Weighing forex restrictions effects on food security

IN seeking to implement the directive by President Muhammadu Buhari to stop further allocation of foreign reserves to food importers, the Central Bank of Nigeria (CBN) has added fertiliser, maize, wheat to its forex restriction list and is currently planning to add sugar. 

By 2018, Nigeria’s annual food importation stood at $22 billion but by October 2020, the Ministry of Finance, Budget and National Planning estimated that the figure had reduced to $5 billion. 

The decision to discourage food importation is aimed at making Nigeria self-sufficiency in food production, create massive employment and conserve foreign exchange that has become scarce in recent years. 

However, Nigeria seems ill-prepared for such measures because most of the efforts by both the fiscal monetary authorities have not yielded desired results. 

This is despite the fact that by the end of February 2021 CBN announced it had made total disbursements of N1.487 trillion under the various agricultural programmes with N686.59 billion given out under the Commercial Agricultural Credit Scheme (CACS) and N601.75 billion under the Anchor Borrowers Programmes (ABP) to 3,038,649 farmers to support food supply and dampen inflationary pressures. 

Despite this, Nigeria has remained stuck at an annual sugar production of 80,000 tons while consumption is 1.61 million tons. 

In 2020-21, corn production is scheduled to decline 13 per cent to nine million tonnes. The poultry industry also said it would need to import 5.6 million tonnes of corn to meet the feed demand in the 2020-21 marketing year. 

Although it is desirable for a country to be self-sufficient, no country is ever able to attain that. 

For instance, Norway imports three times as much food as it did in 2000, according to figures from the Directorate of Agriculture. It imports everything from vegetables, potatoes, fruits and berries to dairy products, meat and cereals. 

A country that relies too heavily on food imports is liable to experience much difficulty at certain periods. A recent study published in Nature Food shows that trade restrictions and stockpiling of supplies by a few key countries could create global food price spikes and severe local food shortages during times of threat. 

The researchers modelled future scenarios to investigate the impact of export restrictions and local production shocks of rice, wheat, and maize would have on their supply and price.

The results show that restriction by only three key exporters of each crop would increase the price of wheat by 70 per cent, while maize and rice would rise by 40 per cent and 60 per cent respectively.

When combining this with potential local shocks that occurred last year, the prices would nearly double. Trade restrictions by only a few key actors can create large shortterm price spikes in the world market export price of grains, which can lead to food insecurity in import-dependent countries.

The report concluded that by suddenly losing more than one-third of their annual grain supply, many low-income and lower-middle income countries in Africa and Asia would not be able to cover this grain supply deficit with their domestic reserves, and would need alternative grain sources to survive.

And really, between September 2015 and September 2020, Nigeria’s food inflation rose by 110.5 per cent.

A comparison of the Composite Food Index during the period indicated that food inflation rose from 181.8 index points to 382.7 index points.

In essence, price of food items more than doubled within the period. The situation continues to worsen in 2021 with food inflation jumping from 19.56 per cent in December 2020 to 22.85 per cent in April.

Why food scarcity lingers

Some of the reasons adduced for this development include low yield per hectare, which is about the poorest in the world, insecurity, flooding, and sometimes famine affecting their ability to plant and harvest. After harvesting, supply chain challenges still persist, leaving farmers to contend with middlemen, transportation, and storage. The result is far less farm produce reaching the final consumer.

The Boko Haram (BH) insurgencies, pastoralist-farmers’ conflicts, north east and north central and economic terrorists in the north west regions have continued to escalate.

Consequently, population displacement, trade restrictions, limited market access, and an influx of refugees to camps have continued to cause severe acute food insecurity in the areas. Incidentally, efforts of CBN in promoting agriculture continue to be concentrated in the north, with southern farmers lamenting their fate and Federal Government’s official neglect. Food and Agricultural Organisation (FAO) further revealed that reliance on rain-fed agriculture, smallholder land holding and a weak agricultural extension system, amongst others undermine production.

Some concerns

According to Global Hunger Index (GHI) 2020, Nigeria ranked 98 out of the 107. The result indicated that with a score of 29.2, Nigeria has a level of hunger that is serious. While FOREX restriction on food importation is laudable, government needs to carefully work on the gradual implementation of the policy in order not to heap more misery on the economy.

Mr Taiwo Oyedele, a tax consultant with PriceWaterHouse Coopers, PwC, believes Nigeria cannot continue to solve trade issues and fiscal challenges with FX restrictions.

“Rather than restricting FX for food imports, Nigeria should adopt an approach that promotes local food production in the areas of our comparative advantage both for domestic consumption as well as exports, while we import the food items that we cannot produce competitively.”

Economist Boniface Chizea also argued that the CBN should evolve a broader policy thrust, to phase-in the FX restrictions.

According to the economist, a phased approach will prevent sudden scarcities, usually accompanied with the retrenchment of local productive capacity, and followed by massive layoffs in offices that could compound the unemployment situation in the country.

The ban will force manufacturers using sugar and wheat to the unofficial black market where the greenback is at least 19per cent more expensive compared to a closely managed official rate. Producers will be forced to raise prices to cover the higher costs of inputs. Local production of the banned items continue to lag behind consumption and reached a more than a 15-year high in March.

There is no evidence that the country has the capacity to meet local demand, Muda Yusuf, Director General of the Lagos Chamber of Commerce and Industry (LCCI), said.

In a recent interview, the LCCI Director-General said, “The situation with inflation is bad enough, there is hunger in the land, domestic production in agriculture is still very weak. If it continues this way, the hunger will continue to increase.” Omotola Abimbola, analyst at Chapel Hill Denham, tweeted.

“Why would anyone want to exacerbate the already difficult living condition with more restrictions on food items?” However, a food science and technology expert who runs a bakery in Abuja, Jonathan Oloniyo, said “It is a shame on us that we cannot grow enough wheat in Nigeria despite all the available resources we have, all we need to do is to apply some level of science to up the yield.”

A delicate balance between imports and local food

Against this background, some researchers suggested a flexible system where we trade in food, but do not become totally dependent on it.

A shortage of labour abroad can result in less food production and higher food prices. “And when suddenly neither German nor Norwegian farmers have access to cheap labour from Lithuania, it’s a reminder that we either depend on a global labour market, or that we have to roll up our sleeves and grow the food ourselves,” a researcher says.