January 20, (THEWILL) – There are strong indications that the continued rise in Nigeria’s inflation rate is a threat to agribusiness — key anchor of a struggling economy that is gasping for breath and yearning for diversification. The country has witnessed a frightening upward trend in inflation movement in the past 18 months of the President Bola Tinubu-led government which was inaugurated on May 29, 2023.
The worst hit in business circle are the micro, small and medium enterprises which play active role in the agribusiness value chain, and also help to ameliorate the exasperating impact of high food inflation.
Data pieced from the National Bureau of Statistics (NBS) showed that inflation rate rose to an average of 38.8 percent, during the period: from 22.41 percent in May 2023 to 34.8 percent in December 2024 – the second highest after the 34.19 percent recorded in June 2024.
According to the NBS, the upward trend in inflation rate was caused by high cost of goods and services during the Yuletide season.
However, at the back of the high inflation rate is food inflation which stemmed from the high cost of petrol and electricity – two derivatives of the Government’s reforms that witnessed the removal of petrol subsidy, devaluation of the naira and high electricity tariff.
During the reform period, the pump price of petrol rose from N200 per litre to N1,300 per litre, while the exchange rate of the naira jumped from N468 to a dollar mid-June 2023, to N1,600 to a dollar in December 2024 in the official forex market. Additionally, the government increased electricity tariff for Band ‘A’ customers from N68 per kilowatt-hour (kwh) to N225 per kwh.
These constituted a 550 percent, 263.24 percent and 230.8 percent jump respectively, and put pressure on food prices leading to an average food inflation of 60.84 percent during the 18-month period.
Investigation revealed that food inflation skyrocketed from 24.82 percent in May 2023, to the peak of 40.87 percent in July 2024 before decelerating to 39.8 percent in December 2024.
The United Nations Food and Agriculture Organization (FAO) and the World Food Programme (WPF) last year published the “Hunger Hotspots” report, which highlighted the devastating impact of conflict, climate change, and economic instability on food security across the world, with Nigeria among the possibly worst hit in Africa.
The worrying rise in food inflation mirrors the impact on agriculture and, by extension agribusiness, which witnessed a receding trend during the period. The agriculture sector in Nigeria’s 2024 Q2 GDP dropped to 1.41 percent in real terms from 1.50 percent in the same quarter of 2023.
In 2024, Nigeria’s agriculture sector grew by 0.18% in the first quarter, and 1.14% in the third quarter.
The trend has added to the woes of MSMEs which derive their continued operation from a viable agribusiness value chain across the sectors.
According to Abdulrasid Yarima, president/chairman of the governing council of the Nigerian Association of Small and Medium Enterprises (NASME), about 10 percent of the 40 million MSMEs in the country have shut down since the subsidy removal.
In a statement late last year, Yarima said, “It’s been very tough for our members as we are managing to survive. Some of them are closing shops while others are looking for new business opportunities.”
THEWILL findings revealed that many thriving MSMEs involved in the value chain of major manufacturing companies’ operations under the backward integration policy have either scaled down their operations or stopped doing business.
Backward integration is a practice where companies are encouraged to cultivate their own raw materials by purchasing from their suppliers or establishing their own farms, for instance, to grow produce for their factories.
The consumer goods firms, in particular, keyed into the scheme and have since taken giant strides in its implementation.
This is to the benefit of the MSMEs, especially those engaged in the agriculture and transport value chain. But the receding fortune of the consumer goods firms suggest a strong negative impact on the agribusiness operators.
These are among the large firms that patronize agribusiness operators for the supply of raw materials and other services to promote backward integration.
The high interest rate at about 30 percent and the general unfavourable macro-economic climate exert pressure on the agribusiness value chain which is largely populated by the MSMEs.
Yarima predicts that the continued inflationary trend will definitely impact on the agribusiness sub-sector — creating job losses, business failures and huge tax revenue loss for the government.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
