Identifier
Created
Classification
Origin
05LAGOS1420
2005-09-14 07:00:00
UNCLASSIFIED
Consulate Lagos
Cable title:  

BASIC FOOD PRICES RISE CONSIDERABLY IN

Tags:  EAGR PGOV NI AME 
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UNCLAS SECTION 01 OF 03 LAGOS 001420 

SIPDIS

USDA FAS WASHDC FOR CMP/G&F DIVISION
FAA/AREA DIRECTOR/SUSAN REID
ITP/THOMAS POMEROY

FROM OFFICE OF AGRICULTURAL AFFAIRS, LAGOS

TOFAS 001

E.O. 12958, N/A
TAGS: EAGR PGOV NI AME
SUBJECT: BASIC FOOD PRICES RISE CONSIDERABLY IN
NIGERIA

[SENSITIVE BUT UNCLASSIFIED]

UNCLAS SECTION 01 OF 03 LAGOS 001420

SIPDIS

USDA FAS WASHDC FOR CMP/G&F DIVISION
FAA/AREA DIRECTOR/SUSAN REID
ITP/THOMAS POMEROY

FROM OFFICE OF AGRICULTURAL AFFAIRS, LAGOS

TOFAS 001

E.O. 12958, N/A
TAGS: EAGR PGOV NI AME
SUBJECT: BASIC FOOD PRICES RISE CONSIDERABLY IN
NIGERIA

[SENSITIVE BUT UNCLASSIFIED]


1. (SBU) SUMMARY: PRICES OF BASIC FOOD ITEMS HAVE
RISEN CONSIDERABLY IN THE PAST EIGHT MONTHS.
CORN, SORGHUM, MILLET AND COWPEA PRICES HAVE MORE
THAN DOUBLED DURING THE PAST YEAR. LOCAL SOURCES
ATTRIBUTE THE SPIRAL TO A COMBINATION OF FACTORS,
NAMELY: (A) LOW PRODUCTIVITY AND UNATTRACTIVE
PRICES FROM EARLIER YEARS, (B) THE GON'S OVERLY
RESTRICTIVE TRADE POLICIES AND (C) THE FAMINE IN
NIGER. END SUMMARY


2. (SBU) AGATTACHE VISITED KANO AND KATSINA
STATES IN NORTHERN NIGERIA TO ASSESS THE FOOD
SUPPLY SITUATION FOLLOWING REPORTS OF FOOD
SHORTAGES AND RISING PRICES. THE TRIP INCLUDED
VISITS TO KANO CITY, THE COMMERCIAL NERVE CENTER
OF NORTHERN NIGERIA AND JIBIYA IN KATSINA STATE, A
SAMLL HAMLET ALONG NIGERIA'S BORDER WITH THE NIGER
REPUBLIC. HE MET OFFICIALS OF THE KATSINA STATE
MINISTRY OF AGRICULTURE, CUSTOMS AND IMMIGRATION
OFFICIALS AT JIBIYA.


3. (SBU) AGATTACHE OBSERVED PRICES OF MAJOR FOOD
ITEMS HAVE INCREASED CONSIDERABLY ACROSS THE
COUNTRY. FROM AUGUST 2004 TO AUGUST 2005, CORN
INCREASED FROM 30,000 NAIRA TO 70,000 NAIRA PER
TON; SORGHUM FROM 30,000 TO 65,000 NAIRA PER TON,
WHILE COWPEA INCREASED FROM 36,000 NAIRA TO 78,000
NAIRA PER TON. LOCAL SOURCES HAVE IDENTIFIED THE
FOLLOWING FACTORS AS THE CAUSES FOR THE FOOD
SHORTAGES AND SPIRALING PRICES: 1) TRADE POLICY;
2) NIGER'S FAMINE AND 3) LOW PRODUCTIVITY.
CURRENTLY, THE OFFICIAL EXCHANGE RATE OF THE NAIRA
IS 130.05 PER DOLLAR

--------------
TRADE POLICY:
--------------


4. (SBU) THE GOVERNMENT OF NIGERIA'S (GON)
RESTRICTIVE TRADE REGIME LIMITS THE AVAILABILITY
OF FOOD PRODUCTS. NUMEROUS PRODUCTS ARE EITHER
BANNED OR HAVE SIGNIFICANTLY HIGH DUTIES. APPLIED
TARIFFS RANGE FROM 5 PERCENT FOR DAIRY PRODUCTS TO
100 PERCENT FOR RICE.


5. (SBU) NIGERIA IS CURRENTLY EXPERIENCING ACUTE
CORN SHORTAGES. DOMESTIC OUTPUT IS INADEQUATE
YET IMPORTS ARE BANNED. THE BAN ON CORN WAS
IMPLEMENTED APRIL 15, 2005, AT THE HEIGHT OF THE
CORN SCARCITY. IT IS A SIGN OF THE GON's
MISAPPLICATION OF TARIFFS AND BANS THAT THE
MEASURE WOULD BE TAKEN AT TA TIME OF ACUTE
SHORTAGE. PREVIOUSLY, THE GON PROBABLY FELT NO
NEED TO IMPLEMENT A BAN SINCE CORN IS RARELY

IMPORTED, DUE TO AN UNDERSTANDING WITH THE POULTRY
INDUSTRY TO NOT BRING IN THE COMMODITY IN ORDER TO
PROTECT NORTHERN CORN GROWERS.


6. (SBU) NIGERIA DOESN'T PRODUCE SUFFICIENT
QUANTITIES OF RICE. A THIRD OF NIGERIA 3.5
MILLIONS MT DEMAND FOR RICE IS IMPORTED. THE
GON'S PROHIBITIVE DUTY IS SIMPLY ENCOURAGING CROSS-
BORDER SMUGGLING OF THE PRODUCT. MOREOVER, THE
EFFECTIVE IMPORT DUTY ON RICE IS 120 PERCENT, WHEN
PORT CHARGES AND OTHER TAXES ARE ASSESSED. ON THE
OTHER HAND, IMPORTS TO BENIN REPUBLIC ATTRACT ONLY
35 PERCENT DUTY, REPRESENTING A $200 PER TON PRICE
ADVANTAGE OVER IMPORTS THROUGH NIGERIAN PORTS.
NIGERIAN IMPORTERS SIMPLY LAND THEIR SHIPMENTS IN
BENIN AND THEN SMUGGLE THEM INTO THE COUNTRY.
SOME IMPORTERS SHIP TO COTONOU PORT (BENIN) AND
DECLARE THEM AS TRANSIT GOODS DESTINED TO THE LAND-
LOCKED COUNTRIES OF NIGER AND CHAD. TRANSIT GOODS
ATTRACT ONLY FIVE PERCENT DUTY IN BENIN. THE RICE
IS SUBSEQUENTLY SMUGGLED INTO NIGERIA.


7. (SBU) NIGERIA'S RESTRICTIVE TRADE POLICIES,
MOREOVER, COME AT SIGNIFICANT COST TO NIGERIA'S
OVERALL MACROECONOMIC ENVIRONMENT. IMPORT BANS
AND HIGH TARIFFS CREATE THE INCENTIVE FOR TARIFF
AVOIDANCE, UNDER-INVOICING AND SMUGGLING. IN
GENERAL, MOST LEADING NIGERIAN IMPORTERS OF HIGH
TARIFF ITEMS SUCCESSFULLY AVOID PAYMENT OF FULL
TARIFFS. THUS OVERLY RESTRICTIVE TARIFF POLICIES
ALSO REDUCE RESPECT FOR THE RULE OF LAW.

--------------
DROUGHT AND FAMINE IN NIGER REPUBLIC:
--------------


8. (SBU) NIGERIA DEPENDS ON IMPORTS OF COWPEAS
AND LIVESTOCK FROM NIGER TO SUPPLEMENT LOCAL
PRODUCTION. ON THE OTHER HAND, NIGERIA EXPORTS
CORN, SORGHUM, MILLET AND CASSAVA PRODUCTS TO
NIGER IN WHAT IS NORMALLY UNRECORDED CROSS BORDER
TRADE. NIGERIA IMPORTS ABOUT 500,000 TONS OF
COWPEAS AND ABOUT 200,000 HEADS OF CATTLE FROM
NIGER ANNUALLY. BECAUSE OF THE DRAUGHT THE VOLUME
OF NIGERIA'S IMPORTS HAVE DECLINED, WHILE EXPORTS
TO NIGER HAVE INCREASED CONSIDERABLY IN 2005.


9. (SBU) IN ADDITION TO THE INFORMAL CROSS BORDER
TRADE, NIGERIA RECENTLY PROVIDED ABOUT 10,000 TONS
OF GRAINS IN RELIEF ASSISTANCE TO NIGER AND TO
SUDAN (DARFUR). A VISIT TO THE DAWONU
INTERNATIONAL GRAINS MARKET IN KANO REVEALED
INTERNATIONAL DONOR AGENCIES BUYING GRAIN IN THIS
MARKET FOR NIGER REPUBLIC. THUS, DEMAND FOR
GRAINS IN NEIGHBORING COUNTRIES HAS CONTRIBUTED TO
HIGH LOCAL PRICES.


--------------
LOW DOMESTIC PRODUCTION:
--------------


10. (SBU) GROWTH IN DOMESTIC OUTPUT IS NOT
KEEPING PACE WITH DEMAND. OFFICIAL ESTIMATES
INDICATE THAT NIGERIA'S GRAIN PRODUCTION IN 2004
INCREASED FIVE PERCENT OVER 2003. THIS IS
PROBABLY INFLATED; EVEN AT THAT, IT JUST KEEPS
PACE WITH POPULATION GROWTH. MOREOVER, POST
BELIEVES THE OUTPUT OF CORN IN 2004 ACTUALLY
DECLINED. NIGERIA'S AGRICULTURE IS PRIMARILY
SUBSISTENCE, WITH LOW PRODUCTIVITY AND HIGH POST-
HARVEST LOSSES. NO MAJOR FOOD CROP HAS INCREASED
IN YIELD BY MORE THAN 1 PERCENT PER ANNUM OVER THE
PAST 10 YEARS. FERTILIZER AVAILABILITY IS HALF
THE LEVEL OF 10 YEARS AGO. LESS THAN 10 PERCENT
OF THE SEEDS PLANTED BY FARMERS ARE IMPROVED
VARIETIES. AS A RESULT, THE INCREASE IN CROP
PRODUCTION HAS BEEN ACHIEVED LARGELY BY TILLING
MORE LAND. THE GON'S 25 PERCENT SUBSIDY ON
FERTILIZERS HAS CREATED DISLOCATION IN THE MARKET,
CREATING SCARCITY IN SOME LOCALS AND HAS RESULTED
IN HIGHER PRICES TO GROWERS. THE RETAIL PRICE OF
A 50-KILOGRAM BAG OF NITROGEN BASED FERTILIZER
INCREASED TO 4,000 NAIRA FROM AN AVERAGE OF 2,500
NAIRA A YEAR EARLIER. UTILIZATION OF FERTILIZER
IS LIMITED BY ITS HIGH COST, OFTEN RESULTING IN
LOW CROP YIELDS, ESPECIALLY FOR FERTILIZER-
DEPENDENT CROPS SUCH AS CORN AND RICE.


11. (SBU) IN AN ATTEMPT TO CURTAIL SPIRALING
PRICES, THE GON RELEASED 65,000 TONS OF GRAINS
(MAINLY CORN) IN JUNE 2005 FROM ITS BUFFER STOCK.
THIS WAS NOT SIGNIFICANT TO DRIVE DOWN THE PRICE
OF CORN. AT PRESENT, CORN HAS REACHED OF 70,000
NAIRA (ABOUT $500) PER TON. FEED MANUFACTURERS
ARE HAVING PROBLEMS SECURING CORN SUPPLIES EVEN AT
THIS PRICE. NIGERIAN POULTRY PRODUCERS HAVE
EXPRESSED FEARS THAT THE GROWTH WITNESSED IN THEIR
SECTOR IN RECENT YEARS MAY BE REVERSED DUE TO THE
HIGH COST OF INPUTS.


12. (SBU) IN CONTRAST, ECONOMIC ACTIVITY IN THE
WHEAT MILLING INDUSTRY IS UPBEAT AND COMPETITION
IS KEEN. SHORTAGES AND HIGH COSTS OF FOOD
STAPLES, SUCH AS YAMS, GARRI AND OTHER GRAINS IS
ENCOURAGING INCREASED BREAD CONSUMPTION. BREAD IS
AFFORDABLE AND CONVENIENT. THE PRICE OF WHEAT
FLOUR HAS BEEN RELATIVELY STABLE OVER THE LAST
YEAR DUE TO INCREASING IMPORTS AND COMPETITION
AMONG MILLERS. SOME WHEAT MILLS VISITED IN KANO
REPORTED THEY ARE UNABLE TO MEET DEMAND. A
SIGNIFICANT QUANTITY OF WHEAT FLOUR PRODUCED IN
NIGERIA IS REPORTEDLY EXPORTED (SMUGGLED) TO
NIGER, CHAD, MALI, BURKINA FASO AND CAMEROON.
NIGERIA'S WHEAT IMPORTS IN MY2005/06 ARE FORECAST
AT 3.5 MILLION TONS UP FROM 2.9 MILLION TONS IN
MY2004/05. THE INCREASE IN IMPORTS IS AIDED BY THE
LOWER TARIFF OF FIVE PERCENT ON WHEAT.


13. (SBU) THE 2005/06 HARVEST SEASON HAS
COMMENCED AND IT IS EXPECTED TO LAST UNTIL
DECEMBER 2005. FIELD SOURCES INDICATE NIGERIA'S
FOOD SUPPLY IS EXPECTED TO IMPROVE BECAUSE
FAVORABLE WEATHER CONDITIONS WILL LEAD TO A GOOD
HARVEST SITUATION. RAINFALL HAS BEEN AMPLE AND
ITS DISTRIBUTION WAS EVEN. ALTHOUGH FERTILIZER
SUPPLY IN 2005 IS INADEQUATE, IT HAS IMPROVED
SOMEWHAT. RECORD HIGH PRICES OF THE GRAINS DURING
2004/05, ALSO SPURRED FARMERS TO INCREASE AREA
PLANTED. AGATTACHE OBSERVED LARGE ACRES OF LAND
IN KANO AND KATSINA PLANTED WITH CORN, SORGHUM AND
MILLET. THERE WERE LOCALIZED REPORTS OF PEST
ATTACKS AND FLOODING OF FARM LANDS BUT NOT
SIGNIFICANT ENOUGH TO AFFECT OVERALL OUTPUT. ON
THE WHOLE, NIGERIA'S TIGHT FOOD SUPPLY SITUATION
IS EXPECTED TO EASE CONSIDERABLY AS THE HARVEST
SEASON PROGRESSES. HOWEVER, PRICES MAY NOT RETURN
TO PREVIOUS LEVELS BECAUSE OF THE RECENT INCREASE
IN FUEL AND ENERGY COSTS.
BROWNE