Nigeria’s year-long border closure raises consumer food prices with little gains

Nigeria’s decision to shut land borders to trade with neighbouring countries was supposed to stimulate local production which would in turn drive down inflation, but that does not seem to be yielding much gain as consumer food prices have been on a steady rise one year after.

One year may be too short a period to gauge the effectiveness of the border closure but economists generally hold the view that the policy is counter-productive for a country that relies largely on food imports to meet deficits in local production.

A better way to stimulate local production, according to these economists, may be to improve the decrepit infrastructure that makes it expensive to do business in Nigeria and renders local producers uncompetitive.

Consumer prices have jumped to more than a two-year high of 12.82 percent in July from 11.08 percent from a year ago, as food prices surged. Annual inflation was at its lowest in 39 months when borders were shut last year.

Data from the National Bureau of Statistics show that as of July 2020 the average price of 1kg of tomato increased year-on-year by 49.35 percent while the average price of 1kg of rice (imported high quality sold loose) increased year-on-year by 37.72. Also, the average price of 1kg of Garri increased by 47 percent compared to the same period last year.

The spike in the inflation rate is mainly driven by rising food costs which is ironic as the aim of the border closure was to drive down costs through increased local production.

“We are not yet on the path of food sufficiency’’ says Abudulazeez Kuranga, an economist at Lagos-based Cordros. “If we had enough production in the country to meet demand, then we can close our borders but we do not have enough local production to meet demand.”

Kuranga explained the gap that local production cannot cover is passed on to the consumers in the form of high prices.

The price of 1kg of local rice in July last year, a month before the closure of the border was N271 while imported rice was N352 per kg. Last month the price of 1kg of local rice was N362 per kg and imported rice was N490 per kg, according to data from the National Bureau of Statistics (NBS).

While the ongoing pandemic might have added to food price pressure, the closure of the land borders has been a large trigger, some experts say.

Nigeria last year complained that Benin, a small country with the population almost half the size of Lagos, flooded Nigeria with imported rice, dishonouring trade rules.

Rice importation from Benin was banned in 2004, but the small neighbor remained one of the region’s largest rice importers, reflective of its heavy reliance on informal trade with Nigeria for 20% of its GDP, according to World Bank estimates.

North Africa Post citing Observatory of International Rice Statistics (Osiriz) reported that late last year the importation of Indian rice into Benin fell from around 75,000 tons per month between January and September last year to less than 2,000 tons in the last quarter of 2019.

Nigerians have expressed mixed feelings towards the policy which on one hand is informed by the need for self-reliance in Africa’s biggest economy, yet on the other hand, seems to “put the cart before the horse.”

Issues around infrastructure to link farms to markets means that supply would always fall short of demand for the rice-loving Nigerian market with an estimated population of 200 million people. Economists argue that gaps mean smuggling increases or farmers hike prices – neither good for the country.

BusinessDay survey at Oyinbo Market in Lagos shows that a 50kg bag of local parboiled rice which was sold for N17,500 before the lockdown ago now sells for N19,000, indicating a 9percent increase in price.

Also, a 50kg bag of foreign parboiled rice which was sold for NN22,000 before the lockdown now sells for N27,000, indicating a 23 percentage increase.

“Till today the price of local rice has not reduced and consumers still prefer foreign rice because of the quality above the local rice. Therefore as demand for local rice is reducing, foreign prices become more expensive’’ says Kuranga.

The immediate concern is the impact of inflation on Nigerians, many of whom live below the poverty line by national and international standards.

Inflation rate in July reached 12.8% stoked by higher food prices, moving further from the Central Bank of Nigeria’s desired 6-9 percent range. Meanwhile, the naira has been devalued twice with income-eroding effects on Nigerians already hard-hit by COVID-19.

Kuranga says Nigeria must address the structural issues in the country “and our value chain is not developed enough, we would have to address these issues before we can reap the gains of the border closure.”