Urgent Need to Halt Soaring Food Prices
Postscript by Waziri Adio
Prices of food items have been on a continuous rise in Nigeria in the past few years. But the spikes of the last few months are quite significant. Soaring food prices now deserve to be treated as a major crisis.
In a country where 26.5 million people are officially classified as food insecure, where citizens spend 59% of their incomes on food and where 104 million people are classified as income poor, nothing can be more existential and more dangerous than sky-high food prices. The negative impacts on social stability, economic growth, human development and national security are simply too grave for the government not to swing into crisis mode.
To be fair, President Bola Tinubu, within two months of coming into office, declared a state of emergency on food security. He announced the roll-out a number of initiatives, including supply of fertilisers to farmers and grains to households, increased protection for farmers, identification of 500,000 hectares of land for cultivation, enhanced synergy between the ministries charged with agriculture and water resources, and the elevation of food and water issues as remits of the National Security Council, among others.
But six months later, these presidential declarations are yet to have the desired effect on food security and food prices. Nigeria’s food security map, as portrayed on the Cadre Harmonise dashboard, is still largely the same, with most parts of the country in the stressed and crisis categories. Prices of food items have continued to hit the roof, partly on account of the knock-on effects of some of the reforms introduced by the administration. Assuming that those emergency measures announced with fanfare back in July 2023 are being faithfully implemented, it is time to take more drastic steps, including implementing short-term boosts to food supply and reduction of tariffs on major food or food-related items.
The interplay of hunger and anger is usually combustible, and it seems, despite the deceptive calm, that we might just be a spark away from a conflagration. Nigerians are hurting and increasingly tetchy. Policy makers should not wait until what is simmering beneath the surface boils over. Concrete and consequential interventions are needed immediately.
There is enough evidence from official data and everyday experience to underscore the crisis of food prices in the country. According to the National Bureau of Statistics (NBS), food inflation was 33.93% in December 2023, compared to 26.98% when the president declared a state of emergency on food security. And there was definitely no let-up in January 2024. Food inflation seems to be no respecter of presidential declarations.
Last week, the NBS released the Cost of Healthy Diet (CoHD) report for December 2023. The basket of food items used for the calculation, according to the NBS, represents “the cheapest possible” and “the least expensive combination of foods that meets the daily requirements for a healthy diet for an adult.” In a way, this cost is the barest minimum, as the NBS adds that “to be able to afford a healthy diet, an individual must have a food budget that is greater than or equal to the Cost of a Healthy Diet.”
In December 2023, the cost of the healthy diet for an adult in Nigeria increased to N786. As expected, there will be zonal differences, with the lowest cost in the Northwest (N663) and the highest in the Southwest (N920). This means to that to eat basic healthy meal daily, an adult in Nigeria needed a food budget higher than or equal to N24,366 for the month of December 2023 while her compatriots in the Northwest and the Southwest would need N20,553 and N28,520 respectively.
This also means that a Nigerian adult on minimum wage without family or dependants on the average would need more than 81% of her income to afford a semblance of a healthy diet while the same individual living in the Northwest and the Southwest would need 69% and 95% of their incomes respectively. It can be assumed that these individuals would have other bills to pay, especially on accommodation, transportation and energy. If they have families or dependants, then healthy eating or eating at all becomes a challenge. Interestingly, there are graduates with professional qualifications who earn just about or slightly above the minimum wage, especially in the private sector. Government has all the reasons to worry if significant portions of the population are struggling to eat, and definitely has more reasons to worry when those portions concentrated in highly irritable urban centres.
The most staggering dimension of the crisis of food prices is the speed of price shifts. Sometimes, depending on the shock at play, changes occur within months or weeks, faster than the capacity to cope or adjust of a vast number of citizens who are mostly on fixed incomes. The Friday lead story of Daily Trust newspaper put these rapid upward shifts in perspective. According to an infographic on the front page of the newspaper, the price of a 50kg bag of rice jumped from N45,000 to N70, 000 within January 2024 alone. That’s a 56% increase within one month. Daily Trust also reported that a 50kg bag of flour rose to N44,000 from N35,500 and a 50kg bag of sugar moved from N62, 000 to N75,000, an increase of 24% and 21% respectively. Remember that these increases occurred within one month.
As said earlier, the presidential emergency on food security is yet to translate to lower or stable food prices. The situation is worse today than when the emergency was declared. There is an urgent need for a review of the measures introduced and the effectiveness of their implementation. A good starting point is to understand the remote and immediate causes of constantly rising food prices in the country and to deploy not just medium-term to long-term measures to address them but also provide some drastic and immediate reliefs.
The immediate causes of high food prices are the two signature reforms of the Tinubu administration: petrol subsidy removal and forex rates unification. Even when increase in petrol prices has been paused for some time now, both reforms have led to increase in transportation costs. Diesel is used for inter-state movement of goods and for powering the generators of small and large companies processing food items. Diesel is deregulated and its price is not paused, even though VAT on it was removed. Also, we import a significant amount of finished and intermediate food items. For example, most of the inputs used for making a common food item like bread are either imported or made from imported items: flour, sugar, yeast, and butter. A dollar exchanging officially at above N1400 (compared to N463 on 13th June 2023) will definitely impact the prices of these items and the final table price of a loaf of bread.
Beyond the immediate, Nigeria has also had to deal with external and internal challenges that negatively impact the prices of food. These include the supply chain disruption from COVID19, the global spike in inflation, the effect of Russia’s invasion of Ukraine and lately increase in shipping costs due to the activities of the Houthi rebels around the Red Sea. It is interesting to note though the external drivers of the pressure of food prices are cooling off. The Food Price Index of the Food and Agriculture Organisation (FAO) shows that food prices fell back to the 2021 levels in 2023. In January 2024, the FFPI was 118 points whereas it was 160 points in March 2022 after Russia invaded Ukraine. (Nigeria obviously didn’t get the memo or operates by other dynamics).
Internal drivers of food inflation include low agricultural productivity per hectare, food production tracking below population growth, transportation, storage and processing constraints, the impact of climate shocks, burst in money supply, and the crippling effects of the insecurity that has kept farmers out of the farms in most of the north central, northwest and north east zones, zones that are considered the food baskets of the country.
To address rising food prices, we need to remove the constraints within our control. We need to improve the productivity of our farmers through access to better and more affordable inputs and expanded access to extension support and finance. We need to bring more land under cultivation, upgrade our farming practices and improve irrigation-fed farming so that our farmers can farm all-year. We need to invest on all points of the agriculture value chain and improve logistics around storage and transportation to reduce the premium between the farm-gates and the markets, especially in urban areas. We need to stabilise our exchange rate. And definitely, we need to improve security all over the country, most especially in our rural and farming communities.
However, most of these things will take time. Even if we increase and subsidise seedlings, fertilizers and other inputs to farmers, it will take at least three months to grow basic grains like maize (which might end up being exported to the Sahel on account of insecurity there and lower value of our currency). In the intervening period, food prices will keep soaring and most Nigerians will keep hurting. We have to do something quick to avert the probability of destabilising food riots. We need to remember that the human capacity to tolerate pain is not perfectly inelastic.
I have two proposals. One, the government should ask the Nigerian Customs Service (NCS) to immediately halt changing the foreign exchange rate for duties from N951/$ to N1,356/$. The upward adjustment by NCS will definitely impact costs of imported goods including food items, as importers will duly pass the high cost to consumers in higher prices. I know that we have put NCS in the perverse position of seeing itself as a revenue-generating agency at the expense of its trade-facilitation and border protection mandates. Beyond the usual bragging rights, the agency takes 7% of whatever it ‘generates’ and thus has the incentive to charge higher and keep more with absolutely no consideration for the bigger implication.
A legitimate concern can be raised around the danger of different exchange rates. But this is not the rate at which dollar is given to some privileged people which leads to arbitrage opportunities. It is largely a revenue trade-off for a larger and more strategic cause. If the price of petrol can be paused at N650/litre even with dollar officially exchanging at above N1,400, the forex rate for duties can be frozen too, even if for a short period.
Two, the government needs to remove or reduce tariffs on key food items like rice, wheat and sugar for a limited period of time, say three to six months. These are strategically and symbolically important food items. Rice is one of the most widely eaten and aspirational grains in the country, wheat is the main ingredient for bread (a pre-cooked, ready-to-eat, and very versatile food item) and sugar is used in the production of a vast range of food items. Currently, our tariffs on wheat, sugar and rice are 85%, 75% and 70% respectively. These high tariffs, clearly intended to increase local self-sufficiency, put the consumers at the receiving end, especially at a time like this.
Reducing or removing tariffs will surely reduce government’s revenue and will diminish the profitability of local producers of the items. But government can absorb the revenue shortfall, given that it is also earning more revenue from savings from petrol subsidy removal and from Naira’s depreciation, extra revenue whose immediate benefit to the citizens is difficult to ascertain. We also need to balance producers’ welfare with consumers’ welfare. Protecting only local farmers and a few manufacturers at the expense of the rest of the population doesn’t make practical and strategic sense. Besides, everyone is a consumer, as even farmers cannot grow everything they need. Local manufacturers will also be hurt when, due to high prices, disposable incomes plummet and companies that use their products fold up because of plunge in demand. Continuous spike in food prices is an ill-wind that, ultimately, blows no one any good.
We are not in a completely uncharted territory here. In response to the global food crisis of 2008, late President Umaru Musa Yar’Adua took some drastic and immediate measures. These included the regular release of grains from the strategic grain reserve, importation of 500, 000 metric tons of rice (worth N80 billion at the time) sold at subsidised prices, and the removal of all duties and charges on imported rice, including custom duty, 7% surcharge, VAT and ETLS levy. The removal of tariff on rice was from 7th May to 31st October 2008. In a paper titled “The Political Economy of Food Price Policy in Nigeria,” Aderibigbe Olomola, a professor of agricultural economics, stated that the prices of rice plunged by 45% on account of suspension of levies and duties on rice imports.
Nigeria may not have the money to import rice to be sold at subsidised prices now, and maybe that is not even a wise use of scarce public resources. But government can sacrifice or take less tariffs on rice, wheat and sugar for a brief period and strategically engage the farmers and few local companies (just three companies in the case of sugar) whose protection and guaranteed profitability will be impacted for a brief period. National interest offers a compelling justification.
This is President Tinubu’s chance to quickly take an action that will improve the welfare of most Nigerians and avert a larger crisis brewing beneath the surface. The ball is fully in his court.
