US embassy cable - 05LAGOS1747

UNCLAS SECTION 01 OF 02 LAGOS 001747 
 
SIPDIS 
 
STATE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON, EAGR, EFIN, PGOV, SOCI, NI 
SUBJECT: NIGERIA: FOOD PRICE QUARTERLY 
 
REF: LAGOS 1420 
 
1. (U) Summary: Food prices in Nigeria have risen over the 
last twelve months.  While official reports estimate an 
increase of below 20% for staple foods, nongovernmental 
food industry reports estimate staple foods increased 
between 20 - 60%. This increase has a disproportionate 
impact on the poor.  Low crop yields and rising 
transportation costs were blamed for increased food prices. 
 
2. (U) This is the first of a series of quarterly cables on 
food prices. The data covers the period from June - August 
2004 to June - August 2005. End summary. 
 
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Our Impression: Shoppers Are Paying More 
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3. (U) The average shopper in Nigeria pays between 20-60% 
more for various staple food items than 2004, calculating 
for both inflation and naira fluctuations.  Consulate 
personnel visits to Lagos markets including: Mile 12 (a 
wholesale market), Gbagada, Mushin and Ketu, revealed 
staple foods like a 50 kilogram (hereafter kg) bag of 
imported rice sold for naira 6,000 (USD 46) against naira 
4,500 (USD 35) last year, an increase of 33%.  Imported 
food items like frozen chicken and turkey sold for naira 
4,000 (USD 31), as opposed to naira 2,500 (USD 19); an 
increase of 60%.  A 10 kg carton of imported frozen fish 
sold for naira 5,000 (USD 38) as opposed to naira 3,750 
(USD 29) in 2004, an increase of 33%. 
 
4. (U) The average price of locally produced staple foods 
such as garri, bread, beans, plantains, and maize also 
rose.  A 50 kg bag of garri, a cassava derivative, sold for 
naira 5,000 (USD 38) as opposed to naira 3,500 (USD 27), an 
increase of 43%.  A standard loaf of bread was naira 150 
(USD 1.12) as opposed to naira 120 (USD .90), an increase 
of 25%, as input costs for sugar and wheat, increased. 
 
5. (U) Manufactured/finished food item prices also rose. 
The price of powdered milk, cocoa beverages, noodles and 
spaghetti rose slightly, while refined groundnut/vegetable 
oil increased by over 40% from naira 1,040 (USD 8) to naira 
1,500 (USD 12) per 5 liter gallon.  In addition, 
supermarkets experienced shortages of imported products 
like tea and selected biscuits, as a result of GON import 
bans on these items. Food industry experts told us import 
bans were clearly hurting the economy, adversely affecting 
living standards of average Nigerian consumers, all without 
spurring much in the way of new local production. 
 
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Official Reports Claim Moderate Price Increases 
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6. (U) Official reports show an upward price trend, but one 
less drastic than private sector experts outlined (Para 8). 
According to the Federal Office of Statistics (FOS), a 50Kg 
bag of wheat in June 2005 sold for naira 3,960 (USD 31) as 
opposed to naira 3,600 (USD 28) in June 2004, an increase 
of 10%. FOS data also showed a fall in price of a 50Kg bag 
of beans from naira 4,182 (USD 32) in June 2004 to naira 
4,100 (USD 32) in June 2005, a decline of 2%. However, the 
FOS year-on-year average consumer price index (CPI) for 
July 2005 was 26.1%, a noticeable increase from the June 
2005 (18.6%) and July 2004 (10.7%) figures. The Central 
Bank on November 1 said inflation in July and August rose 
sharply on a yearly basis to 26% and 28% driven essentially 
by food prices, which rose from 18% in June in a year on 
basis to 35.6% in July and 36.1% in August. These figures 
indicate that inflation rates remain well above the GON's 
single-digit target and IMF's 15 percent estimate for FY 
2005. 
 
7. (U) According to another section of the FOS' July 
report, the composite food index for the July 2005 was 159 
points as opposed to 117 points in July 2004, an increase 
of 35%. The rise was attributable to increase in prices of 
rice, maize, millet, meat, seafood, salt and sugar, the FOS 
said. Between June and July 2005, this index ironically 
increased by only 5% in urban areas, but went up by 16% 
(from 137 to 159 points) in rural areas. However, the "All 
Items Less Farm Produce" index (i.e. non-food index) only 
rose 0.3% over last year figures. 
 
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Private Group Measures a Steeper Price Hike 
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8. (U) In contrast, data from Financial Derivatives Company 
(FDC), a private sector consultancy firm, showed sharp 
increases in retail food prices, ranging from 50-100%.  The 
highest increases were recorded in locally produced staples 
like garri and yam, which increased by 116% and 80% 
respectively between July 2004 and July 2005 (Yam and garri 
are the mainstays of the average southern Nigerian's diet). 
Similarly, bean prices increased by 41% from naira 5,120 
(USD 39) to naira 7,200 (USD 55) for a 50Kg bag. 
Significant price increases were also recorded in imported 
products like sugar.  According to FDC, a 50kg bag of 
imported refined sugar, rose from naira 3,800 (USD 29) to 
almost naira 9,000 (USD 69) between June and September 2005 
before falling to naira 6,000 (USD 46). This resulted in a 
scarcity of sugar and subsequently higher prices of 
commodities like bread. 
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Higher Fuel Prices Lead to Higher Food Prices 
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9. (U) Both the FOS and FDC blame fuel price hikes for the 
rise in food prices.  A liter of gasoline now sells for 
naira 65 (USD 0.5) as opposed to naira 50 (USD 0.4) early 
in the year. Experts said the 30% increase resulted in a 
14% mark up in transportation costs which manufacturers and 
sellers of food products have passed on to consumers. 
(Note: FOS data showed that real wages and salaries 
declined by about 8% between January and December 2004, 
when fuel prices increased from naira 45 to naira 50. End 
note.) 
 
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Households find it Difficult to Meet Food Needs 
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10. (U) The FOS 2004 Core Welfare Indicator Questionnaire 
(CWIQ) Survey conducted from May to June 2004 with a random 
sampling of over 10,000 people stated that 53% of Nigerian 
households reported difficulty in meeting their household 
food needs.  This was an increase of 4% since the FOS 
2003 CWIQ report. According to the 2004 CWIQ 
report, two 
southern states, Abia and Cross Rivers, had the highest 
percentage of respondents reporting household food 
shortages with 91% for Abia State and 88% for Cross Rivers 
State.   These figures depicted a significant decline in 
the economic health of households in those states. 
 
11. (U) Comment: FOS and FDC data indicate that maintaining 
their current food basket will be a difficult challenge for 
many Nigerians should these upward price trends persist. 
Food price increases are compelling people to make tough 
economic decisions. Numerous low-income households have 
been forced to reduce their food consumption. If this trend 
in food prices continues, it will have a telling, negative 
effect on the national economy and on the psyche of many 
Nigerians about the benefits of economic reforms such as 
petroleum price deregulation. End comment. 
 
12.  This cable was cleared by Embassy Abuja. 
 
Browne