‘Why Prices Of Rice, Beans, Others Keep Increasing Despite Recent ‘Stable’ Forex’

The Central Bank of Nigeria (CBN) has implemented several measures aimed at arresting the free fall of the Naira against major foreign currencies, notably the US dollar.

These interventions have led to a marginal appreciation of the Naira, providing a semblance of stability in the forex market.

On February 20, the Naira experienced a sharp decline, reaching lows of ₦1,500 and ₦1,800 against the dollar in the official and parallel markets, respectively.

This depreciation had a direct impact on the cost of essential commodities, significantly increasing the financial burden on Nigerian households.

In a notable turnaround, the CBN, on February 27, 2024, resumed the sale of dollars to Bureau de Change (BDC) operators, three years after the suspension of this practice. Each eligible BDC operator now has access to $20,000 at a rate of ₦1,301/$.

Additionally, the revocation of the licenses of 4,173 BDC operators was among the drastic measures taken to stabilize the Naira. These actions have contributed to the currency’s appreciation to around ₦1,590 against the dollar in the parallel market.

However, despite these positive developments in the forex market, the anticipated decrease in the prices of essential commodities, particularly locally-produced ones, has not materialized.

A survey conducted by Daily Trust at Muda Lawan Market in Bauchi highlighted the continued surge in prices of major food items.

For instance, as of March 11, 2024, the price of a 5-litre container of King’s Oil escalated to N12,000 from its previous range of N11,000 to N11,500.

Similarly, other staples such as sugar, Irish potatoes, rice, yams, Maggi, and eggs have seen significant price increases, further straining the budgets of Nigerian families.

Experts point out that the marginal improvement in the Naira’s value may not necessarily lead to lower prices for imported goods.

This assertion is supported by the CBN’s decision on February 14, 2024, to increase the exchange rate used for calculating Customs duties at Nigeria’s seaports by 2.6 percent—marking the fifth such increase this year.

The adjustment from ₦1,444.56/$ to ₦1,481.482/$ implies higher costs for importers to clear goods, as import duties are pegged against the dollar

Mika’il Abubakar Garba (aka Bala Mai Kaji), the Chairman of Muda Lawan Market in Bauchi, argued that supply shortfall occasioned by border closure and other factors were responsible for the increase in food prices.

He said, “I don’t agree that merchants are hiding under the guise of dollar-naira issue to increase prices of goods. What I do know is that some merchants increase prices of their old stocks as soon as they learn of price increase from the companies they buy their goods. Their argument is that if they sell at the old price, they will not realise enough profit to restock.

“We can’t deny the fact that there are few merchants who buy and store products when they are cheap and sell when prices are high. But by and large, the issue is that, our domestic production in the country is not enough and yet the little that is produced is sometimes exported to other countries. Usually after harvest – when produce are available and cheaper – companies and other business moguls buy from farmers to either export it out of the country or store it for selling when the supply is less at the market and the prices are high.

“You see, when you have limited supply and high demand, prices will definitely go up. With the borders closed, it means there will be less or no competition to neutralise the price in the market and break the monopoly enjoyed by the few that wield power at the markets. I assure you that if there’s importation, the price will crash and remain relatively stable.”

Mai Kaji, however, advised the government to reopen land borders, allow importation and force companies to bring out their stored commodities to the market to meet the country’s demand.

“Government should just come out and help people by allowing importation. There’s no point in allowing exportation and then stopping importation when what we have in the country is not enough to meet our demand,” he added.

Alhaji Adamu Speaker, the Chairman of Bauchi Central Market, blamed the situation on the restriction of naira to purchase goods from companies.

“Before now our people bought goods using naira, but now they have to use dollars. I assure you that our merchants here are doing their best in keeping the prices relatively stable at least when compared to other markets.

“At this critical period, what is important is to have the commodities in good quantity in the market so that market forces will pull the price down,” he added.

An economist and senior lecturer, Dr. Yahaya Yakubu, cited supply rigidity, structural problems and border closure as some of the factors, leading to less or no reduction in prices of goods and services even when naira is gradually appreciating at the global market.

He explained, “First of all, it is important to understand that the Nigerian economy is an import dependent economy in terms of manufacturing goods. If you have an import dependent economy, your economy is vulnerable to volatility of exchange rate, so whatever happens to the exchange rate, the economy will be affected whether positively or negatively.

“In a developing economy like Nigeria, we have what is called structural deficiency or supply rigidity in such a way that if there’s a break in supply of a particular commodity or if there’s a change in the cost of production of a particular commodity, it will easily affect the prices of goods and services.

“But because of inconsistency in the supply, consumers will hardly see the changes or reduction in price even when there is reduction in the production cost. Our own economy has certain peculiarities in that hardly will you see prices coming down after surging up, and one reason for that is the structural problem we have in the country.

“That is why I always insist that the government should be very careful in making pronouncement or taking policies that will shoot up prices, considering the effect this action has on the economy.

“During the tenure of President (Muhammadu) Buhari, for example, there was a policy pronouncement that the government was going to ban the importation of textile materials. From that pronouncement, the prices of textile materials surged up, and the government was unable to revitalise the domestic textile industry due to certain structural problems.

“Look at what happened also when the current President made a policy pronouncement about fuel subsidy removal during his inauguration. The price of Premium Motor Spirit skyrocketed. So it’s always good to understand the ‘workings’ and peculiarities of your economy first before making such pronouncements as they have impact – mostly negative – on the economy.

“If we have consistency in supply, free flow of supply just like the developed economy where production is consistent and heavy, production is efficient and going on at any time, then time lag of changes in price will be less; that is the time it will take before the prices of goods and services will come down when they go up will be less.”

The expert further explained that closure of land borders was also compounding the issue of food scarcity which ultimately led to increase in price.

“If you close your borders, you are compounding the problem of supply in the system. For example, the current domestic rice production capacity in the country is not enough to meet the demand of the population, and therefore we need about 2.5m metric tonnes to fill the supply gap.

“The only way you can make up for the deficiency is by interacting with other economies through importation. When you close the border and allow certain individuals to import goods, you’re creating a monopoly in the system and so they will control both the supply and the price. So, we have to open the economy and enable competition so that adequate supply will force the price to go down.”