The Gbadebo family’s Christmas tradition of buying two bags of rice, 10 live chickens and a goat for the usual end of year Christmas party may not be plausible this year as food prices have surged beyond what the family can afford.
The Gbadebos are not alone. With Christmas gradually approaching, Nigerians are set to experience more pain as food, transport cost and other economic indicators continue to worsen.
Nigeria has recorded its highest inflation in nearly three years at 14.23 percent in October 2020, up from 13.71 percent in September, as food prices continue to rise unabated.
Food cost rose by 17.38 percent in October 2020, the highest this year. This implies that it is more costly to buy major food items as rising inflation has squeezed consumer’s income.
Major commodities including rice, yam tubers, oil, vegetables, onions, pepper, tomatoes, maize, chicken/turkey have seen a price spike in recent times.
Specifically, a recent BusinessDay survey at Mile 12 Market shows that onion is one of the many commodities that is rapidly escalating in price as a 100kg bag of onions has now jumped to N80,000 as against N30,000 last year.
Similarly, a 50kg bag of local parboiled rice now sells for an average of N28,000, a 65 percent rise, from N17,000 July last year, while that of foreign rice sells for N32,000 from N14,000 in the 14 months period.
The adverse effect of attacks and clashes between herders and farmers has also weighed on food supply.
States with the highest food inflation are Edo, Zamfara and Kogi with 21.65 percent, 20.88 percent and 20.58 percent, respectively.
This is coming at a time Gross Domestic Product has contracted 6.1 percent in second quarter (Q2), and analysts have said the economy is on course for its next recession since 2016.
In comparison with the last recession, food prices stood at 17.39 percent in December 2016; with prices already at 17.38 percent in October 2020, prices could be much higher in December 2020.
Also, the transport sector has been plagued by rising cost this year and with the recent increase in the pump price of petrol to N168 per litre, up from N153.67, transport cost is set to surge further during the yuletide season.
The World Bank has also projected that the poverty rate in Nigeria will increase to 42.5 percent in 2020 from 40.1 percent in 2019, dragging 5 more million people into poverty.
This is made worse with unemployment, which rose to 27.1 percent in Q2’20, the highest in 6 years.
Key drivers of the spike in prices
Omotola Abimbola, a macroeconomist at Chapel Hill Denham, states that the escalating level of inflation is triggered by a combination of many factors.
Protests
“First, the issue of public unrest played a huge role in quickening inflation due to the various protests and eventual imposition of curfew in many states, which disrupted the supply chain, hindered transportation movement and caused panic buying to a large extent.
“Particularly, the transportation and health sectors have been under consistent pressure this year and in the era of more flexible prices for petroleum products,” according to Abimbola.
Abudulazeez Kuranga, an economist at Lagos-based Cordros, states that the hike in inflation is partly driven by higher transportation cost, which affected farmers in moving goods from farmlands to markets causing a surge in food prices.
Similarly, in an earlier report, BusinessDay Sunday analysis showed that the Young Shall Grow, GUO and Libra Motors charged as high as N9,500 to N12,000 by the third week of December 2019 for journeys that cost between N4,500 to N6,500 before the yuletide season.
Currently, bus fares have skyrocketed as survey from God is Good Motors shows a range of N14,000 to N17,000 from Lagos to Abuja; Lagos to Enugu costs N11,000 to N13,000; Lagos to Port Harcourt is between N14,000 and N16,000.
Poor Harvest
Abimbola states further that “the second major factor was the underwhelming harvest season experienced.
“Typically, main harvest periods in Nigeria occur between August and November with declining food prices, but the reverse has been the case stemming from reduced planting at the peak of Covid-19 lockdown between Q1 and Q2 2020.”
Kuranga also explains that security and flood issues in Northern Nigeria have affected food production and prices.
Border Closure
The cumulative effect of the border closure is still embedded within the cause for food scarcity as importation activities, which would have been the ready alternative for Nigerians, is still greatly restricted.
In line with this, Kuranga notes that Nigeria’s current predicament of being unable to import goods and services leaves the country with no supplement in obtaining a larger supply of products that will consequently drive down prices.
This is in addition to the fact that Nigeria alongside other global countries battle to overcome the production capacity triggered by the coronavirus pandemic.
“Nonetheless, the role of structural factors cannot be totally ignored such as weak exchange rate liquidity, which has persisted through the Covid-induced pandemic,” says Abimbola.
Inflation Outlook
Based on previous trends of rising inflation during the yuletide season, it can be foreseen that inflation levels will be much worse in the last two ’ember’ months of the year 2020.
Further, the recent rise in petrol pump price to N168 per litre will likely lead to fuel scarcity alongside further hike in transport fares and overall inflation rate.
The Federal Government plans to reopen the borders soon, although a definite date has not been set, but experts believe that in the coming months, we should probably expect food prices would come down if the borders are reopened.
“If Nigeria reopens her borders, it will help to offset the rising inflation record, which was jointly triggered by reduced local production and no imports,” Kuranga states.
“The first half of next year might still be considerably plagued with some level of inflation because of the low base effect from the current downtimes and crisis being experienced in the Nigerian economy.
“It might not be until the second half of next year that inflation will substantially decelerate given the projected high base effect as an outcome of economic recovery and stability,” says Abimbola.
