Why gains of falling wheat prices elude Nigeria
...Bakers hike bread prices for third straight time
Wheat prices have fallen for over a month globally and are expected to see a further decline, but prices of bread and other derivatives are still surging in Nigeria as millers grapple with supply chain crisis.
On Monday, the United States Hard Red Winter wheat species fell 29.4 percent to $371 per metric tonne from $525.3 per tonne a month ago, according to data from the International Grain Council.
Flour millers need foreign exchange to import the wheat required to produce flour but the worsening dollar shortage in Nigeria has doubled their production costs, coupled with rising energy costs and mounting freight charges.
“The time lag effect might not allow us to see an immediate impact in the price of flour over falling global wheat prices as most millers bulk buy,” said Segun Falade, a wheat expert.
“We might see a marginal decline or none in our flour prices despite falling global wheat prices owing to the compounding FX issues, rising freight and energy costs challenges millers are battling with,” Falade said.
Since the COVID-19 pandemic, Africa’s biggest economy, which depends largely on crude oil proceeds, has been riddled with weak foreign inflows, resulting in a liquidity challenge in the country’s FX market.
The Russia-Ukraine crisis worsened the country’s FX challenges. As of Monday, July 25, the naira-dollar exchange rate closed at N425.75/$1 at the official market and N675/$1 in the parallel market.
The price of Automotive Gas Oil, popularly known as diesel, has soared by 178 percent year-to-date to an average of N800 per litre from N288 in January. While the logistics costs of moving a 40 and 20 feet container from the Apapa port to any location in the Lagos metropolitan costs an average of N275,000 and N190,000 respectively.
Another industry source who spoke with BusinessDay, David Ibidapo, head of market and data research at AFEX Commodities Exchange Limited, said the internal factors affecting the surging prices for wheat-based flour are having more impact on local wheat prices than the Russia-Ukraine war.
“The consistent weakening of the naira against the dollar in the FX space is a major contributory factor to the upward pressure we are seeing in prices, especially in the food space, bread not excluded,” said Ibidapo.
“As much as Nigeria continues to import wheat amid a dollar crunch in the economy which results in importers seeking dollars to import from the parallel market, we won’t see the impact of declining wheat prices globally on local bread prices,” he said.
He added that the country might see further pressure on the prices of wheat-based flour amid falling global wheat prices if it fails to address the internal factors affecting millers.
In the last few months, prices of everyday meals like bread, spaghetti, noodles, pastries, and biscuits that are made from wheat-based derivatives have been rising steadily in Nigeria for years; however, it has nearly tripled since February when Russia invaded Ukraine.
The price of a medium loaf of a 500gram of bread has risen from N400 in January to N800 after bakers hiked prices three consecutive times since February, indicating a 200 percent rise in price. A pack of spaghetti now sells for N7,700 as against N5,500 in February.
Jude Okafor, national secretary of the Association of Master Bakers and Caterers of Nigeria, said high production cost had forced over 1,000 bakers to close shop, stressing the need for the week-long warning strike that was recently called off.
“Flour and sugar prices are surging daily, and energy costs have doubled. How do we survive without passing the cost to the consumers?” he asked in response to the recent strike by bakers and a hike in bread prices.
In 2018, the Nigerian agricultural ministry put the country’s national wheat requirement at 5 million metric tonnes.
The country produces 36,943 metric tonnes of wheat in 2021, according to data from the National Bureau of Statistics (NBS). This figure is less than 1 percent of the country’s total annual demand.
Currently, Nigeria imports 98 percent of its wheat needs and the grain was the second most imported goods in the first quarter of 2022, accounting for N258.3 billion of the value of total imports for the period.
A 50kg bag of flour now goes for N29,500 as against N15,500 a year ago.