US embassy cable - 05LAGOS1420

UNCLAS SECTION 01 OF 03 LAGOS 001420 
 
SIPDIS 
 
USDA FAS WASHDC FOR CMP/G&F DIVISION 
FAA/AREA DIRECTOR/SUSAN REID 
ITP/THOMAS POMEROY 
 
FROM OFFICE OF AGRICULTURAL AFFAIRS, LAGOS 
 
TOFAS 001 
 
E.O. 12958, N/A 
TAGS: EAGR, PGOV, NI, AME 
SUBJECT: BASIC FOOD PRICES RISE CONSIDERABLY IN 
NIGERIA 
 
[SENSITIVE BUT UNCLASSIFIED] 
 
1.  (SBU) SUMMARY: PRICES OF BASIC FOOD ITEMS HAVE 
RISEN CONSIDERABLY IN THE PAST EIGHT MONTHS. 
CORN, SORGHUM, MILLET AND COWPEA PRICES HAVE MORE 
THAN DOUBLED DURING THE PAST YEAR.  LOCAL SOURCES 
ATTRIBUTE THE SPIRAL TO A COMBINATION OF FACTORS, 
NAMELY: (A) LOW PRODUCTIVITY AND UNATTRACTIVE 
PRICES FROM EARLIER YEARS, (B) THE GON'S OVERLY 
RESTRICTIVE TRADE POLICIES AND (C) THE FAMINE IN 
NIGER.  END SUMMARY 
 
2.  (SBU) AGATTACHE VISITED KANO AND KATSINA 
STATES IN NORTHERN NIGERIA TO ASSESS THE FOOD 
SUPPLY SITUATION FOLLOWING REPORTS OF FOOD 
SHORTAGES AND RISING PRICES.  THE TRIP INCLUDED 
VISITS TO KANO CITY, THE COMMERCIAL NERVE CENTER 
OF NORTHERN NIGERIA AND JIBIYA IN KATSINA STATE, A 
SAMLL HAMLET ALONG NIGERIA'S BORDER WITH THE NIGER 
REPUBLIC.  HE MET OFFICIALS OF THE KATSINA STATE 
MINISTRY OF AGRICULTURE, CUSTOMS AND IMMIGRATION 
OFFICIALS AT JIBIYA. 
 
3.  (SBU) AGATTACHE OBSERVED PRICES OF MAJOR FOOD 
ITEMS HAVE INCREASED CONSIDERABLY ACROSS THE 
COUNTRY.  FROM AUGUST 2004 TO AUGUST 2005, CORN 
INCREASED FROM 30,000 NAIRA TO 70,000 NAIRA PER 
TON; SORGHUM FROM 30,000 TO 65,000 NAIRA PER TON, 
WHILE COWPEA INCREASED FROM 36,000 NAIRA TO 78,000 
NAIRA PER TON.  LOCAL SOURCES HAVE IDENTIFIED THE 
FOLLOWING FACTORS AS THE CAUSES FOR THE FOOD 
SHORTAGES AND SPIRALING PRICES: 1) TRADE POLICY; 
2) NIGER'S FAMINE AND 3) LOW PRODUCTIVITY. 
CURRENTLY, THE OFFICIAL EXCHANGE RATE OF THE NAIRA 
IS 130.05 PER DOLLAR 
 
------------- 
TRADE POLICY: 
------------- 
 
4.   (SBU) THE GOVERNMENT OF NIGERIA'S (GON) 
RESTRICTIVE TRADE REGIME LIMITS THE AVAILABILITY 
OF FOOD PRODUCTS.  NUMEROUS PRODUCTS ARE EITHER 
BANNED OR HAVE SIGNIFICANTLY HIGH DUTIES.  APPLIED 
TARIFFS RANGE FROM 5 PERCENT FOR DAIRY PRODUCTS TO 
100 PERCENT FOR RICE. 
 
5.  (SBU) NIGERIA IS CURRENTLY EXPERIENCING ACUTE 
CORN SHORTAGES.   DOMESTIC OUTPUT IS INADEQUATE 
YET IMPORTS ARE BANNED.  THE BAN ON CORN WAS 
IMPLEMENTED APRIL 15, 2005, AT THE HEIGHT OF THE 
CORN SCARCITY.  IT IS A SIGN OF THE GON's 
MISAPPLICATION OF TARIFFS AND BANS THAT THE 
MEASURE WOULD BE TAKEN AT TA TIME OF ACUTE 
SHORTAGE. PREVIOUSLY, THE GON PROBABLY FELT NO 
NEED TO IMPLEMENT A BAN SINCE CORN IS RARELY 
IMPORTED, DUE TO AN UNDERSTANDING WITH THE POULTRY 
INDUSTRY TO NOT BRING IN THE COMMODITY IN ORDER TO 
PROTECT NORTHERN CORN GROWERS. 
 
6.   (SBU) NIGERIA DOESN'T PRODUCE SUFFICIENT 
QUANTITIES OF RICE.  A THIRD OF NIGERIA 3.5 
MILLIONS MT DEMAND FOR RICE IS IMPORTED.  THE 
GON'S PROHIBITIVE DUTY IS SIMPLY ENCOURAGING CROSS- 
BORDER SMUGGLING OF THE PRODUCT.  MOREOVER, THE 
EFFECTIVE IMPORT DUTY ON RICE IS 120 PERCENT, WHEN 
PORT CHARGES AND OTHER TAXES ARE ASSESSED.  ON THE 
OTHER HAND, IMPORTS TO BENIN REPUBLIC ATTRACT ONLY 
35 PERCENT DUTY, REPRESENTING A $200 PER TON PRICE 
ADVANTAGE OVER IMPORTS THROUGH NIGERIAN PORTS. 
NIGERIAN IMPORTERS SIMPLY LAND THEIR SHIPMENTS IN 
BENIN AND THEN SMUGGLE THEM INTO THE COUNTRY. 
SOME IMPORTERS SHIP TO COTONOU PORT (BENIN) AND 
DECLARE THEM AS TRANSIT GOODS DESTINED TO THE LAND- 
LOCKED COUNTRIES OF NIGER AND CHAD.  TRANSIT GOODS 
ATTRACT ONLY FIVE PERCENT DUTY IN BENIN.  THE RICE 
IS SUBSEQUENTLY SMUGGLED INTO NIGERIA. 
 
7.  (SBU) NIGERIA'S RESTRICTIVE TRADE POLICIES, 
MOREOVER, COME AT SIGNIFICANT COST TO NIGERIA'S 
OVERALL MACROECONOMIC ENVIRONMENT.  IMPORT BANS 
AND HIGH TARIFFS CREATE THE INCENTIVE FOR TARIFF 
AVOIDANCE, UNDER-INVOICING AND SMUGGLING.  IN 
GENERAL, MOST LEADING NIGERIAN IMPORTERS OF HIGH 
TARIFF ITEMS SUCCESSFULLY AVOID PAYMENT OF FULL 
TARIFFS.  THUS OVERLY RESTRICTIVE TARIFF POLICIES 
ALSO REDUCE RESPECT FOR THE RULE OF LAW. 
 
------------------------------------- 
DROUGHT AND FAMINE IN NIGER REPUBLIC: 
------------------------------------- 
 
8.   (SBU) NIGERIA DEPENDS ON IMPORTS OF COWPEAS 
AND LIVESTOCK FROM NIGER TO SUPPLEMENT LOCAL 
PRODUCTION.  ON THE OTHER HAND, NIGERIA EXPORTS 
CORN, SORGHUM, MILLET AND CASSAVA PRODUCTS TO 
NIGER IN WHAT IS NORMALLY UNRECORDED CROSS BORDER 
TRADE.  NIGERIA IMPORTS ABOUT 500,000 TONS OF 
COWPEAS AND ABOUT 200,000 HEADS OF CATTLE FROM 
NIGER ANNUALLY.  BECAUSE OF THE DRAUGHT THE VOLUME 
OF NIGERIA'S IMPORTS HAVE DECLINED, WHILE EXPORTS 
TO NIGER HAVE INCREASED CONSIDERABLY IN 2005. 
 
9.  (SBU) IN ADDITION TO THE INFORMAL CROSS BORDER 
TRADE, NIGERIA RECENTLY PROVIDED ABOUT 10,000 TONS 
OF GRAINS IN RELIEF ASSISTANCE TO NIGER AND TO 
SUDAN (DARFUR).  A VISIT TO THE DAWONU 
INTERNATIONAL GRAINS MARKET IN KANO REVEALED 
INTERNATIONAL DONOR AGENCIES BUYING GRAIN IN THIS 
MARKET FOR NIGER REPUBLIC.  THUS, DEMAND FOR 
GRAINS IN NEIGHBORING COUNTRIES HAS CONTRIBUTED TO 
HIGH LOCAL PRICES. 
 
 
------------------------ 
LOW DOMESTIC PRODUCTION: 
------------------------ 
 
10.  (SBU) GROWTH IN DOMESTIC OUTPUT IS NOT 
KEEPING PACE WITH DEMAND. OFFICIAL ESTIMATES 
INDICATE THAT NIGERIA'S GRAIN PRODUCTION IN 2004 
INCREASED FIVE PERCENT OVER 2003.  THIS IS 
PROBABLY INFLATED; EVEN AT THAT, IT JUST KEEPS 
PACE WITH POPULATION GROWTH. MOREOVER, POST 
BELIEVES THE OUTPUT OF CORN IN 2004 ACTUALLY 
DECLINED.  NIGERIA'S AGRICULTURE IS PRIMARILY 
SUBSISTENCE, WITH LOW PRODUCTIVITY AND HIGH POST- 
HARVEST LOSSES.  NO MAJOR FOOD CROP HAS INCREASED 
IN YIELD BY MORE THAN 1 PERCENT PER ANNUM OVER THE 
PAST 10 YEARS.  FERTILIZER AVAILABILITY IS HALF 
THE LEVEL OF 10 YEARS AGO.  LESS THAN 10 PERCENT 
OF THE SEEDS PLANTED BY FARMERS ARE IMPROVED 
VARIETIES.  AS A RESULT, THE INCREASE IN CROP 
PRODUCTION HAS BEEN ACHIEVED LARGELY BY TILLING 
MORE LAND.  THE GON'S 25 PERCENT SUBSIDY ON 
FERTILIZERS HAS CREATED DISLOCATION IN THE MARKET, 
CREATING SCARCITY IN SOME LOCALS AND HAS RESULTED 
IN HIGHER PRICES TO GROWERS.  THE RETAIL PRICE OF 
A 50-KILOGRAM BAG OF NITROGEN BASED FERTILIZER 
INCREASED TO 4,000 NAIRA FROM AN AVERAGE OF 2,500 
NAIRA A YEAR EARLIER.  UTILIZATION OF FERTILIZER 
IS LIMITED BY ITS HIGH COST, OFTEN RESULTING IN 
LOW CROP YIELDS, ESPECIALLY FOR FERTILIZER- 
DEPENDENT CROPS SUCH AS CORN AND RICE. 
 
11.  (SBU) IN AN ATTEMPT TO CURTAIL SPIRALING 
PRICES, THE GON RELEASED 65,000 TONS OF GRAINS 
(MAINLY CORN) IN JUNE 2005 FROM ITS BUFFER STOCK. 
THIS WAS NOT SIGNIFICANT TO DRIVE DOWN THE PRICE 
OF CORN.  AT PRESENT, CORN HAS REACHED OF 70,000 
NAIRA (ABOUT $500) PER TON.  FEED MANUFACTURERS 
ARE HAVING PROBLEMS SECURING CORN SUPPLIES EVEN AT 
THIS PRICE.  NIGERIAN POULTRY PRODUCERS HAVE 
EXPRESSED FEARS THAT THE GROWTH WITNESSED IN THEIR 
SECTOR IN RECENT YEARS MAY BE REVERSED DUE TO THE 
HIGH COST OF INPUTS. 
 
12. (SBU) IN CONTRAST, ECONOMIC ACTIVITY IN THE 
WHEAT MILLING INDUSTRY IS UPBEAT AND COMPETITION 
IS KEEN.  SHORTAGES AND HIGH COSTS OF FOOD 
STAPLES, SUCH AS YAMS, GARRI AND OTHER GRAINS IS 
ENCOURAGING INCREASED BREAD CONSUMPTION.  BREAD IS 
AFFORDABLE AND CONVENIENT.  THE PRICE OF WHEAT 
FLOUR HAS BEEN RELATIVELY STABLE OVER THE LAST 
YEAR DUE TO INCREASING IMPORTS AND COMPETITION 
AMONG MILLERS.  SOME WHEAT MILLS VISITED IN KANO 
REPORTED THEY ARE UNABLE TO MEET DEMAND.  A 
SIGNIFICANT QUANTITY OF WHEAT FLOUR PRODUCED IN 
NIGERIA IS REPORTEDLY EXPORTED (SMUGGLED) TO 
NIGER, CHAD, MALI, BURKINA FASO AND CAMEROON. 
NIGERIA'S WHEAT IMPORTS IN MY2005/06 ARE FORECAST 
AT 3.5 MILLION TONS UP FROM 2.9 MILLION TONS IN 
MY2004/05. THE INCREASE IN IMPORTS IS AIDED BY THE 
LOWER TARIFF OF FIVE PERCENT ON WHEAT. 
 
13.  (SBU) THE 2005/06 HARVEST SEASON HAS 
COMMENCED AND IT IS EXPECTED TO LAST UNTIL 
DECEMBER 2005.  FIELD SOURCES INDICATE NIGERIA'S 
FOOD SUPPLY IS EXPECTED TO IMPROVE BECAUSE 
FAVORABLE WEATHER CONDITIONS WILL LEAD TO A GOOD 
HARVEST SITUATION.  RAINFALL HAS BEEN AMPLE AND 
ITS DISTRIBUTION WAS EVEN.  ALTHOUGH FERTILIZER 
SUPPLY IN 2005 IS INADEQUATE, IT HAS IMPROVED 
SOMEWHAT.  RECORD HIGH PRICES OF THE GRAINS DURING 
2004/05, ALSO SPURRED FARMERS TO INCREASE AREA 
PLANTED.  AGATTACHE OBSERVED LARGE ACRES OF LAND 
IN KANO AND KATSINA PLANTED WITH CORN, SORGHUM AND 
MILLET.  THERE WERE LOCALIZED REPORTS OF PEST 
ATTACKS AND FLOODING OF FARM LANDS BUT NOT 
SIGNIFICANT ENOUGH TO AFFECT OVERALL OUTPUT.  ON 
THE WHOLE, NIGERIA'S TIGHT FOOD SUPPLY SITUATION 
IS EXPECTED TO EASE CONSIDERABLY AS THE HARVEST 
SEASON PROGRESSES.  HOWEVER, PRICES MAY NOT RETURN 
TO PREVIOUS LEVELS BECAUSE OF THE RECENT INCREASE 
IN FUEL AND ENERGY COSTS. 
BROWNE