Nigeria’s weak commodity output signals higher 2023 food inflation: AFEX

By David Whitehouse

Posted on Thursday, 2 February 2023 11:41
Nigerian food inflation is likely to increase in 2023, AFEX says. (AP Photo/Sunday Alamba)

Weak production of key Nigerian food commodities due to fertiliser prices and flooding points to a further increase in food inflation this year, according to the AFEX commodities exchange.

The 2022 wet season harvest is likely to see the largest decline in production of key commodities for the last three to five years, the report says. AFEX predicts that maize, paddy rice, sorghum and cocoa production will decline by an average of 11.5% in the 2022-23 season.

Nigerian food inflation increased for nine straight months in 2022 and reached a record 24.1% in November. Higher fertiliser prices caused by the Russia-Ukraine war and flooding are the main causes for poor production levels, the report says. The jump in diesel prices in 2022 is strongly correlated with higher food inflation, while naira weakness is also prompting traders to target export markets, compounding the price pressures, it adds.

Maize, paddy and sorghum prices are likely to hit new record highs in 2023, with pressure on the low expected production volumes being compounded by growing international demand, the report says. The bright spots are in sesame and soybean output, predicted to increase by 6.5% on average in 2022-23.

The onus is on the government to help households cope, AFEX argues.

  • “The provision of targeted assistance to poorer households experiencing increasing food and energy prices is a short-term priority for policymakers,” it says. Longer-term solutions include support for investments in new carbon-free energy sources, better energy efficiency, and more effective food production, it adds.
  • AFEX sees no signs that the right policy moves are being taken. Recent policy responses have favoured “price controls, trade restrictions, and subsidies, which are likely to make shortages worse,” it says.

AFEX expansion plans

Nigeria-based AFEX trades commodities including maize, cocoa, soya bean, paddy rice, sorghum and ginger, and supports securitization and trade finance for farmers. The company aims to facilitate African trade worth over $500m over the next five years.

The plan is to expand into seven new countries in east and west Africa, president for the rest of Africa Sanne Steemers tells The Africa Report. Target countries are Côte d’Ivoire, Ghana, Benin, Togo, Zambian Tanzania and Ethiopia, Steemers says from Abidjan.

AFEX plans to enter new countries at the rate of two per year, and may follow entry into Uganda in January with a second market in 2023, she says. “Côte d’Ivoire is high on the list.”

The company already operates in Nigeria, where it was set up in 2014, and Kenya. Supply-chain disruptions and higher food inflation in Africa mean that the expansion has a “greater sense of urgency,” she adds.

Decisions over possible fundraising to support the expansion have not yet been taken. The experience of AFEX in Nigeria will help it to operate across such a diverse range of markets, Steemers says. “Every state in Nigeria is a new environment.”

The company’s operation in Uganda will focus on maize, sorghum, soybeans, barley, and coffee, with maize the initial priority.

  • AFEX has established warehouses in Bulambuli and Kapchorwa districts in eastern Uganda, and in the Lira district in the north.
  • The company aims to reach 10,000 farmers and aggregate 15,000 metric tons of commodities in its first year of Ugandan operations.

Bottom line

Nigerian households urgently need government support as higher prices for many foods can’t be avoided.

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