There are very few things more important to life than food. Besides its importance in sustaining our lives, food is also an essential element of Nigeria’s rich culture. Whether it is a small buka or a grand eatery, different varieties of nourishing food are readily available in every corner of the streets. However, millions of people now go to bed hungry due to escalating food prices. According to latest data from the National Bureau of Statistics (NBS), food inflation reached 35.4% year-on-year in January 2024 - the highest level since September 2001. If left unaddressed, this trajectory suggests that the average Nigerian household will need to double their current spending on food within the next three years to maintain their present level of food consumption. This poses a substantial threat to their overall well-being and financial stability.
The persistent surge in food prices can be attributed to various factors, including insecurity, extreme weather conditions, disruptions to global trade, and the continued depreciation of Naira. While the government and the central bank of Nigeria work on solutions, businesses, consumers, and investors must navigate this storm. As food prices are likely to remain high through this year, many individuals and businesses are preparing for the worst-case scenario. To help stakeholders cope better during this challenging time, we present some coping ideas below:
For Farmers
The escalating prices of essential agricultural inputs such as seeds, fertilizers, and chemicals are exerting pressure on farmers' profit margins. Eventually, these increased costs trickle down to the end consumer.
However, farmers have the opportunity to alleviate this burden by embracing innovative farming approaches, such as cluster farming. This method allows farmers to achieve economies of scale, effectively reducing the unit cost of food production. In Nigeria, the average farmer operates on a mere 1.5 hectares, which proves insufficient for cost-effective production. Through cluster farming, groups of like-minded farmers can combine their plots, sharing production costs such as planting, mechanization, and overhead expenses. This collaborative effort enables farmers to enhance efficiency, mitigate risks, and ultimately boost productivity.
Furthermore, in tandem with adopting cluster farming, farmers can explore cost-effective substitutes and alternatives for specific inputs. For instance, integrating cover cropping can help diminish reliance on expensive chemicals.
For Agribusinesses
As inflation exerts its eroding effect, agribusinesses such as food processors and restaurants will have to grapple with elevated raw material costs. To navigate and mitigate the impact of inflation, agri-businesses can implement strategic measures.
One key strategy is negotiating fixed-price contracts with suppliers for essential production inputs. By locking in costs for a specified period, businesses can effectively limit the impact of escalating costs of goods sold, thus safeguarding profit margins. This proactive approach provides a degree of stability in the face of fluctuating market conditions. For example, businesses like Soilless Farm Lab are offering farm produce supply at a fixed cost for up to a year, an excellent opportunity for restaurants and hotels to manage their future costs.
Maintaining higher inventory levels, particularly during peak seasons, can be a valuable strategy. However, this approach necessitates a careful balance, considering potential strains on operating capital and storage capacity. During these periods, borrowing to augment working capital can be very costly, posing a potential risk to operating activities if not well managed. Agribusinesses must weigh the cost and benefits of increased inventory, ensuring a well-managed and sustainable approach to inventory levels.
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For Consumers
As businesses navigate and manage to secure profits during periods of inflation, consumers often find themselves grappling with the burden of soaring food prices. To hedge against the impact of food inflation, consumers can adopt several proactive measures.
One effective approach is to time purchases of staple foods during peak production or supply seasons when prices are typically lower. This enables consumers to buy and store larger quantities of food at more affordable rates. Palm oil, for example, is usually cheap and surplus between February and May every year.
Additionally, joining cooperatives can be advantageous, as these entities often facilitate bulk purchases for members at discounted rates.
Cost-effective habits, such as preparing homemade meals and utilizing freezers for bulk storage, offer practical ways to control expenses. Creating and adhering to a budget provides a structured approach to meal planning, reducing the likelihood of impulsive spending.
Moreover, exploring alternative and more affordable protein sources, such as legumes, beans, and lentils, can contribute to a nutritious diet while being budget-friendly compared to animal protein like beef and chicken. For those with the means, cultivating fruits, vegetables, or herbs at home or in a garden can further alleviate the impact of food inflation by reducing reliance on expensive market produce and minimizing frequent market visits.
For Investors
While food inflation places a burden on households, it presents a major opportunity for investment and portfolio rebalancing. The commodities market has proven to be profitable for investors, protecting them from inflation and currency fluctuations. Since the onset of food inflation pressures in 2020, the commodities market has consistently delivered remarkable returns, surpassing those of alternative asset classes such as stocks, real estate, and fixed income.
Notably, the AFEX Fair-Trade Exchange Traded Commodities (FETC), comprising a basket of commodities, has exhibited an impressive average annualized return of over 60% between 2021 and 2022. As of March 6th, 2024, FETC has already yielded nearly 60%, almost doubling the returns on the Nigerian Stock Exchange.
Seeking expert support is key
Coping with food price shocks necessitates a proactive approach from consumers, businesses, and investors. Vigilance in monitoring food price trends and understanding their drivers, such as fuel prices, exchange rates, and the impact of natural disasters like floods, is essential. Stakeholders must also stay well-informed about global factors affecting food prices, encompassing geopolitical events, weather patterns, and other variables influencing food production and distribution. However, anticipating changes in food availability and price dynamics can be challenging without the necessary technical capabilities. For businesses and investors navigating this complexity, seeking expert opinions becomes crucial.
Consulting with experts like Vestance enables a better understanding of how major events can disrupt supply chains and affect return on investments, while also helping businesses to figure out ways to prepare themselves. With expert support, businesses and investors can make informed decisions, enhancing their ability to navigate uncertainties and contribute to the resilience of food systems.
