Why are food prices still rising despite the naira strengthening against the dollar?

The National Bureau of Statistics (NBS), which provides official data for Nigeria, has released the inflation figures for March 2024, showing an increase to 33.20% from 31.70% in February 2024. This is happening despite the consistent appreciation of the naira against the dollar over the past month, to the extent that some bureau de change operators are exchanging it for below N1000 for one dollar. In February, $1 was exchanging for almost N2000 on the black market, but due to measures implemented by the Central Bank of Nigeria, the naira has strengthened.

Reports also indicate a significant drop in the price of diesel from over N1700 to about N1350 between March and April, attributed to the Dangote refinery supplying marketers with the product. However, people are wondering why these developments haven’t impacted the prices of goods in the market, especially food items.

Prices are generally determined by forces of demand and supply in a free market economy like Nigeria. Food prices will only go down if there is excess production by farmers, forcing them to compete against each other and drive down the price for the final consumer.

According to the NBS, food inflation for March 2024 is over 40%, compared to 24.45% in March 2023. David Onyekwere, a farmer and agripreneur, told BBC Pidgin that “the dollar is not the only factor determining the price of food in Nigeria.” He explained that insecurity and lack of infrastructure are major reasons for the high cost of food. Insecurity prevents many farmers from accessing their farms or forces them to pay bandits before they can, which increases expenses.

Onyekwere also pointed out that poor road infrastructure affects logistics, making it difficult to transport food from producing communities to markets. Regarding the naira and dollar issue, he noted that many farmers had purchased planting materials at high costs due to naira depreciation in May and June 2023, which influences current prices.

Dr. Okey Okere, an economist and financial analyst, agreed that it will take some time to see a reduction in prices. He explained that sellers who bought goods when the dollar was higher will still sell at higher prices to recoup their investments, but gradually, prices will decrease.

However, Okere added that even as prices drop, Nigeria’s inflation is unlikely to go below 12%, emphasizing that achieving single-digit inflation would require significant government efforts.

In Lagos, Aboderin Gboyega, a baker, noted that although the price of flour has reduced from N75,000 to about N65,000 per bag, they prefer to maintain prices but increase the weight of their bread by adding an extra 50 grams. This way, customers get more value for the same amount of money.

Gboyega explained that monitoring market fluctuations is crucial to remain competitive and avoid frequent price adjustments.