The Central Bank of Nigeria (CBN)’s exclusion of rice importers from accessing foreign exchange from Nigerian markets could stoke up rice prices in the country, according to analysts.
CBN defended its action, saying the denial of foreign exchange access was to encourage local production, create jobs and cut down the undue pressure on the country’s almost depleted foreign reserves.
But industry watchers have said that the move by the apex bank will lead to price increase of rice in the short- run since import substitution will take time. But they add that the policy will also accelerate local production of the commodity and improve the lives of local farmers in the long run.
“Local production has seen significant increase in the past few years although it has been insufficient in meeting the huge demand,” Ibrahim Buwanhot, Head, Business Development, Novus Agro, said in an email response to questions.
“These difficulties might result in slight increase in the cost of importing rice. I expect that consumers will have to bear the brunt, this will likely lead to increase in prices,” he said.
Buwanhot stated that increase in price of imported rice could inevitably result in an increase for locally produced long grain rice, where local producers see significant increase in profits and are encouraged to produce more,” he said.
Statistics from Federal Ministry of Agriculture and Rural Development shows that Africa’s biggest economy consumes about five million metric tonnes of rice annually.
Nigeria importers imported 1.1 million metric tonnes of rice valued at N73.5 billion in H2 2014, according to data from the Nigerian Customs Service.
A Lagos based rice importer, who spoke to BusinessDay on the ground of anonymity, said: “By diverting demand away from interbank, the parallel market is expected to increase as this will lead to increase in demand of dollars in this market. Thus spread between open market and interbank is expected to increase.”
“As imports substitution will take time, cost of rice is expected to increase leading to higher inflation,” the rice importer adds.
Analysts expect rice importers to experience some difficulties in adjusting to the restrictions from forex. It may also stoke inflation if importers are forced to pay more for dollars.
The CBN’s External Sector Development Report for Q4 2014 shows that total sectoral utilisation of foreign exchange increased by 28 per cent year-on-year to $17.5 billion. However, food products and agriculture’s proportion of the total declined from 17 per cent to 15 per cent.
The naira trades at N230 per dollar in the black market as at the time of writing, showing 16 per cent above the official rate of N197 per dollar.
Nigeria’s rice import is expected to drop by 3.3 per cent to 2.9 million tonnes this year, according to a report released in April by the Food and Agricultural Organisation (FAO).
Josephine Okojie
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