Nigeria consumes a lot of wheat. The agricultural commodity is a key ingredient in several of Nigerians’ favourite foods—think of bread, semolina, noodles, pasta, and cakes. In fact, Nigeria consumes nearly 70 times more wheat than it produces1. As a result, the country imports large volumes of wheat annually to fill this consumption gap. Unfortunately, importing wheat into Nigeria has become increasingly expensive in the face of high government tariffs on imported wheat and a plummeting currency.
In this article, we unpack Nigeria’s trade policies, not only for wheat but for food in general. We explain how the government’s import policies likely exacerbate the ongoing food security crisis in the country, and we recommend potential reforms to improve the situation. Stay with us.
First, many food items—such as live or dead chicken, chicken eggs, pork, beef, as well as refined vegetable oils and fats—are prohibited from importation2. The food items that the government does allow to be imported are subject to high tariff measures. Added to that is the challenge of accessing the foreign exchange needed to execute import transactions. Between June 2015 and October 2023, the Central Bank of Nigeria (CBN) restricted access to foreign exchange at the official window for the import of many food (and non-food) items, forcing importers to source foreign exchange from the parallel market where exchange rates often exceeded the official rate3.
Nigeria’s import tariffs are determined by the ECOWAS Common External Tariff (CET) which recommends 0% duty on capital goods and essential drugs, 5% duty on raw materials, 10% on intermediate goods, 20% on finished goods and 35% on imports into strategic sectors4. But in addition to these CET rates, the Nigerian government applies supplemental charges that raise the effective tariff rates on several agricultural items. Items with especially high tariffs include wheat (85%), sugar (75%), rice (70%), and tomato paste (50%)5.
Meanwhile, across Nigerian markets, food supply is limited. By global standards, Nigeria’s food supply, which comprises food produced locally and imported from abroad, is low relative to the country’s population. Between 2020 and 2022, the country’s agricultural output and agricultural imports per person averaged USD320 and USD30 respectively. Compared to countries at similar income levels, those numbers are among the lowest in the world (Figure 1).
Figure 1: Agricultural output vs. agricultural imports per person across selected countries. Data source: FAO, World Bank, and authors’ computations. Data is presented for lower-middle income countries only. *Imports per person is computed as the avg. value of agricultural imports in the period 2020 to 2022, divided by the avg. population in those years. **Output per person is computed as the avg. value of agricultural production in the period 2020 to 2022, divided by the avg. population in those years. The bue-black marker represents Nigeria.
Food prices in Nigeria are high and rising. Year-on-year food inflation was 37.92% in February 2024, up from 24.35% in February 20236. Some food items cost more in local Nigerian markets than their equivalent prices at international commodity markets (Figure 2). This price differential is particularly wide for food items banned for importation (such as chicken) or highly tariffed (such as rice).
Figure 2: prices of selected food items at local Nigerian vs. international markets, 2023 average. Data source: Nigeria Bureau of Statistics, Central Bank of Nigeria, World Bank, and authors’ computations.
In case we have lost you, here is a recap of the key points we’ve discussed so far: food import barriers in Nigeria are high, Nigeria does not supply enough food for its people, and food prices in Nigeria are spiralling.
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If you believe in coincidences, you might think that high food prices amid strong import barriers are mere happenstance. If you believe in no such thing, you might argue that Nigeria’s strong food import barriers undermine food inflow from abroad and—combined with the country’s weak agricultural output—push up food prices. So, what do you believe in?
What is especially interesting is that food items with high import tariffs also have large demand gaps. In Figure 3, we present the difference between domestic consumption and production volumes for several food items. The demand gap is positive if Nigeria consumes more of an item than it produces, and vice versa. Items with high import tariffs such as wheat (85%), sugar (75%), and rice (70%) also have large positive demand gaps. In other words, the government has made import prohibitively expensive for food items that Nigerians consume the most but produce the least!
Figure 3: Demand gap for selected food items. Data source: FAO and authors’ computations. Consumption includes items utilised for food, animal feed, seed, and other non-food purposes. The numbers represent averages for the years 2012 to 2021, the last decade for which data is available.
“Why do highly-tariffed food items also have large demand gaps?”, you might ask. Import barriers serve three main functions. Import barriers can help a country protect its local industries against competitive and, in some cases, sub-standard imports. They can also help protect a country’s foreign exchange rates. Finally, funds collected through import tariffs provide a key source of government revenue. By setting higher tariffs on food items that Nigerians need to import the most, the government seems focused on protecting the Naira from devaluation and on generating revenue. Unfortunately, the price of pursuing a strong currency and raising extra cash for the Nigerian government is that more and more Nigerians struggle to afford food.
To find a lasting solution to dwindling food security, Nigeria must reform its agricultural trade policies. The orientation of the country’s agricultural trade policies needs to change from import substitution to export promotion. That is a fancy way of saying that instead of preventing the inflow of food that Nigeria does not produce sufficiently, the country should put more energy into exporting more of the food it does produce abundantly. If import barriers must be applied, they should be properly targeted to avoid jeopardising the country’s food security. Barriers should be applied to food items for which Nigeria can effectively substitute imports with local production. For items where domestic production is unable to sufficiently replace imports, the country should allow imported food to augment domestic output. This targeting is lacking in the government’s current approach.
To illustrate this point, consider, for example, the following three commodities: maize, rice, and wheat. Of these three, maize has the lowest import tariffs (5%)7, compared to 70% on rice and 85% on wheat. Yet, Nigeria’s domestic maize production exceeds domestic consumption (Figure 3), and Nigeria’s maize sector has the potential to compete globally. Between 2013 and 2022, Nigeria’s maize production ranked 15th largest globally; its yield ranked 72nd highest (Figure 4). With a combination of import substitution and export promotion policies, the country’s maize sector can arguably become more dominant in global markets, without undermining domestic maize supply.
The same cannot be said of rice and wheat. For both commodities, domestic production lags behind domestic consumption (Figure 3), and Nigeria’s ability to compete globally in the production of these commodities seems weaker than it is for maize. Between 2013 and 2022, Nigeria’s rice output ranked 15th largest; its yield ranked 94th highest. For wheat, those numbers are 85th and 108th respectively. Hence, for these commodities, restricting imports to stimulate local production and reach self-sufficiency while simultaneously maintaining local supply and prices is a less promising strategy.
Figure 4: Nigeria's rank among global producers of selected crops. Data source: FAO and authors’ computations. Rank is computed based on countries' yearly average production and yield from 2013 to 2022, the last 10 years for which data is available.
The reform that we proffer has potential macroeconomic implications. In theory, opening the country to increased imports can further devalue the Naira. Besides, lowering import tariffs will deprive the government of valuable revenue. But it is exactly for this reason that the country must combine targeted export promotion with targeted import substitution. By focusing domestic production efforts on commodities where Nigeria has the greatest potential to be a dominant and productive global producer—of which there are many promising candidates, including yam, cassava, cowpea, sorghum, millet, groundnut, oil palm, sesame and millet (Figure 4)—Nigeria can capture larger shares of the global market for these commodities. The additional foreign exchange earned from these markets can then be used to boost government revenue and support the import of commodities for which the country is neither a dominant nor productive producer. For Nigerians to continue to afford and enjoy their favourite bread and semolina, their country’s agricultural trade policies must change.
References
- According to data from the Food and Agricultural Organization (FAO), between 2012 and 2021—the last decade for which data is available, Nigeria consumed an average of 5 million tonnes of wheat but produced 72 thousand tonnes a year.
- Prohibited Items List During Import - Nigeria Trade Portal
- 1 WHAT YOU NEED TO KNOW ABOUT CBN’S LIFTING OF FOREX RESTRICTIONS ON 43 ITEMS The Central Bank of Nigeria (CBN), on Thursday
- ECOWAS Common External Tariff (CET).
- Nigeria - Import Tariffs
- UPDATED: Nigeria’s inflation hits 31.70% amid high food prices
- Positioning Nigeria as Africa's leader in maize production for AfCFTA
