Raw materials prices have risen by 20 to 100 percent in the last one year, leading to high prices of finished products, thus squeezing consumers who are already stretched by low income levels and inflation.
“I used to buy a medium-sized loaf of bread at N300 in July 2019, but it has gone up to N450. I bought a pair of shoes for N2,200 last year, but the price had gone up to N4,000 when I wanted to buy the same pair of shoes in September this year for my younger sister,” Constance Taiwo, a Lagos-based recharge cards seller, who makes N25,000-N30,000 in a month, said.
“Prices of these things are increasing even when my income has not improved,” she said further.
Taiwo’s ordeal is down to the rising prices of raw materials for bread and shoes. Prices of flour, sugar, butter and vegetable oil have risen by 30-50 percent in the last one year owing to the closure of the Nigeria-Benin Republic border, Covid-19 glitches and logistics challenges faced by manufacturers.
A ‘paint’ measurement of flour and sugar cost N900 and N2000, respectively, today as against N600 and N1,300 in 2019, representing 50 percent and 54 percent price hikes, respectively.
Also, the price of vegetable oil in Lagos and Port Harcourt markets has risen 67 percent to N20,000, from N12,000 before the closure of the Nigeria-Benin Republic border.
The prices of all baking ingredients have skyrocketed, leading to high production costs and eventually upward review of prices.
BusinessDay found that a 25kg of flour sold N11,000 in 2019 now goes for an average of N14,000 in Lagos, Abuja, Port Harcourt and Onitsha.
Florence Owolabi, a Lagos-based baker, said she had to review product prices upwards to manage rising production cost, but that also led to 30 percent drop in sales
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In April, BusinessDay reported that lockdowns and Covid-19 shot up the prices of butter, sugar, preservatives, flour and other bread inputs, leading to a rise in the prices of the staple.
“Prices of these inputs have all increased. A 50kg bag of sugar we normally bought for N13,500 before the lockdown is now sold for N18,500,” Jude Okafor, national secretary, Association of Master Bakers and Caterers of Nigeria, had said.
Also, an Ariaria, Aba-based shoemaker, Onyeka Obidigwe, said prices of synthetic leather, rubber, foam, glue and other inputs for shoes have gone up by over 40 percent in the last one year.
“We sometimes get these things from Cameroon and other neighbouring countries, but we can’t get them now from there due to border closure. We only rely on China now,” he said.
Since the border closure, the supply of the seeds and crops for production has hit a decline and become difficult for manufacturers to access, leading to an upward review of the prices and higher production costs. This was further aggravated primarily by the outbreak of the coronavirus pandemic, which caused a supply cut and restricted distribution of raw materials for production. In addition to these are the poor harvest, clashes and unrest experienced during the year.
Jon Tudy Kachikwu, CEO of Jon Tudy Interbiz, a food exporter to the United States, said apart from high cost of food, Apapa congestion and security agencies have been the sources of high production costs.
Kachikwu said he spent N650,000 to move his foods from Iddo in Lagos to the port city as against N350,000 in November 2019. This represents 86 percent increase in the cost of moving from Iddo to Apapa, both in Lagos.
“Food prices are rising, yes, but security agencies are the biggest problems we have in Nigeria. Our logistics costs have doubled in the last one year because security agencies are asking for money at each junction,” Kachikwu said.
BusinessDay found that the climate change impact on maize production and the Covid-19 impact on supply chain led to a surge in the prices of maize by over 50 percent earlier in the year. This pushed players in the poultry industry to the brink. However, prices have been trending downwards in recent months.
For sorghum, which is an essential input for brewery industry, Muhammad Babayo-Maina, president, National Association of Sorghum Producers Processors and Marketers of Nigeria (NASPPMN), told BusinessDay that sorghum costs between N18,000 and N22,000 per bag as against N8,000 to N10,000 in the same period of 2019.
“The increase was caused by the outbreak of Covid-19 as the lockdown restricted the distribution of sorghum to major markets from the North,” he said.
“During that time, to avoid food crises and wastage, many people ate their own crops, which caused scarcity of the crop. Consumers were not happy with the price increase; however, the producers and processors were happy,” he said.
He explained that with a bumper harvest expected in the coming season, scarcity of the crop would reduce. Price of wheat has also risen due to Boko Haram insurgency and insecurity in the North, hurting bakers, starch makers and brewers.
Poverty rate is nearly 50 percent in Nigeria, with the country being the world’s poverty capital. Economic growth contracted by 6 percent in the second quarter of 2020 due to Covid-19, with unemployment standing at 27 percent and misery index hitting 43 points. Inflation level was 13.7 percent in September 2020, while the Monetary Policy Rate is 11/5 percent—one of the highest in Sub-Saharan Africa.
Income levels are stagnant or depleting even with high prices of finished products.
Ambrose Oruche, acting director-general, Manufacturers Association of Nigeria (MAN), said the bigger challenge for manufacturers was that they cannot shift the rising production costs entirely to consumers.
“There is a level of price increase you can give to consumers, and there is a level of price you can take. Prices of wheat are rising and bakers are threatening to shut down because there is a limit to the amount you can charge,” he said.
He explained that border closure had been a blessing for many manufacturers including vegetable oil, rice and cable makers.
Ike Ibeabuchi, a manufacturing company CEO, urged the government to re-open the Nigeria-Benin border and support manufacturers doing backward integration with funding and tax holidays. He called for agric mechanisation to reduce cost and enable manufacturers get cash crops at cheaper rates.
According to the agricultural commodities weekly price report released by AFEX Commodities Exchange, in the last week of October, the average prices of maize and sorghum stood at N126.81 and N233.67 per kg respectively while soybean was N153.99 and paddy rice was N176.97 similarly, ginger was N598 per KG, while cocoa was N797.67.
Experts say about 25 percent of Nigeria maize is used by the food and brewery industry, while 60 percent is consumed by the poultry industry. The rest is consumed by households.
Speaking on the increasing cost of raw materials, Segun Kuti-George, chairman, Nigerian Association of Small Scale Industrialists (NASSI), Lagos State, said, “Some of these raw materials are imported, and presently the exchange rate is not favourable for such transactions. For locally sourced materials, the infrastructure deficit, which causes storage and logistics challenges, will cause some of these products to spoil, especially those agricultural products which are perishable.”
He said the events that had occurred during the year, particularly the outbreak of the coronavirus pandemic and the civil unrest recently, aggravated the underlining problems.
The increasing cost of raw materials will have ripples effect that will affect not just the business operations of manufacturers, but also the workers and the economy as well, he said.
“With the rising cost of raw materials, manufacturers cost of production will increase, if they decide to increase the prices of their produced goods, it will further reduce their chances in the market with other competitors, especially imported products which tend to have cheaper prices.
“Consequentially, the volume of sales will drop, profit will decline, and in cutting cost they will lay off employees, which will increase unemployment and crime rate, thereby aggravating insecurity in the country,” he explained.
