November 2, 2023/CSL Research
Food prices in Nigeria have been rising sharply in recent years. According to the National Bureau of Statistics (NBS) Selected Food Price Watch for September 2023, animal proteins such as beef, chicken, and fish saw the highest price increases so far.
This is due to a number of factors, including insecurity in some parts of the country, which has disrupted agricultural production and transportation. The devaluation of the Naira has also made food imports more expensive. The Naira has depreciated to N815.52/US$ (-45.0% ytd) at the Nigerian Foreign Exchange Market (NFEM) while falling as low as N1,165/US$ (-36.14% ytd) at the parallel market as of 01 November 2023.
The Nigerian government has implemented a number of policies over time to address the rising cost of food in the country. One such policy was the provision of subsidies on farm inputs such as fertilizers and seeds to help reduce the cost of production. Another notable effort by the government to reduce the rising cost of food is the introduction of the Anchor Borrowers Programme (ABP).
The ABP is a Central Bank of Nigeria (CBN) initiative which was launched in 2015 to create economic linkages between smallholder farmers and reputable large-scale processors (anchors) involved in the production and processing of key agricultural commodities. The ABP provides loans (in kind and cash) to smallholder farmers to boost production and create jobs. However, the ABP has been riddled with high default rates. In 2023, the International Monetary Fund (IMF) reported that only 24% of loans collected by farmers under the ABP had been repaid.
The food supply chain disruptions caused by the pandemic resulted in an increase in price across food items in the country. Insecurity in the country, ranging from incessant attacks on farmers by herdsmen to banditry and kidnappings, further worsened the situation. The recurring incidences of flood have also been a problem.
The closure of the borders also contributed its quota to the increase in food prices. We recall in August 2019, the Federal Government announced the total closure of land borders which was part of its efforts to prevent the smuggling of illegal arms on one hand and to prevent the influx of food & agricultural products into the country to stimulate and support local production. Clearly, the recent subsidy removal with its pass-through effect on food transport cost and the unification of the FX at the various official windows have worsened an already bad situation.
Since the reopening of the four major borders in December 2020, there has been no respite, as food prices have continued to rise. Food inflation grew to 30.64% y/y in September 2023 and has been the major driver of inflation. While we laud previous efforts by the government to stem the rise in food prices, we note that several factors inhibiting food production in the country still remain unaddressed. Chief amongst them are the heightened level of insecurity in the food processing regions, incidences of flood, and poor transportation infrastructure. In our view, failure to address these problems implies food inflation will remain high.
