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Food inflation may be Nigeria’s biggest hit from Covid-19

By David Whitehouse
Posted on Friday, 26 March 2021 10:46

Bags of flour are loaded onto a wheelbarrow at Utako market in Abuja, August 17, 2020. REUTERS/Afolabi Sotunde

Supply-chain disruption caused by Covid-19 has laid bare Nigeria’s structural inability to produce and distribute enough food.

Overall annual consumer price inflation climbed to 17.3% in February, from 16.5% in January, the highest level in four years. That was driven by food inflation, which at 21.8% in February was at its highest for more than a decade.

Covid-19 is “a black swan event” and Nigeria’s import restrictions and naira weakness have worsened the situation, says Wale Okunrinboye, an investment analyst at Sigma Pensions in Lagos.

“Given the absence of active commodity exchanges and significant food reserve storage systems, supply-side vulnerabilities ensure that any disruptions to crop production rapidly translate into high food prices,” he says. The country will need to allow imports of key food items to help contain prices, he adds.

Food distribution is “marred with supply chain issues such as bad roads and poor storage facilities,” says Abdulazeez Kuranga, an economist at Cordros in Lagos. A lot of food is spoilt before it reaches the final consumer, he says. “It is safe to say Nigeria finds itself in a food crisis.”

  • The country relies on smallholder farmers for between 80% and 95% of crops and livestock production, according to Onyeka Ijeoma, senior research analyst at Vetiva Capital Management in Lagos.
  • “The inefficiencies from the small scale are further compounded by inadequate agriculture and transport infrastructure,” he says.
  • The result is that there is “a large supply gap which domestic production has failed to fill”.
  • While food can be imported, exchange rate volatility stokes inflation, he adds.

Northern conflicts

Nigerian food security has suffered from the displacement of farmers due to persistent conflicts in northern food-producing states.

According to the Famine Early Warning Systems Network (FEWSNET), high levels of conflict in north-east Nigeria have limited the dry season harvest and prevented many from carrying out agricultural labour.

  • “Famine could occur in a worst-case scenario if there is a dramatic uptick or shift in conflict that limits access to typical food and income sources and humanitarian assistance for a prolonged period of time,” FEWSNET says.
  • Reducing banditry, conflicts and violence will “go a long way in tackling food inflation,” Kuranga says.
  • Stakeholders need to address storage issues and provide adequate road networks from the major farms to the markets and cities, he adds.

Okunrinboye says that food inflation is likely to decelerate closer to July. “The high food prices in themselves will work to induce a response in crop cultivation which should recover over 2021 leading to a much better harvest” in the fourth quarter.

Kuranga also expects a moderation in the second half of the year, but says that will only be due to the high base effect from the corresponding periods of the prior year.

Public-private partnerships

Nkemdilim Nwadialor, equity research analyst at Chapel Denham Hill in Lagos, expects food inflation to keep rising through the rest of 2021. Greater cooperation between the public and private sectors is needed, she says.  Government is “too big and clunky to move quickly” and public-private partnerships to give farmers greater access to consumers are needed, she says.

Nwadialor points to start-ups such as Pricepally, an online store that lets people shop get bulk discounts for groceries as it connects them directly with farmers and wholesalers.

  • Such companies, Nwadialor says, need more public sector support to help them achieve scale.
  •  Ijeoma agrees that supportive fiscal and monetary policy is needed to encourage investment across the value chain.

Bottom line

Internal security and better logistics are key to bringing Nigeria’s food inflation under control.

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