane, said in a recent report that the increase in inflationary pressures will continue in March due to the demand push effect of Ramadan and Easter.

“The incessant increase in food prices is linked to cost-push inflation, driven but not limited by weaker naira and forex translation costs. Importers attempt to reprice inventory at the current exchange rate, especially for imported commodities,” they added.

Since President Bola Tinubu announced petrol subsidy removal during his inauguration on May 29, the pump price of the product has more than tripled to N600, while the value of the naira has plunged following the floating of the currency.

Last June, the Central Bank of Nigeria (CBN) merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.

The naira depreciated significantly against the dollar and other major foreign currencies. The official exchange rate fell from N463.38/$ to N 1,408.0/$ as of March 25, 2024. At the parallel market, the naira weakened to N1,450/$ from 762/$.

Although the reforms have increased revenue for the government, it has also worsened the hardship facing the people as the inflation rate has accelerated to a record high level.

Last year, the World Bank revealed that rising inflation and sluggish growth in Africa’s most populous economy increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year.

Analysts at SBM Intelligence said in a recent report that despite cost-cutting and inflation management measures, Nigerian households spend 97 percent of everything they earn solely on food.

“The Tinubu administration has its work cut out – arresting spiralling insecurity, tackling grinding poverty, enhancing economic opportunity, and forging a sense of national consciousness. It is safe to say that it is not off to a great start,” they said.

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Charis Edward, a Lagos-based trader, told BusinessDay that the high price of food has become unbearable for his family.

“I sell different flavours of pap and groundnut. But I had to add a Point of Sale business because of my four children. I just gave birth to twins in January. My husband is a bus driver and most times, he doesn’t go to work because he wants to assist me with the twins. Most times, we eat once a day and because we can’t afford much and children might not take food to school,” she said.

Ebunoluwa Adeleke, another Lagos-based mother of three, said the rising prices of food items such as rice, oil, and pepper have made her reduce the quantity of food that she sells.

“My husband works on the island and he comes home only on weekends or at the end of the month. The little money we gather is what we use to pay school fees and feed. We have been eating well because I sell food but not as often as before, like twice in a day. Sometimes, I get the opportunity to clean people’s apartments in the evening and get paid. That’s another source of income,” she said.

The NBS’ latest food prices report shows that the price of one kilogram of local rice (sold loose) rose to N1,222.9 in February from N520.8 in the same period of last year and a 500g sliced bread increased to N1,047.9 from N553.0.

The price of an agricultural egg rose by 58.2 percent to N88.03, a kilo of frozen chicken increased by 57.4 percent to N4,007.6 and a kilo of yam tuber grew by 131.2 percent to N1,009.5.

“Every human priority is feeding. So the higher the inflation, the lower the tendency to save. And that means that hunger will persist and poverty level will go up because every dime you make will be on food,” Abiodun Olorundenro, managing partner at Prasinos Farms, said.

According to him, a 50kg bag of rice is now N97,000.

“The only way to curb food inflation isn’t with small cuts or discounts from the government because the production level is still very low,” he said. “The likelihood that food inflation would drop is very small because there’s a lot of focus on growing food in the North, and there’s even a limit to that because of insecurity and high transportation cost.”

Uchenna Uzo, professor of marketing and faculty director at Lagos Business School, said food prices at record high portray a gloomy picture for the economy because food is 60 percent of the share an average consumer spends for whatever they earn at the moment.

“The rising food inflation will put more pressure on their pockets and reduce the amount of money they have to spend on other items that are available to them. So, it’s going to be a time of tighter monitoring, rationing, and where food businesses will have to reprioritise on their investment,” he added.

Since the beginning of the year, several kidnapping cases have been reported in more than six states and Abuja, the nation’s capital. Protests have also broken out in different parts of the country in reaction to the high cost of living, with citizens in Niger, Kano, Ogun, Osun, and other states demanding solutions to the economic crisis.

There has been looting of warehouses and stores by some citizens. Some have expected the release of grains from the strategic grain reserve to ameliorate food prices, but that did not materialise.

During the sixth executive committee meeting of the Northern Traditional Rulers Council last month, Muhammad Abubakar III, the Sultan of Sokoto, said the economic hardship in Nigeria had reached a level where citizens were agitated, angry, and hungry.

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He said: “To make matters worse, we are faced with the rising level of poverty amongst our people, lack of normal sources of livelihood for the common man to have even if it is one good meal a day.

“I believe talking of insecurity and the rising level of poverty are two issues that we cannot fold our arms and think everything is okay. I have said it so many times and at so many fora that things are not okay in Nigeria and of course, things are not okay in the North.”

Last year, Tinubu declared an immediate state of emergency on food insecurity to tackle the increase in food prices. He unveiled a comprehensive intervention plan on food security, affordability, and sustainability, including an immediate release of fertilisers and grains to farmers and households to mitigate the effects of the subsidy removal.

In February, Abubakar Kyari, minister of agriculture and food security, expressed the readiness of the federal government to freely distribute a total of 42,000 metric tons of assorted grains to Nigerians, in response to the rising food crisis in the country.

He said efforts were ongoing to ramp up the production of food, adding that there were plans to incentivise farming activities in the country.

The Lagos State Government recently commenced the sales of essential food items at discounted prices across the state. Gbenga Omotosho, commissioner for information and strategy, said the markets will offer Lagos residents a 25 percent discount on staple food items like rice, beans, gari, bread, eggs, tomatoes, and pepper.

Paul Igbinoba, managing consultant at ProServe Options Consulting, recommended that state governments need to allocate a minimum of five to 10 percent of their monthly allocations from the Federation Account Allocation Committee in the next six months to fight the food crisis in close collaboration with the federal government.

“Secondly, food items should be bought in bulk and sold weekly all over the states at designated places at subsidised prices. Lastly, massive agricultural programmes should be embarked upon by all state governments, including southern state governments, which could, in the next six months, lead to a bumper harvest that will significantly bring down food prices,” he said.