Suspension of Import Duties on Food Staples… Silver Bullet to Inflation Crisis?
An Extraction of the Afrinvest Weekly Economic & Market Report for July 12th, 2024
This week, we assess the potential impact of plans by the FG to tackle the three decade-high food inflation crisis by implementing a 150-day suspension of import duties on a selection of critical food commodities, among other things.
Recall that the Minister of Agriculture, Abubakar Kyari on Monday, the 8th of July, outlined targeted measures to curb the trend of soaring food prices through the temporary suspension of duties, tariffs, and taxes levied on imports of designated food commodities. The policy will lift all import taxes on staples such as maize, husked brown rice, wheat, and cowpeas, both at the land and sea borders. Furthermore, these imported food commodities would be subjected to a Recommended Retail Price (RRP) to ensure affordability. This initiative, which is in alignment with the Presidential Accelerated Stabilisation and Advancement Plan (PASAP), contains proposals by the FG to import 250,000 metric tonnes each of wheat (4.5% of 2023 domestic consumption according to index mundi) and maize (2.2% of 2023 domestic production based on US FAO estimates), and supply the products in their semi-processed state to small-scale processors and millers across the federation.
Other aspects of the PASAP initiative includes stakeholder engagement to set a Guaranteed Minimum Price (GMP) for key commodities and purchase surplus food to restock the National Strategic Food Reserve. Also, the Federal Ministry of Water Resources and Sanitation will focus on rehabilitating and maintaining irrigation facilities under river basin authorities while fast-tracked engagements with the Nigerian Military is anticipated to rapidly cultivate arable lands under the Defence Farms Scheme. Additionally, the Renewed Hope National Livestock Transformation Implementation Committee, inaugurated on July 9, 2024, will develop and implement policies prioritising livestock development in alignment with the National Livestock Transformation Plan. Finally, the FG plans to scale-up the Home Garden Initiative by the Office of the First Lady in a bid to encourage households to contribute to national food security objectives.
Although the exact commencement date of tax-free importation window is yet to be announced, the near-term objective policy is to paper cover cracks in domestic supply – gaps induced by persistent conflict along the food belt, adverse weather conditions, as well as poor quality and high cost of agriculture inputs. Nigerians have faced significant food inflation over the past year, with the latest print at 40.7% y/y in May - 25.4ppts higher than the 15.3% average for the continent based on latest Statista data. This trend highlights steep increases in prices of commodities such as the price of a 50kg bag of rice from approximately ₦20,000 to over ₦70,000 within a year.
We laud the efforts at providing much-needed relief for households but estimate that the underlying protectionist approach to improving food self-sufficiency might not be optimal given that the agronomic and infrastructural groundwork to boost domestic supply is lacking. Hence, adopting this stance without addressing gaps in the domestic agriculture value-chain might deliver a weak outcome as the past years have demonstrated. We opine the 150-day window could be extended for more impactful results.
Chart 1: Food Inflation Pressure Continues to Loom Large
Source: NBS, Afrinvest Research
Insecurity across the agrarian belt remains a significant catalyst to the prevailing food crisis. Over the years, states such as Benue, Nasarawa, and other regions in Northeastern and Northwestern Nigeria, traditionally key agricultural areas, have become increasingly unsafe due to the presence of bandits and terrorists. Farmers in these regions face extortion, with bandits demanding taxes before farming and at harvest time. For instance, SB Morgen Intelligence estimated that farmers in Northern Nigeria paid ₦139.5m in the last 4 years to Bandits as levy. As a result of this, farmers are forced to incorporate these additional costs into the prices of their produce, thereby leading to increased food prices in the market and aiding food availability and affordability concern. Furthermore, desertification due to climate change is severely impacting food and livestock survival in Northern Nigeria, affecting 11 states in the region. This environmental challenge is evident in the agricultural sector, where farmers have lost farmlands to encroaching sand dunes and face inadequate water supply due to shrinking water sources. These conditions have a profound negative impact on farming, further exacerbating the difficulties faced by the agricultural community in maintaining productivity and food security.
While we agree that the Federal Government’s attempt to improve self-sufficiency is well intended, and if successful, will be saving the country a significant amount of FX ($2.1bn was spent on food importation in 2023), we believe that it is crucial to adopt a more systematic approach that prioritizes laying a solid groundwork first. This includes addressing key challenges such as inadequate infrastructure, insecurity, and support for local farmers to ensure sustainable agricultural development and long-term food security.