18 October 2018

Nigeria: How Importation Fuels Food Inflation in Nigeria

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Occasional rise and fall of prices of foodstuffs in Nigeria cannot be divorced from the country's heavy dependence on import of commodities.

Data from the National Bureau of Statistics (NBS) show that prices of foodstuffs have been on the rise in recent time, a development that pushed up food inflation to 13.31 per cent in September, 2018 compared to 13.16 per cent in August 2018.

While it is easier to point out some domestic factors pushing up prices of commodities in the market, the other factors from the global commodities may not be too obvious and sometimes rarely a subject of discussion.

In September, highest rise in prices were recorded in potatoes, yams and other tubers, vegetables, fruits, meat, milk, cheese and egg, Bread and cereals, and Fish.

States that recorded highest increases in food prices include Kwara (17.17 per cent), Bayelsa (16.62 per cent) and Abuja (15.70 per cent), while Plateau (8.82 per cent), Abia (10.10 per cent) and Ogun (11.11 per cent) recorded the slowest rise in food inflation.

Information sourced from Financial Derivatives Company (FDC) showed a clue to why prices of bread and cereals rose in September.

FDC reported that wheat prices, a commodity Nigeria heavily imports, increased by 0.59 per cent to $5.09/ bushel on September 28th, from $5.06/bushel on September 17th.

The company explains that the price increase was mainly due to weak Russian exports during the period.

"Grain prices are expected to maintain their bullish trend in the near term. Reports of reducing Russian wheat exports and delayed corn harvests in the U.S due to rains would support this rise," FDC explains.

During the same period, FDC reported that corn prices rose by 2.30 per cent to $3.56/bushel from $3.48/bushel and the price increase was supported by weak harvests in the United States.

The economic think tank company reported that while sugar prices fell by 3.28 per cent to $0.1120/pound on September 28th, from $0.1158/pound, suppressed by increased sugar production in India, the commodity, mostly imported, is expected to rise in the coming weeks following reports of unfavourable rains in India, which would affect sugar production.

Nigeria heavily depends on raw sugar import as Data from the National Sugar Development Council (NSDC) show that the country spent $632.72 million on sugar import in 2014 and $552.54 million in 2015.

The country's sugar import bill stood at $516.16 million in 2016 and $459.36 million in 2017 largely because local production remains low.

It is worth noting that there have been some reductions on sugar import bill in the last three years, which may not be unconnected to rising local production volumes during the same period.

Data from NSDC showed that production rose from 12,345 tons in 2014 to 13,488 tons in 2015.

In 2016, local production skyrocketed to 25,000 tons before dropping to 14,918 tons in 2017, a volume still high compared to the last three years prior to 2015.

Meanwhile, the FDC also reported that cocoa prices recorded a choppy movement towards the end of September.

The price of the commodity declined by 8.01 per cent to $2,057/MT on September 28th, from $2,236/MT on September 17th and the company attributed the decline as being "largely driven by rising global production."

"We expect the downward trend of cocoa prices to persist in the coming weeks following reports of increased production in Ghana," the company predicted.

Meanwhile, while it is crucial to note that rise in food prices in Nigeria may be linked to increase in the international price, it is also important for Nigerians to be on the lookout for export opportunities to cash into such opportunities.

Recently, the Nigeria Export Promotion Council (NEPC) disclosed export potentials in cashew kernels, prepared sheep/lamb leather and prepared goat leather.

The NEPC revealed that Vietnam, which is Nigeria's largest competitor on a global scale, is currently the largest export destination for Nigerian cashew kernels with average yearly exports of $3.4 million.

The Council stated that untapped potential in absolute value is largest in the German market, at around $860,000 while Germany is the 4th largest current market for Nigeria after Vietnam, USA and The Netherlands.

"Nigeria currently exports mainly raw cashew nuts, making the estimated untapped potential values possibly lower than in reality," the Council stated.

The Council explains that it is estimated that by 2021 there will be at least $6 million additional export potential of sheep / lamb leather from Nigeria. Promising markets include Vietnam, South Korea, Turkey, and more.

The council says prepared goat leather from Nigeria shows more than $17 million of estimated untapped potential for the coming years.

"Currently, the main markets are Italy and Spain. These keep important as large destinations, but the additional growth is estimated to be present in other markets.

New export destinations for Nigeria like Morocco, Vietnam and Romania offer great opportunities. Besides, the German and Turkish markets offer chances for extra export growth," the council noted.

Estimated untapped potential in absolute value is largest in the Vietnamese market, at $2.2 million and Nigeria currently does not export to Vietnam.

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