The depreciation of the naira made Nigeria’s inflation problems worse. While some food processing industries have begun to look inside, the majority still rely significantly on foreign supply.
It has been observed that one of the main causes of Nigeria’s escalating price instability is food inflation. The devaluation of the naira at the official window has resulted in a 267% increase in the allowed rate for imports in the last 12 months.
This is viewed as the foundation for ongoing price modifications on food goods, including processed foods and beverages, and has a substantial impact on manufacturing costs across industries. NAnalysts speculate that the authority just accepted N1,549 as the approved cost for corporations to import food, up from N422.30 per US dollar in May 2023.
Apart from insecurity, inflation as it is today was a result of policy somersault engineered by the previous administration, analysts corroborated. The imported inflation has pushed prices of processed food higher significantly higher, while time taken for backward integration programme for some companies in the industry lingers.
The market expects inflation to start dropping from July, 2024 due to base effects. Supporting the expected disinflation outlook is the recently implemented 150-day suspension of import duty on some food commodities, Cordros Capital Limited, said in a commentary note.
The Federal Government recently announced decision to lift duty payment on maize, husked brown rice, wheat, and cowpeas. The move has generated reactions from critics, saying the policy portend greater danger for the agricultural sector.
“While the imposition of import duties on food items has driven up prices, the situation was exacerbated by the transition to a more flexible exchange rate system for estimating the cost of import duties”, Cordros Capital Limited said in its latest update.
Analysts explained that the current approved rate for import duty is N1,549, significantly higher than the pre-reform period of N422.30 in May 2023.
The difference has significantly raised the total import duty costs charged on imported commodities. Analysts said the suspending the import duty on essential raw materials, particularly for food-processing industries, substantially reducing their production costs, potentially lowering the prices for processed foods.
“However, we expect the disinflationary impact of the policy to begin to reflect in the food inflation numbers for August and subsequent months, as food-processing industries may have already stocked up raw materials for July before the import duty removal”, Cordros Capital stated.
