How fuel subsidy removal, transport costs pushed food inflation to 17-year high

By Onome Amuge

Despite a significant decline in global food prices, the food inflation rate in Nigeria, Africa’s most populous country surged to a 17- year high at 24.82 per cent in May 2023, its highest level since August 2005.

Recent data published by the National Bureau of Statistics (NBS), showed that as at May 2023, Nigeria’s food inflation jumped  5.33 per cent points further  from 19.50 per cent recorded in May 2022, representing a significant  increase on a year-on-year basis.  Similarly, food prices  accelerated on a month-on-month basis as the food inflation rate in May 2023 stood at 2.19 per cent, 0.06 per cent higher compared to 2.13 per cent recorded in April 2023.

The astronomical increase in the country’s food price has been attributed to some shocks that have continually rocked the sector, including insecurity, currency depreciation, lingering effects of the Covid-19 pandemic, climate change, among other factors.

Notably, one of the most significant factors identified to have shot up prices of food commodities is the fuel subsidy removal by the President Bola Tinubu administration.

Business A.M gathered that the move has resulted in a ripple effect on the food distribution system and translated to higher costs of purchase, especially for the end consumers across the country.

According to market watchers, the rising cost of food prices in the country is largely on the high cost of transporting produce from production points to the market following the over 200 per cent increase in the cost of petrol, a major fuel used in powering vehicles.

They observed that because of the increase in the cost of petrol, it has become more expensive for transporters to move produce and the consumers have been forced to pay through their noses to purchase basic food items.

Grace Mbah, a food dealer based in the Oshodi Market, Lagos, said the prices of food items jumped to almost twice their previous rates or even more depending on the food item. This, she noted, occurred immediately when it was confirmed that petrol sold between N488-N500 from the previous rate of N185.

Mbah explained that the  hike in petrol pump price has pushed food transport/logistics  rate higher, forcing her  to equally increase the prices of her food items to avoid running at a loss.

Speaking in the same vein, Tajudeen Oseni, a transporter at the Ojota Motor Park, said though most of the food items being transported from the rural and farming communities are considerably affordable, the cost of transporting them to the urban centres is high, translating into higher purchases for both the retailers and end consumers.

With prices of food items and transportation fares on the  increase nationwide, industry players have called  for a shake up in the food transportation system to cushion the market reaction to fuel subsidy removal.

Akin Alabi-managing partner,Corporate Farmers Nigeria, in a monitored  television programme, observed that Nigeria’s food system in terms of distribution is dependent 90 per cent basically on road systems. This, according to him, has left little alternative for other means of transportation that aren’t dependent on petrol.

“On transportation, we need to open up that space very well because. So, we need to harness other avenues of conveying our food such as air systems, simple railway systems, so that food can get to channels easily and quickly to distribution processes so we don’t depend holistically on road transport.  We need more players to come into this sector and invest a whole lot in food distribution system,” he said.

Alabi also dwelled on the issue of storage which he described as a very big element which needs to be addressed for Nigeria to be able to curb some of the shocks that affect food pricing.

On how to maximise storage and transportation, the agriculture expert said, “We need more private players that would come into the system and understand how this sector is being played so that smallholder farmers would not suffer to move their commodities from Point A to Point Z.”

Speaking in the same vein, Oghenetega Iortim, CEO and founder,Figorr, a cold-chain startup, noted that over 70 per cent of the food consumed is produced by the small holder farmers who are largely rural dwellers.

According to Iortim, getting the food into areas of consumption involves a lot of aggregation process that happens at the last mile which means that small vehicles that depend on petrol are being utilised before most of the products even get to the main trucks that eventually move them in larger bulks to farther communities.

“Road transportation is also a challenge because you have people charging you fees to move products from one state to another state, so these are some of the things that are exacerbating the issues that we already have around the food crisis,” he added.

To improve economies of scale, Iortim encouraged the government and large aggregators to build and invest in storage  infrastructure so that they can store cheaply and they can now leverage that economies of scale as well for other methods of transportation including the rail transport system and the aviation sector.

He also pointed out that one key area that has to be exploited by players in the food commodities sector, especially is the provision of insurance.

Insurance, he explained, plays a significant role in the movement of perishable goods as it  ensures that even if losses occur during transportation, it is not passed on directly to the end consumer.