August 1, 2022/CSL Research
The continued rise in prices of food staples keeps pushing many households below the poverty line. According to the selected food price watch data for June 2022 released by the National Bureau of Statistics (NBS), major consumer staples showed significant increases year on year and month on month. Y/y, all prices of the 43 food items that make up the food watch basket increased considerably. Also, on a m/m basis, save for Plantain (unripe), all food items rose considerably. In our view, the monthly increase can be associated with the elevated energy prices caused by increased diesel cost, and its pass-through effect on transport costs of food items.
Also, the current planting season which comes with low food production, amidst the heightened level of insecurity is making an already bad situation worse. This was reflected in the m/m increase in food inflation, which rose by 2.05% m/m in June.
On a y/y basis, across the widely consumed food staples, price of beans in the two variants increased; brown, sold loose (up 16.6% y/y) and white, black eye, sold loose (up 24.2% y/y). Also, price of Maize in its two variants grew significantly, white sold loose (up 22.7% y/y) and yellow sold loose (up 17.1% y/y).
Price of Rice in its variants save for local sold when compared to other food items has increased moderately, from agric sold loose (+13.5% y/y) to medium grained (+14.4% y/y),broken rice (ofada; +11.8% y/y) and imported high quality sold (+13.7% y/y). It is also safe to assume that related transport and other incidental costs may have also caused the modest increase.
To a great extent, the government has been relatively successful in stimulating local rice production using incentives such as subsidized loans, cheap fertilizers, free farmland, and tax rebates. Beyond the monetary interventions, we believe the possibility of developing rice plantations in most parts of the country in commercial quantity makes it less susceptible to shocks caused by insecurity when compared to some food items that can only be grown in certain regions in the country.
Since the reopening of the four major borders in December 2020, there has been no respite, as food prices have continued to rise. Recently, four more borders were reopened, which was expected to provide some respite, however, the gains have been masked by the Russia invasion.
Although, we anticipate a mild respite to increasing food prices when the harvest season begins in September, we believe the pass-through effect from rising transport costand the worsening security situation will continue to keep food inflation high.
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