Of all disputes between African nations, the rivalry over jollof rice sticks out. Packed with onions, savory spices and pureed tomatoes, jollof rice is hailed by West Africans as a staple dish, sparking heated disputes between Nigerians and Ghanians over who has the better recipe. Beyond its culinary significance, rice in Nigeria is at the heart of debates over price controls and trade flows.
In January 2020, Nigeria’s inflation rate rose to 12.13 percent, a 17-month high. The high inflation rate is driven largely by price increases in agricultural commodities such as rice. The food sub-index, a price measure of a typical household’s food basket, increased by 0.99 percent and 0.87 percent in January and February, respectively. This is part of a larger trend — food inflation in West Africa has doubled since 2014.
In October 2019, Nigeria announced that it was closing its borders to prevent smuggling and increasing border patrols to enforce its strict agricultural tariffs. The crackdown on food imports led to spike in rice prices.
In Nigeria, tariffs on rice and grain imports average 70 percent. In spite of price controls, Nigerian rice imports have remained around two million metric tons since 2015, and domestic rice production has been outpaced by demand increases. Protectionist trade policies are circumvented by smugglers, who transport rice across the porous border between Nigeria and Benin, and sellers, who consistently underreport their shipments to Nigeria. Stephen Golub, professor of economics at Swarthmore, estimates that 20 percent of Benin’s GDP comes from re-exports, signifying reliance on smuggling into protectionist countries like Nigeria.
Border control is difficult since the shared border with Benin is long and the terrain in transit is flat and relatively accessible. In Nigeria, “a complex network of canals is also used, with new canals being dug when customs agents patrol existing routes.”
Regardless, border control raises resource costs in the black market for buyers and sellers on both sides of the border. Nigerian smugglers arbitrage agricultural produce by exploiting lower price levels in Benin. If law enforcement by trade officials makes smuggling riskier, then the cost of each transaction is higher and illicit activity declines.As marginal cost increases, fewer and fewer smugglers can afford to stay in business. Golub argues that the cost of smuggling includes not only purchasing the merchandise but also the cost of transit and evading law enforcement.
Even if border control succeeds in the short-term, however, the policy is not sustainable. Hiring and maintaining law enforcement across hundreds of miles is expensive, and the Nigerian government’s finances are ill-prepared to take on more costs. Despite high tariffs, the government rakes in only a tiny portion of mandated taxes due to non-compliance. If decade-long tariffs have not invigorated Nigeria’s lackluster rice industry, they are unlikely to start working now.
Despite the government’s insistence on banning agricultural trade, not all crops are smuggled equally. Research from the University of Idaho indicates that crops differ in their tradeability and, subsequently, the way their prices are transmitted across borders. Lower tradeability of crops like cassava is due to higher transportation costs or cross-border differences in culinary preferences. Thus, smugglers cannot efficiently leverage price disparities for less tradeable crops. Prices for some grains such as cassava do not correspond between Nigeria and its neighbors, though rice prices are near identical. Not all crops contribute uniformly to inflation increases.
Though 12 percent inflation sounds steep to readers accustomed to sluggish inflation in industrialized countries, the economic impact of high prices in Africa is mixed. First, the metric itself is misleading. Consumption baskets in Africa have a much greater focus on food when compared to U.S. measures. Also, large price disparities exist between different areas within Nigeria. Geographically separate regions sometimes lack market integration, since weak transportation and information networks limit the transmission of price signals from areas with excess demand. Second, estimates of the threshold for risky high inflation rates in Africa range from 8 percent to over 20 percent. Nevertheless, rising inflation, compounded by low oil prices and anxiety over COVID-19, has already led the IMF to lower its growth forecasts for Nigeria.
Control over inflation is particularly hard for African central banks, since the growing ubiquity of fintech services result in large fluctuations in the velocity of money, or the average number of times each unit of currency swaps owners in a year. Estimating velocity is important for banks determining the optimal money supply for growth without excessive inflation. Consequently, volatility in the Nigerian naira emboldens smugglers, who may prefer to swap their domestic currency for Benin’s fixed CFA franc.
Sharp increases in rice prices have already caused financial hardship for millions of Nigerians. Since Nigeria closed its borders to trade last July, the price of a 50kg bag of rice has doubled. The average Nigerian household spends 59 percent of its income on food, while US households spend just 9.7 percent. Domestic consumption of rice has long out-paced supply grown by local farmers; the output gap limits access to food in rural areas.
Long-term solutions to Nigeria’s underproducing food sector require improvements to crop yield in each step of agricultural production. According to UN data, the average yield per hectare of farmland is around 2 tonnes — half the global average and about four times less than Egypt’s average. Agricultural efficiency results in sustainable food security, spills over into other areas of development and eases strain on natural resources. To boost yield, farmers need reliable access to seeds, expanded options for credit and education in agricultural technology. Through organizations such as farmers’ associations, outreach efforts can impact a wider group and allow small farms to share resources and expertise.
In the face of growing economic pressure, Nigeria should rethink its strategy for regulating agricultural imports. Banning trade overlooks the comparative advantages of African nations and exacerbates food insecurity for the rural poor. Since smuggling increases as tariffs rise, a more moderate tariff on agricultural products may be a compromise between Nigeria’s protectionist tendencies and the benefits of free trade in Africa. Until then, Nigerian chefs cooking rice will have to do with the domestic variety.
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