NIGERIA: RISING FOOD PRICES YET NO SHORTAGES

UNCLAS SECTION 01 OF 03 ABUJA 000817 SIPDIS DEPARTMENT FOR EE/TPP/ABT/ATP SPECK TREASURY FOR PETERS AND HALL DOC FOR 3317/ITA/OA/KBURRESS, 3130/USFC/OIO/ANESA/DHARRIS USDA/FAS FOR ASIF CHAUDHRY, DOROTHY ADAMS E.O. 12958: N/A TAGS: ECON EAGR EAID ETRD PREL NI SUBJECT: NIGERIA: RISING FOOD PRICES YET NO SHORTAGES REF: A. ABUJA 760 ¶B. STATE 39410 ¶C. 07 LAGOS 664 ¶1. Summary. Rising food and agricultural commodity prices are having a significant impact in Nigeria. Since late 2007, basic food prices have risen sharply. The Ministry of Agriculture calculates that 71% of Nigerians are underfed and the World Bank estimates that 54% of the population earns less than $1 a day. With prices for staples such as rice, maize and millet doubling since December, a large number of families have resorted to selling assets (cows, goats, chickens, household goods) to purchase food. The problem is not only limited to price increases, as local food supplies have also shrunk due to insufficient production, which has declined due to limited supply and the high cost of fertilizer. Compounding the situation are trade policies that ban and/or impose high import tariffs on agricultural products. Following an emergency meeting on April 29, the Government of Nigeria (GON) announced it will release 80 billion naira (N) ($684 million) from the Natural Resources Development Fund (NRDF) for the importation of 500,000 metric tons (mt) of rice from Thailand. Moreover the GON will release 11,000 mt of grains from the National Strategic Grain Reserve and increase fertilizer supplies; however, the GON has limited additional grain surplus to make a noticeable impact on the market. End Summary. ¶2. Basic food products consumed in Nigeria are rice, bread, grains (maize, sorghum, and millet),and tubers (yam and cassava). The majority of rice is imported from Thailand and India, and the wheat used in most domestic flour mills is imported from the United States. There has been a sustained increase in the demand for grains by breweries, feed mills, and food processors. A random sampling of prices at local markets found the following: -- 50 kilogram (kg) bag of caprice rice in Dec 2007 was N6,500 ($55) - April 2008 was N11,500 ($98). -- 50 kg bag of Indian rice in Dec 2007 was N5,000 ($43) - April 2008 was N10,000 ($85). -- 100 kg bag of maize (corn) in Dec 2007 was N3,000 ($26) - April 2008 was N8,500 ($73). -- 100 kg bag of sorghum in Dec 2007 was N3,500 ($30) - April 2008 was N8,600 ($73.5). -- 100 kg bag of millet in Dec 2007 was N4,500 ($38) - April 2008 was N6,000 ($51). ¶3. Agriculture experts contend that current price increases are due to: -- Product hoarding by traders resulting in market shortages. -- Global increases in food prices and freight rates. -- Supply shortfalls from 2007 early rainfall cessation in northern Nigeria. -- Dependence on subsistence rain-fed farming. -- High protective import duties and bans. -- Unavailability of required farm inputs such as improved seedlings, tractors, and fertilizer. Experts lament that some of these problems have continued to plague the agriculture sector under successive Nigerian governments because of policy inconsistencies and minimal funding. ¶4. Staple food prices in Nigeria are similar to what they were during the Niger food crisis in 2005 when the World Food Program had to intervene. The USAID funded Famine Early Warning System Network (FEWSNET) forecasts Nigeria's food security for May to September as follows: -- Much of the middle belt generally food secure. -- Other sections of Nigeria will be moderately food insecure. -- Areas near and including Jigawa state will be highly food insecure. COMMENT: If a food crisis strikes Nigeria, malnourishment will hit pregnant women and children the hardest. So far, organized protests in response to rising food prices have not taken place; however continued price hikes cannot be absorbed by the majority of Nigerians and discontent will certainly increase. On May 2 Kano city police stopped a planned rally and prayer session organized by an anonymous group protesting soaring food prices. END COMMENT. . Broken Rice Bowl -------------- . ¶5. In April Agriculture Minister Dr. Sayyadi Abba Ruma reported to the media that the country consumes 4.8 million mt of rice per annum. Domestic production is only 3.1 million mt per annum, from 2.3 million hectares equaling 2.2 mt of rice per hectare. It is estimated that Nigeria spent $267 million to meet the shortfall. Despite the 109% duty, large scale imports continue, with the majority smuggled from neighboring countries such as Benin. Data ABUJA 00000817 002 OF 003 from the U.S. Foreign Agriculture Service for 2007 show export figures that Thailand shipped three times as much rice to Benin (population 8 million) as Nigeria (population 140 million). It is expected the rice price will continue to increase because of supply shortages from Thailand and India - major Nigerian sources. . Bread Basket Shrinking -------------- . ¶6. The high international price for wheat is taking a huge toll on domestic flour and bread prices. (NOTE: U.S. market share of wheat imports is 85%. END NOTE). The average price of a family size bread loaf has increased since December from N120 ($1.03) to N180 ($1.54) while the size of a loaf has decreased. In local markets biscuit prices jumped from N5 (4 cents) to N7 (6 cents) - a 40 percent increase. . Corn Shortage = Poultry Problems -------------- . ¶7. The 2008 average price for a ton of maize is N60,000 ($513) compared to N20,000 ($171) in 2007 - up 200%. Moreover, stockpiles have fallen below the normal levels required to sustain families until the next planting season, which began in March and runs through May. Prices for other cereals have also increased. ¶8. Insufficient corn supply for animal feed and its high price has adversely affected the poultry industry. Demand for eggs has dropped as prices have risen. This shortage is bad timing for the poultry industry because it has yet to recover from losses resulting from avian influenza last year. Declining demand has caused some poultry businesses to close with the attendant issue of increased unemployment in the sector. There has been some public pressure to lift the GON ban on imported corn. (COMMENT: Despite insufficient feed corn supplies, the GON bans corn imports, ostensibly to support growers. However, the ban on corn imports supports middlemen who buy corn from resource-poor farmers during harvest when prices are low and speculate for high returns during the off-season. Informal estimates suggest that cross-border exports to Niger, Chad and Sudan are 100,000 mt per annum. END COMMENT). . Pirates Sink Fish Production -------------- . ¶9. According to Foluke Areola, President of the Fisheries Association of Nigeria, attacks on fishermen by pirates are a major problem (reftel C). There has been an increase in attacks on fishing vessels from pirates and even the Nigerian Navy has allegedly killed fishermen it mistakenly considered pirates. Trawler owners have limited fishing forays in early 2008 to protest the incessant attacks and concomitantly, fish prices have increased. . On Top of High Prices -- Farmers Face Other Hurdles -------------- . ¶10. Farmers are not receiving the assistance necessary to improve yields. In April Agriculture Minister Ruma reported to the press that there are only 30,000 operational tractors in Nigeria - a density of 0.2 tractors per hectare serving 14 million farming families. Others estimate as few as 15,000 working tractors, compared to 4 million in India. (NOTE: The ministry has recently announced a N400 billion ($3.4 billion) fund to purchase tractors and other farm equipment over the next four years. END NOTE.) ¶11. In the past, GON policies provided skilled farm trainers to teach new farming techniques; however, this program was transferred to the states and has ceased to function. Not enough farmers have access to improved seedlings, and most farmers rely solely on rain and fertilizer. The primary domestic fertilizer producer, National Fertilizer Company, has ceased operations since privatization. Fertilizer production at the plant will not commence again until the third quarter of 2008 - too late for the current planting season. As a result, farmers are forced to buy high-priced imported fertilizer or have none. Even if a farmer produces a bountiful harvest, he is unlikely to have access to adequate storage facilities. Without storage facilities farmers are vulnerable to both price and seasonal fluctuations. None of these hurdles are new; however, the GON has consistently failed to address them, and the recent food shortages exacerbate these issues. . Government Response Limited -------------- . ABUJA 00000817 003 OF 003 ¶12. On April 16, 2008, Minister Ruma was summoned to the House of Representatives to explain the Ministry's short and long term plans to reduce food prices. Members of the House made a motion to ask the administration to submit a supplementary appropriation bill in order to grant subsidies to farmers and import more food items. Additionally, the house discussed waiving duties on essential foods to encourage their importation. ¶13. Following an emergency meeting held on April 29 by President Yar'Adua, with 36 state governors, and relevant ministries, the GON announced it will release N80 billion ($684 million) from the Natural Resources Development Fund (NRDF) for the importation of 500,000 mt of rice from Thailand. Moreover, the GON will supply 11,000 mt of grains from the National Strategic Grain Reserve (NSGR). Earlier this year the GON released 6,500 tons of grains from the NSGR in a bid to force down prices, but the move had no noticeable impact. Also, the GON will subsidize N16 billion ($137 million) of fertilizer; however, the amount is not adequate to positively improve the 2008 growing season and it will become available only after the planting season. The Minister of Commerce and Industry, Charles Ugwu, recently announced that a Ministerial Committee was created by President Yar'Adua to deal with high food prices. ¶14. To increase rice production, in April Minister Ruma reported plans to provide land for large scale farming through contract farming and cooperatives, adjusting import duties, expanding rice processing, and establishing agricultural processing centers. In addition, the Minister of State for Agriculture and Water Resources Ademola Seriki recently announced that the GON was ready to invest one trillion naira ($8.55 billion) in the agricultural sector. (Comment: There have been promises in the past, but the funds have never been allocated. End Comment.) Seriki said agriculture was a major component of the administration's seven-point agenda. According to him, this was the first time large sums would be plowed into the sector via Public Private Partnership (PPP) platforms. ¶15. Comment: Prices have soared in Nigeria, and although there have not yet been major shortages, the price for staple grains is out of the reach for most of Nigeria's poor (a majority of the population). Before price increases, poor Nigerian families were already unable to purchase enough food. This year families are resorting to selling assets (cows, goats, chickens household goods) to purchase food. Given the high cost and short supply of fertilizer, combined with an inability to leverage loans, experts predict that fewer crops will be planted this season, further aggravating the supply problem this year and next. The present situation needs to be closely monitored and adequate measures must be taken by the GON to prevent a crisis. ¶16. Comment continued: the GON has limited additional grain surplus to make a noticeable impact on the market and historically international agencies have not been able to establish timely emergency food response mechanisms in Nigeria. It is not yet clear whether this government will seriously plug in the resources necessary to avert short and long term problems. Bumper yam and cassava harvests in 2007 have provided a temporary safety net for Nigeria's populace. A partial solution can be reached by reducing import duties and removing bans. We have been told by GON trade officials that new trade policies could be implemented as part of the USG-Nigerian Trade Investment Framework Agreement (TIFA) action plan, which has positive signs of moving forward since our last TIFA discussions on April 10, 2008. End Comment. SANDERS