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GRAIN MARKET IN NIGERIA

12 August 202111 min reading

Nigeria relies on imports to meet its food and agricultural product needs, mostly wheat, rice, poultry, fish, food services, consumer-oriented foods. This makes trade in food and agricultural products an important component in achieving the country’s food security needs. Europe, Asia, USA, South America, and South Africa are the major competitors. Nigeria is expected to face decreases in grain supplies due to conflict and economic factors exacerbated by the secondary effects of COVID-19.

Nigeria, an oil-rich country and 207 million population accounts for 50 percent of West Africa’s population. The country population, forecast to reach 400 million by 2050, is a youthful with national median age of approximately 18.4 years and 50% of the total population live in the urban centers. In 2019, Nigeria’s GDP reached $475 billion, positioning the country as the largest economy in Africa.

Oil and gas exports account for about 11 percent of the national GDP, 95 percent of its total export earnings, and about 85 percent of the country’s total revenue. Gross domestic product (GDP) averaged about $440 billion over the last 5 years. In 2020, the economy shrank by -8.9 percent because the country’s budget was 90 percent funded by revenue from oil and gas exports. Low oil prices and the continuing COVID-19 economic fallout are increasing the country’s government debt and the country’s economic recession since November 2020. 2021 was ushered in with the second wave of COVID-19, implementation of the African Continental Free Trade Area (AfCFTA), a rise in oil prices, an upsurge in insecurity (terrorism, kidnapping, and banditry) and an increase in clashes between herdsmen and farmers. The pandemic worsened inflation, which has been over ten percent since 2016. Given the low-growth and high-inflation backdrop, the Central Bank of Nigeria (CBN) is implementing a policy to reverse galloping food inflation by purchasing grains produced by farmers financed under the 2020 wet season Anchor Borrowers Program (ABP). Currently, the CBN is sitting on thousands of metric tons of grains in strategic grain silos and warehouses. The CBN is also trying to resuscitate the moribund Nigeria Commodity Exchange (NCX) to facilitate price stability for grains.

Nigeria's agricultural sector is not well organized and developed. Over the decades, the Government of Nigeria’s policies and measures including the current Agricultural Transformation Agenda (ATA) and Agricultural Promotion Policy (APP), the Anchor Borrower Scheme; etc. remains unsuccessful for improving and protecting domestic agriculture and food processing. The government also adopted various types of trade protectionist measures including hindering importers of many food and agricultural commodities access to foreign exchange despite membership of pro-free-trade bodies. Land borders with neighboring countries, which are major sources of food supply to Nigeria through gray channels, were closed in August 2019 to prevent the entry of food and agricultural products were re-opened in the middle of December 2020.

Nigeria relies on imports to meet its food and agricultural product needs (mostly wheat, rice, poultry, fish, food services, consumer-oriented foods, etc.) worth about $10 billion. This makes trade in food and agricultural products an important component in achieving the country’s food security needs. Europe, Asia, USA, South America, and South Africa are the major competitors. However, low oil prices and the continuing consequences of the COVID-19 lockdown restrictions have continued to increase Nigeria’s government debt. Currently, the economy is in a recession. To survive the recession, the government continues to borrow more as the economy struggles. This situation is unlikely to change in the short to medium term.

Major grain staples in Nigeria comprise maize, wheat, sorghum and rice. Grain farming is predominantly undertaken by smallholder farmers who face challenges regarding access to funds and the availability of quality inputs to improve yield. The country primarily exports cocoa beans, feeds and fodders, cashew/tree nuts, spices as well as seafood products to the world.

Nigeria’s agricultural policy prioritizes domestic food and agricultural production through protective trade policies amid low productivity. In September 2020, President Buhari called for a ban on dollars for food imports and added fertilizers to the restricted items list. Currently, this action is forcing wheat and soybean importers to source dollars at higher rates through the parallel markets. The high foreign exchange rates are increasing the cost of flour and leading to rising prices and declining consumption of bread and other wheat flour-based products during the out-year.

In 2021, Nigeria is expected to face decreases in grain supplies due to conflict and economic factors exacerbated by the secondary effects of COVID-19. Internal security across the country is a serious challenge to food production, especially in the corn belt. Insecurity is rife across the country’s leading agricultural states. Corn and sorghum production are forecast to decline while rough rice production is forecast to grow by 17% higher than MY 2020/21 due to farmers now cultivating two crops per year. Consumption of wheat and corn is forecast to increase - especially corn being a critically important source of feedstock.

WHEAT PRODUCTION

Nigeria only managed to produce just about two percent of all the wheat it consumed. Its wheat production has been hampered by a lack of modern agronomic practices and the unavailability of improved seeds. The national average yield for wheat is 1MT/Ha.

According to USDA, Nigeria is again heading toward another year of low wheat production. USDA forecasts Nigeria’s wheat production in the marketing year 2021/2022 to reach 55,000 metric tons (MT). Banditry and kidnapping activities have reached high levels in Northwest Nigeria, which is the primary wheat cultivation region. Wheat is grown mostly in Borno, Bauchi, Yobe, Kano, Jigawa, and Zamfara States. Currently, these states are under intense military operations to expel terrorists and bandits. These restrictions make it highly difficult for farmers to access their farms.

Nigeria is struggling to meet rising wheat demand. MY2021/22 consumption is forecast at 4.9 million metric tons (MMT). Wheat consumption is expected to grow, but the recent foreign exchange restriction is impeding growing domestic demand. The government through the central bank is implementing measures to increase foreign exchange (forex) availability. Importers are forced to source forex outside official CBN sources. Many of the milling companies have started looking at partners like subsidiaries or parent companies outside of Nigeria for help in getting dollars.

This situation is negatively impacting the price of wheat products like bread. The prices of bread and other wheat derivatives increased due to the high costs of production by the millers and bakers. Many households are already using yams, plantain, sweet potato, and garri (cassava products) as substitutes for bread.

USDA projects MY2021/22 wheat imports at 5 MMT, a 2 percent increase compared to the previous year. The government’s foreign exchange restrictions on imported agricultural commodities, such as wheat, continue to add extra cost to flour, bread, and other wheat flour-based products. The price of wheat influences the market share of major suppliers. Russia, U.S., Black Sea countries, Canada and Australia are the major wheat suppliers to Nigeria for flour milling. Black Sea wheat exports to Nigeria have increased over the past years due to lower prices. To reduce the domestic price of wheat flour and sustain profitability, most Nigerian flour mills have shifted to buying cheaper wheat from Latvia and Lithuania. Mills are blending cheaper, low-quality wheat with more expensive high-quality Hard Red Winter from the United States.

Nigeria does not export wheat. However, there are informal sale outflows of Nigerian wheat flour through major trade centers in northern Nigeria into landlocked neighboring Sahel countries. This practice has been increasing mostly amid Nigeria’s currency devaluation that is resulting in attractive prices.

Nigeria is a net importer of wheat. The country imposes a 5 percent tariff on wheat imports, plus an additional 15 percent levy for a total 20 percent duty. Despite the preferences of Nigerian millers for imported wheat, there is a constant government focus on reducing wheat imports by 50 percent. To reduce imports, the government is requiring millers to purchase local wheat at a fixed price of $400 per ton. However, farmers of the Wheat Farmers Association of Nigeria (WFAN) prefer to sell their limited output to the more attractive markets in Sahel countries, including NGOs - the latter feeds internally displaced persons in the crisis-torn northern regions. Meanwhile, the government is collaborating with milling companies to enhance wheat self-sufficiency – especially strengthening backward integration projects. Backward integration refers to an arrangement in which a company acquires or merges with other businesses to improve supply chain efficiencies. Olam, one of the county’s main flour milling companies, indicated its commitment to partner with the Ministry of Agriculture to expand wheat production. Furthermore, the Flour Milling Association of Nigeria (FMAN) and WFAN continue to express their solidarity with the government’s backward integration project.

The government’s policy on composite flour (i.e., the substitution of cassava flour for wheat flour for use in bread making and other flour-based products) remains in place. The policy offers a 12-percent tax rebate to bakers willing to blend cassava flour with wheat flour for bread making. Full enforcement of the composite flour policy is unlikely until flour millers, bakers, and other stakeholders overcome technical challenges in developing an appropriate mix of wheat and cassava flours.

CORN PRODUCTION

Corn accounts for the majority share of Nigeria’s coarse grain production. It constitutes the staple meal for a significant number of Nigerians and is the most critical ingredient in the production of animal and aquaculture feed. Nigeria’s corn consumption occurs in the form of corn flour, confectionery, roasted corn, boiled, or prepared as porridge.

USDA forecasts Nigeria’s MY2021/22 corn production at 11.1 MMT. The corn belt spanning from Nasarawa, Kaduna, and Katsina States is under persistent localized conflict. Currently, farming communities are under intense fear. Many Farmers are not going to farm because of fear of kidnapping for ransom. MY2021/22 area harvested is forecast at 6 million hectares. Consumption is projected at roughly 12.1 MMT.

Household corn consumption accounts for 10-15 percent of total consumption, while the remainder goes towards food manufacturing. Over 40 percent of Nigeria’s corn production goes into animal feed, especially poultry feed. Nigeria’s expanding poultry sector is expected to boost corn production and consumption.

USDA forecasts MY2021/22 corn imports at 1 MMT, an estimated 100 percent increase compared to 500,000 metric tons recorded last marketing year. Supply shortfalls due to growing insecurity across all farming regions, currency devaluations, and climatic changes are expected to compel the Nigerian government to approve corn imports during the marketing year. The poultry industry had indicated it would need to import about 1.5 million MMT of corn to satisfy domestic feed demand during the year (MY2021/22). However, the lack of storage capacity and the suspension of importers from accessing foreign exchange at CBN rate would likely limit the import volume.

RICE PRODUCTION

Rice is another staple food in Nigeria consumed by most households daily. It is the second most-produced grain in the country. It can be grown anywhere in the country. The crop grows well both in upland and lowland regions. In recent years, the government and several state governments have promoted increased rice production. MY 2021/22 rice rough production is projected at 9 MMT, a 20 percent increase compared to the previous year. Nigerian farmers are increasingly moving from singular seasonal rice farming to multiple seasons. Dry season farming thrives better than wet season because production variables can easily be controlled unlike wet season where flood or protracted drought can wreak havoc on production. The prospects of multiple cropping rice seasons are contributing to increased national production.

MY2021/22 area harvested is forecast to increase by 17 percent to 3.8 million hectares compared to 3.25 million hectares recorded the previous years by USDA. The major drivers include the presence of medium-to-large scale and financially stable integrated rice farming/milling operations in the private sector that continue to support many rice farmers with funds and inputs under out-grower arrangements. Amid increasing production costs and lowering demand, out-grower programs provide opportunities for smallholder farmers. Attractive prices of Nigerian rice in the Sahel region are spurring Nigerian rice farmers and millers to increase production for informal exports to neighboring countries. MY 2021/22 rice consumption is projected to reach 6.6 million metric tons. Market sources indicate that the drop in consumption would largely originate from increasing prices amid lowering consumer purchasing power, job losses, and declining household incomes. These factors are already causing more Nigerian households to reduce their rice consumption and shift to foods that are more affordable such as millet, sorghum, yam, cassava, plantain, and other less expensive staples grown within their communities.

USDA projects MY2021/22 imports to reach 2 million metric tons. Nigerian rice consumers prefer parboiled long grain rice from Thailand and India, which continues to enter the Nigerian market through grey channels (unofficial routes) and are freely sold in the dominant traditional open-air markets and street/corner shops. The recent hike in electricity tariff and petrol (gasoline), both required to run production plants and facilities, are expected to increase milling costs and hike local rice prices even beyond the prices of imported parboiled rice. Imported rice faces a 10 percent duty and an additional 60 percent levy totaling 70 percent tariff. The government indicates that rice is not banned for imports. However, importers are prohibited to ship rice to any Nigerian port irrespective of the source of foreign exchange. This translates to a technical ban.

REFERENCES: www.fas.usda.gov www.trade.gov www.fao.org/home/en

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