Why Food Prices will Continue to Rise in 2022
AFEX, one of Nigeria’s leading commodity players, has projected that the high food prices which have been caused by inflationary pressure would continue to spike in 2022.
The company said this on Wednesday at the launch of its report titled ‘Annual Commodities Review & 2022 Outlook’.
The report predicted that the combination of rising inflationary pressure as Nigeria approaches the end of the petroleum subsidy, a possible of naira devaluation in the parallel market, and increased demand pressure on commodities in the country, would increase the price of grains during the new 2021/2022 trading season.
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The annual commodity outlook by AFEX also alludes to price pressures being exacerbated by the fact of 2022 being a pre-election year, which will cause some market uncertainty.
Speaking at the report launch, AFEX’s Vice President, Financial Markets, Oluwafunto Olasemo, explained that “the AFEX Annual commodities outlook is a yearly outlook that is shared at the start of each year to provide some perspective on how the commodities market performed in the previous year and how commodities may perform in the new year.”
“The report’s primary objective is to close a data gap in Africa’s commodity sector and to give solid market intelligence to major stakeholders in the commodities value chain,” Olasemosaid.
Reviewing the previous year, the report showed that after the COVID-19-induced lockdowns were lifted in 2021, the Nigerian agriculture sector expanded by an average of 1.60 percent in the first three quarters of the year.
The report said although this expansion was lower than the 1.72 percent recorded in 2020, it depicted some resilience compared to other significant sectors such as industry and services.
The report added that Agriculture contributed an average of 25.35 percent to Nigeria’s GDP in 2021.
Among other commodities, sesame seeds, fermented cocoa beans, cashew nuts, ginger, crude palm kernel oil, soybeans, frozen shrimps and prawns drove overall agriculture exports between 2016 and 2021 and agriculture exports generated N1.79 trillion cumulatively for the country.
During the same period, Nigeria’s overall agriculture import cost was N3.78 trillion with a trade imbalance of N1.99 trillion, making Nigeria still a net food importer.
“Global food prices maintained a northward trend from July 2020 up until May 2021, reaching record highs adding to pressure on household budgets. Extreme weather conditions and COVID-19 induced disruptions in supply activities, all contributed to pressured prices, income losses and exacerbated food insecurity in 2021,” the report said.
Providing an outlook for the new year, AFEX predicts that the new Omicron variant will have a negligible impact on Nigeria’s commodity supply chain.
However, prices across commodities started the current season at a higher minimum base price than the previous season, owing to increased demand that has surpassed supply levels.
The report indicates that the naira’s depreciation against the US dollar and the CFA Franc has raised the demand for most staple commodities, particularly sorghum. This will also help export commodities including cocoa, sesame, ginger, and cashew.
“We believe other upside risks to domestic commodity prices this year are insecurity, FX rate deterioration, government policies. Also, the inability to close the supply shortfall by increasing harvest from dry season farming is a potential risk to pressured prices in 2022,” the report reads.
AFEX, however, noted that improving the productivity of Nigerian farmers is a key recommendation from the report to surmount the supply shortfall in most agro commodities value chains.
AFEX advocated for the provision of inclusive services towards farmers, which should leverage on technology infrastructure that works together to increase farmer productivity across the major grain-producing regions in Nigeria.
The company added that the emergence of a more productive agro-sector in Nigeria requires a concerted effort from both the public and private sectors.
However, Olasemo, at the launching of the report, also spoke on other areas AFEX is addressing in order to get better productivity in 2022.
On Insurance of farm produce, Olasemo said: “Insurance is embedded in all of the credit assets if anything goes bad a farmer doesn’t go home empty-handed and this is also about the capacity of the commodities markets. There’s the role of underwriters and insurance to ensure that whatever the identified risk within that structure is properly secured, so it is not just an AFEX thing but a collective goal across the sector and the economy starting from the regulatory aspects, to thrive engagement put from the security side, the financial market then also talking to the regulatory side of the insurance to see how work can be done collectively to ensure that insurance becomes an inherent part of the commodity value chain. We have insurance companies like Polar which is not just a Nigerian entity but cut across all countries in Africa.”
On pest control and storage, she said: “Across all our warehouses we ensure best standard practices set by the Standard Organisation of Nigeria (SON), right from production to storage throughout the shelve life of the commodity.
Olasemo also spoke on whether AFEX is going into other asset classes other than Agriculture.
She said: “We actually have quite a number of them in our pipeline, our Gold contract is due for listing before the end of the year 2022. We also have plans to go into food derivatives for a number of commodities that are currently traded on the platform.”
On the measures AFEX is putting in place to mitigate price increases, Olasemo said: “We have a level of production growth in Nigeria at a level less than 2.6% while her population is growing above 2%. what that means is that we can never be able to sufficiently be able to feed ourselves for now. How do we solve this fundamental problem? As the demand for commodities continues to go up the price also rises because demand is not able to meet supply. So it is not an AFEX thing yet we are doing our best by providing the necessary inputs for farmers to improve productivity. There is a policy and regulatory side, financial market, and productive side.”