People & Money

Food insecurity and our public policy responses

We are back where we started: limited domestic supply of agricultural goods and services in the teeth of rising and ineffective demand.

Do we face a serious food insecurity problem? Both the International Monetary Fund and the World Food Programme think so. The latter actually puts the number at risk globally from food shortages and rising food prices this year at 345 million (from last year’s 193 million). In large part, this is because of Russia’s war against Ukraine. Both countries lie at critical junctions in the global supply chain of critical staples and inputs into fertiliser production.

That Nigeria faces problems with its food supply has been evident for some time now from its inflation numbers. Since March, the food inflation index, which stood at 23.12% on an annual basis in August, has trended northwards inexorably. This has meant a reduction in disposable incomes as we now spend more for the same calorie levels as we did before the year began. For the poor and vulnerable sectors of the economy, who spend more of their earnings on food, this as meant a reduction in calorific intake, as well as a general diminution in wealth.

Do we face a serious food insecurity problem? Both the International Monetary Fund and the World Food Programme think so. The latter actually puts the number at risk globally from food shortages and rising food prices this year at 345 million (from last year’s 193 million). In large part, this is because of Russia’s war against Ukraine. Both countries lie at critical junctions in the global supply chain of critical staples and inputs into fertiliser production. It was important, therefore, that in July this year, the UN was able to broker a deal that allowed grain exports from Ukrainian Black Sea ports.

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This agreement expires in November. And with Russia having its back to the wall in its excursion in Ukraine, the chances of an extension of this agreement are poor. This is not the only reason why grain prices are back to the levels they were in late February, just after Russia invaded Ukraine. Across the world, central banks have tightened monetary conditions as they try to rein in rising domestic prices. The US Federal Reserve has been the most hawkish. Aggressive increases in the federal funds rate has fed into bond yields, depressed equity prices, and driven up the dollar against just about every other currency. Arguably the most important consequence of all this is the depression of risk appetites, as investors, alarmed at more uncertain global market conditions have sought safety in havens, including, of course, the greenback.

This process has hurt global aggregate demand in the same way as it has eroded exchequers around the world, put off business investment, wiped out household wealth, and slowed global economic growth. Add the droughts in the West and the flooding in parts of the South to how farmers respond to higher fertiliser prices, and the outlook might turn out far worse than most current estimates.

Rather than throw money at any sector, government’s main duty is to remove the risks from operating in that sector, including through making it easy for private sector operators (both local and external) to come in and exit these sectors. An educated regulatory environment is just as important for ensuring that supply responses in these deregulated sectors reman flexible.

Yet, if the Buhari government is to be believed, the domestic economy ought to have been inoculated against much of these exogenous happenings. From the border closure (August 2019 to December 2020) through to the Central Bank of Nigeria’s (CBN) intervention funds in the agriculture space (almost N10 trillion worth of loans at single digit rates ― effectively one of the country’s biggest subsidy schemes), the whole point was to improve domestic supply responses in the sector. At its sweet spot, the CBN advertised pyramids of rice in evidence of the programmes sterling success. Only for us to be back where we started: limited domestic supply of agricultural goods and services in the teeth of rising and ineffective demand.

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Which makes it tempting to respond with a “Did we not tell you that this recourse to economic heterodoxy was not going to work?” far, better, however, to restate the nature of the problems that we continue to face as an economy. First, government and its diverse bureaucracy are not as competent as their conceit of self suggests. If nothing else, the GSM auction years ago remains the most sold argument for how to go about reforms to the economy. Rather than throw money at any sector, government’s main duty is to remove the risks from operating in that sector, including through making it easy for private sector operators (both local and external) to come in and exit these sectors. An educated regulatory environment is just as important for ensuring that supply responses in these deregulated sectors reman flexible. And more importantly, until these reforms take hold, Nigeria will remain a high-interest rate environment.

None of this however obviates the need for government to support needy sections of the economy. But rather than the blunderbuss approach currently in favour, such interventions must be targeted and conditional. Thankfully, we have the technology to prove this concept.

Also Read: Nigeria and its conspiracy theories

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