• Wednesday, June 12, 2024
businessday logo

BusinessDay

Consumers gain as commodity prices fall on strong global output

Commodity prices expected to continue declining in 2015 – World Bank Report

Nigerian consumers are benefitting from declining commodity prices as a strong recovery in global Agriculture production is cutting manufacturers input costs and leading to cheaper imports.

“Supply keeps being revised up, and on the import demand side, there really isn’t much activity simply because many importing countries themselves have very good supply,” said Food and Agricultural Organisation’s (FAO) economist Abdolreza Abbassian.

India, the world’s biggest sugar producer after Brazil, exported 2.1 million tonnes of sugar, in the year to September 2014 after the government gave export incentives to help mills cut back large stockpiles at their warehouses.

Agricultural products prices are seen languishing as global output continues to see strong recovery according to Bismarck Rewane, Chief Executive Officer, of consulting firm Financial Derivatives Company, in a recent presentation on the falling Naira.

“Higher export subsidies in India may boost supply of sugar and dampen its price in the global market,” Rewane added.

Nigeria’s December inflation rose by 8.0 percent (year-on-year), up 0.1 percentage points from 7.9 percent recorded in November.

Read also: Inside the training revolution

Ample agriculture supply dampened food inflation a major sub index of the CPI as it rose by 9.2 percent (year-on year) up from 9.1 percent recorded in November.

The price of crude oil dropped by 50 percent since last year, the second-biggest annual decline ever, hitting a five-and-a half-year low. Oil prices have had a knock-on effect on the price of food, which fell for a third straight year in 2014.

Fertilizers, pesticides and other key farm inputs are derived from petroleum products, which will become cheaper as oil declines and is also good news for food security.

The Bloomberg Commodity Index has dropped for seven straight months, the longest streak since 2009. The gauge is down 19 percent in the past year. The Bloomberg Agriculture Index of seven farm products slumped 15 percent, and on February 2 reached the lowest since July 2010.

According to Bismarck, “If international prices are cheaper, it brings down the cost for importers although it may be negated by exchange rate risk which reduces profitability for manufacturers operating in the country.”

The FAO Vegetable Oil Index also fell significantly to 156.0 points, down 2.9 percent from the previous month and is now at its lowest level since October 2009. The decline was driven largely by ample supplies of soy oil and lower crude oil prices, which erodes the attractiveness of using vegetable oils for biodiesel.

The lower crude oil price favours Agric production, Abbassian said, as farmers can still make a decent margin on their produce thanks to lower input costs.

“The oil price decline keeps agriculture healthy … At a time of surplus, increased production could even mean further downward pressure on prices, in the absence of a major drought or catastrophe,” Abbassian said.

While consumers in the rest of the country may experience the benefits of falling commodity prices, food prices have been on the increase in the North East due to rising input prices following continued unrest in the region.

Abdurahaman Modibbo Girei, president, Adamawa Chamber of Commerce and Industry told BusinessDay that most farmers have abandoned their farms and fled, while major borders have been shut owing to high insecurity in the state.

“Farmers have deserted their farms and fled to from hostile parts of the state, to less volatile areas,” Girei added.

JOSEPHINE OKOJIE