Forex, inflation and self-sufficiency

Nigeria’s food self-sufficiency goal has hit many rocks in recent times. No other staple food has been as politicised in Nigeria’s history as rice, and now, maize. This is because of an obsession with achieving zero food imports while ignoring common sense economics.

Nigeria does not produce enough food to feed her citizens. For instance, only about 57 percent of the 6.7 million metric tonnes of rice consumed in Nigeria yearly is locally produced, leading to a supply deficit of almost 3 million metric tonnes. How is this deficit addressed? Imports. Imports require US dollars and for importers, the best place to get it cheap is at the CBN. The decision of President Buhari to lean on the CBN to stop issuing dollars to food importers will chase importers into the hands of black-market operators who sell dollars at a higher rate than the CBN. The impact will be higher food inflation.

There is a way these things are uniquely tied. Once food prices rise, people are squeezed as more of Nigerians’ already meagre incomes are tied down in this most basic necessity. This reduces productivity, which ultimately leads to a fall in the value of the naira, as more is used to fund food imports due to this artificially created scarcity.

Buhari’s insistence on “able bodied youths” returning to agriculture in this day and age would not cut it especially without forex. A better idea would be to deploy a lot of forex to not only import food but process and store locally grown food. Food storage has been a nagging problem and we were treated to pictures of wastage of farm produce from Benue on Twitter two years ago. This would mean deliberate and effective steps to improve power supply and emphasis on efficient rural electrification, thus ensuring seasonal foods are available all year round, organically reducing the need to spend forex on food.

The challenge does not just end at forex restriction. Insecurity in many of the country’s food producing areas is affecting production and the supply chain. The economic cost of the pastoral conflict in the North West and Central has been inflation. Irregular rainfall in some areas, coupled with flooding in Kebbi, Nigeria’s biggest rice producer, are also problems that need to be addressed.

Firstly, the cost of producing crops in Nigeria has increased due to increased risks (from security and supply chain management) for farmers and traders (cost-push inflation). Secondly, available money is now chasing fewer goods available (demand-pull inflation). But beyond that, rather than address the root cause, the government’s rhetoric has been that smuggling of cheap produce from Asia has stifled local agricultural production, hence the decision to close the borders last year. There is also the ill-thought and ill-timed move by the CBN to add maize to the list of items for which importers cannot access forex at official rates.

Why is this not very bright? Well, Nigeria is pretty self-sufficient on the maize score, except for when something happens such as insecurity, which this newspaper highlighted in an August 2019 report titled, “Nigeria’s food insecurity to worsen on Buhari’s actions”.

Pretty much since the Brits left us to our devices in 1960, Nigeria has never struggled to meet the demand for maize within the country. In fact, asides a period of economic collapse in the early 1980s, a shortage caused by flooding in 2012, and then post 2016. A week after the CBN placed maize on the restricted list, Ikechukwu Kelikume, the Programme Director of the Lagos Business School Agribusiness programme predicted that we’d run into problems because in the case of a shortfall, maize importers would have to access forex at the parallel markets, forcing them to pass increased costs to end consumers.

The policy thrust completely ignored two facts: that merely making it harder to import a commodity does not mean that local production will automatically increase if other (local) factors weigh on production and Nigeria is pretty much self-sufficient in maize production, except during special circumstances such as now. The dissonance in policymaking has now deepened to the point where the CBN is making fiscal policy using monetary tools and other parts of the government are not working in tandem to deliver stated objectives. In this case, there is a need to resolve the insecurity bedevilling the maize production areas, to improve production by way of inputs such as quality seeds, better farming practices and broaden access to finance – many of which aren’t the responsibility of the monetary regulator.

It also brings into question the utopian pursuit of the FG to guarantee food self-sufficiency rather than food security – already, food comprises 56 percent of Nigerian consumer spending. There is a likelihood that at the current rate, this may rise to 80 percent in the next four or five years. Prevailing policy thinking is likely to end up pushing costs even higher in the short term (the rising cost of eggs and poultry being a case in point). Perhaps like never before, this moment calls for bold and fresh policy thinking. The alternative to courageous policy design is a Nigeria that continues to sink deeper into poverty and extreme poverty too, with food security proving more elusive. In conclusion, the new outlook by the CBN is, to put it politely, defective.