August 30, 2022/CSL Research

Based on the selected food price watch data for July 2022 released by the National Bureau of  Statistics (NBS), major consumer staples showed significant increases year on year and month on month. Y/y, save for Gari in the two variants, all other 41 food items that make up the food basket increased considerably. Also, on a m/m basis, major food items rose considerably. We believe that the monthly increase can be associated with the elevated energy prices caused by increased diesel cost, and its continued pass-through effect on transport costs of food items.

Also, the lean 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 2.04% m/m in July. On a `y/y basis, across the widely consumed food staples, price of Beans in the two variants increased; brown, sold loose (up 15.9% y/y) and white, black eye, sold loose (up 23.2% y/y).

Also, the Russia-Ukraine war effect has caused spiral increase in wheat-flour related products such as Bread in the two variants, sliced 500g (up 34.7% y/y) and unsliced 500g (up 33.2% y/y). Also, price of Yam Tuber grew significantly (up 26.3% y/y).

Price of Rice in its variants save for imported high quality sold when compared to other food items has increased moderately, from agric sold loose (+7.5% y/y) to local sold loose (+13.6% y/y), medium grained (+14.1% y/y), and broken rice (ofada; +12.3% y/y). It is also safe to assume that related transport and other incidental costs may have also caused the modest increase.

To an 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.

Undoubtedly, the world is currently facing an unprecedented food crisis, and available data suggests it is far from over. Although, there was a global downtrend in food prices, as the United Nations’ Food and Agriculture Organisation noted a reduction in global food prices in July 2022 due to lower wheat and vegetable oil prices. However, high energy prices and supply chain disruptions coupled with climate change may worsen the existing food crisis. For Nigeria, while the country is also not spared from global events given its import-dependent nature, it is also facing peculiar events such as insecurity. Although we anticipate a mild respite to increasing food prices when the harvest season begins in September, we believe the pass-through effect of rising transport costs and the worsening security situation will continue to keep food inflation high.