Nigeria’s Food Inflation Shows Urgency of Cross-border Trade

Vegetable sellers

Nigerian food inflation, now at its highest since 2008, shows that food security is the country’s overriding problem.

January’s overall inflation rate of 16.5% was the highest since mid-2017, lifted by food inflation which accelerated to 20.6%.

Inflation will “certainly remain elevated over the medium term, and may actually rise in 2021,” says John Ashbourne, emerging markets economist at Fitch Solutions in London. “Until the government abandons its efforts to cut down on food imports, we are unlikely to see a real change.”

President Muhammadu Buhari closed land borders with Benin, Niger, Chad and Cameroon in August 2019 to prevent food smuggling and encourage local agricultural production.

Food inflation continued to climb with Nigerian farmers unable to keep up with domestic demand. The government partially reopened the borders in December 2020, but trade flows have not returned to normal.

READ MORE Nigerians hungrier now, thanks to Buhari’s policy on food imports

Since September 2020, the government has also banned official market dollars from being used to pay for imports of items including food. This means that dollars have to be obtained at higher rates on the parallel market, driving up prices.

Low earners are currently spending more than 50% of their income on food, this is likely to get worse, says Moses Ojo, chief economist at PanAfrican Capital Holdings in Lagos.

He says the following elements are contributing to the price spiral:

  • high transport costs
  • seasonality of agricultural production
  • lack of storage facilities
  • inadequate irrigation for farming

Herder conflicts

Price pressures are likely to increase further in coming months, argues Jacques Nel, head of Africa macro at NKC African Economics in Cape Town. He sees inflation averaging about 16.4% this year, with the danger that food inflation could spread to other categories if the central banks loosens its grip on the naira.

The average Nigerian household spends around 57% of its income on food, and the figure is substantially higher for the 83 million Nigerians who live below the poverty line, says William Attwell, senior country risk analyst at Fitch Solutions in London.

  • Food supplies should improve following the harvest in April but are still likely to remain below average given disruptions caused by insecurity in north-eastern and central food producing states, adds Attwell.
  • Nigeria’s difficulty in feeding itself is rooted in drought and desertification in the north of the country. Over decades this has pushed Muslim and Fulani herders to migrate into southern areas undergoing major population growth.
  • This in turn has led to often violent disputes between the herders and mainly Christian crop farmers, hampering attempts to increase food production.
  • Clashes between farmers and herders are impeding the drive to increase food production, says Ojo. “Dealing with this decisively will go a long way in bringing food inflation under control.”

Steps that would help include establishing a national climate change commission, implementing climate change legislation and providing financial and technical support to farmers, she adds.

None of those steps are going to lead to fast improvements in domestic food supply. For now, it’s clear that Nigeria can’t produce enough food for a growing population.

Bottom line

Stimulating imports is the only way to limit the devastating impact of Nigerian food inflation.

Nigeria’s food inflation shows urgency of cross-border trade (