On Official Response to Soaring Food Prices

On Official Response to Soaring Food Prices

Postscript by Waziri Adio

The President Bola Tinubu administration has responded swiftly to street protests in three Nigerian cities about rising food prices. Some high-level meetings have been held and clear directives have been given, including through a statement by the president himself after his emergency meeting with state governors on Thursday. This is commendable. Challenges can compound when officials do not act on time. This administration can thus be awarded an A on responsiveness. However, the government will struggle for a passing grade on the quality of its immediate interventions for taming soaring food prices. Some of its interpretations and actions on the issue need more nuance and rigour, and could benefit from a quick rethink.

Public policy can be likened to the field of medicine. Proper diagnosis is foundational and should guide the way to appropriate prescription and effective treatment. Misdiagnosis has dangerous consequences not just in the medical field, but also in governance. When confronted with a public challenge, officials should spend quality time to first understand what is going on, identify the remote and immediate triggers, then design their interventions. Granted that sometimes decisions have to be taken quickly and it is difficult to have perfect information in governance but querying assumptions, being sceptical about ideas that easily jump to the fore and asking the why question many times over could help. Public policies should not be made on a hunch or on impulse/emotions or be based on anecdotal evidence or isolated intelligence. Constantly, policymakers need to ask themselves: what does the fact tell us? Policymakers need to make data, not dogma, their friend.

Different government officials, including the president, have implicated hoarders as the culprits of rising food prices. Security forces have been ordered to go after them. A government agency in Kano actually stormed and sealed ten warehouses in the ancient city for hoarding foodstuffs and other essential items, and the president acknowledged this on Thursday. Merchants, including those who trade across borders, have also been blamed. The Minister of Agriculture was reported as saying Nigerian land borders should be closed to stop those coming to buy our grains on the cheap and driving up prices here. The Nigerian Customs Service has swung into action by impounding vehicles reportedly smuggling food items out of Nigeria. The governor of Niger State was quoted as saying traders from other parts of Nigeria will be banned from buying food grown in his state. Sometimes it is difficult to believe that we are in 2024 AD.

There is a lot to unpack from these official statements and actions. Suffice to say that these prescriptions and statements give insights into official diagnosis of rising food prices. With all the charity I can muster, I will say these official prescriptions reveal a reductionist and even dangerous diagnosis of the problem. The misdiagnosis could be inadvertent or deliberate—inadvertent because of inadequate attention to data and developments; deliberate because of a ploy to create scapegoats, cause distractions and divert attention. Whatever it is, government is unwittingly creating another set of problems. It is undermining efforts at improving storage of agricultural produce, stigmatising and criminalising enterprise, discouraging investment, and officially sanctioning possible harassment and extortion of businesses by security agents. Worse: hungry and angry people could start storming and ‘liberating’ warehouses, stores and shops of ‘hoarded items.’

Just to be clear: farmers and traders have always stored food items that they could. (I know this first hand as I followed my grandfather to his farms almost every day for two years while waiting for university admission. My grandfather stored grains and yams on his farms and in the house sometimes for close to a year.) It is also not unusual for traders to aggregate produce from farmers, store and package them in warehouses/stores before selling to wholesalers and retailers. So, farmers, merchants and commodity traders storing grains and other items is not the problem. It will be important to know what objective metrics government officials and informants will use to determine when keeping items in warehouses/stores is legitimate storage and when it is hoarding.

Also, selling grains across the borders actually predated independent Nigeria. And it is not a one-way trade: we buy grains from and sell to our neighbours depending on prices and harvests’ yields. For ages, we have had border markets and even international grains markets. A ready example of the latter is the Dawanau International Grains Market in Kano, which is patronised by farmers and traders from across Nigeria and from other west and central African countries. So, selling food items to non-Nigerians cannot be the reason for high food prices. According to even accounts by government officials, there is no scarcity of food in Nigerian markets. Food items are readily available. Affordability is the challenge. The nuance that government needs to factor into its clearly tendentious diagnosis is that an item can be available and be expensive at the same time, especially when price is largely driven by cost. However, admitting to the impact of associated costs will not allow the government to easily pass the buck or create convenient scapegoats.

Food prices are impacted by associated costs in two ways. One obvious transmission line is transportation costs. Most of the trucks moving farm inputs and produce run on diesel, which is fully deregulated and which now sells for about N1400 per litre in Abuja. It would be unfair to expect the farmers and traders to absorb that cost. The second channel is that farmers have to adjust their prices to ensure that rising inflation doesn’t hand them the short end of the stick. Farmers cannot grow everything they need and they have reasonable expectations of the basket of goods that their produce should give them. We can call this the exchange value of their produce. For example, if a 100kg bag of sorghum used to fetch a farmer 50kg of vegetable oil, what do you expect the farmer to do when the price of vegetable oil doubles? Take the halving of the value of his bag of sorghum as an act of God or as a patriotic contribution or adjust his own prices? Farmers/traders adjusting their prices to ensure they can maintain a commensurate standard of living in the midst of soaring cost of living is not profiteering. It is a rational human response.

Though I criticise the implementation style and clear lack of a prior strategy for the Tinubu reforms on petrol subsidy removal and official exchange rates unification, I think both reforms are necessary and I support them. But it is indisputable that it is the combined effect of both reforms, especially the constant depreciation of the Naira in both official and parallel markets, that is the main driving force behind the recent surge in the prices of most goods, including home-grown food items for reasons mentioned earlier. It is true that both headline inflation and food inflation have been high for a while. According to figures from the National Bureau of Statistics (NBS), food inflation crossed the 20% threshold in June 2022 (20.60%) and headline inflation caught up in August 2022 (20.52%). Both have not looked back since, with headline inflation and food inflation notching up to 29.90% and 35.41% respectively in January 2024. The constant yo-yoing of the Naira, now beyond the previously unimaginable N1500/$1 threshold, is the immediate cause of skyrocketing prices. The farmers and traders didn’t cause the plummeting of the value of the Naira.

To be sure, our homegrown food items would now be cheaper for our neighbours because they are holding a relatively stronger currency, leading to an increase in quantity demanded. And of course, there would be some unscrupulous traders cashing in here and there too. But as long as these activities have not led to shortage or scarcity of grains and other foodstuffs in the markets (as government officials themselves have repeatedly said), we have to look for the drivers of high food prices elsewhere. Policy makers should be asking for actual or proxy data on demand and supply before arriving at probable cause. One useful hint about the hollowness of the primacy of the hoarding/smuggling narrative: prices of all food items, including perishable and non-exported ones, are rising.

Our overstretched security and anti-corruption agents should have more important things to do with their precious time than to be reduced to price police and chasers of food hoarders/smugglers. This approach feeds into the fallacy that the brute force of the state can solve all problems including purely market issues. It is wrongheaded, counter-productive and futile. I will not join those asking the government to abandon its two signature reforms. Government needs to finetune their implementation and develop robust strategies for them. Government also needs to urgent change course on some of its approach to the food price crisis.

It is commendable that president has ordered the release of 42,000 metric tons of grains from the national grains reserves to be distributed free to the poor. But as in other areas, the absence of a clear strategy is evident. The Minister of Information announced the presidential order on February 8th but gave no indication about how this will be done. On February 14th, the Minister of Agriculture said the distribution will be done by NEMA and DSS but that government is awaiting ‘indexes’ from these agencies. Up till now, a cup of grains has not been shared anywhere and there is no clarity on when this emergency intervention will start.

By the way, 42, 000 metric tons comes to 840, 000 bags of grains in 50kg bags. Assuming equal distribution, that will come to 22, 703 bags of grains for each of the 36 states and FCT. It will be interesting to see how much grains will get to each person (and the cost of distribution) in a country where 104 million people are categorised as income poor. I find two other things curious in this still cloudy arrangement: the involvement of DSS in identifying and distributing food to the poor; and the fact that 79.25% of the 53,000 metric tons of grains in our reserves will be released at once. On the latter point, an argument could be made that releasing about four-fifth of our reserves at once shows how seriously the government takes this crisis. Fair enough. But what happens to high food prices after the distribution, what happens to the beneficiaries after the one-off largesse and what happens in case of a critical emergency in the country?   

I am all for the state coming to the aid of the poorest of the poor. But I don’t think people are asking for free food. Agreed it is good gesture, and maybe some people actually need bowls of free grains. But how sustainable is this approach and what happens next? My sense is that most people are bothered about constantly changing prices of food items. Maybe releasing the grains to boost supply would have been a more appropriate intervention. Or maybe splitting what will be released to the market to boost supply and what will be shared gratis could also be a mid-path. Maybe. This goes back to the issue of proper diagnosis and the imperative of driving policy decisions with data.

But there are more things to worry about. In the statement released on his X handle, President Tinubu said: “I will not establish a price control board, nor will I approve the importation of food. We must extricate ourselves from this predicament because importation only enables rent seekers to perpetrate fraud and mismanagement at our collective expense. Instead, we will support our farmers with schemes that encourage them to cultivate more food for the nation.” This is a great quote by the way. Fighting and patriotic words. I agree with the president on the futility of price control and on the need to support our farmers to produce more (because we actually have a serious food security problem that we need to tackle in many ways in the medium term to long term).

But, Mr. President, we have an urgent problem that demands an immediate and consequential intervention. I don’t think fighting and patriotic words are enough. The only immediate solution that the president has put on the table is the 42,000 metric tons of free grains, but it is too puny to make a dent. According to the USDA, Nigeria in 2024 is projected to consume 31.35 million metric tons of just four major grains: corn (12.3mmt), rice (7.8mmt), sorghum (6.75mmt) and wheat (4.5mmt). That 42,000mmt is a mere 0.13% of our projected consumption of four grains this year. Whatever support the president and the governors give to farmers now will not translate to harvests and lower prices until three to six months. What happens in the interim? This is why the fighting words about imports have to be reconsidered.

Luckily, we are largely self-sufficient in roots/tubers, pulses, maize and sorghum. We are close to self-sufficiency in rice, but we have had an annual supply gap in excess of two million metric tons for more than ten years despite all our interventions over the time. But we are dependent on imports almost 100% for our supply of wheat and sugar, two items consumed directly or used as inputs for foods and drinks widely consumed in the country, especially in the tetchy urban areas. So, the fighting and patriotic words on not sanctioning importation and not enabling rent-seeking are not quite helpful in addressing the problem at hand. Despite all the different regimes of restrictions, we always import some staple food items anyway. If what the president meant is that the government will not do the importation, that is fine.

But there are levers that the government can pull to quickly reduce the prices of some strategic food items like rice, sugar and wheat: reducing or removing tariffs on them, even for a short period. The argument is about making cheaper items that we already import, items that we do not have capacity to meet or fully meet in the short to medium terms, and items that are widely consumed and whose prices set the prices of so many other food items made out of them.

At this time of high stress, the government invariably punishes consumers with high prices if it continues to insist on imposing tariffs of 85% on wheat (the main ingredient for bread), 75% on sugar (on which we created market power for Dangote, BUA and Flour Mills in the name of a clearly ineffective backward integration policy) and 70% on rice. Removing or reducing the tariffs, duties and other charges on these items for say three to six months will quickly reduce their prices and touch many more people than distributing cups of free grains. Late President Umaru Yar’Adua removed all levies and duties on rice between May and November 2008 in response to the global food crisis at the time. The price of imported rice crashed by 45%. A rough calculation shows that even at the current exchange rate, imported rice will cost at least 35% cheaper today without tariff and duties.

Reducing or removing tariff on these three items won’t bring down the prices of all food items, but it will considerably calm nerves and will be good signalling because of the strategic importance of the items involved. It will not be cost-free. Government will take a revenue cut. But it is a time-bound cut, and the slight reduction in revenue will be more than compensated for by the benefits to the larger society. Government will be seen to be making sacrifice for the people and to be taking immediate and significant steps (not engaging in work avoidance of chasing ‘hoarders’ and ‘profiteers’). Consumers will breathe a little.

The fears about displacing local farmers are misplaced, as the items spoken about here are not maize, sorghum, cassava, yam and others in which we are self-sufficient. In any case, we need to look at the big, national picture, not just the narrow interest of a lobby group or at how to burnish our ideological/nationalistic credentials. We need pragmatic and immediate interventions on this food issue. And very quickly too, as it is not in anyone’s interest for the surging hunger and anger on the streets to spill over. 

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