Thursday, August 16, 2012

The Impact of Wheat Flour Price Increase in Nigeria

According to the Minister of Agriculture, Dr. Akinwumi Adesina, Nigeria is spending about N635 billion annually to import wheat for bread production.

Increased Import Duty on Wheat Grains To 20% And Flour To 100%: Nigerians To Pay More For Bread, Pasta, Noodles, And Biscuit Other Allied Products

With the increment of the import duty on Wheat as contained in the 2012 Appropriation Bill that was recently presented the average Nigerian is definitely in for a new high price regime for staple food items such as Bread, Spaghetti, Noodles, Pastries and allied product made from wheat flour.

There is no doubt that this will bring about another phase of untold hardship and aggravated suffering on the already over-burdened Nigerian populace who are just adjusting to realities of the January hike  in prices of Petrol warranted by the aborted outright removal of fuel subsidy.

The reason posted for the increase in the duties on these commodities was to promote the usage of Cassava flour which is locally produced. According to the government, this will lead to a marginal growth in the country’s Gross Domestic Product (GDP) and save the country some earnings by reducing importation.

The Government explained that there was no way the country could experience the desired growth in the face of unbridled importation of consumer items and specifically stated that jacking up of the duties was intended to challenge Nigerian farmers on the need to work harder so that Nigeria can become sufficient in food production.

“It is common wisdom that the best way we can grow our economy and create jobs for our people is for us to patronise Nigerian made goods. This is why we are introducing enabling policies to drive this process”

Impact on Wheat Imports

The GON has consistently stated that the primary goal of the new cassava policy is to cut wheat imports by 40% by 2015 to conserve foreign exchange earnings and increase employment. The GON estimates wheat imports to be worth N635 billion (about $4.2bn) in 2011. These figures, even if they include cost, freight, insurance and duty, are overstated to demonstrate that wheat imports hurt Nigeria’s foreign exchange earnings and worsen the rate of unemployment. In actuality, no more than $1.8 billion is spent on wheat imports annually using the same cost, freight, insurance and duty schedule. Successful implementation of this policy will result in a significant reduction in Nigeria’s wheat imports. In addition, the attendant increase in the price of the composite flour and consumer preferences could reduce imports further by an unknown degree as consumers may balk at “cassava bread” products. The US has a dominant share of 85-90 percent of all wheat exports to Nigeria.

Displacement of Wheat Imports

 (Excluding Consumer Preferences) Year Projected Total Imports
(m tons)
 Flour Equivalent (m tons) Cassava Displacement rate Net Flour
(m tons)
 Displaced wheat imports
(m tons)
 US Wheat exports displaced ($millions)

 2012 4.2 2.93 10% 2.63 0.78 200

 2013 4.5 3.15 20% 2.52 1.23 314

 2014 4.7 3.29 30% 2.30 1.71 436

 2015 5.0 3.50 40% 2.10 2.27 801

In as much as these reasons may appear business minded and economically savvy, the fact remains that it will cause more pain and anguish to average Nigerians and worsen the appalling standard of living of the Nigerian populace of which over 80 per cent live below a dollar a day.

The implication of this new import duty regime is that there will be a corresponding rise in the cost of production of staple food items like Bread, Instant Noodles, Spaghetti, Biscuits and the different Pastries which were hitherto relatively affordable invariably lead to an astronomical increase in the prices of the products. For instance, a loaf of bread that is currently sold at 100 Naira will jump to between 130 and 150 Naira. A pack of Spaghetti which is sold at an average of100 Naira and capable of feeding a small family is likely to increase to 120 Naira. A pack of Biscuit which is sold at an average of 10 is likely to increase to 15 Naira or thereabout.

Some of the Pasta players like Golden Penny and Dangote has already increased price for their spaghetti brands.
Lateef Oguntoyinbo, Lagos State chairman of the AMBCN told: “We have agreed to increase the price of bread by 10 per cent.”

According to the bakers, while the official price of flour from the flour mills is over N5,400 per 50kg bag, the ordinary baker does not have access to the flour mills and so will have to buy from middlemen for between N5,450 and N5,500 per bag. A 50kg bag of sugar now sells for N10,600.
“When you quantify that and other ingredients such as yeast, salt, flavour, as well as staff salaries, you’ll find that not much profit is made at the end of the day,” he added.
Players in the industry have, for a long time, been on the edge over rising cost of ingredients needed for the production of bread and other confectioneries. As a result, many small scale bakers have been compelled to abandon baking for commercial motorcycling business.

Industrial researchers believe that the inclusion of 5 percent cassava flour in wheat flour could lead to a drop in the cost of baking flour; but not all flour millers have heeded this government policy, hence, its impact on the price of flour is not yet felt by bakers.
Apart from the above, industry operators say they still grapple with the usual infrastructural constraints of erratic power supply, poor road network and insufficient healthcare facilities.



Another simple analogy to this scenario is for example, Noodles which is the most popular affordable, fast and easy-to-prepare meal among several million Nigerian children and adults alike may now Increased from 50 Naira to 55 Naira a sachet.

~ By Bakare Soyinka,

No comments: