Thursday, 9 February 2017

Addressing Food Inflation in Nigeria

By Dr. Ahmed Adamu

I read on the news that the high level taskforce responsible for advising government on solutions to food inflation has recommended usage of railway wagons and labelled trucks to transport food items as means to curb food inflation. My take is that how many states are linked with railways, barely a few, and these railways connect to only few major cities in these few states. This will mean food inflation is only targeted in those cities. I still wonder if there are enough railway wagons to serve the entire nation. Though, it is not a bad idea, but it is not holistic as it is intended.  

The food inflation is not also triggered by delay in transportation. It is understandable the price of diesel has surged, which makes cost of transportation higher. The general inflation, currently at 18.3%, has reduced purchasing power of people’s income, and this is the major problem the country is facing, as Nigerian real GDP has lost billions of Naira. People now spend close to or more than 80% of their income on food alone, which would have been somewhere around 50%. This increased the poverty prevalence in the country. What I was expecting to come out from this high level taskforce were more of a pragmatic outlook and perspectives. Therefore, I would suggest the followings:

Inefficiencies in food supply chain has contributed in the food inflation, where poor or inefficient agricultural systems still dominate the sector. Improving the viability and agricultural yields will help, and this can be achieved through output optimisation, crop diversification and large scale production without necessary need for land expansion. This applies to animal rearing and transportation. There should be a holistic agricultural roadmaps indicating gaps and stipulated intermediate and long term targets. Immediate investment in agricultural optimisation is something to consider, if some intervention exists, then they are not impacting yet. Majority of farmers cannot access agricultural extension services or information or improved seeds and approaches to optimise output. Most farmers incur extra ordinary and unnecessary costs in crop production, and this affect the price. Mechanisms must be in place to actualise minimum cost of production, like adequate extension services, improved and mechanised system of farming for all.

I still don’t think the banning of rice importation through land borders is the right decision, it ended up in creating cartel, and over a year, the price has not come down to its potential level. Human beings are rational, if they can skip local rice for foreign rice, then there must be a reason for that. In a competitive market, you don’t distort the market, products are allowed to sell themselves. May be people prefer foreign rice because it is cheaper, available, and qualitative. So, if you want them to buy local rice, then you have to first make the local rice competitive by making it available, affordable or even cheaper, and qualitative, and at that time, people will make their own decision to buy local rice, without enforcement. Production subsidy in the agricultural sector can be an option too. Rice as a major food item is significant as demand of its best alternatives can be oversaturated when price of rice increased.

Cost of transport has contributed to the food inflation. The petroleum subsidy has to be revisited and perhaps reintroduced in some selected sectors and in different approach. Even when cost of subsidy was claimed to be overwhelming on government shoulders, there could have been a better review and reintroduction of it as emergency measure. I once suggested a comprehensive study on the pattern of petroleum consumption in the country, which will give information on how much in reality need to be spent on required petroleum consumption subsidy devoid of the corruption. Fuel consumption in agricultural distribution segment can be conveniently subsidised. Therefore, Limited Petroleum Subsidy on agricultural sector can be applied, where food wholesale and retail distribution are strategically subsidised.

Immediate development of agric-market database can be developed to document and disseminate accurate information about what was produced, traded and at what price. This will avoid exploitation and information asymmetry, and will set uniform prices, and track acute price hike and its cause for immediate redress.  

Any barrier in the market must be removed, as competition is the measure for ensuring market stability and lower prices, and this re-emphasize the need to expand competition scope in food supply sector. Any sort of cartel or possible collusion or distortion has to be traced and get rid of. It is important to note that the general inflation has caused agric suppliers to aim for higher profit to enable them afford other inflated goods and services. So, you cannot tackle food inflation in isolation, measures to address general inflation has to key in as well.

Food inflation can be a reflection of the general inflation, so in addressing food inflation, we have to consider measures to curb general inflation. The Central Bank may consider reducing interest rate, because most of the inflations are triggered by high average cost, not by saturation of demand.  Federal and State governments should lower taxes, but not increase wages yet (not as a first measure, maybe in the future). This will reduce cost of production for the suppliers and increase purchasing power of individual incomes. The government should spend more on infrastructures that ease production or direct investment subsidies.

 Instead of sharing stipends to individuals, investments can be made through targeted subsidy and improved power supply, which will enable these individuals to cheaply start productions or businesses. These stipends have low value now, and will not make difference in the lives of the beneficiaries due to the inflation. So, instead of quantitative interventions, we should go for qualitative ones. Though social welfare is good, but basic infrastructural development is paramount.

For us to have agric based economy, we have to begin fighting the agricultural apathy among the people, many latent energy and output are not harnessed due to the indifference and agrarian nature of the farming system. So, people must be sensitised to have pride for agro-allied ventures, because, if there is no motivation, all investments will not impact.

Finally, instead of setting “high level” taskforces, the government should be able to tap from the intelligence of others that are not on the “high level” table. Government must be able to see various perspectives to enable it make informed decisions, and this can be achieved through inclusive consultations and participations in governance. 

Dr. Ahmed Adamu,
Petroleum Economist and Development Expert,
First-Ever Global President of Commonwealth Youth Council,
University Lecturer (Economics), Umaru Musa Yar’adua University, Katsina.


1 comment:

  1. Having Economist like You in the Economic team will definately make things better, probably we may lift out of the current recession affecting the country.