• As countries ban food, the export of raw materials
• At over 700 naira a litre, as diesel becomes scarce, businesses struggle to maintain operations
• War between Ukraine and Russia will make hunger crisis harder to tackle, says Olawale-Cole
After months of relief from soaring inflation, Nigerians may need to prepare for another protracted hike in food, transport and energy prices triggered by Russia’s invasion of Ukraine. , as many key producing countries keep vital food supplies within their borders under an export ban.
While Nigeria may have been omitted from Russia’s ‘hostile list’ as the Eastern European country prepares to ban exports to 48 countries until December 2022, other countries reduce exports of certain products to ensure food security and protect against inflation.
Already, the conflict in Ukraine is threatening global grain production, edible oil supplies and fertilizer exports, sending commodity prices skyrocketing and reflecting the crisis in energy markets.
Locally, energy costs are starting to affect logistics activities, transportation costs, manufacturing and real estate as the cost of diesel is skyrocketing every day.
Over the weekend, the price of diesel rose up to 700 naira per liter in many places, weakening businesses that depend on the fuel rally to sustain their operations. Additionally, passenger buses like the Lagos Bus Rapid Transit (BRT) were fewer on the road due to the cost and availability of diesel.
Meanwhile, domestic airlines are currently suffering from the acute shortage of aviation fuel, commonly referred to as Jet A1, and only a few operators are sourcing from distributors. The price of the Jet A1 has fluctuated between N580 and N600 per liter over the past few days, compared to the N450 it was previously sold for.
The price hike comes at a time when food affordability is a major challenge as economies seek to recover from the coronavirus crisis and is also helping to fuel a broader surge in inflation across the world.
According to January data from the National Bureau of Statistics (NBS), food inflation fell 24 basis points to 17.13% from 17.37%.
In particular, food inflationary pressures were strongest in the prices of bread and cereals, potatoes, yams and other tubers, soft drinks, oils and fats, and fruits.
On a monthly basis, food inflation increased to 1.62% from 2.19% recorded in December 2021.
Indonesia last week announced restrictions on palm oil exports; Ukraine has also banned some agricultural exports, including barley, sugar and meat until the end of the year.
Serbia also announced it would ban exports of wheat, corn, flour and cooking oil from Thursday to counter price hikes, while Hungary banned all grain exports last week. .
Bulgaria has also announced that it will increase its grain reserves and may restrict exports until it has made the planned purchases. Grain supplies from Romania, a major exporter, have also tightened as international buyers seek alternatives to supplies from Russia or Ukraine, although there are currently no plans to restrict shipments.
The dispute has not only disrupted shipments from the Black Sea region, but is also hurting crop prospects as fertilizer prices soar and supplies dwindle in response to a sharp rise in the cost of natural gas – a key element in the manufacturing process of many products.
Global food prices hit a record high in February to post a 20.7% year-on-year increase, according to the FAO, as many markets continued to climb this month.
With the intensity and duration of the Russian-Ukrainian conflict uncertain, “likely disruptions to the agricultural activities of these two major commodity exporters could seriously aggravate global food insecurity, as international food prices inputs are already high and vulnerable,” said Qu Dongyu, director general of the Rome-based Food and Agriculture Organization (FAO).
For Nigeria, the ongoing conflict is putting pressure on local prices for food and services and compounding the country’s woes in the upstream and downstream sectors of the economy.
Since the nation is mainly dependent on imports for its raw materials and fuel, there are concerns about the impact on some food products where the export of critical raw materials has been reduced.
Indeed, insecurity and the effects of climate change in some parts of the country have also undermined the ability to improve food production.
The Lagos Chamber of Commerce and Industry (LCCI) noted that the war between Ukraine and Russia would likely make the world hunger crisis even more difficult to combat.
LCCI noted that it is unclear how long the current food supply chain disruptions will last, although they have already triggered higher wheat prices around the world.
“In developing economies, including Nigeria, where people are already struggling to secure food, disruptions to food supplies can lead to substantial additional hardship and instability. Government at all levels at this time should open up their reserves (if there are any) to stimulate supply to stabilize prices at least in the short term. Alternatively, the government should step in by initiating imports from other sources outside of war zones,” says LCCI President Dr. Michael Olawale-Cole.
He added that the most sustainable solution is for the government to increase local production of these commodities to levels that meet local demand, as the global economy is already feeling the impact of the disruption caused by the war on global supply chains.
“In preparing for the reality of our near future, we urge the federal government to take seriously the completion of projects such as the Trans-Saharan Gas Pipeline, a planned gas pipeline from Nigeria to Algeria. With this, we can explore the possibility to export gas to Europe.
“We should also target trans-Saharan and European markets with the ongoing construction of the Ajaokuta, Kaduna, Kano gas pipeline, popularly known as the AKK gas pipeline. Following the calamities of this war, Nigeria can explore emerging opportunities to earn huge inflows of foreign exchange in the medium to long term,” he added.
With escalating production costs resulting from high energy costs, rising operating expenses, steep currency depreciation, illiquidity in the foreign exchange market, runaway inflation and many structural bottlenecks, the Center for the Promotion of Private Enterprise (CPPE) called on the federal government to put the proposed imposition of excise duties on manufacturers on hold.
According to the CPPE, the cost of energy, logistics and the current export ban, which also limits access to raw materials, make it imperative to revive the sector and no longer taxes.
“Much of these costs cannot be passed on to consumers due to low purchasing power and high consumer resistance. Given the strategic importance of manufacturing to the Nigerian economy, what the sector needs right now is more stimulus, not more taxes,” said the chief executive of the CPPE, Dr. Muda Yusuf.
According to the Manufacturers Association of Nigeria (MAN), rising production costs have prompted its members to consider the alternative to renewable energy offered through the Sustainable Use of Natural Resources and Energy Financing (SUNREF) , a green financing line for companies developed by the French company Agence de Développement (AFD).
Already, MAN and AFD have set up an $81 million financing program for the development of renewable energies and the energy efficiency sector in Nigeria.