Busting the Wheat Import Mind Games

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Saturday, November 27, 2021 / 07:30 AM / By Funsho Idowu, Proshare Research / Header Image Credit: The Express Tribune

 

Wheat in Nigeria has become weaponized. Nigeria produces one percent (63,000 metric tonnes) of the 5 to 6m MT of the product, a staple for Nigerians breakfast table. The shortfall has put strains on the country's foreign reserves as Nigeria parts with US$2bn annually in the importation of pastry input.  The commodity is the second highest contributor to the country's food import bill. With the price of wheat spiking and Nigerian families increasingly depending on bread as the cornerstone of their morning meals, poor domestic wheat production is like a bullet to their heads.


Chart 1: Global Wheat Price from Jan 2021-Nov 2021($/bu) 

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Source: CNBC, Proshare Research

*Data for November is Global Wheat Price as of November 15, 2021

 

The skyrocketing price of food items, including flour derived from wheat, has put downward pressure on domestic living standards, particularly those at the lower end of the income pyramid. With wheat production less than a tenth of national domestic consumption, the local supply gap of the commodity means that higher prices may be a permanent feature of the business over the next few months. To contain the massive rise in the domestic price of bread, the government may need to continue to import the commodity despite its import substitution preference.  


Presently prices of baking materials have soared. A bag of flour sold for N11,000 in the first three months of 2021 but rose to N15,000 between May and July. In September, the price rested between N21,000 and N22,000 because of the high-cost operating environment induced by the rising cost of critical inputs, naira devaluation, import duties, and inflation.


Surprisingly, the October 2021 inflation figures came in lower than the preceding month, despite food inflation rising to 18.34 percent in October 2021 compared to 17.38 percent in September 2020.

 

Chart 2: Wheat Production in Nigeria between 2010-2020(1000MT)

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Source: Indexmundi, Proshare Research

 

Analysts note that in the last decade, wheat production had dropped from 100,000 MT in 2010 to 55,000MT in 2020 despite the growth in the Nigerian population and the increased demand for wheat flour-based consumer products like bread.


Illustration 1: Issues Surrounding Successful Cultivation of Wheat in Nigeria

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Nigeria's Brown Revolution; A Right Step but not Enough

In November 2021, the Central Bank of Nigeria (CBN) flagged the Nigerian Brown Revolution, an intervention programme to boost the wheat value chain under the Anchor Borrower Scheme.


The programme was to add about 750,000MT of wheat to the nation's output annually through rain-fed wheat cultivation in some states in the Federation.


Even with this programme, the rise in output is nowhere near bridging the demand and supply gap. The government, therefore, needs to encourage more private sector investment the sector.


Agronomists observe that the Northern part of the country has favourable weather and soil conditions to support wheat cultivation, but commitment and smart financing structure are lacking. Hence, with the introduction of the improved varieties that can grow in different climatic conditions, Nigeria's wheat yields will increase significantly, reducing importation costs making bread- which has become a staple food of the common man in Nigeria, cheaper. Poverty is dire enough, but when it takes on a role of a life terminator, mindsets shift, and warfare is not far away, as French Queen Marie Antoinette found out during the French revelation when citizens asked for bread. In a demonstration of her complete removal from the everyday life of the average poor French citizens, she recommended eating cake!


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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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