WHY YOUR FOODSTUFFS PRICE IS INCREASING DESPITE THE FALLING DOLLAR RATE

What you buy in the market today, can’t be bought at the same price tomorrow

It’s no news to all of us living in Nigeria, the price of foodstuffs has been increasing constantly thereby making it hard for everyone to purchase their daily necessities. According to the National Bureau of Statistics, this persistent escalation in the prices of commodities such as foodstuffs is labelled as inflation, which surged to approximately 40% as of March 2024 compared to March of the previous year when it stood at 24.45%. Retailers consistently attribute the surge in food prices to the escalating rate of the dollar against the naira.

In this article, we'll delve into how the dollar rate affects the price of food commodities today despite its recent fall.

A STRONG DOLLAR MEANS HIGHER FOOD PRICES

“Market is tough '', remarked Emeka, a trader in Lagos as stated by thewhistler.ng Emeka remarks that “about two months ago, a bag of rice was N45,000, but now it is N75,000, while a bag of Garri that was previously N25,000 is now N41,000 and a Derica of beans which was N1,200 before is just ridiculous now. He complained that the turnout of customers has drastically reduced due to the high cost of foodstuffs.” 

Recently, the production costs of these food products have surged, attributable to the imported machinery, insecticides, and fertilizers required for their cultivation. These transactions, conducted in dollars due to the imports, have contributed to the price hikes.

Professor Segun Ajibola, former President of the Chartered Institute of Bankers of Nigeria (CIBN), informed the Whistler that food inflation in Nigeria is driven by costs, with the FX market influencing the prices of food products. He explained, "The factors are cost-related, indicating that the cost of production is driving price increases. Whatever we import into the country, due to the exchange rate, has increased in naira terms. What used to be imported for $1,000 this time last year, which would have been approximately N460,000 officially when converted to naira, now costs about N2 million – roughly N1.8 million to N1.9 million. Therefore, someone who incurred N460,000 to import an item last year now pays about N2 million for the same item this year, and subsequently sells it based on the incurred importation cost." Consequently, he concluded that food inflation in Nigeria stems from cost factors.

Other factors such as the removal of fuel subsidies and the rise in transportation costs, both linked to fuel importation, further contribute to the escalation of food prices, notwithstanding the recent decline in the dollar's value. Nigeria heavily relies on imports to fulfil its food requirements, thus a robust dollar often translates to higher prices for food commodities like bread, cereals, potatoes, yams, oils, fats, fish, meat, fruits, coffee, tea, and cocoa, as a considerable portion of these is imported.

A STRENGTHENED NAIRA CAN CAUSE FOODSTUFF PRICE REDUCTION

However, imports become cheaper when the naira strengthens against the dollar, and food prices may decrease. This is because importers can procure more dollars with the same amount of naira, reducing their costs and leading to lower prices for consumers.

But after the reduction of the dollar rate, we see that the prices of food commodities haven't budged. Retailers still blame the increase in price on the dollar even though the dollar rate has dropped which might not directly be the dollar but considering other factors that lead to their purchase of the produce might have caused the price increase and in some cases, several retailers just want some more money in their pockets. 

The increase in the prices of food commodities affects us all. While some factors are beyond our control We must work together to find sustainable solutions to keep food affordable and accessible. By working together, we can build a more food-secure future.

How Exchange Rate Fluctuations Impact Local Food Production in Nigeria

Fluctuations in the exchange rate significantly affect local food production in Nigeria. The volatility in currency exchange rates, particularly the depreciation of the Nigerian naira against major currencies like the US dollar, has profound implications for local food producers. As the naira weakens, the cost of importing essential agricultural inputs such as machinery, fertilizers, pesticides, and seeds increases. This surge in importation costs directly translates to higher production expenses for local farmers, thereby reducing their profit margins or even leading to losses. Additionally, many farmers rely on imported equipment and technologies to enhance their productivity and efficiency. The depreciation of the naira makes these imported technologies more expensive, hindering farmers' ability to adopt modern farming practices and improve their yields. Moreover, the rising cost of imported inputs may compel some farmers to cut back on essential agricultural investments, further exacerbating the challenges faced by Nigeria's agricultural sector. Overall, the fluctuations in the exchange rate create a challenging operating environment for local food producers, undermining the sustainability and competitiveness of Nigeria's agricultural industry.

For more information on the impact of exchange rate fluctuations on food production in Nigeria, you can refer to this article by the World Bank: Link to World Bank Article.

Factors Contributing to the Increase in Food Prices in Nigeria

Aside from the exchange rate, several other factors contribute to the increase in food prices in Nigeria. One significant factor is the rising production costs associated with agriculture. This includes expenses related to land preparation, irrigation, labor, and transportation. As the cost of inputs such as fuel and fertilizers rises, farmers are compelled to pass on these increased expenses to consumers, resulting in higher food prices. Furthermore, Nigeria's heavy reliance on imported food items exacerbates the impact of exchange rate fluctuations on food prices. Import-dependent food items such as wheat, rice, and vegetable oils become more expensive when the naira depreciates, as it takes more local currency to purchase the same quantity of foreign goods. Additionally, infrastructural challenges such as poor road networks and inadequate storage facilities contribute to post-harvest losses, further driving up the cost of food. Moreover, factors such as government policies, including the removal of fuel subsidies and the imposition of taxes and tariffs, can also influence food prices. These policies directly impact the cost of production and transportation, ultimately affecting the affordability of food for consumers. Overall, the interplay of various economic, social, and policy factors underscores the complexity of the food price dynamics in Nigeria, necessitating comprehensive and coordinated strategies to address the challenges faced by consumers and producers alike.

To explore the multifaceted factors influencing food prices in Nigeria, you may find this research paper by the International Food Policy Research Institute (IFPRI) insightful: Link to IFPRI Research Paper.

These resources offer in-depth analyses and perspectives on the challenges and implications of exchange rate fluctuations and other factors on food production and prices in Nigeria