IMF Recommends Fiscal, Monetary, and Structural Reforms to Control Food Prices in Nigeria and Other Countries

•Accuses problems in local supplies and currency devaluation of driving up prices

Abuja’s Ndubuisi Francis and Lagos’ Segun James

A combination of fiscal, monetary, and structural changes have been recommended by the International Monetary Fund (IMF) to assist curb the skyrocketing food inflation in Nigeria, Ghana, and other sub-Saharan African nations.

The multilateral lender noted that countries with stronger monetary policy frameworks are better at containing direct and second-round food price inflationary pressures, and as a result, controlling overall inflation. The lender stated that food prices tend to be higher in countries with weaker fiscal management and elevated public debt.

While food inflation in Ghana was 32.3% over the same time period, it was over 22% in Nigeria.

In a recent blog post, the IMF said that domestic supply disruptions, local currency depreciations, as well as increased fertiliser and input costs, were to blame for the rise in the price of locally produced goods in Nigeria, Ghana, and other sub-Saharan African nations.

The multilateral lender said that between 2020 and 2022, the cost of a typical food consumption basket rose by 8.5%, which corresponded to a rise in basic food prices in sub-Saharan Africa of an average 23.9%, the most since the 2008 global financial crisis (beyond generalised price increases).

Since the majority of the region’s main staple foods, including rice, wheat, palm oil, and other commodities, are imported, the IMF said that global forces were partially to blame for the region’s growing food costs.

“Global issues are also to blame,” the Fund said. Because the area imports the majority of its main basic foods—wheat, palm oil, and rice—there is a considerable pass-through of global food prices to local food costs, almost one-to-one in certain nations.

Due to domestic supply interruptions, local currency depreciations, and higher fertiliser and input costs, prices of staples purchased domestically have also increased in several nations.

“Cassava and maize prices, for instance, more than quadrupled in Nigeria even though they are mostly domestically produced.

“Cassava prices increased by 78% in Ghana in 2020–2021 due to increased production costs and transportation challenges, among other things.”

The IMF reported that it found that in addition to global food prices, net import dependence, the share of staples in food consumption, and real effective exchange rates drive changes in local staple food prices. The price data it used came from 15 countries and covered the five most popular staple foods in the region (cassava, maize, palm oil, rice, and wheat).

“Of these, each staple’s consumption share has the most price impact. Income has a role in this. Better-off families can purchase a larger variety of meals, but there aren’t many alternatives available to the poor for the essentials that make up about two-thirds of their daily diet.

“We estimate that a 1% increase in the consumption share of a basic item boosts the local price by an average of 0.7%; the impact is significantly greater when a staple is mostly imported, rising the price by roughly 1.2%.

According to the international organization, “the local real cost of a heavily imported commodity is predicted to rise by an extra 0.2% when a country’s net import dependency grows by 1%.”

The IMF argued that the relative strength of a nation’s currency is another factor that influences the price of imported food goods, noting that a 1% decline in real effective exchange rates results in an average 0.3% rise in the price of heavily imported commodities.

According to the IMF, wars and natural disasters both have an effect on the region’s staple food prices. Depending on the severity, frequency, length, and location of the occurrences, prices typically increase by 4% after wars and 1.8% after natural disasters.

Concerning the role of policy in reducing food inflation, the Fund highlighted that better public financial management might help free up funds for investment in carefully targeted social assistance programs or in infrastructure that is climate resilient, adding that this could help stabilize prices.

“Policymakers could also contribute to the cost reduction of agricultural inputs, such as seeds and fertilizers, by introducing structural and regulatory reforms that encourage fair competition, as well as by streamlining trade procedures and more effectively utilizing R&D to foster agricultural innovation,” it added.